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FOREIGN AID
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85TH CONGRESS)
1st Session
No. 52
SENATE
JDOCUMENT
FOREIGN AID PROGRAM
COMPILATION OF STUDIES AND SURVEYS
11.8 Ca..
Са
PREPARED UNDER THE DIRECTION OF
THE SPECIAL COMMITTEE TO STUDY
THE FOREIGN AID PROGRAM
UNITED STATES SENATE
Pursuant to S. Res. 285, 84th Congress, and
S. Res. 35 and 141, 85th Congress
PRESENTED BY MR. GREEN

JULY 1957
94413
UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON: 1957
SPECIAL COMMITTEE TO STUDY THE FOREIGN AID PROGRAM
(Created pursuant to S. Res. 285, 84th Cong., 2d Sess., and S. Res. 35 and 141, 85th Cong., 1st Sess.)
MEMBERS FROM THE COMMITTEE ON FOREIGN RELATIONS
THEODORE FRANCIS GREEN, Rhode Island, Chairman
J. W. FULBRIGHT, Arkansas
JOHN SPARKMAN, Alabama
WAYNE MORSE, Oregon
HUBERT H. HUMPHREY, Minnesota
MIKE MANSFIELD, Montana
RUSSELL B. LONG, Louisiana
JOHN F. KENNEDY, Massachusetts
ALEXANDER WILEY, Wisconsin
H. ALEXANDER SMITH, New Jersey
BOURKE B. HICKENLOOPER, Iowa
WILLIAM LANGER, North Dakota
WILLIAM F. KNOWLAND, California
GEORGE D. AIKEN, Vermont
HOMER E. CAPEHART, Indiana
MEMBERS FROM THE COMMITTEE ON APPROPRIATIONS
CARL HAYDEN, Arizona
STYLES BRIDGES, New Hampshire
MEMBERS FROM THE COMMITTEE ON ARMED SERVICES
RICHARD B. RUSSELL, Georgia
LEVERETT SALTONSTALL, Massachusetts
EXECUTIVE COMMITTEE OF THE SPECIAL COMMITTEE TO STUDY
THE FOREIGN AID PROGRAM ¹
THEODORE FRANCIS GREEN, Rhode Island, Chairman
RICHARD B. RUSSELL, Georgia
J. W. FULBRIGHT, Arkansas
STYLES BRIDGES, New Hampshire
H. ALEXANDER SMITH, New Jersey
WILLIAM F. KNOWLAND, California
CARL MARCY, Chief of Staff
ARTHUR M. KUHL, Clerk
[S. Con. Res. 30, 85th Cong., 1st sess., agreed to July 1, 1957]
CONCURRENT RESOLUTION
Resolved by the Senate (the House of Representatives concurring);
That there shall be printed as a Senate document a compilation of
studies and reports prepared under the direction of the Special Com-
mittee To Study the Foreign Aid Program, created by S. Res. 285,
agreed to July 11, 1956, as amended by S. Res. 35, agreed to January
30, 1957.
SEC. 2. There shall be printed eight thousand additional copies of
such Senate document. Such additional copies shall be for the use
of the Special Committee To Study the Foreign Aid Program.
Attest:
Attest:
FELTON M. JOHNSTON,
Secretary of the Senate.
RALPH R. ROBERTS,
Clerk of the House of Representatives.
1 The executive committee served during congressional adjournment.
II
Stackess
HC
Sift
10-22-58
60
.4546
PREFACE BY SENATOR THEODORE FRANCIS GREEN,
CHAIRMAN, SPECIAL COMMITTEE TO STUDY THE
FOREIGN AID PROGRAM
This volume contains the studies and surveys prepared for the
Special Committee To Study the Foreign Aid Program.
The background and work of the special committee were described
by me as follows in the preface to the various studies and surveys:
Since 1948 the United States has appropriated in excess of $50
billion for foreign aid. During the 10-year period since the in-
ception of the Marshall plan, however, the relationships among
the nations of the world have undergone substantial change and
the scope and nature of United States aid programs have fre-
quently been altered.
Although there has been a gradual decrease in the sums appro-
priated over these years, there has been a gradual increase in the
opposition to these programs. This increased opposition is evi-
dent in the votes in the Senate.
In 1948 there were 7 votes against final passage of the Marshall
plan. In 1956 there were 30 votes against final passage of the
mutual security appropriation bill, equally divided between the
two parties.
There is serious cause for concern when foreign policy pro-
grams of the size and the impact of the annual mutual security
acts do not command the support of more than two-thirds of the
Senate. It would seem that such programs, if they are to be suc-
cessful in promoting the national interest, should be of a kind to
enlist wider congressional and public support. One of the reasons
for the constitutional requirement of a two-thirds majority for
consent to ratification of treaties is that the Nation when it speaks
in foreign policy should speak with a strong, united voice. ~For-
eign aid programs cannot achieve their full potential unless they
draw support from the American people.
The trend of increasing opposition to these programs would
seem to indicate either that their purposes have not been clearly
understood or that there is a growing belief that they have in
some way failed to serve the national interest. In either event,
the trend must be reversed either by clarifying the relationship
between the programs and the national interest or by changing
the programs so that they may more clearly serve the national
interest.
It was as a result of considerations of this kind that the Senate
on July 11, 1956, passed Senate Resolution 285, creating the
Special Committee To Study the Foreign Aid Program. The
II
IV
PREFACE
Senate instructed this special committee to make-
exhaustive studies of the extent to which foreign as-
sistance by the United States Government serves, can be
made to serve, or does not serve, the national interest, to
the end that such studies and recommendations based
thereon may be available to the Senate in considering
foreign aid policies for the future.
The special committee is composed of all members of the Com-
mittee on Foreign Relations and the chairman and ranking
minority member of the Senate Committee on Appropriations
and the Senate Committee on Armed Services.
Without limiting the scope of its inquiry, the special committee
was instructed to direct its attention to the following matters:
SEC. 3. The committee shall, without limiting the scope
of the study hereby authorized, direct its attention to the
following matters:
(a) The proper objectives of foreign aid programs and
the criteria which can be used to measure accomplish-
ment.
(b) The capability of the United States to extend aid,
in terms of the Nation's economic, technical, personnel,
and other resources.
(c) The need and willingness of foreign countries to
receive aid, and their capacity to make effective use
thereof.
(d) The various kinds of foreign aid and alternatives
thereto as well as the methods by which and conditions
on which aid might be furnished.
(e) The related actions which should be taken to
make foreign aid effective in achieving national objec-
tives.
In the conduct of its study the committee was instructed to
make-
full use
*** of the experience, knowledge, and advice
of private organizations, schools, institutions, and indi-
viduals.
It was authorized to enter contracts for this purpose and not to
exceed $300,000 was made available to meet the expenses of the
committee.
Since the special committee was instructed to transmit the re-
sults of its study to the Senate not later than January 31, 1957,
and in view of the shortness of time available for its work, a small
executive committee was constituted to supervise the detailed
research work for the full committee. The executive committee
upon instructions from the full committee outlined a series of
research and analysis projects to be undertaken by private insti-
tutions in the United States.
*
*
*
*
*
*
The committee has also made arrangements with *** 10 in-
dividuals to conduct on-the-spot surveys of foreign aid programs
in different geographic regions of the world* * *.
PREFACE
V
The special committee has been continued pursuant to Senate Reso-
lution 35 and Senate Resolution 141 of the 85th Congress and is now
scheduled to expire on January 31, 1958.
The studies and surveys reproduced here were originally published
as individual committee prints. To make them available in a more
compact form and on a wider scale, the special committee obtained
the agreement of the Congress in Senate Concurrent Resolution 30
to have them reprinted together as a Senate document.
I wish to reiterate my statement in the preface to each individual
study and survey, that they do not necessarily reflect the views of the
special committee or of any of its members.
The views of the special committee are contained in its report to the
Senate, Foreign Aid, Senate Report 300, 85th Congress, May 13, 1957,
which is not a part of this compilation. Also excluded from this
volume are the hearings conducted by the special committee, on March
20, 22, 25, 27, 29, April 1, 3, 5, 8, 10, 12, and 15, 1957, entitled "The
Foreign Aid Program."
CONTENTS
Preface by Senator Theodore Francis Green, Chairman__
Studies:
No. 1. The Objectives of United States Economic Assistance Pro-
grams, by the Center for International Studies, Massachusetts
Institute of Technology.
Page
III
IX
75
149-
No. 2. Personnel for the Mutual Security Program, by Louis J.
Koreger & Associates_.
No. 3. The Role of Foreign Aid in the Development of Other Coun-
tries, by the Research Center in Economic Development and Cul-
tural Change of the University of Chicago..
No. 4. The Use of Private Contractors in Foreign Aid Programs, by
Jerome Jacobson Associates_.
247
No. 5. Agricultural Surplus Disposal and Foreign Aid, by the Na-
tional Planning Association_
No. 6. Administrative Aspects of United States Foreign Assistance
Programs, by the Brookings Institution..
No. 7. American Private Enterprise, Foreign Economic Development,
and the Aid Programs, by the American Enterprise Association, Inc.
No. 8. Foreign Assistance Activities of the Communist Bloc and
Their Implications for the United States, by the Council for Eco-
nomic and Industry Research, Inc.
No. 9. The Foreign Aid Programs and the United States Economy, by
the National Planning Association__.
No. 10. The Military Assistance Program of the United States: Two
Studies and a Report, by a Special Civilian-Military Review Panel,
the Institute of War and Peace Studies of Columbia University, and
the Systems Analysis Corp., Washington, D. C…….
No. 11. Foreign Aid Activities of Other Free Nations, by Stuart Rice
Associates, Inc.-.
Surveys:
No. 1. Greece, Turkey, and Iran, by former Ambassador Norman
Armour_
357
407
539
619
767
881
1057
1163
No. 2. Lebanon, Jordan, and Iraq, by Hamilton Fish Armstrong,
editor, Foreign Affairs..
1223
No. 3. South America (Peru, Chile, Argentina, Uruguay, and Brazil),
by former Ambassador David K. E. Bruce..
1257
No. 4. Western Europe II (Portugal, Spain, France, Italy, and the
United Kingdom), by former Ambassador Jefferson Caffery.
No. 5. Korea, Japan, Taiwan (Formosa), and the Philippines, by Dr.
John A. Hannah, president, Michigan State University.
No. 6. Western Europe I (Norway, Denmark, and Western Germany),
by William Randolph Hearst, Jr., president, Hearst Consolidated
Publications, Inc., and editor in chief of Hearst Newspapers-
No. 7. Southeast Asia (Vietnam, Thailand, Cambodia, Laos, Burma,
and Indonesia), by Clement Johnston, chairman of the board,
United States Chamber of Commerce_
1279
1359
1389
1423
No. 8. South Asia (Afghanistan, Pakistan, India, and Ceylon), by
Dr. Lewis Webster Jones, president, Rutgers University
No. 9. Central America and the Caribbean area (Cuba, Haiti, Do-
minican Republic, Panama, Costa Rica, Nicaragua, Honduras, El
Salvador, Guatemala, and Mexico), by James Minotto, former
Mutual Security Agency Chief in Portugal____
1465
1505
No. 10. Yugoslavia by Allan B. Kline, former president, American
Farm Bureau Federation_
1541
Views of private American citizens abroad on the foreign aid program: A
summary_
NOTE.-Each study and survey has its individual table of contents.
1557
i....
VII
STUDY NO. 1
THE OBJECTIVES OF UNITED STATES
ECONOMIC ASSISTANCE PROGRAMS
BY
THE CENTER FOR INTERNATIONAL STUDIES
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
JANUARY 1957
CONTENTS
Letter of transmittal_
Summary.
1
I. The objectives of economic-aid programs undertaken since World
War II.
Introduction.
Short-term relief and rehabilitation.
Longer term reconstruction.
Military aid and support- -
Long-run development assistance.
Conclusion...
1
II. The United States interest and economic aid.
Introduction _ _
The national interest__
The cold war and deterrence.
Beyond deterrence__
A strategy of resolution_.
Summary.
1
1
1
1
1
1
1
·
1
III. The relation of development assistance to aid programs having other
primary purposes.
Introduction_
The place of military aid.
Other valid aid objectives___
The relations among aid objectives__
Alternative bases for aid programs.
I
1
!!
1
1
1
1
IV. Specific purposes of particular forms of development aid and their
relation to each other and to the United States interest--
The tasks of a development program_
The forms of economic assistance.
Direct assistance__.
Indirect assistance.
V. Aid channels___
Introduction.
Straight bilateral aid_
1
International administration of aid..
I
1
1
Bilateral aid within a multinational framework.
I
1
1
|
I
1
Page
XIII
1
4
4
4
6
8
11
14
16
16
16
17
18
19
25
26
26
26
29
31
34
# co co co co co
37
37
39
39
43
47
47
49
50
52
56
56
57
58
60
Two limits to the criterion of absorptive capacity: (a) High in-
come per head, (b) large single projects..
Summary..
3333
62
62
ΧΙ
VI. Criteria for allocation of aid to countries.
Fundamental criterion of aid: To maximize additional effort
in underdeveloped countries___
How to measure additional effort in a country.
Importance of a development program_
Absorptive capacity as a measure of aid allocation__
1
1
6588
XII
CONTENTS
VII. How can the American people determine whether the objectives of
economic-aid programs are being achieved?.
Difficulties of evaluation___
Analogy with evaluation of strategic bombing
The evaluation of projects..
Program evaluation__
Political results of aid.
Summary__
1
1
I
1
Conclusion: The essential features of a development assistance program__
Appendix..
Page
64
70
72
NJOBPRAR
64
65
65
67
68
69
LETTER OF TRANSMITTAL
The CHAIRMAN,
MASSACHUSETTS INSTITUTE OF TECHNOLOGY,
CENTER FOR INTERNATIONAL STUDIES,
Cambridge, Mass., December 21, 1956.
Special Committee To Study the Foreign Aid Program,
United States Senate, Washington, D. C.
DEAR Mr. CHAIRMAN: I take pleasure in transmitting herewith 50
copies of a study on The Objectives of United States Economic As-
sistance Programs prepared by the Center for International Studies
for the Special Committee To Study the Foreign Aid Program of the
United States Senate.
This study was prepared under a contract agreement entered into
the second day of October 1956, concluded pursuant to the terms of
Senate Resolution 285.
I would like to take this opportunity to express our appreciation
of the friendly cooperation which we have consistently received from
Mr. Marcy, chief of staff of the Committee on Foreign Relations, and
from the other members of the staff. Their willing assistance has at
many points facilitated our work.
Sincerely yours,
MAX F. MILLIKAN, Director.
XIII
OBJECTIVES OF THE UNITED STATES ECONOMIC ASSISTANCE
PROGRAMS
SUMMARY
This paper opens with a review of the objectives of the economic aid
programs undertaken by the United States since World War II.
Three main stages are identified: Aid for relief and rehabilitation just
after the war, assistance for longer term reconstruction given under
the Marshall plan, and the military aid and defense support which
have dominated American efforts since 1951. There has also been a
continuing though minor strand of aid for economic development of
the underdeveloped countries. Throughout this period the Congress
has consistently recognized that the national interest requires the
employment of foreign economic assistance as a prime instrumentality
of our foreign policy. The changing nature of the problems con-
fronting the United States has brought parallel changes in the objec-
tives and forms of economic assistance. Since the end of the Korean
war, however, our foreign economic policies have not been successfully
adapted to the new situation created by the changed character of our
military problem, the changed strategy of the Soviet bloc in the under-
developed areas, and the changed attitudes and aspirations of the
underdeveloped countries themselves.
The second section broadly defines the American national interest,
relating it to the specific circumstances with which our foreign policy
must deal, and suggesting a strategy whereby our economic resources
can be best utilized to advance the national interest. This strategy is
based on the conviction that a policy of deterrence against the Soviet
military threat, while a vitally necessary keystone of our foreign
policy, is not in itself adequate to achieve the kind of world environ-
ment favorable to the continued evolution of the United States as a
free society. The American interest requires a program of economic
development aid to foster self-sustaining growth in the underdeveloped
countries of the world. Such a program, if effectively designed and
implemented, is our best hope for promoting the evolution of mature
democratic societies whose fundamental interests in the world will be
compatible with our own.
Our economic resources can usefully be directed, of course, to other
ends than that of economic development. The next section points out
that foreign aid may serve certain alternative purposes and discusses
the relationship between aid for development and for other objectives.
It is stressed in particular that, while military aid has frequently
served purposes which may be described as "economic," such aid is
generally employed to meet current expenses of an economy strained by
military demands and is not used in ways which contribute to long-
term economic growth. Military and development aid may reinforce
each other if they are wisely and jointly administered, but they must
1
2
ECONOMIC ASSISTANCE PROGRAMS
be kept separate in concept and in planning. The section concludes
with a discussion of some of the objectives which economic aid is
sometimes assumed to serve but which are either not within the capa-
bilities of an aid program or not consonant with the national interest.
Having established the case for an independent economic develop-
ment program, the paper proceeds to lay out the specific content of
such a program. The tasks which confront any country launching a
development program are related to the particular forms of aid best
suited to perform those tasks. The various types of direct aid such as
grants, loans, technical assistance, and surplus agricultural products
are examined, and the potentialities and limitations of each type are
discussed. Finally, indirect methods are suggested by which the
United States may help create an environment conducive to growth,
as distinct from directly transferring productive resources and skills.
Through what channels should economic aid be supplied so that the
objectives we have forth may be most fully achieved? Section V
suggests three general considerations which should be brought to bear
on this question: the aid channels chosen should facilitate the broadest
possible participation by the United States and other developed coun-
tries; they should, conversely, promote the greatest possible degree of
receptivity by the underdeveloped nations; and they should strengthen
the likelihood that aid will be employed so as to provide a maximum
stimulus to economic development and to democratic political growth.
In the context of these considerations, the pros and cons of straight
bilateral and of international administration of aid are considered.
The conclusion here reached is that American aid should be extended
bilaterally but within the framework of a consultative multinational
organization which would coordinate as fully as possible the activities
of countries giving and receiving aid.
Criteria must be established whereby the United States can deter-
mine what countries should receive aid and in what amounts. The next
section emphasizes that the chief aim of development assistance should
be to help underdeveloped countries achieve a level of capital forma-
tion which would encourage self-sustaining growth. The primary
emphasis should be on maximizing the national effort contributed by
the underdeveloped countries themselves. A well-designed develop-
ment program is one important measure of a country's effort and is
also a vital instrument for increasing the amount of capital a country
can effectively absorb for purposes of development. Assuming that a
country's national effort is deemed adequate, aid should be given
wherever reasonable certitude exists that it can be effectively used,
but only until self-sustaining growth is achieved. Absorptive capacity
should thus be the fundamental criterion of aid and the measure of
its allocation between countries. The capacity of underdeveloped
countries to absorb capital is so limited that relatively small amounts
of capital ($2.5 to $3.5 billion per year additional from all sources)
would probably satisfy the need.
The final section discusses the problem of evaluating whether or
not the objectives of economic-aid programs are being achieved.
Exact evaluation is often impossible because the precise effect of any
one among many interacting factors cannot be ascertained. Judg
ment rather than scientific measurement is required. Evaluation must
proceed on a number of different levels. Projects can be evaluated
ECONOMIC ASSISTANCE PROGRAMS
3
relatively simply by examining the physical success of the under-
taking, its contribution to the development program, and its cost. The
success of the development program as a whole is more difficult to
establish; such economic indexes as the growth of national income,
increases in industrial production, formation of new capital, and the
like must be examined. The most difficult problem of evaluation is to
determine the effect of aid on the political development of a country.
Evaluation on this level must not be affected by short-run political
interests or developments. It must rely on the judgment of men with
historical perspective about a country's long-run political evolution.
This study concludes with a brief summary of the main features
which we feel any effective development-assistance program should
include if it is to serve the purposes outlined above. (1) The United
States must make it clear that its aid program will continue for a
number of years and will not be affected by fluctuations in the inter-
national or the domestic political climate. (2) If our aid program is
to be effective, it must stand ready to provide sufficient additional re-
sources to launch the underdeveloped countries into self-sustaining
growth. (3) A development program should concentrate on pro-
moting economic growth, not attempt to serve other peripheral ob-
jectives. (4) International cooperation in channeling aid to under-
developed countries will increase its effectiveness, although aid should
be extended bilaterally. (5) If the rationale for development as-
sistance outlined in this study is valid, what is called for is a com-
prehensive program directed at all underdeveloped countries and not
an emergency program focused on 1 or 2 crisis areas.
94413-57- -2
SECTION I
THE OBJECTIVES OF ECONOMIC AID PROGRAMS UNDER-
TAKEN SINCE WORLD WAR II
INTRODUCTION
Our postwar aid programs are the heirs of lend-lease. From 1941
to 1945 we harnessed some $41 billion of our resources (net) to the
clear military purpose of winning a major war, by making our allies
more effective in the field than they would otherwise have been in
opposing a coalition which sought to dominate the great Eurasian
continent. Over the past 12 years our aid programs have been de-
signed to support a number of different objectives of American foreign
and military policy.
Roughly speaking, the programs of economic aid which succeeded
lend-lease have passed through three major stages since the latter days
of the Second World War: Aid in relief and rehabilitation (1944–
46); assistance in longer term reconstruction (1947-50); military aid
and support (1951-56). As will become clear, these distinctions are
not hard and fast: For example, significant military aid to Greece
and Turkey was undertaken as early as 1947. But the three phases.
characterize the major directions of the American aid effort.
In addition, starting with the creation of the International Bank,
there has been a continuing minor strand of long-run development
assistance woven into the American aid programs.
The purpose of this section is to review briefly these phases and the
role of long-run development assistance in American policy. The
chapter concludes with an effort to identify the common larger pur-
pose which appears to underlie the continuing support of the Congress
for these substantial efforts, now maintained by the United States for
more than a decade, and to define the central issue we confront in
reshaping our aid policy.
SHORT-TERM RELIEF AND REHABILITATION
In the first instance the purpose of economic aid was simply to
asist our wartime allies in finding their feet after a long, disruptive,
and costly war. In joining in the agreement for United Nations Re-
lief and Rehabilitation on November 9, 1943 the Nation expressed its
determination-
that immediately upon the liberation of any area by the
armed forces of the United Nations or as a consequence of
retreat of the enemy, the population thereof shall receive aid
and relief from their sufferings, food, clothing and shelter,
aid in the prevention of pestilence and in the recovery of the
health of the people, and that preparation and arrangements
shall be made for the return of prisoners and exiles to their
4
ECONOMIC ASSISTANCE PROGRAMS
20
5
homes and for assistance in the resumption of urgently
needed agricultural and industrial production and the re-
storation of essential services ***
In addition to UNRRA operations, relief and rehabilitation were con-
ducted by American military forces as one area after another was
liberated. In a narrow sense such aid could be justified as a way of
avoiding "disease and unrest" in regions of military occupation by
American troops. Indeed, that was the formal basis for the initial
aid programs in ex-enemy territories. But military assistance had,
in fact, the same simple humanitarian foundations as the UNRRA
program.
The initial postwar loan to Great Britain had essentially the same
character. It was designed to tide the country over a transitional
period during which time the economy of a key nation-and a deserv-
ing ally-would recover and restructure itself, without undergoing a
fall in its standard of welfare, and then fit into the sort of world
economy to which Americans looked forward.
In addition to these sources of transitional aid, a wide range of
other forms of credits and grants were made available to help restore
a disrupted world economy. Transitional aid granted in 1945–46
totaled about $8 billion. Why was it granted?
The executive branch of the Government, the Congress, and the
American people as a whole in the period 1944-45 had thrashed out
a concept of the sort of postwar world they wanted. It was, essen-
tially, a world in which the failures of 1919 and of the interwar years,
as those failures were then understood, would not be repeated. As a
nation we looked to an era of peace in which the security issues of the
world would be handled by a United Nations, built, in turn, around
the continued unity of the three major wartime allies. With this
foundation we sought a prosperous, expanding world economy in
which trade would become increasingly free, currencies would become
convertible, and the productive possibilities of exchange among na-
tions would be exploited without reference to narrowly national se-
curity policies.
It was in this mood of hope, aspiration, and good intentions that
the International Bank and the International Monetary Fund were
set up as a result of the Bretton Woods agreements, the convertibility
clause was written into the British loan agreements, and the first
moves were made to establish the International Trade Organization.
Thus, also, America gave freely of its resources to cover what was
expected to be the relatively brief gap in time between the abnormal
world of the immediate postwar days and the emergence of the inter-
national system assumed in the setting up of the United Nations and
its related institutions.
Americans were not unmindful of the danger that communism might
spread in the period of postwar disruption. The memory of Com-
munist efforts successful and unsuccessful-to exploit the oppor-
tunities open after the First World War was still alive in the country
and in the Congress in 1944-46. But, by and large, American aid was
given in these years in a mood of hope rather than fear, as a means
of converting a world torn by battle into a world organized for a pro-
ductive peace.
6
ECONOMIC ASSISTANCE PROGRAMS
LONGER TERM RECONSTRUCTION
In the course of 1946 it became increasingly clear that the assump-
tions underlying the wartime vision of the postwar world were, one by
one, being rendered untenable. Stalin evidently decided that the op-
portunities for Communist expansion in Europe and elsewhere were
very great, given the weaknesses of the non-Communist world and the
rapid American demobilization, accompanied as it was by a turning
inward to American domestic problems. In 1946 also the Chinese
Communists came to perceive that it might be possible for them to
move immediately toward the total control of China which had always
been their objective. Day by day in the executive branch, the Con-
gress, and in the minds of the American people it became increasingly
evident that the wartime vision of world peace and order would not
immediately come to pass and that the Nation faced a security chal-
lenge of the first order of magnitude.
Simultaneously, the course of events revealed that the economic
assumptions of Bretton Woods were wholly unrealistic. Industrial
production in Europe was rising, but imported raw materials and
foodstuffs were relatively much higher in price than before the war (a
sitution exactly opposite to that after the First World War) and
could only be procured for dollars which Europe did not have and
could not quickly earn. Agriculture and raw material production
outside the Western Hemisphere had been cut badly by war and were
reviving only slowly. Beyond that, it was evident that the recon-
struction and badly needed modernization of European industry-es-
sential if European exports were to rise adequately-was going to be
an even longer, tougher job than had been envisaged at the time of the
British loan negotiations at the end of 1945. The vision of a world of
free trade, convertibility, and normal international flows of capital
rapidly receded. The Bretton Woods institutions could not deal with
balance of payments problems of the character and order of magni-
tude that emerged, and the negotiations in 1947 setting up the Inter-
national Trade Organization proceeded in an atmosphere of unreality.
Bad harvests and a terrible European winter in 1946-47 accentuated
these underlying difficulties, produced unprecedented balance of pay-
ments shortages, and set the stage for a new American effort designed
to deal with the crisis.
In the spring of 1947 the whole approach of the United States
toward foreign policy was radically altered, and with this revision
foreign aid assumed a new role, entering its second postwar stage. This
change was precipitated by the British inability to continue to support
Greece, which was in a state of civil war, and Turkey, which was under
a great deal of diplomatic pressure from the Soviet Union, including
a military threat which required a state of mobilization the Turkish
economy could not sustain with its own resources.
The situations in Greece and Turkey immediately posed a range of
issues which were to lie at the heart of American foreign policy over
the next decade. Assuming that we cared enough about the independ-
ence of Greece and Turkey to vote American taxpayers' money to
support them—
1. How much aid was required to do the job?
2. How should that aid be divided between economic and mili-
tary categories?
ECONOMIC ASSISTANCE PROGRAMS
7
3. How should conflicts between immediate military and long-
run economic aid programs be resolved?
The difficulty arose because Greece and, to a lesser degree, Turkey
faced two threats from communism. One was the external threat,
united in the Greek case with Communist-led military insurrection;
the other was the threat of political and social disintegration caused
in turn by economic stagnation exploitable by local Communists.
It was widely recognized in the United States that an emergency
program for Greece and Turkey was an inadequate answer to the
problem posed for the United States in the late winter of 1947. In-
deed, President Truman's private briefing for Members of Congress on
February 27 (preceding his speech of March 12 to both Houses of Con-
gress) had embraced not merely Greece and Turkey but the whole
European economic position and the threat of Soviet exploitation of
its consequent political weaknesses. There was also a widespread sense
that the Greek and Turkish aid agreements stressed too heavily the
military countermeasures to communism and were not sufficiently con-
structive and economic. On June 5, 1947, with Secretary Marshall's
speech, the character of the European economic and political problem
was fully faced and the familiar sequence of events which launched
the Marshall plan was set in motion.
In a truly remarkable national effort embracing the executive branch,
special Presidential committees, committees of both Houses of Con-
gress, and public opinion leaders, the Nation came to understand the
nature of the European problem and the national stake in defeating
Stalin's purposes by a massive effort at construction. Senator Dirksen
accurately caught the mood in which the effort was launched:
I have been back home. People have talked to me about
giving away my country, and I have talked to them. ***
And I have said, "Look, let us examine this whole picture."
And it is amazing to me to see how the people back home have
changed their minds on the basis of such facts as you disclose
them. I am not afraid of the reaction in this country. I am
confident that in proportion as we do our jobs as represent-
atives to bring them the story, that they will go along with
the third choice, and the third choice in my book is immediate,
adequate, aggressive aid. My formula, Mr. Chairman, is very,
very brief. Do it-do it now-and do it right.
Stalin immediately recognized that the Marshall plan was an effec-
tive counter to his plans and intentions in Western Europe. As Molo-
tov left Paris in July he warned the West of Moscow's implacable
opposition to the joint venture, and the Communists opened up
promptly an ominous campaign of political propaganda in the West,
accompanied by disruptive Communist Party tactics. In addition,
Stalin moved to tighten up and consolidate his Eastern European
empire. In February 1948 the coup d'état was executed in Prague;
and, in the course of the spring, Tito openly defied Stalin's effort to
impose absolute control on Yugoslavia, producing not merely a major
defeat for Moscow but heightening tension between East and West
generally. In Germany, where tension between the Soviet Union and
the West also rose, it was climaxed by the Berlin blockade, successfully
met by the American and allied airlift during the winter of 1948–49
8
ECONOMIC ASSISTANCE PROGRAMS
The early, decisive stage of the Marshall plan, when the European
economy gathered momentum, was thus colored by an atmosphere of
danger from the East. Europeans felt a profound sense of insecurity
as they went about reconstruction with no significant protection against
the Soviet divisions massed in Eastern Germany except the distant
capability of the United States to counter Soviet ground forces with
atomic attack. Freshly released from German occupation, Western
Europeans did not find reassuring a position from which, once again,
they might have to be rescued after invasion from the East. It was
initially as a psychological measure to give Western Europeans the
confidence to proceed with the reconstruction of their societies that a
joint European military effort was launched, which was to lead on to
NATO, SHAPE, and the third stage of American economic aid.
While the European recovery program proceeded forward in good
order, from 1948 to June 1950, backed by some $12 billion in grants
and loans over the 3-year period, large sums were thrown in also in
an effort to aid Nationalist China in the final stages of the Chinese civil
war and then to establish the Taiwan base, while Japan and Korea
were helped toward political and economic stability on much the same
grounds as Germany, Austria, and Italy. The Asian programs totaled
almost $4 billion in the 5 years preceding the attack on South Korea.
MILITARY AID AND SUPPORT
It was, of course, the outbreak of the Korean war which transformed
military aid from a minor to a major aspect of the American program.
As noted earlier, military aid had begun in 1947 in Greece and Turkey,
and military needs were a major rationale for aid to Nationalist China.
Moreover, the Mutual Defense Assistance Act of 1949 had provided.
military aid in a number of directions, including relatively small
amounts for Europe. But, by and large, the assumptions underlying
American policy at this stage were that Stalin did not plan to use
limited wars to advance his objectives; that a major war was possible
and required deterrence; but that, if Stalin launched a major war, the
free world could rely primarily in the first instance on the American
Strategic Air Command and its atomic weapons delivery capabilities.
This assumption began to be reexamined after the first Soviet atomic
explosion in September 1949. In Europe the notion gradually spread
that an atomic stalemate might develop in which it would be irrational
for Europeans to rely solely on American atomic weapon delivery
capabilities against the Soviet ground forces. Support slowly grew
for a European ground forces establishment which might be capable
of deterring Soviet aggression. On the whole, however, European
recovery continued to have a clear-cut priority over European defense,
and NATO moved to the center of the stage only after the outbreak
of the Korean war at the end of June 1950.
By September 1950 the issue of German rearmament began gingerly
to be faced and, as NATO grew and the United States moved to shore
up free Asia, the proportion of military assistance within the total
foreign-aid budget increased. Even then military assistance repre-
sented only 24 percent of foreign aid in the fiscal year 1951, 38 per-
cent in 1952. In the Mutual Security Act of 1952, however, military
assistance was more than two-thirds of the total authorization for
fiscal 1953.
ECONOMIC ASSISTANCE PROGRAMS
9
The underlying purpose of this program was simple and clear. It
was to permit other nations to maintain sufficient military establish-
ments to make unattractive to Moscow and Peking aggressive adven-
tures similar to the Korean war; and in the case of Indochina-down
to the Geneva Conference of 1954-to permit the French to continue
to deal with the Vietminh threat. From the American point of view,
the buildup of NATO and then of SEATO was a way of maintaining
deterrence without engaging substantial American troop formations.
This remained the fundamental rationale for the American aid pro-
grams, in their major dimension, down through 1956.
As the mutual aid program developed, it was recognized that the
maintenance of these deterrent forces in the common interest con-
stituted a substantial drain on the economies of the weaker states;
and large programs of economic aid in the form of defense support
accompanied the development of our military alliances in the period
1952-56, in which 5-year period some $24 billion was spent under the
military security program.
In the course of these years, however, the underlying basis for the
military aid programs developed after the outbreak of the Korean
war was gradually altered and eroded by three major factors.
First, the Soviet Union developed substantial capabilities in atomic
(including fusion) weapons, means of delivery, and means of defense.
From the time of the first explosion of a Soviet fusion device in
August 1953 the heart began to go out of NATO as a ground-force
establishment. The conviction gradually grew that the capabilities
of mutual destruction were now such that an all-out atomic war was
wholly irrational unless 1 of the 2 major atomic powers achieved
capabilities sufficient to knock out at a blow the other's rataliatory
power; and that, in the context of a Soviet-American atomic standoff.
a ground-force war would be impossible to fight in Europe without
triggering an all-out war. The maintenance in the free world of an
adequate degree of deterrence against atomic war was evidently a job
primarily for the United States; and American secrecy regulations
precluded effective European participation in the contribution to
the deterrence of atomic war except insofar as Britain developed
atomic weapon capabilities on its own.
The will of Europeans to proceed with the buildup of conventional
ground forces thus progressively diminished. The development of
the German army proceeded slowly mainly on paper, impeded by an
increasing undertow of reluctance. By the end of 1956 the initial
concept of NATO, which had reached its peak of influence at the
Lisbon meetings in February 1952 (with force goals of approximately
100 divisions for 1954), was virtually dead.
The second factor influencing this evolution was the change in
Soviet strategy which began to take shape in the summer of 1951, was
consolidated at the 19th party congress in October 1952, and rapidly
gathered momentum after Stalin's death in March 1953. This strat-
egy recognized that, whatever Communist gains from the Korean war
may have been, the American and United Nations' reaction to overt
Communist aggression was, on balance, exceedingly costly to the
Soviets; and that there were greater possibilities for the extension of
communism by political, psychological, and economic means which
would associate communism with peace, nationalism, and economic
10
ECONOMIC ASSISTANCE PROGRAMS
progress. In Asia, the Middle East, and Africa, to which this policy
was mainly directed, the new Soviet tactic met a considerable response,
backed as it was by the blackmailing threat of rising Soviet military
strength relative to the United States. In Europe as well it had
some effect in convincing Europeans that further military effort
within the context of NATO was not merely of doubtful value but of
diminished urgency. In the case of Germany, Soviet diplomacy
sharply dramatized the idea that German unity could be achieved only
by a definitive break with NATO and the United States. In No-
vember 1956 the use of limited force in the Middle East and in Hun-
gary again raised in Europe the possibility of limited war within the
framework of atomic stalemate; and it stimulated the Germans espe-
cially to look to the development of some ground forces. But, as the
crisis of November 1956 rolled on, no clear and generally accepted
military concept of NATO's role in a world of H-bombs had yet
emerged.
A final set of eroding forces developed in the underdeveloped areas
of Asia, the Middle East, and Africa. The pattern of American and
free world alliances designed to maintain deterrent force in being
against Communist capabilities for limited war progressively clashed
in three separate dimensions with the interests of our partners as they
came to see those interests. In the SEATO area (notably on the
Asian mainland) Thailand, Laos, and Cambodia began to doubt that
a military buildup of their own forces without an American commit-
ment to maintain troops on the spot constituted a persuasive deterrent
to Communist ground-force strength mounted across their borders in
China. With the possible exception of South Korea, it was evidently
impossible to build sufficient local strength to deal with potential
Chinese Communist force; and so Laos and Cambodia began to look
to bilateral accommodation with Peking and Moscow, an accommoda-
tion which, was made superficially attractive by the current phase of
Communist world policy.
Second, as the apparent danger of direct Communist military ag-
gression receded, the pursuit of other political aspirations of the new
nations and colonial areas rose in priority. The Pakistani increas-
ingly thought of Kashmir rather than of the threat from the north;
the Egyptians began to project their weight into north and central
Africa and toward the formation of a Middle East bloc: the issue of
colonialism in French North Africa came to a head; the Baghdad
Pact became essentially a move in free world power diplomacy rather
than a ground-force deterrent against Communist military strength.
This assertion of believed national interests within the underdevel-
oped regions further disrupted the pattern of Asian and Middle East
military alliances and had consequences for the Western European
powers which further weakened the coherence and effectiveness of
NATO.
Finally, the sense of urgency about economic development increased
in the underdeveloped areas and, with it, the attractiveness of eco-
nomic rather than military assistance from the United States. Even
in the SEATO area the pressures for increased economic aid ex-
panded; and elsewhere in the underdeveloped areas the continued
American emphasis on the maintenance of ground-force deterrence
against limited war appeared out of key with local political pressures
ECONOMIC ASSISTANCE PROGRAMS
11
and interests. Our allies, friends, and potential friends in the under-
developed areas of the free world became progressively more frus-
trated by the cast of American policy and the aid programs that
backed it.
The extent of the erosion brought about by these forces was drama-
tized by the multiple crises of November 1956. It was at last evident
that the military and political foundations of the structure of alliances
built up in the wake of the Korean war had to be rethought and, like-
wise, the scale and character of the military assistance program.
LONG-RUN DEVELOPMENT ASSISTANCE
At the Bretton Woods Conference of July 1944 the representatives
of what were to be later known as the underdeveloped areas urged
strongly that the International Bank be used not merely for medium-
term reconstruction but also for long-run economic development.
This pressure arose mainly from representatives of the countries of
Latin America, but they spoke as well for the existing and incipient
nations of Asia, the Middle East, and Africa. Although the immedi-
ate postwar years were dominated by events in Europe, in the councils
of the United Nations the underdeveloped areas steadily pressed their
case for loans and technical assistance from the richer, more indus-
trialized nations. There was deep resentment at the enormous sums
being allocated by the United States to sustain Europe at relatively
high standards of welfare while their peoples languished in extreme
poverty.
Responding to this pressure, the United Nations Assembly meeting
in the winter of 1948 set in motion the United Nations technical-
assistance program, and President Truman presented his fourth point
in his inaugural address of January 20, 1949:
Fourth. We must embark on a bold new program for mak-
ing the benefits of our scientific advances and industrial
progress available for the improvement and growth of under-
developed areas.
More than half the people of the world are living in condi-
tions approaching misery. Their food is inadequate. They
are victims of disease. Their economic life is primitive and
stagnant. Their poverty is a handicap, and a threat both to
them and to more prosperous areas.
For the first time in history, humanity possesses the knowl-
edge and the skill to relieve the suffering of these people.
The United States is preeminent among nations in the
development of industrial and scientific techniques. The
material resources which we can afford to use for the assist-
ance of other peoples are limited. But our imponderable
resources in technical knowledge are constantly growing and
are inexhaustible.
I believe that we should make available to peace-loving
peoples the benefits of our store of technical knowledge in
order to help them realize their aspirations for a better life.
And, in cooperation with other nations, we should foster
capital investment in areas needing development.
Our aim should be to help the free peoples of the world,
through their own efforts, to produce more food, more cloth-
12
ECONOMIC ASSISTANCE PROGRAMS
ing, more materials for housing, and more mechanical power
to lighten their burdens.
We invite other countries to pool their technological re-
sources in this undertaking. Their contributions will be
warmly welcomed. This should be a cooperative enterprise
in which all nations work together through the United Na-
tions and its specialized agencies wherever practicable. It
must be a worldwide effort for the achievement of peace,
plenty, and freedom.
With the cooperation of business, private capital, agri-
culture, and labor in this country, this program can greatly
increase the industrial activity in other nations and can
raise substantially their standards of living.
Such new economic developments must be devised and con-
trolled to benefit the peoples of the areas in which they are
established. Guaranties to the investor must be balanced by
guaranties in the interest of the people whose resources and
whose labor go into these developments.
The old imperialism-exploitation for foreign profit-
has no place in our plans. What we envisage is a program of
development based on the concepts of democratic fair dealing.
All countries, including our own, will greatly benefit from
a constructive program for the better use of the world's
human and natural resources. Experience shows that our
commerce with other countries expands as they progress in-
dustrially and economically.
Greater production is the key to prosperity and peace.
And the key to greater production is a wider and more vig-
orous application of modern scientific and technical knowl-
edge.
Only by helping the least fortunate of its members to help
themselves, can the human family achieve the decent, satis-
fying life that is the right of all people.
Democracy alone can supply the vitalizing force to stir the
peoples of the world into triumphant action, not only against
their human oppressors, but also against their ancient ene-
mies-hunger, misery, and despair.
The character of the American national stake in the economic
growth of the underdeveloped areas was somewhat vaguely articu-
Ïated by President Truman. He leaned mainly on a combination
of humanitarianism and American economic self-interest, but, also,
in general terms, linked successful economic development to the con-
ditions for peace and the spread of the democratic process. There
was a similar vagueness about the concrete economic objectives of
the program and the scale of the American effort required to produce
a meaningful result in terms of American interests. In the up-
shot, the fourth-point program was launched on a modest scale and
almost wholly in terms of technical assistance.
The importance of the underdeveloped areas of the world to the
American interest, and the need to meet their powerful aspirations
for the modernization of their societies, were increasingly appreciated
in 1949-50; European recovery had gathered momentum, and the
military position there appeared to be stabilized, but communism had
ECONOMIC ASSISTANCE PROGRAMS
13
moved to a victory in China which shadowed the free world's pros-
pects throughout Asia. Gordon Gray's report to the President on
Foreign Economic Policies, in November 1950, and Nelson Rocke-
feller's Partners in Progress report of March 1951 reflected a growing
awareness of the strategic importance to the United States of long-
run development in the underdeveloped areas.
But the energies and resources of the Nation were sharply diverted
by the military tasks of the Korean war, the buildup of NATO,
and a rebuilding of the American Military Establishment; and this
military focus was reinforced by the continuing belief in the executive
branch that military alliances designed to prevent similar outbreaks
of limited Communist aggression were the highest priority order of
national business abroad. Thus, in the period 1953-56, after the
Korean truce, while the weight of the American effort in economic
assistance gradually shifted away from Europe to Asia, the aid pro-
grams, despite certain interesting innovations (such as the President's
$100 million Asian pool and the long-term Indian food and fiber loan
of 1956), remained primarily military.
Rightly or wrongly, it was judged that economic assistance could
only be justified persuasively to the Congress and the American people
on literal grounds of the American military interest. Very substantial
economic assistance, in the form of military support, went to areas
linked to the United States by military treaty; but only a small pro-
portion of the population of the underdeveloped areas of the world
shared substantially in American aid. Moreover, in the treaty areas
(notably, Korea, Vietnam, Taiwan, and Pakistan) the conditions un-
der which this aid was granted-linked as it was to the maintenance
of military forces much larger than could be supported by the econ-
omies of these countries-diverted energy, administrative talent, and
resources away from the tasks of long-term economic development.
While the broad considerations of national interest incorporated in
the initial rationale for the fourth-point program were widely ac-
cepted in the Government and in official pronouncements, and although
the program was steadily maintained at a modest level, its role in
American strategy on the world scene was never clearly defined in the
public's mind. The Nation persisted in programs designed to deter
limited war, while Communist policy took on new dimensions.
There was no lack of awareness in the Congress concerning the
positive character of the American interest in associating our policies
with the desire of peoples in the underdeveloped areas for that degree
of economic development needed to underpin and to give substance to
their high aspirations for independence, democracy, and increased
human dignity. For example, Public Law 726, passed by the 84th
Congress, contains this passage:

Section 14
It is the sense of Congress that, in the preparation of the
mutual security program, the President should take fully into
account the desirability of affirmatively promoting the eco-
nomic development of underdeveloped countries, both as a
means of effectively counteracting the increased political and
economic emphasis of Soviet foreign policy and as a means of
promoting fundamental American foreign-policy objectives
of political and economic self-determination and independ-
ence,
14
ECONOMIC ASSISTANCE PROGRAMS
What was in question at the end of 1956 was whether the scale and
character of the existing aid program fulfilled the large objective it
was designed to support.
CONCLUSION
What can we conclude from this sequence about the underlying
objectives of American aid since the end of the Second World War?
In general terms, the Congress has consistently recognized that in the
world that has emerged after the Second World War the United States
must actively use its economic resources to help maintain a world
environment-military and political-which will permit our free
society to continue to develop along lines congenial with our history
and our hopes for the future. As the Second World War drew to a
close, we were generous with our wartime friends and with the peoples
in the enemy countries because we sensed that, unless they got back on
their feet economically, they would, at best, be incapable of playing a
part in a peaceful, orderly world; and, at worst, in desperation, they
might reach out for Communist or other nondemocratic solutions to
their acute problems.
When Stalin's intentions in Europe became clear in 1947, the Soviet
threat to the world environment of the United States became urgent;
and we threw our resources into the economic and then the military
rehabilitation of Europe. In the Marshall plan and NATO (as in
the First and Second World Wars) we recognized that the loss of
Europe to a hostile power was a direct security threat to the United
States. More than that, we recognized that the threat had two dimen-
sions: a political dimension and a direct military dimension. We
recognized that Europe could be lost not merely by the march of Soviet
troops from eastern Europe to the Channel but by the loss of confidence
among Europeans that adherence to the democratic process was com-
patible with their continued economic progress.
As regards the underdeveloped areas of Asia, the Middle East, and
Africa, we have recognized in principle from Bretton Woods forward
that, in some sense, their economic progress, their independence, and
their evolution toward democracy mattered to us; and in 1949-50 there
was evidence that this perspective was being crystallized out in Amer-
ican thought and might lead on to the development of a new American
policy toward the underdeveloped areas. The Korean war intervened,
however, and in its aftermath the effort to hold the balance of power
favorable to the free world in Asia, the Middle East, and Africa has
mainly taken a military or quasi-military form.
Since the end of the Korean war the effectiveness of this military
method-taken by itself has been progressively put in question: by
the changing character of our military problem vis-a-vis the Soviet
Union and Communist China; by the character of the strategy pursued
by Moscow and Peking; and by the changing psychological attitudes
and rising political ambitions of the nations of the underdeveloped
areas. The Congress has evidently been aware of these changes, and
that awareness can be seen, to a degree, in the changing regional direc-
tion and character of our aid programs. But the nature of the Amer-
ican problem of holding power for the free world in Asia, the Middle
East, and Africa has altered more radically than our policies and the
aid programs designed to give them substance.
ECONOMIC ASSISTANCE PROGRAMS
15
In short, we still lack in the underdeveloped areas an equivalent
to the balanced economic-military approach represented (down to
1952) in Europe by the Marshall plan and NATO.
In a more basic sense we have not yet clarified our national interest
in the underdeveloped areas, the character of the military and eco-
nomic jobs that now need to be done there, and the scale and manner
in which our national resources should be mobilized to help do those
jobs. The next section explores the relation between an economic
development assistance program and the American national interest.
SECTION II
THE UNITED STATES INTEREST AND ECONOMIC AID
INTRODUCTION
The above history of the evolution since 1949 of American thought
and action in relation to foreign economic aid suggests an increasing
emphasis on the economic growth of the free underdeveloped coun-
tries. Is such an emphasis justified? Is it in the national interest
of the United States to devote substantial resources to aid the growth
of foreign economies? An answer to this question requires us to
deal briefly in this section with the relation of foreign aid to our over-
all foreign policy objectives.
Part A is a brief statement of what we take to be the ultimate
American national interest. Part B examines briefly how, in the
context of the cold war, a strategy of military deterrence serves that
interest and suggests that reliance on such a strategy alone ignores
the need and the United States opportunity to secure a favorable reso-
lution of the cold war and neglects certain longer run threats to our
security arising from forces other than Soviet expansion. Part C
sketches American gropings during the past 10 years for a "strategy
of resolution." Part D outlines such a strategy which would require,
against a background of resolute deterrence, a sustained American
effort to promote the economic and political development of the under-
developed nations of the world along democratic lines. The discus-
sion spells out the fundamental premises of such a strategy and relates
them to the American national interest.
THE NATIONAL INTEREST
We take the most fundamental American national interest to be
the physical and political survival of the United States and the con-
tinued evolution of America as a society committed in its institutions,
in its relations among its citizens, and in its external performance to
the ideals of the Declaration of Independence, the Constitution, and
the Bill of Rights. It follows that the central task of American
foreign policy is to foster a world environment congenial not merely
to our survival but to the continuing development of America as a
free society.
Specifically, American foreign policy must meet a twofold test:
First, it must prevent any diminution of relative United States
military strength which might encourage a potentially hostile
power to conclude either that it might "win" a big war or that
it could threaten or force us into degenerative step-by-step ap-
peasement and isolation. Further, United States policy must
minimize the likelihood of war by "miscalculation"; and it must
give us the capability to win a war, should one be forced on us, on
politically advantageous terms.
16
ECONOMIC ASSISTANCE PROGRAMS
17
Second, our strategy must not require us, in order to preserve
a stable balance of power, to sustain a posture corrosive of our
central values, procedures, and institutions. We must avoid the
dilemma of being forced, for the sake of survival, to stunt our
vitality as a free society.
No foreign policy which fails either of these tests is adequate to
the national interest.
THE COLD WAR AND DETERRENCE
In the current context of the cold war the meaning and implica-
tions of the first requirement, a balance of military power, are evident.
First, we must maintain sufficient offensive and defensive power
to enable us to respond to a Soviet attack on the United States
or on NATO by certain and devastating bombardment of the
Soviet Union. We must never allow the Soviet Union a reasonable
prospect of destroying our retaliatory capability by surprise at-
tack or of neutralizing it by means of a superior Soviet air
defense.
Second, we must, on military grounds alone, deny the Com-
munist bloc any extension of its control in Eurasia. Any expan-
sion of Soviet hegemony in East or West Eurasia could well lead
to an imbalance in military power which would threaten us with
ultimate military defeat. At least for the near future, even our
nuclear retaliatory capacity hinges on overseas airbases which
would be neutralized by any serious erosion of free world power
in Eurasia. In the longer run, it is difficult to conceive of the
United States maintaining a tenable military balance in the
face of the overwhelming resource and manpower superiority
of a more or less unified and hostile Eurasia. Moreover, we would
then have become an isolated fortress society.
The above two tasks constitute what has come to be called the
policy of deterrence. Deterrence requires that we muster all means
at our disposal to convince the Soviet bloc that neither overt nor
"fuzzy" aggression will pay. In particular, it requires that we develop
a capability to respond to local and limited pressure, if we so choose,
by local and limited means.
Economic foreign policy is germane to the task of military deter-
rence especially in those border-area nations of the free world where
there is an immediate danger of some form of Communist takeover,
for it can bolster military strength and the will to resist external or
internal aggression. The study done for the Senate Special Com-
mittee To Study the Foreign Aid Program by Columbia University
examines how economic means can best be used to this end.
But deterrence alone will not do. It suggests a future of virtually
endless cold war, of perpetual siege, with survival dependent on a
costly and nightmarish weapons race. This kind of a future—with
ballistic missiles which can reach targets halfway around the earth in
minutes and are powerful enough to obliterate the largest of cities
and poison areas the size of New Jersey; with small and immature
states controlling weapons which could annihilate the greatest-is a
future that fails to meet our essential interests. It implies an Ameri-
can political and military posture which, if sustained over 2 or 3
18
ECONOMIC ASSISTANCE PROGRAMS
decades, is bound deeply to damage the defining qualities of our
society.
Moreover, there is a second, and deeper reason why a policy relying
on deterrence alone is inadequate. Its exclusive focus on countering
Soviet-initiated action ignores the real possibility that the two-thirds
of the world's population outside the Iron Curtain just emerging into
political and economic awareness may become an independent source
of turbulence and change, that interaction among the "uncommitted”
countries could overnight threaten the precarious stability of the East-
West balance. It also neglects the longest run evolution of these
countries which within 2 or 3 decades could render military deterrence
either superfluous or futile. It fails, by default, to use what margin of
influence the United States can muster to effect that evolution in our
interest. It leaves the nonmilitary play largely to the Communists.
Deterrence, then, while absolutely necessary, is insufficient to the
national interest. Its purpose is to deny the Soviet bloc the alternative
of using military or paramilitary means to shift the balance of power
in its own favor. But deterrence alone can at best do no more than
confine the East-West conflict to nonmilitary channels. It leaves
the shape and resolution of the conflict open to manipulation by all.
means short of military force. To avoid losing the cold war we must
look beyond deterrence. We must attempt a "strategy of resolution."
BEYOND DETERRENCE
Three themes of unequal import run through the rather discordant
harmony of American thought, talk, and action of the last 10 years
germane to "resolution of the cold war." One rather thin proposition,
which disappered early, simply begged the issue: "Let's build situa-
tions of strength from which to negotiate" was a call to desperately
needed action, and in 1949 it was surely putting first things first; but
it avoided the problems of what we were to negotiate about, of what
kinds of carrots and sticks we were to use to strike what kinds of
bargains.
The second rather shrill theme has appeared only now and then.
"Preventive war" and "liberation" are two of the labels by which it
may be identified. Its essential characteristic is an implicit commit-
ment to invoke force, or at least to threaten the use of force, not just
to contain or deter but to change the geographical status quo. In its
more extreme form it never received serious consideration. Even
during the period of United States monopoloy in nuclear weapons
the notion of trying for a decisive settlement by threatening to initiate
atomic war was clearly not to be seriously contemplated. Quite apart
from whether we in fact had the capability to base an ultimatum on a
threat to launch a nuclear offensive-given our dependence on foreign
bases this is at least doubtful-such an act, no matter how favorable
its power consequences, would have been an inconceivable corruption
of the American interest. An overwhelming majority of Americans
understand this and sense that "preventive war" is a nonsense alterna-
tive. As of 1956, this understanding is reinforced by the Soviet
atomic delivery capacity.
In more dilute form, the notion of using force to achieve change has
characterized at least one serious action: Crossing the 48th parallel to
unify Korea by the sword. The Korean armistice was an unmistak-
ECONOMIC ASSISTANCE PROGRAMS
19
able demonstration, however, that we were not really prepared to back
such a resolution by force.
The third and much the most important theme of resolution emerged
as the major premise of the original containment doctrine as articu-
lated by Mr. George Kennan in his celebrated "X" article. It was
essentially a strategy of "contain and wait." If we are successful in
effectively containing the Soviets, so it was argued, autonomous his-
torical forces will inevitably bring about internal changes in the
Soviet empire which will cause Soviet Russia to withdraw from her
forward positions in the center of Europe, turn back on herself, and
cease to be a threat to our security.
The trouble with this view is not that it is wrong, but that it is only
half right. Kennan was superbly farsighted in emphasizing the
possibility of change in Soviet policy once opportunities for expan-
sion by military means were blocked. But our attention has been
focussed so intensively on the bilateral relations of the Communist
bloc and the Western alliance that we have failed to reckon with the
tremendous potentialities of self-generated change and evolution in
societies outside the bloc and the alliance.
The point of containment is to convince the Kremlin that the game
for Eurasian power hegemony is hopeless. This requires not merely
a sustained demonstration that the western allies can and will prevent
Soviet takeover of the border areas. It requires, above all, that the
Kremlin become convinced that the newly emerging societies of
Eurasia, in desperate search for accelerated solutions to their own
problems, will not of their own account opt for one or another variant
of the "Communist way." Where containment falls short is in not
recognizing that the urgent search of the "uncommitted" nations offers
opportunities for American action far beyond containment.
A STRATEGY OF RESOLUTION
It is our view that the United States has an opportunity in the
next 2 or 3 decades to resolve the cold war and to promote a more
congenial external environment. This view rests on two crucial facts
about the world of 1956 and on a proposition.
The first fact is that one-third of the world's peoples have come to
share a determination to overcome, and quickly, centuries of social
and political inertia and economic stagnation in order to achieve a
larger national dignity and, in particular, to create expanding econo-
mies and rising standards of life. Embarked upon revolutionary
changes in their modes of life, these peoples-including some who are
our military allies-are as yet "uncommitted." Most are uncommitted
in terms of the day-to-day alinements of the cold war; more important,
almost all are uncommitted in terms of the kinds of societies they want
to create.
The second fact is that the United States is a country of immense
and fast increasing wealth, and hence in a position to deploy abroad
substantial resources while continuing steadily to raise our own stand-
ards of living. Further, we have developed more successfully than
most nations social, political, and economic techniques for realizing
widespread popular desires for change without either compulsion or
social disorganization. Although these techniques must be adapted,
country by country, to fit particular local conditions, they represent
94413-57-3
20
ECONOMIC ASSISTANCE PROGRAMS
a considerable potential for steering the world's newly aroused human
energies in constructive directions.
The proposition is that a comprehensive and sustained program of
American economic assistance aimed at helping the free underdevel-
oped countries to create the conditions for self-sustaining economic
growth can, in the short run, materially reduce the danger of conflict
triggered by aggressive minor powers, and can, in say 2 to 3 decades,
result in an overwhelming preponderance of societies with a successful
record of solving their problems without resort to coercion or violence.
The establishment of such a preponderance of stable, effective, and
democratic societies gives the best promise of a favorable settlement
of the cold war and of a peaceful, progressive world environment.
The chain of reasoning on which the proposition hangs has four
links:
1. That American assistance can lead to economic growth
The proposition presumes that a feasible and properly designed
program of American economic assistance could within two decades
catalyze self-sustaining economic growth in most of the underde-
veloped free world. Other sections of this report and other reports
will defend this view. Let it suffice to assert that, while the economic
development of foreign areas is primarily a task for the peoples of
these areas themselves, the United States, in partnership with some
of the other industrialized nations, can go far to remove those bottle-
necks to development, such as capital and certain kinds of technical
and administrative "know-how," over which the underdeveloped coun-
tries have limited control. It would be foolish to claim that this
alone would assure the certainty of successful economic growth. But
in most of the countries concerned, especially in the most important
ones like India, it would turn a "close thing" into an excellent bet.
2. That American assistance and consequent economic growth can be
made to lead to politically mature and stable democratic
societies
For many underdeveloped countries the question is not whether
growth will occur, but what political forms and techniques will be
evolved to make it occur. Our proposition rests on the premise that
a program of assistance can promote the evolution of societies that
are stable in the sense that they are capable of rapid change without
violence, effective in the sense that they can make progress in meeting
the aspirations of all their citizens, and democratic in the sense that
power is widely shared through the society.
This does not mean that reducing hunger and poverty will alone
assure stable democratic behavior. The small year-to-year increases
in income and consumption which may be achieved by an aid
program increases of the order of 2 or 3 percent per head-are in
today's world probably a necessary condition for stable and demo-
cratic political evolution. But by themselves they are certainly not
sufficient. While one should not underestimate the effect of a growth
rate of even 1 percent per annum-this would double the standard of
living in two generations-aroused expectations do tend to outstrip
the means for their fulfillment. Moreover, given the unsettling effects
on institutions and habit patterns of economic development efforts,
a little extra food in the stomach can hardly be expected to insure
ECONOMIC ASSISTANCE PROGRAMS
21
stable and harmonious political development. Hope for steady but
slow material improvement is important, but it is not enough.
In what other ways, then, can economic development programs, if
properly designed, serve to promote political maturity?
Very briefly:
(a) They can do so by posing for the leadership and the people
of a poor country challenging and constructive internal tasks
which will capture the imaginations and harness the energies
of individuals throughout the society. In eliminating those
bottlenecks to economic growth which are outside of their con-
trol, we make it possible for the people of these countries to tackle
their pressing internal problems with a serious hope of meaning-
ful progress by nontotalitarian methods. This hope, and the
challenge to make good on it, offer a healthy focus for the strong
nationalism of the newly independent peoples-a focus much
needed to nullify the appeal of irresponsible extremist movements
which feed on hopelessness and the opiate of past revolutionary
glory.
(b) They can do so by spurring action which has meaning in
terms of the emerging aspirations of all classes and regions in
the society. It is possible, by a well-designed program of eco-
nomic development, to channel energies toward activities of joint
benefit to most groups in society and away from conflicts of in-
terest. Anticommunism and an abstract conception of democracy
have little meaning for illiterate people on the verge of subsistence.
On the other hand, a consciousness that things are happening
which concern their well-being and that of their children, and
that these are things in which they themselves can participate,
can provide a sense of community in which seeds of class struggle
and violence tend to die.
(c) They can do so by increasing and encouraging new, young,
and vigorous leadership at local, regional, and national levels.
A well-designed development program, with sufficient emphasis
on widespread village and community development, not only pro-
vides a constructive outlet for existing leaders but also can create
tremendous opportunities for talent and energy throughout the
society. This implies new and constructive options for advance-
ment for the ambitious young who are not of the old ruling
groups and a vast widening of the sources from which leaders can
be drawn.
(d) They can do so by increasing social and economic mobility,
shrinking the gap between the city and the country, the Western
educated and the provincial, and, most important, by promoting
a diffusion of power. Widespread economic development requires
and creates opportunities for movement and mixing among diverse
groups in a society. It tends to increase the choices open to people
at all levels of society-of where to live, where and at what to
work-and hence reduces unilateral dependence on particular
employers or on the approval of particular communities. Such
an increase in choices, in turn, dilutes the monopoly position of
traditional wielders of power and provides the basis for those
"checks and balances" at all levels of society which mark a mature
democracy.

22
ECONOMIC ASSISTANCE PROGRAMS
(e) They can do so by giving an opportunity for the people of
these countries to develop an increasing measure of confidence,
as nations, and as individuals and small communities, that they
can make progress with their problems through their own efforts.
The principal reason for believing that some growth in economic
output, even at a slow rate, is critically important to political
stability is that growth has become an increasingly important
symbol to these peoples of their capabilities, their national worth,
and their national dignity. If it is widespread through the
country and based upon a good measure of local community
initiative, such growth can become a vital symbol of individual
and community as well as national achievement. The Commu-
nists are saying through the countryside, "Your leaders are bank-
rupt. You can do nothing under the present system to work
toward the satisfaction of your hopes. Join us and we will give
you a meaningful mission." There must be an alternative to
this appeal if democratic evolution is to succeed. A program of
economic development, reinsured by United States assistance,
can provide such an alternative.
It is important to note that these political and social effects of a
development program can be expected to have immediate as well as
delayed consequences. Their ultimate consequence, to be sure, lies in
the achievement of a viable and more or less mature political democ-
racy. But economic aid can have a constructive effect on political
behavior from its inception. By making it possible for a poor country
to make progress with its internal problems, aid can sharply alter its
leaders' conception and evaluation of the choices they confront.
Specifically, it can reduce the relative attraction of an aggressive, ad-
venturist foreign policy and make an inward focus of attention—a
focus on domestic performance as the primary test of success—more
feasible and attractive.
Egypt is a case in point. If at the time of the Naguib revolt, or even
during the early days of Nasser, America had made a serious offer to
help Egypt tackle her internal economic problems on a meaningful
scale, then it is at least conceivable that Egypt would by now be a model
for the Middle East. The commitment of the young officers of the
anti-Farouk revolution was to independence, dignity, and respect for
their country. One path to these ends would have required a concerted
attack on their age-old internal problems of poverty and stagnation.
But this was a tortuous path at best, and without substantial and
sustained outside help in the form of capital and technical assistance it
could well have appeared a dead end. Since a serious American com-
mitment was not forthcoming, it became virtually inevitable that
Nasser and his colleagues would choose the other path, the path of pan-
Arab adventurism.
The Egyptian episode suggests a further point of some importance.
The United States and the Soviet Union, in precarious military stand-
off, are both reluctant to invoke force even against minor uncommitted
third nations. Each fears that the other might feel its interests suffi-
ciently threatened to counter with a military commitment of its own
and possibly set in motion a sequence in which each side progressively
"ups its ante" until it is no longer feasible for either to back down.
Such self-restraint by the big powers on the use of force provides an
umbrella for frustrated little powers inclined to mischief. To mini-

ECONOMIC ASSISTANCE PROGRAMS
23
mize the temptation to mischief-which inevitably increases the risk
of a big war-we must provide whatever positive (and negative) in-
centives we can to cause the smaller powers to concentrate their na-
tionalist compulsions on their own internal development. An effective
aid program is our single best instrument to this end.
Last, a note of caution is in order. None of the above effects is an
automatic consequence of aid or of growth in the level of output. Nor
do any of the effects necessarily associate with stability. Political
and social change inevitably involve turbulence. The burden of the
above argument is only that (a) since change is already inevitably
underway in most of the countries at issue, the option of relying on
semifeudal stability is not open to us; (b) the United States has a
unique capability to steer such change in constructive directions, to
reduce in intensity the internal conflicts and convulsions associated
with social change; (c) while our influence is limited and success
hardly certain, it is nevertheless overwhelmingly in the American in-
terest to commit our full potential to guide such change, notably since
without help these countries may well strike a bargain with
totalitarianism.
3. That if a majority of the underdeveloped countries, notably those of
Asia, demonstrate over a 10- to 20-year period that they are able to
meet and progressively resolve their internal problems without
resort to totalitarian solutions, and given, still, sustained Western
deterrence to military adventure, then the only rational option re-
maining to the Soviets will consist in a negotiated settlement with
strong built-in safeguards against international violence
From the vantage of 1947, the prospects for Soviet supremacy in
Eurasia hinged on the possibility that at least one of the following
might happen:
(a) Western Europe, notably France and Italy, unable to
solve the problems of rebuilding and revitalizing, and facing the
threat of Soviet armies in the center of Europe, might turn Com-
munist. By 1950, partly in consequence of the Marshall plan, the
likelihood of such an outcome had virtually disappeared.
(b) The United States might so fall behind in the arms race
as to permit the Soviets either to knock out at one blow our retalia-
tory capability or to cow us into sitting by while they threatened
or fought their way to control of West Germany and thence of the
rest of Western Europe. As of 1956 this is probably a waning
but not negligible hope in Soviet eyes. It will vanish only if we
convincingly demonstrate over a period of years that we can and
fully intend at least to match them in weapons-delivery capacity
and air defense.
(c)_The underdeveloped regions of Asia, perhaps Africa, and
then Japan might be drawn into the Soviet orbit of influence by
diplomatic, political, economic, and limited-military means. It
is the burden of much of the above that, while as of today this last
possibility is wide open, a properly designed program of economic
assistance carried out against a background of deterrence to mili-
tary adventure could cause it to vanish within the foreseeable
future.
24
ECONOMIC ASSISTANCE PROGRAMS
Against this view of Soviet Russian prospects, the third premise
of our strategy of resolution becomes clear. The strategy implies that
our best chance for a favorable settlement of the cold war lies in effec-
tively denying the Soviets all three possibilities for preeminence in
Eurasia. Specifically, it is designed to block the currently most acute
possibility, the third, by helping the uncommitted nations achieve
economic growth and social change on the basis of expanding demo-
cratic institutions.
None of the above implies that the strategy, if successfully pursued.
guarantees a once-for-all settlement of all power conflicts after which
we could forget the outside world and live happily ever after. It does
imply that there would be a much increased chance that the Soviets
would seriously consider, as an alternative to an endless and costly
cold war, a scheme of universal armaments limitation with control and
inspection and a settlement in Europe which would unify Germany,
free Eastern Europe, and permit their participation in some form of
European federation. The resulting arrangements would require
continuing United States commitment and attention, but such atten-
tion would assure a world environment in which the likelihood of
violence on a grand scale had been virtually eliminated.
4. That it is an essential American interest, even apart from the cold
that the emerging nations of Asia and Africa achieve eco-
nomic growth and social maturity within a democratic frame-
war,
work
Although the present acute threats to American society stem from
the exploitation by Moscow and Peking of revolutionary transforma-
tions in the previously inert half of the world, in terms of a 50-year
perspective these transformations of the uncommitted nations could
portend serious dangers even if communism were to vanish as a factor
in international politics. If the pressures on these heavily burdened
countries drive them to seek solutions by authoritarian rather than
democratic means—and there are ample roots in many of them for
nondemocratic development-we could be confronted in 30 years with
a preponderance of strong societies whose orientation was funda-
mentally anti-American and antiwestern. Such an outcome is not
at all impossible. The colonial heritage of these regions, their latent
sense of hostility due to the problem of color, and the strains of catch-
ing up with the industrially advanced countries might well lead to
attitudes of fixed and dangerous hostility and to a split of the world
along new lines.
On the other hand-and this is the fourth premise of our strategy of
resolution-if these emergent nations achieve economic growth and
social maturity on the basis of expanding democratic institutions,
their interests and those of the United States will become increasingly
identified. Successful democratic societies-where power over im-
portant decisions is widely shared, where both a legal framework and
a general consensus insure against arbitrary use of coercion and force,
where there is freedom of debate and dissent-are likely to have inter-
ests and purposes in the world at large, on the big issues of peace and
security, which converge with those of the United States. Conver-
gence to a community of purpose is all the more likely if by means of
a boldly conceived program of economic assistance we constructively
associate ourselves with the evolution of these countries.

ECONOMIC ASSISTANCE PROGRAMS
25
SUMMARY
The American national interest as we have defined it requires a
policy whose first task is to maintain a stable balance of military
power. Economic aid can contribute to this task insofar as it bolsters
military strength and the will to resist Communist aggression, par-
ticularly in the nations bordering on the Soviet bloc. But above and
beyond this task of deterrence, the national interest requires a positive
policy toward the new underdeveloped and basically uncommitted
nations outside the Soviet bloc.
This section has outlined a strategy for the United States which
could, if successfully pursued, create a world environment conducive
not merely to this country's physical survival but to its continued
evolution as a free society. Specifically, the strategy calls for a pro-
gram of economic assistance to promote the self-sustaining growth of
the underdeveloped countries of the world. An effectively designed
program of aid for economic development is the best instrument
available to the United States for encouraging the growth of politi-
cally mature, democratic societies. A world in which such societies
predominate is our best hope for peace.
SECTION III
THE RELATION OF DEVELOPMENT ASSISTANCE TO AID
PROGRAMS HAVING OTHER PRIMARY PURPOSES
INTRODUCTION
The preceding section has set forth the basic assumptions behind
a program of aid designed to promote the economic development of
the underdeveloped areas. But economic development is only one of
several purposes which the United States has tried to achieve through
its aid programs in the past. As explained in section I, our aid
programs since the war have had a variety of other objectives in
response to the changing circumstances with which our foreign policy
has had to deal. This section will examine the relation between pro-
grams with development objectives and those designed to serve other
ends.
In our view, granting that aid programs can be made to serve some
nondevelopment objectives, certain of the nondevelopment objectives
often associated with aid programs appear to be falsely based either
on misconceptions as to the effects aid programs can be expected to
have or on incorrect appraisals of the United States interest. First,
we shall discuss aid objectives other than development which seems
to us valid. The most important of these is aid designed to strengthen
the military potential of the recipient country. Aid may also usefully
be given for such other purposes as to relieve famine and distress
resulting from crop failures or natural disasters; to tide foreign
countries over short-term economic crises resulting from such causes
as interruption of the oil flow to Western Europe through the Suez
Canal; or to assist a regime politically acceptable to us to weather a
budgetary or other short-term crisis in order to avoid its replacement
by a less friendly regime.
Serious problems arise as to how programs with such purposes
should be related to development programs. Can development pro-
grams be kept distinct conceptually from programs with these other
purposes? Should planning and budgeting for programs with these
various different purposes be separated, or are they all such integral
parts of the overall pattern of American foreign policy that they
should constitute part of a single program? If they can be kept
separate in concept and in programing, can and should they be kept
distinct in administration, either in Washington or in the field? This
section will first deal with such questions as these and then will con-
sider some of the arguments which have been advanced in support
of foreign-aid programs which we believe to be invalid.
THE PLACE OF MILITARY AID
Quantitatively the bulk of our aid in the last few years has been
designed to achieve military purposes. That portion of military aid
26
ECONOMIC ASSISTANCE PROGRAMS
27
which has been directed to the already developed countries of Western
Europe does not raise any of the problems of integration with devel-
opment assistance outlined above. However, a very substantial frac-
tion of our military aid since the Korean war has gone to such under-
developed countries as Korea, Taiwan, and Indo-China, where these
problems are serious.
The first step in exploring them is to clarify some of the semantic
confusion over the differences between "development" and "military"
aid. As we have seen in section I, the United States became involved
in foreign aid in response to a variety of specific and acute crises.
Out of these responses grew a United States commitment to use aid
as an instrument of foreign policy. Each crisis, however, called for
somewhat different arrangements and a different emphasis. The aid
programs we devised were not based on any neat and logical distinc-
tions between "military" aid and "development" aid, but on the spe-
cific requirements of our foreign policy. Public discussion of foreign
aid, on the other hand, has tended to assume that we have at least two
separate and distinct categories of foreign assistance.
In the public mind, "military" aid has generally been viewed as
following directly from considerations of our immediate national
security and our strategic interests. This attitude has contributed
to the assumption that "military" aid is based on "hard" calculations
and "realistic" premises. In contrast, "economic" aid has sometimes
been identified more with America's basic humanitarian and idealistic
sentiments. Thus there seems to be a vague but generally held attitude
that, whereas "military" aid is closely tied to our own national interest,
the case for "economic" aid rests principally on the needs and abilities
of the recipient countries.
The previous section has attempted to demonstrate that aid for
economic development is in fact just as closely related to the American
national interest as is military aid. In the actual operation of our
foreign aid, moreover, it would be difficult to distinguish such a sharp
difference between the two categories. It is possible to note six general
types of objectives which we have pursued with military aid. In
some of these, whatever the differences in objective, the actual proj-
ects undertaken and the goods and services supplied are often hardly
distinguishable from those in some of our development and other
economic aid programs.
First of all, we have given military aid in order to provide the
psychological support necessary for economic and political stability.
Our early NATO program and our aid to Turkey were largely of this
character. Secondly, we have provided assistance in such civil-war
situations as developed in China and Greece, in which the bulk of the
aid was designed to increase combat efficiency but a portion was also
directed to strengthening the economic and political position of the
government.
A third objective of military aid has been to create ground-force
deterrence against limited wars; this has been the major rationale for
aid to Pakistan, South Korea, and Taiwan. Closely related to this
have been our efforts to strengthen our overall deterrence system with
respect to atomic warfare. Under this fourth category would come
some of our aid to NATO and our entire program for developing an
advanced base structure. More recently, military aid has been used
28
ECONOMIC ASSISTANCE PROGRAMS
to strengthen the capabilities of underdeveloped countries to counter
subversion. The concept underlying SEATO was that we would not
only provide assistance to the armed forces of the other member na-
tions but would also cooperate in reducing the economic and social
problems which make subversion a danger in their societies.
Finally, there have been situations in which assistance initially
designed to meet a military crisis subsequently had to be devoted to
activities outside the normal range of "military" aid, including many
functions usually associated with "economic" aid. Our aid to Indo-
china, for example, was originally given to meet a military situation,
and it is generally assumed that our present extensive aid to Vietnam
has continued to be largely of a military variety. Since the Geneva
truce, however, we have been prevented from supplying military end
items, and now only a small fraction of our aid to Vietnam goes di-
rectly to the armed forces. The bulk of this "military" aid is devoted
to creating the basis for a viable economy by checking inflationary
pressures, providing food and consumer goods, creating some social
overhead in the form of roadbuilding and canal construction, raising
standards of public health, and, indeed, financing most of the current
functions and programs of the Vietnam Government. Likewise, our
"military" aid to South Korea and Taiwan has been directed increas-
ingly to meeting economic and social problems. While much of our
aid in these two countries has been in a sense "economic," most of it
has been designed to permit current operation of an economy burdened
by staggering military costs rather than to promote economic growth
and development.
It is apparent, then, that in the past our military aid has not always
been guided merely by narrow considerations relating to force levels
in the recipient countries. Indeed, the trend seems to have been in
the direction of a rather broad definition of what constitutes defense
support. In part this has come about because once we began to give
military aid to particular countries we found that in order to make
that aid effective we would have to assume responsibilities not gen-
erally considered to be "military." In part this new trend can also
be explained by the new dimensions which our strategic problem has
assumed, largely as the result of the atomic stalemate.
Initially we had hoped that it might be possible to create around the
border of the Communist bloc local strength adequate to contain
Communist forces. It is now becoming increasingly apparent that,
since any general war which threatens our security will probably have
to be fought largely by our own military forces, our security interests
in the underdeveloped areas can best be met by strengthening the
capacity of these countries to resist internal subversion and limited
forms of aggression. To the extent that countries receiving our aid
can reduce the likelihood of internal disorders and subversion our
defense problem will be lightened, but we cannot expect such coun-
tries to build strong enough defenses to resist all-out Communist mili-
tary aggression. This strategic concept has not yet, however, led to a
redesign of our military aid programs, which are still directly or
indirectly designed to make possible the maintenance of standing
armies much larger than these countries could otherwise afford.
Purely in terms of strategic considerations, therefore, it is likely
that we shall become increasingly interested in the problem of political
ECONOMIC ASSISTANCE PROGRAMS
29
stability in the underdeveloped countries. In some instances this may
mean that it will continue to be necessary for us to supply assistance in
strengthening their armies and their internal security forces. More-
over, as long as situations exist within these societies which breed
discontent and provide opportunities for subversive elements, our stra-
tegic interest will require us to assist them in resolving their social and
economic problems. Thus it would seem that, even though our con-
cern may stem from strategic considerations, the distinction between
"military" and "economic" aid will be less meaningful as long as both
forms of aid give high priority to encouraging political stability.
If we view the problem from the point of view of the recipient
country, it is apparent that the military sphere cannot be isolated from
the political and the economic. Any "military" aid received will have
a direct bearing on many different aspects of life in the society; mili-
tary aid can serve either to complement or to hinder efforts at inducing
economic growth and political stability.
Indeed, in many respects even narrowly defined forms of military
aid can play an important role in encouraging economic development.
A modern army is a highly complex organization which is in some
sense comparable to an industrial organization, and it requires people
trained with the attitudes and skills appropriate to an industrial
society. The individual soldier must not only learn to handle ma-
chines but must adopt attitudes consistent with the impersonal rela-
tions of a bureaucratic organization. Possibly of greater importance
is the fact that the army environment provides an opportunity for in-
stilling new political attitudes and creating the sense of national unity
necessary for the stable development of the country. The role played
by the army in developing a sense of nationality in Israel may well
be repeated in other underdeveloped countries. One could cite many
historial examples which demonstrate that the effort to build a modern
military establishment has played a major part in stimulating the
development of more modern attitudes and skills within a traditional
society.
On the other hand, it is equally clear that the attempt of an under-
developed country to maintain an excessively large military establish-
ment can be a serious handicap to economic development. Under such
conditions limited resources are diverted from investment and the in-
flationary pressures which result cannot be checked by increased pro-
duction. Any large defense budget is bound in some degree to conflict
with the goals of a development program by diverting resources to
military purposes which could otherwise be used for developmental
investment.
This discussion should make it apparent that the relationship be-
tween "military" and "economic" aid is more complex than most pub-
lic discussion of foreign aid would suggest. Purely on the basis of our
strategic interests, a considerable area of overlap exists between the
two forms of assistance; "military" aid can in some ways directly con-
tribute to economic development. Military requirements can also,
however, impede economic growth.

OTHER VALID AID OBJECTIVES
If we define "military aid” as aid the purpose of which is to per-
mit a country to support a larger military effort than it could other-
30
ECONOMIC ASSISTANCE PROGRAMS
wise support, and if we consider development aid as aid undertaken
to permit a more rapid rate of economic growth than would otherwise
occur, it is clear that these two categories by no means cover all the
situations in which economic contributions may serve American na-
tional interests. A number of other uses of aid come to mind. We
have in the past, for instance, devoted a substantial volume of re-
sources to alleviate severe human suffering and distress caused by
military conflict, by crop failures, by earthquakes and floods, and
by civil disturbance. Our purposes in such cases are partly humani-
tarian and frequently partly political as well. For one thing, ex-
treme distress creates situations of potential political instability;
moreover, it is in our long-run interest to take every occasion to em-
phasize that the United States has a genuine concern for the welfare
of ordinary people everywhere, whatever their ideologies or the poli-
cies of their leaders. We should undoubtedly have standby ma-
chinery to make it possible for us to extend this kind of emergency
assistance on short notice.
From time to time countries find themselves in serious economic
difficulties for which their own policies may or may not be responsible.
Abnormal circumstances may shut them off from normal sources of
supply, markets may be denied them by political or military develop-
ments abroad, fluctuations of the prices of raw material exports on
which they rely for the bulk of their foreign exchange may create
balance-of-payments problems, and so on. Here too, although there
may be none of the immediate human suffering associated with the
sorts of emergencies described above, important considerations of
national policy may suggest the wisdom of making United States re-
sources available to help the recipient country meet the crisis. The
unanticipated interruption of oil supplies to Europe resulting from
the blockage of the Suez Canal and the damage to oil pipelines is a
typical example of this kind of situation. We may be concerned about
such developments because they threaten political stability, because
they weaken the security of military allies, because they react dam-
agingly upon our own economy, or because they can be utilized by an
enemy to further his purposes. Each situation of this kind is likely
to be a special case in which a decision on the United States interest
in supplying aid must be made on an ad hoc basis according to the
particular circumstances.
There may be situations in which our economic instruments can
and should be used effectively as adjuncts to our short-term political
policies. As will be explained later, we believe that the use of eco-
nomic inducements to facilitate political or diplomatic negotiations
involves serious dangers and should be resorted to only very rarely,
but it would be rash to assert that situations will never arise in which
an economic offer will be useful in a political negotiation. More gen-
erally, a strategy of promoting political stability and independence
in foreign countries may call sometimes for military assistance, some-
times for types of economic aid not directly related either to military
potential or development prospects.
It is difficult to generalize about the kinds of criteria that should
govern any of these additional types of economic assistance. Their
use will be governed not by any general philosophy as to the objec-
tives of aid programs but rather by foreign policy considerations
ECONOMIC ASSISTANCE PROGRAMS
31
specific to the particular situation in question. They cannot be dis-
tinguished from military aid or development aid either by the types of
goods shipped or the particular uses to which those goods are put.
Food may be called for in an economic aid program to meet an emer-
gency famine, to feed an enlarged army, to release food from civilian
consumption for military use, to feed workers engaged in develop-
mental investment, or to release domestic supplies for developmental
purposes. A harbor may be modernized to permit more active troop
movement, to expand the gross product of the receiving country, or to
bring support to a friendly regime which has promised harbor mod-
ernization as a symbol of modern achievement. Examples need not
be multiplied to demonstrate that the purposes for which an aid
program is undertaken cannot be discerned solely from an examina-
tion of the activities comprising it.
THE RELATIONS AMONG AID OBJECTIVES
With this background we can now examine the questions raised at
the beginning of this section, namely: (1) Can programs with develop-
ment as their prime objective be kept conceptually distinct from
programs with other purposes? (2) Should we have separate plans
and budgets for development programs and for other aid programs?
(3) Can and should development programs be administered separately
from other aid programs?
To explain the differences in concept is not too difficult. A program
with development objectives takes the military program of the recipi-
ent country and its present external political relations as given and
asks the question whether, in the light of the existing military and
political situation, a contribution of capital resources from the outside
can have a significant impact on the country's rate of economic growth.
If such an impact is foreseeable, the conditions for development assist-
ance can be considered met and the assistance should be provided.
If the conclusion should be that, for whatever reason, given the total
situation of the recipient country, additional capital will not make a
sufficient difference to the rate of growth, development assistance
should not be given.
A military assistance program, on the other hand, takes the economic
position of the country as given and asks how much aid in what forms
will be required to bring the country's military forces up to a level
and quality satisfactory to military planners. Estimates for each
program are of course closely dependent on each other. It might
well be, for example, that an unfavorable estimate of development
prospects would be based on an excessive allocation of the country's
resources to military activity. If this level of military activity were
nevertheless judged to be in the United States strategic interest, a
military aid program might well be proposed to help maintain the re-
quired level of military activity without danger to the economy sup-
porting it. Should such military aid be granted, the judgment on
development prospects might then be reversed and a favorable decision
reached on development aid. The fact that grants of either of these
forms of aid might materially raise the likelihood of achieving the
purpose of the other form does not invalidate the conceptual distinc-
tion between the two. The same sort of conceptual distinction can
32
ECONOMIC ASSISTANCE PROGRAMS
be made between development aid and other nonmilitary forms of
economic aid.
If these programs can be distinguished conceptually, is it also prac-
tical to think of budgeting and planning development aid separately
from other forms? Clearly these various forms are interdependent
in that a decision on the magnitude and character of any one form
can only be made if the resources to be made available through other
programs are known. There is no reason, however, why a develop-
ment program cannot be planned and budgeted on the basis of assump-
tions about the other sources of assistance available to a country.
Presumably a country making a request for development assistance
would in any case be required to disclose fully what it anticipated in
the way of total resources available from abroad.
Final planning and budgeting of development aid should certainly
be coordinated in the final stages as closely as possible with planning
of other forms of aid, just as it must be coordinated with planning of
the recipient country's entire development program. Planning based
on assumptions must naturally be adjusted to the extent that the
assumptions turn out to be incorrect. The fact that the various aid
programs are closely interdependent is nevertheless not sufficient reason
for supposing that planning and budgeting may not be separated.
A development program can clearly make decisions as to the desir-
ability and character of development assistance independently of the
decisions to be made by other programs.
If we judge that planning and budgeting of development aid need
not be carried out by the same agency that plans other types of aid,
we may then proceed to ask whether such a separation is desirable. A
number of considerations argue that the effectiveness of a develop-
ment program will be enhanced if it is planned and budgeted inde-
pendently of other aid programs.
The criteria for allocating development aid are, as has been sug-
gested above, not the same as those for military and other forms of
aid. It would, therefore, be a mistake to charge the same agency of
Government with administering both programs. To require the same
agency which negotiates on military bases and force levels also to
negotiate in the same country about the allocation of funds for eco-
nomic development on the basis of wholly different criteria would run
the risk that in fact the two sets of negotiations would not be kept
independent. The United States agency allocating development
funds should not have to consider anything beyond the technical
criteria which have been established. It should never seek, for ex-
ample, to influence negotiations on an airbase by granting or denying
funds for construction of a hydroelectric station out of economic
development appropriations.
In addition to the difficulty involved in actually keeping the criteria
for the different aid programs distinct, to merge planning and budget-
ing of all programs would seriously distort the image of our purposes
which we want to present to the underdeveloped countries. It may be
a condition for the success of a development program that it be made
unmistakably clear that our assistance is not contingent upon narrow
political concessions and does not carry political "strings." Section
II has outlined our reasons for believing that sustained economic
growth of the right sort will in itself help a recipient country realize
ECONOMIC ASSISTANCE PROGRAMS
33
political stability and more democratic institutions and that therefore
aid need not and should not be used as a weapon to drive short-term
political bargains. Although our current knowledge and theories do
not make it possible to predict with any certainty the impact of
economic growth on political development, it can at least be claimed
that a politically neutral program of economic aid will provide a
setting in which the other instruments of foreign policy can operate
more effectively. This kind of neutrality can best be attained if
development aid planning is carried out separately from military and
other aid planning.
Moreover, many of the "uncommitted" potential recipient countries
such as India and Burma will be more receptive to our aid if they
know it to be based solely on economic criteria; they might balk at
accepting aid if it were administered by the people at all levels at
home and in the field who handled aid designed to meet our pressing
political and military problems. In order to provide the best environ-
ment for economic development, it is also essential for the recipient
government to know that there will be continuity in our aid programs
and that they will not be cut off as a result of American domestic po-
litical developments or shifts in the world political picture.
The existence of a separate planning agency for economic develop-
ment could also have a beneficial effect on development planning in
the underdeveloped countries themselves. These countries would
understand clearly that since development aid was being granted
according to fairly strict economic criteria they must prepare their
own plans carefuly enough to satisfy these criteria. They would know
that development aid could not be expected merely because the United
States was interested in the political and military stability of their
country.
In sum, our economic aid program should be a symbol of sustained
American aspirations for a better world. It will be an ineffective
symbol if it is closely related to short-term foreign policy goals. Aid
for development will be most effectively divorced from aid for other
purposes if it is planned and budgeted separately. Our development
aid program should operate according to impartial economic stand-
ards which will be analyzed in some detail in section VI.
It should be emphasized that in urging the separation of planning
and budgeting for development aid from those for other aid forms
we are expressing no judgments as to what levels of military or other
economic assistance may be required in the future. These will clearly
be affected one way or the other by the amount of development assist-
ance made available. On the one hand, the fact that certain types
of activities contribute simultaneously to development and to military
objectives suggests that a higher development assistance program
should permit some reduction in nondevelopment aid expenditures.
On the other hand, the existence of a highly effective development
assistance program might permit enlarged nondevelopment aid pro-
grams to make certain real contributions to both military strength
and political stability which currently do not appear feasible.
As far as military assistance is concerned, the problem of supplying
military end-items and of increasing force levels will probably be less
pressing over the next few years than in the past-although the prob-
lem of countering subversion and creating political strength in the
underdeveloped areas is growing in importance. There is likely,
34
ECONOMIC ASSISTANCE PROGRAMS
moreover, to be an increase in the number of governments pressuring
us for such aid. This will especially be the case if there is a continued
shift away from the bipolar balance of world power. Egypt and
Syria asked us for military aid before turning to the Soviet Union;
Israel has persistently requested such aid; now Iraq is asking for mili-
tary assistance. The demand is heightened because of the strict con-
trols over arms exports which the governments of the munitions-
producing countries now maintain and also because of the tremendous
rate of technological change in the weapons field which constantly
forces countries to obtain newer weapons in order to keep up with
its neighbors.
The heightened demand for military assistance poses for our foreign
policy many difficult problems which cannot be dealt with here. It
may be that some of these problems could at least be reduced if we
were to insist that requests from underdeveloped countries for military
aid would only be considered by us within the context of their overall
development programs.
When we turn to the problem of separating the administration of
development aid from other types of aid the conclusion is by no means
so clear. As emphasized earlier, whatever the differences in rationale
between development programs, military programs, and other eco-
nomic programs, they will very frequently involve the same sorts of
activities. It would at the least be inefficient and at the worst seri-
ously chaotic to have three different organizations engaged, for in-
stance, in shipping agricultural products to an underdeveloped coun-
try, designing and constructing facilities, or giving technical assistance
on engineering education.
Beyond this there are, as we have already pointed out, many situa-
tions in which a program designed for one purpose can, by some
additional effort and by systematic consideration of other purposes,
be made to serve these additional purposes as well. If aid programs
are separately administered as in the past, there will continue to be
a tendency for military officials to refuse to let idle trucks be used for
urgent development purposes, or for men running technical schools
to refuse to adapt some of their courses to military needs. On the
whole it is our conclusion that, while the advantages of separate plan-
ning and budgeting outweigh the disadvantages, the reverse may
well be true of aid administration, especially of administration in
the field.
It should be noted that this conclusion has an important bearing on
the question of whether bilateral or multilateral channels should be
used for the administration of development program assistance.
Most military and other nondevelopment assistance programs will by
their very nature continue to be bilateral in character. If they are
to be administered jointly with development programs, the latter can-
not be effectively handled by an international agency. This is one
of the important considerations underlying the recommendations
made in section V on channels for the administration of aid.
ALTERNATIVE BASES FOR AID PROGRAMS
Before concluding this section on nondevelopment objectives a word
must be said about some of the objectives often attributed to economic
aid which we regard as of limited validity at best. An aid program
ECONOMIC ASSISTANCE PROGRAMS
35
intended to promote economic growth must focus singlemindedly on
this objective if it is to achieve its ends. A program designed to serve
diverse other purposes will fail of this central task. It is, therefore,
important to examine some of the specific purposes which are often as-
sociated with American aid. Are they consistent with the objective of
accelerating democratic growth? If not, do they have priority, or
would it be best to abandon them or leave them to alternative instru-
ments?
(1) It is often suggested that we should use or withhold aid to in-
fluence the foreign policy tactics of potential recipient countries. In
this view, aid is to be used as a lever to gain United Nations votes, to
secure speeches favorable to the United States, or, more importantly,
to secure and hold otherwise perhaps reluctant countries to military
alliances. Differently viewed, aid would be a device whereby we
reward our "friends."
It should be apparent that such use of aid would damage our
long-run interest. If we deny aid to India because we don't like
Mr. Nehru's foreign-policy speeches or because India is not a mem-
ber of SEATO, we deny ourselves the influence our aid might have
on the outcome of her experiment in rapid development by demo-
cratic means. In the end, to be sure, our stake in India is political:
we are concerned to influence her role in the world community. The
question is whether this is best done by bargaining for short-run
tactical gains at the very real risk that our bargains will be turned
down and that our consequent failure to help India's modernization
will cause her to turn to totalitarian solutions. Would it not be better
to use the full potential of an aid program to help the Indians build
a successful democratic society over the next two decades, a society
committed to work for a peaceful and stable world?
Our view that the American stake in the longer run internal evolu-
tion of the uncommitted countries outweighs short-run tactical con-
siderations is reinforced by the evidence that aid is usually ineffective
when used as bait or bribe. Most of the uncommitted nations are
fiercely jealous of their independence and are not prepared to barter
their freedom of action. Hence "tactical" use of aid is likely not only
to compromise its use for vital longer run purposes; it is likely to be
ineffective even in terms of tactical results.
This view does not of course preclude the possibility that acute
and high priority military situations may arise which require the use
of economic aid as a short-run instrument of political warfare or
diplomatic maneuver. But such use of aid should, as suggested above,
be sharply separated from a development program. Moreover, excep-
tions do not violate the general rule that the principal use of aid is
to promote the convergent interests of the giver and the receiver rather
than to try to coerce or bribe the recipient into action which it views.
as inconsistent with its interests.
(2) There is a widely held view that our aid should be used to put
pressure on countries to pattern their economies on some version of
the "free enterprise" model. An important specific variation on this
view would grant that a country has a perfect right to choose its
own institutions but would deny United States aid to countries with
a socialist bent.
We believe that this view derives from two fundamentally faulty
assumptions. The first-that it is possible, by using aid as a bar-
94413-57- -4
36
ECONOMIC ASSISTANCE PROGRAMS
gaining counter, to coerce a country to adopt an institutional structure
sharply different from that to which it feels committed--is contra-
dicted by experience. On the record, countries like India, Indonesia,
and Burma would simly refuse aid which was tied to a significant
redirection of their institutional growth. By attempting to make
use of our margin of influence in those countries for purposes to
which it is insufficient we would frustrate any hope of exploiting
that margin for feasible objectives.
Second, it is by no means clear that a narrowly free-enterprise
pattern is necessary to the essential purposes of American aid. "The
proposition that a considerable measure of socialization is inconsistent
with democratic political procedures and institutions is evidently
wrong. The United Kingdom was no less democratic in 1945-51
than it is today; Holland, Sweden, and Norway are among other
examples to the contrary. The essential characteristics we seek have
to do with the dispersion of power over important decisions and free-
dom of debate and dissent, and these are consistent with a substantially
different balance between governmental and private activities than
obtains in the United States.
Moreover, abstract arguments on the level of slogans, whether
socialist or laissez-faire, are almost irrelevant to the real choices con-
fronting these countries. In a free society economic efficiency and
growth require widespread decentralization of decisionmaking as
well as incentives to effort, accumulation, and risktaking. Decen-
tralization and a spur to effort are imperative even in a totalitarian
Communist setting; they are all the more so where resort to coercion
is to be sharply limited. On the other hand much investment in low-
income countries must go into roads, irrigation works, and other
activities the profitability of which, based on private cost-benefit
calculations, does not properly account for full social costs and bene-
fits. Investment must go especially into activities where profit pros-
pects are too risky for an individual private investor. The problem of
these countries is to devise a blend of institutions and procedures
which, while generally consistent with their ideological inclinations
regarding equity, opportunity, and the like, will meet these and other
requirements for growth without resort to totalitarian techniques.
There is no need to discuss here what kinds of institutional patterns
will meet these requirements. Suffice it only to assert (a) that many
of the apparent issues which separate Americans and, say, Indians
on this range of questions are purely semantic and conceal a sub-
stantial area of agreement on the big issues of democratic growth;
(b) that, nevertheless, we had better face up to the fact that there
are bound to be considerable areas of disagreement; (c) that by mak-
ing aid conditional on its being effectively used to generate economic
growth whose benefits are widely shared we can exert significant
influence on the institutional evolution of recipient countries; but (d)
that such influence is inherently limited, and any crude attempt to
force on these countries substantive or symbolic commitments which
they judge to be inconsistent with their essential interests is bound
to fail.

SECTION IV
SPECIFIC PURPOSES OF PARTICULAR FORMS OF DEVEL-
OPMENT AID AND THEIR RELATION TO EACH OTHER
AND TO THE UNITED STATES INTEREST
THE TASKS OF A DEVELOPMENT PROGRAM
Recognition of the United States interest in aiding the economic
growth of underdeveloped countries leads us to consider the specific
content of a program designed to promote that interest. In designing
a program of economic assistance for low-income cuntries the purpose
of the particular forms of aid must be matched against the problems
of fostering growth. Although the specific forms of these problems
vary from one country to the next, certain common tasks confront all
countries attempting to generate self-sustaining economic growth.
First of all, if they are to raise their level of life, the peoples of the
underdeveloped areas must have additional productive resources.
For one thing, certain key resource bottlenecks must be broken before
expansion is possible. More than that, the general scarcity relative to
population of nearly all resources creates a self-perpetuating, vicious
circle of poverty. Additional capital is necessary to increase output,
but poverty itself makes it impossible to carry out the required saving
and investment by a voluntary reduction in consumption. Even if
the bottlenecks could be bypassed, an underdeveloped country, in order
to lift itself by its own bootstraps, would have to force some portion
of the population to reduce its standard of living so as to free resources
for development. As was pointed out in section II, grave danger
exists that, if faced only by the alternatives of economic stagnation
or coercive social revolution, the underdeveloped countries will choose
the latter, thus markedly narrowing the possibilities of democratic
political development. By standing ready to supply additional pro-
ductive resources as part of its aid program, the United States can
provide a third and nonviolent means of achieving self-sustaining
growth.
A second task essential to the achievement of self-sustaining growth
is the development of technical skills in agricultural and industrial
production and of organizational and managerial skills. It is diffi-
cult for countries stagnating at low levels of income to provide the
environment required to create the skills and attitudes necessary for
economic development; yet the very lack of technical know-how and
administrative experience restricts the capacity of a country to raise
its economic level. Thus the limits of technical absorptive capacity
constitute another vicious circle preventing growth in low-income
countries. This vicious circle can also be broken; technical assistance
transmits knowledge and experience and thus creates new and im-
proved opportunities for investment.
37
38
ECONOMIC ASSISTANCE PROGRAMS
Finally, national economic development must, to be most effective,
be coordinated with international trade. Very considerable advan-
tages of international specialization and exchange flow to both buyer
and seller when trade is conducted in an orderly and stable environ-
ment. Although protection of infant industries may often be justi-
fied in countries just beginning to industrialize, a general trend by
each underdeveloped economy toward national self-sufficiency would
only increase the obstacles to rapid economic development. Tendencies
toward economic isolation are understandable as long as unstable for-
eign markets and exchange rates and unilateral trade restriction
periodically dislocate domestic industry and labor. These tendencies
cannot be offset merely by exhortations to underdeveloped economies
to expand their investment in export industries. The already-de-
veloped nations must stand ready to admit these exports of manu-
factures as well as of raw materials. Specifically, the United States
should, in its domestic and foreign policy, encourage world trade if it
wishes to make most effective use of its economic assistance.
The tasks of fostering self-sustaining growth are difficult and com-
plex. They assume different forms at different points in the process
of change from stagnating to economically developing societies, and
they vary according to the unique characteristics of each society. Yet
there are certain uniformities. In the early stages of development,
when the lack of technical skills and organizational abilities is a major
barrier to investment, high priority will have to be given to the de-
velopment of the ability to utilize additional resources. In the early
stages certain types of capital formation such as in roads, power, and
water supply are also essential. Such capital formation, besides
being vital to the success of later investment, helps to create an environ-
ment which stimulates acquisition of new attitudes and skills.
After the groundwork has been laid, the pattern of investment can
concentrate on filling in the structure which the economy is finally to
assume. However, as particular bottlenecks are broken and the ca-
pacity to utilize resources is raised, general resource scarcity becomes
a more serious factor.
As this discussion of the changing requirements of an assistance
program implies, continuity is an essential feature of a successful de-
velopment program. The need for continuity is particularly great
because growth problems cannot be solved without changing deep-
seated attitudes and channeling new energies by the slow process of
education. To create effective administrative institutions takes time;
and even in the most favorable circumstances intentions can be trans-
lated into economic realities only by the gradual accumulation and
transformation of productive resources. To be successful, a growth
program must take this time factor into account by providing for
continuity of effort. Moreover, only a program geared for a long
haul will appear realistic enough to the peoples of underdeveloped
areas to gain their support.
The achievement of self-sustaining growth requires, then, a compre-
hensive, flexible, and long-term program. The forms of economic
assistance which this section discusses can be most effectively directed
to solving the major growth problems when they are combined in an
operation tailored to the special circumstances of particular countries.
ECONOMIC ASSISTANCE PROGRAMS
39
THE FORMS OF ECONOMIC ASSISTANCE
To decide upon the proper combination of instruments of economic
assistance for each country, there is necessary a clear appreciation
of the potentialities of the various forms of assistance as well as of the
tasks which must be accomplished. Section VI, below, discusses the
criteria for determination of both types and amounts of assistance.
The remainder of this section will consider the specific purposes to
which the different forms of economic assistance are directed. It is
customary in discussions of this sort to distinguish between "direct"
and "indirect" forms of economic assistance, although the boundary
lines between the two are often indistinct. Direct assistance for the
most part refers to forms of aid which immediately increase the amount
of productive resources available or improve the capacity to absorb
and use resources. Indirect assistance, on the other hand, operates
by making the general economic environment more conducive to
growth.
DIRECT ASSISTANCE
The forms which direct assistance may take include technical as-
sistance, grants and loans, surplus agricultural products, nonagri-
cultural grants in kind, counterpart funds, and military defense sup-
port and offshore procurement. Since each of these has its own po-
tentialities and limitations, they must be considered separately.
1. Technical assistance
Technical assistance directly attacks the bottleneck on growth re-
sulting from inadequate technical know-how and organization skills.
Thus its significance transcends the relatively small amounts of money
which it requires.
Although technical assistance has a major role to play in any de-
velopment program, it is nevertheless clear that good advice will not
by itself create self-sustaining growth. Technical assistance does
not provide the additional resources necessary to lift the rate of
growth of production above the rate of population growth, and there
have been very few situations in underdeveloped countries in which
some additional productive resources have not been required to make
even the technical assistance effective.
Technical assistance makes its maximum contribution as part of an
overall program of development. It can help make investment pro-
grams effective; it can suggest desirable uses of additional resources;
it can help develop techniques particularly suited to the resources in
particular areas; and it can help lift the level of knowledge and indi-
vidual productivity. By establishing personal contacts between dif-
ferent peoples on a working level, technical assistance can indirectly
contribute to a wider understanding of different modes of life.
Agriculture has, perhaps, been its major beneficiary, but technical
assistance has been and should continue to be valuable in all economic
sectors and at all stages of development. The achievements of the
United States agricultural extension workers abroad have often been
spectacular. The talents of the United States businessman and engi-
neer, on the other hand, have not yet been so fully mobilized. More-
over, technical assistance should not be confined to the level of the
production process. Organizational and administrative skills are often
40
ECONOMIC ASSISTANCE PROGRAMS
as seriously lacking as technical know-how, and technical assistance
can play an important role in their acquisition. Aid in the formula-
tion and organization of a development program may at first be the
most significant form of assistance possible for those least developed
countries whose leaders have the vision but not the technical staff to
prepare for development.
2. Grants and loans
The purpose of Government grants and loans in an aid program is
to provide in a flexible form the additional resources needed for de-
velopment. Such governmental assistance can be reduced to the ex-
tent that private initiative can supply the capital necessary for de-
velopment through private international investment. It would, in
general, be preferable to let private investment bear the burden if it
were forthcoming in amounts adequate to achieve United States policy
objectives. Unfortunately, there are good reasons why private invest-
ment cannot be expected to do the job in the future any more than it
has in the past.
Absence of self-sustaining growth is itself the greatest single deter-
rent to private investment. Since individual investors judge rightly
that they cannot themselves create growth throughout the economy,
they are reluctant to take the risks of new enterprise where the con-
ditions of vigorous development are absent. The chances of failure
are increased by the lack of related supplying industries and growing
markets. Even when individual projects give promise of success, the
difficulties of transferring profits from a stagnant economy will deter
private investors. Finally, many of the most needed types of projects
in underdeveloped countries, such as land reclamation and highway
construction, are by their very nature not attractive to private
investors.
The activities of such lending agencies as the International Bank
for Reconstruction and Development and the Export-Import Bank,
while significant, are also not capable of expansion to the degree neces-
sary for a general development program. Like private investment
they are carried on under conditions which restrict the scope of their
operations. Forms of government aid other than grants and loans
which can be used to provide resources, such as grants of surplus agri-
cultural products, are for various reasons too limited in scope to pro-
vide the amounts and variety of capital required.
Thus government grants and loans, in proportions which will vary
from country to country, must be expected to play a major role in an
effective assistance program. Successful use of these two forms of
aid will, moreover, increase the scope for international investment
from other sources.
Grants and loans can be made in a number of possible forms, vary-
ing in the terms imposed and the commitments assumed. The major
advantage in using a variety of loan and grant forms is that it permits
flexible adaptation of assistance to local conditions and needs. The
obligations of underdeveloped countries may, for example, be reduced
by "soft" loans calling for repayment in local currency rather than
in the currency loaned. Developing countries have sometimes pre-
ferred such loans to outright grants, which, they feel, may more easily
be accompanied by conditions unacceptable to them. Under certain
circumstances, however, grants are better suited to meet development
ECONOMIC ASSISTANCE PROGRAMS
41
problems than are loans. One important factor to be considered is
the foreseeable export potentiality of a country; since loan service
requires exports, a low export potentiality may increase the need for
grants. In general, maximum flexibility in reducing the distinction
between grants and loans is desirable. In order to increase flexibility
such additional methods may be employed as long grace periods, and
other provisions of postponing repayment, low interest rates, and
long loan terms.
On the other hand, there are also dangers involved in assistance
terms which reduce the differences between loans and grants. For one
thing, if terms are too easy, an underdeveloped country may tend not
to face squarely up to the problem of loan repayment; a clear recogni-
tion of that task can often have a salutary effect on savings rates and
may encourage tendencies toward economic self-sufficiency. It has
also been suggested that "fuzzy" loans made with such lenient provi-
sions as to be not very different from grants may spoil the market for
private international loans more than would straightforward grants.
A case is sometimes made for employing grants on particular
projects, typically projects providing basic utility and social services;
loan aid is then recommended for industrial and other profit-making
activities. As will be pointed out in section VI, however, the "project
approach" fails to take account of the integral character of economic
development. The ability of a particular project to repay cannot
be made the basis for apportionment of total resource aid between
loans and grants, for the crucial factor is the ability of the economy
as a whole to service loans while continuing to grow. Foreign cur-
rency loan repayments represent a drain on resources available for
internal investment. Whether such drains will prevent self-sustain-
ing growth depends on the savings rates and finally on per capita
incomes of the country. Countries with low incomes and low rates
of saving would find loan repayment more difficult than more ad-
vanced countries, even though the specific projects receiving aid were
equally successful. The character and speed of economic progress
and thus the ability to repay loans are also much more uncertain
when development requires the complete transformation of impov-
erished and stagnant societies. These considerations are the proper
bases for the argument that countries at early stages of development
should receive a larger proportion of grant aid than countries with
higher per capita incomes at later stages of development.
3. Surplus agricultural products
Surplus agricultural products provide a particular kind of resource
which is scarce in underdeveloped areas. Growth itself increases the
demand for agricultural products, and heightened demand, in the
face of limited domestic ability to expand production, results in
higher prices and drain of foreign exchange for purchases abroad.
Surplus agricultural products can be used to reduce the inflationary
pressures generated by a development program and can save foreign
exchange. They can also be used to stimulate the absorption in
labor-intensive projects of the large pools of underemployed labor
which exist in many underdeveloped countries. A frequent bottle
neck to launching labor-intensive projects is the insufficiency of food
and fiber supplies to meet the increased demand brought about by
the hiring of underemployed labor.
42
ECONOMIC ASSISTANCE PROGRAMS
Although substantial amounts of surplus agricultural products
can be used effectively, their impact should not be overestimated.
Agricultural commodities will account for only a portion of the
additional consumption resulting from a development program. In
addition, complementary investment in the form of imports of capital
goods will almost always be required, even in the most labor-intensive
projects. For this reason surplus products cannot be expected to
bear the major brunt of an aid program. They will have their
maximum effectiveness when coordinated with the overall require-
ments of a development program rather than when tied to particular
projects.
A major problem in employing surplus agricultural products in
an aid program is to avoid disruption of normal commodity markets.
If surplus United States agricultural commodities undercut world
markets by competing with regular trade flows, much of the economic
and political advantage expected from the program would be elimi-
nated. Two methods can be used to forestall such competition. First
of all, it should be noted that when agricultural commodity aid is
given to promote growth, the absolute size of the market of each
food exporting country does not decrease, since the size of the market
as a whole increases. This safeguard to existing markets can only
be achieved, however, when surplus commodity aid is related to the
requirements and expected performance of an overall growth program.
Where commodity aid is given for specific projects, it is more difficult
to insure that other exporters are not being displaced.
Dislocation of world commodity markets might also be avoided by
organizing the cooperation of all surplus producers in an economic
assistance program. A world food and fiber bank has been proposed
for this purpose. The unique feature of this method of cooperation,
which could differentiate it from commodity stabilization schemes and
forestall mere accumulation of stockpiles, would be its explicit interest
in encouraging economic development.
Although commodities could be made available either on a grant or
a loan basis, the pricing of commodities on a loan basis would pose
difficult problems. The cost to the United States of making surplus
commodities available is not necessarily either the domestic United
States price or the world free market price. Yet the latter price is the
highest at which underdeveloped countries would want to obligate
themselves. The free market price would, in turn, be affected by
United States offers. The valuation difficulties offer another reason
for a cooperative arrangement for commodity disposal on a grant basis.
4. Nonagricultural grants in kind
In the early post World War II years transfers of UNRRA property
and United States military surplus items, such as motor transport and
medical supplies, added significantly to the nonmilitary resources of
some countries. Since that time nonagricultural grants in kind for
economic aid purposes have been used infrequently.
A cash grant given with the condition that it be spent within the
United States lies part way between a grant in kind and an uncom-
mitted grant. Such tied grants are often proposed in the belief that
they increase the market for United States products, but this effect is
almost always overestimated. Moreover, nonagricultural grants in
kind tend to violate the requirements of flexibility in an aid program
ECONOMIC ASSISTANCE PROGRAMS
43
and may impose techniques or contribute materials unsuited to the
particular country.
There may be a limited role for grants in kind in connection with
technical assistance programs. The effectiveness of such programs
might be increased by making available particular pieces of equipment,
seed, or material for demonstration purposes or "pilot" operation.
5. Counterpart funds
When governments sell commodities received in an assistance pro-
gram to their ultimate users, they acquire funds which are the counter-
part in local currency of United States aid. Use of counterpart funds
has in the past often been controlled by United States policy and has
sometimes been a center of controversy due to misunderstandings re-
garding its sources and possible uses.
When counterpart funds are released for local expenditures, they do
not constitute new transfers of capital from abroad; they are the
counterpart in local currency of previous transfers of productive re-
sources. However, as an instrument of monetary policy they can be
useful in mobilizing resources for development when domestic mone-
tary policy is otherwise limited in its effectiveness. Such funds may
also be used for domestic stabilization purposes along with other tradi-
tional instruments of monetary policy.
6. Military defense support and offshore procurement
The fundamental relations between military potential and economic
viability were pointed out in section III. It was also pointed out that
the military effectiveness of our allies can be increased by assistance
intended primarily to support economic growth and, conversely, that
military defense support can be given in ways which enhance economic
development.
It has also been argued above that to achieve the fundamental ob-
jective of alining itself with the economic development goals of
the peoples of underdeveloped areas the United States must keep its
economic development assistance programs separate from its military
assistance and its other aid programs. Coordination of the programs
in countries receiving both types of aid is important. But the con-
cepts and central organization of a development program must be kept
distinct if it is to succeed.
INDIRECT ASSISTANCE
The United States can promote economic growth in low-income areas
by indirect means which act by creating an environment conducive to
growth. Facilitation of international trade, encouragement to private
initiative, and reduction of conflicts between development assistance
and other United States foreign and domestic policies will increase the
effectiveness of direct economic aid. The remainder of this section will
consider the indirect forms of economic assistance.
1. Public inducements to private investment
Private foreign investment can play a significant role in a develop-
ment program and has certain advantages as compared to Govern-
ment loans and grants, although, as was pointed out above, it cannot
be expected to carry a major share of the burden of an assistance pro-
gram. Besides reducing the burden of Government-sponsored in-
44
ECONOMIC ASSISTANCE PROGRAMS
1
vestment, private international investment contributes to direct con-
tacts between peoples of different nations. The transfer of specific
technology and skills which accompanies direct private investment
often can be accomplished in no other way.
Appropriate United States policies can promote private investment.
Government assistance can sometimes be given in ways which stimulate
private investment and thus enable it to play a larger part in the later
stages of a development program. Use of private firms on a fee basis
for carrying out mutually agreed contracts would be one way of
familiarizing firms with investment opportunities in underdeveloped
countries. Government insurance of the transfer of profits and re-
patriation of capital may also encourage private investment abroad.
Private activity may be stimulated by Government negotiated guar-
antees against confiscation without compensation and by tax treaties
which eliminate double taxation of profits.
The mutual advantages of private investment do not warrant inter-
ference with the domestic policy of other nations. The success of eco-
nomic development assistance as a program would be compromised if
the acceptance of private investment were made a condition of the
receipt of direct forms of economic aid.
2. Foreign exchange
Exchange convertibility contributes to the efficiency of inter-
national trade by increasing the size of the market in which purchases
and sales can be made. For this reason it is a desirable goal of
policy. It is not an independent objective, however, nor can it be
regarded as a powerful instrument of economic improvement. Ex-
change restrictions are used for such purposes as rationing scarce for-
eign exchange, isolating the domestic economy from world markets,
or controlling the directions of trade. Countries undergoing the eco-
nomic pressure of rapid industrialization are not likely to forego
these possibilities unless it is to their advantage to do so.
An economic assistance program which provides additional re-
sources to developing countries and creates a climate of healthy trade
and exchange will reduce the importance of exchange controls both
to already developed and to newly developing countries. By attack-
ing the fundamental situations which give rise to exchange restric-
tions, an economic assistance program is more likely to achieve con-
vertibility than is the establishment of new clearing funds. Yet
when the conditions for convertibility are achieved, such funds may
be the last step. In these circumstances United States aid to clearing
funds would contribute to the overall goal of growth.
3. Third country arrangements
Occasions have arisen in the past when commodities or skills scarce
in one underdeveloped area were available in surplus in another.
In such circumstances an injection of United States funds may have
the double effect of taking advantage of an economic opportunity and
of making possible mutual help which increases the sense of partic-
ipation in a common endeavor. An aid program sufficiently flexible
to take advantage of such opportunities would be highly desirable.
One of the functions of an international agency such as suggested
in section V would be to facilitate this type of mutually beneficial
arrangement.
ECONOMIC ASSISTANCE PROGRAMS
45
4. Tariffs
International trade benefits underdeveloped countries by permit-
ting them to specialize in those commodities in which they have a
relative advantage. In this way they can obtain resources which
would otherwise be unavailable to them and can earn the foreign ex-
change necessary to service public loans and to transfer profits on
private investment. Since United States tariff policy has a direct
influence on the ability and inclination of underdeveloped countries
to participate in trade, it must be coordinated with United States.
development policy.
The inevitable result of a program of United States aid to under-
developed countries will be increased demand for United States ex-
ports and increased trade flows toward the United States. To dis-
courage these flows by means of tariffs would be entirely inconsistent
with the goal of aiding growth. Moreover, an example of inconsistent
policy by the United States in this respect will only encourage similar
inconsistencies by other countries.
5. Merchant marine
United States shipping policy is a special instance of the issues
involved in tariff policy. Shipping policy has accorded operating
subsidies and preferential treatment to economic aid cargoes. There
are, of course, cogent reasons of national defense behind Government
support of the merchant marine, but to use foreign economic aid pro-
grams to support the merchant marine would only increase the costs
of economic assistance and would, by reducing the ability of under-
developed countries to earn foreign exchange, be inconsistent with a
development program. If present aid to shipping is inadequate, other
forms of aid to the merchant marine are available besides cargo
preferences. The overwhelming need for clear and unequivocal policy
in a program of aid for economic growth requires that other devices
be used.
6. Agriculture
United States domestic agricultural policy has foreign repercus-
sions when pressure grows to dispose of surplus commodity stocks in
foreign markets. The general ways in which such agricultural com-
modities could be used constructively as part of an aid program have
already been discussed. A foreign disposal plan which is not coordi-
nated with a general development program may completely disrupt
regular commerce in commodities. The effect would be not only to
create strong anti-United States feelings among the peoples who
produce the products but also to reduce materially the effectiveness of
an otherwise successful development plan.
7. Strategic stockpiling
Part of our defense program has involved the accumulation within
territorial United States of strategic materials stockpiles from foreign
sources. As a result of this program the United States has become
a substantial purchaser of some commodities which are produced in
underdeveloped countries. The amounts, terms, and scheduling of
these purchases have become a matter of considerable importance to
these countries. Although the objectives of a development program
are different from those of a stockpiling program, proper coordina-
46
ECONOMIC ASSISTANCE PROGRAMS
tion of the two programs can avoid disruption of either. Stockpil-
ing rates can be kept constant, for instance, to prevent harmful effects
on overall economic growth.
8. Public debt
There are two popular arguments which specifically relate United
States domestic prosperity to an economic assistance program: One
is that we cannot afford to do it; the other argument is that we cannot
do without it.
The first maintains that an aid program of the requisite dimensions
would bankrupt our economy and impose an impossible burden of
public debt. It has been demonstrated, however, that an aid program
of roughly $1.5 billion per year would raise per capita incomes in
underdeveloped countries by 1 to 2 percent per year. This disburse-
ment is well within feasible orders of magnitude. In 1949, for ex-
ample, when our national product was less than three-quarters what
it is now, we allocated around $4 billion to European aid. The bank-
ruptcy argument thus grossly underrates the productivity of the
United States economy. Moreover, to appreciate the real cost of a
development program, the alternatives must be considered. It was
pointed out in section II that military deterrence, if it is an alterna-
tive at all, is likely to be far more expensive in both political and
economic costs than economic aid.
It has been argued, oppositely, that a foreign economic program
is necessary for the maintenance of United States prosperity. This
is the same argument that was advanced in some quarters with respect
to the Marshall plan. There is no justification for this position either;
we need not dump either agricultural or manufactured commodities.
abroad to maintain our prosperity. Within our own boundaries
there are many opportunities to be exploited and many social and
individual welfare projects which can be carried out.
United States prosperity is a major economic influence in the
world through our international trade channels. United States polit-
ical leadership in the world depends in part on a continued demonstra-
tion that the United States economy is able steadily to improve the lot
of its citizens. Both an economic assistance program and United
States political leadership more generally would be compromised by
a failure to maintain high levels of domestic prosperity. The pros-
perity of this country stands on its own feet as a goal of policy and
is neither dependent on nor threatened by a development program.
SECTION V
AID CHANNELS
INTRODUCTION
Having established the fundamental postulate of this paper—
that the American national interest will be directly served by a pro-
gram of economic assistance designed to promote the rapid growth
of underdeveloped countries-it now becomes pertinent to consider
the channels through which aid may be extended. The means chosen
will influence significantly the degree to which the end of furthering
growth can be achieved. Broadly speaking, aid channels should be
such as to facilitate the broadest and most flexible participation by
the United States and other developed countries, to encourage a
maximum degree of receptivity on the part of the recipient nations,
and strengthening the likelihood that aid will be employed so as to
provide a maximum stimulus to economic growth and to a democratic
political evolution. Since these general requirements may not always
be fully consistent with each oth, and channels must be created which
are flexible and comprehensive enough to respond successfully to
various perhaps conflicting pressures.
The United States at present channels its economic aid to foreign
nations through a variety of mechanisms which are of three types:
(1) Via international organizations, to which aid funds are assigned
and which in turn disburse them. (2) Directly from the United
States to the recipient country, without any specific provision for
consultation or coordination with international organizations or with
other countries extending aid. This arrangement will be termed here
a "straight bilateral" channel. (3) Bilaterally, but with provision
for discussion and coordination with other countries and agencies
extending aid and also among countries receiving aid.
Our contributions to the United Nations and to the Organization of
American States and our subscriptions to the capital funds of the
International Bank for Reconstruction and Development and to the
International Finance Corporation fall in the first category. Other
present United States economic aid is extended bilaterally via the
International Cooperation Administration, the Export-Import Bank,
and the United States Department of Agriculture in its surplus agri-
cultural commodity disposal program. In some cases we have entered
into loose arrangements for coordination or at least discussion among
countries giving and receiving aid for economic development. Since
1951 the United States has been a member of the Colombo Plan
Organization, which, while it provides no coordinated analysis of aid
problems or of criteria for the extension of aid, at least is a vehicle for
annual discussions among various countries extending and receiving
aid in south and southeast Asia. The Organization of American
1 It also maintains a small office which is a clearinghouse for requests for technical
assistance personnel.
47
48
ECONOMIC ASSISTANCE PROGRAMS
States has taken some part in the planning of servicios with individual
Latin American countries-groups of local personnel organized to
carry out specific aid projects and headed by codirectors, I from the
recipient country, 1 from the United States. In the Middle East, in
the main in Latin America, and in some countries of Asia, United States
aid has been straight bilateral, that is, without provision for consulta-
tion with other nations; and in practice the coordinating function of
the Colombo Plan Organization has been minimal.
In this section these aid channels will be evaluated and the conclu-
sion reached that, while a complete shift to international channels
would not be feasible, our aid mechanism should be strengthened by
arrangements for more effective coordination with other countries and
agencies extending aid. Before the specific potentialities and draw-
backs of each type of aid channel are discussed, a number of general
considerations affecting the success of an aid program must be men-
tioned. Each of these factors should be given due weight in deciding
upon the most effective channels for economic aid.
(1) The channel for aid must be such as to instill confidence among
the American people that aid funds will be prudently and effectively
used.
(2) At the same time, the channel chosen should create in the minds
of the peoples of the world the most favorable image possible of United
States motives and intentions. In any aid program it will occasion-
ally be necessary, in accordance with the aid criteria established, to
limit aid to a country to less than it feels it could effectively use and
to reject certain projects or programs. Unless the aid channel has
helped engender confidence in the recipient countries that decisions
are made according to objective economic criteria, suspicion may arise
that aid is being given for ulterior political or imperialistic motives.
In general, the aid programs will be most effective if they establish
an atmosphere of partnership between countries supplying aid and
those receiving it.
(3) Aid channels should be such as to encourage the widest possible
participation in extending aid among countries able to do so. More-
over, the aid mechanism should facilitate coordination among the
various countries and agencies extending loans, grants, and technical
assistance, both in order that they may operate with knowledge of each
others' programs and negotiations and in order that underdeveloped
countries may be informed concerning the alternative sources open to
them.
(4) Channels should be so designed as to remove aid as far as
possible from the context of East-West competition. Confidence
should be established, for example, that United States aid for economic
development is not being employed as a tactical weapon of foreign
policy intended to buy allies or to counter Soviet aid moves. An aid
program will not achieve its objectives unless the recipients are
convinced that their foreign policy is in no way compromised by it
and that aid and economic advice are offered solely to help them pro-
mote development.
(5) The aid channel should tend to encourage economically bene-
ficial international trade relations among developing nations and be-
tween them and other nations.
(6) The creation of new and untested administrative machinery
should be avoided unless a clear advantage exists in doing so. Like-
ECONOMIC ASSISTANCE PROGRAMS
49
wise, action should not be taken which reduces the effectiveness of
existing channels for supplying economic aid.
The remainder of the section will discuss the merits and draw-
backs of the three possible types of aid channels in fulfilling these gen-
eral requirements.
STRAIGHT BILATERAL AID
Bilateral aid has the advantage that, by allowing the United States
to retain full control of negotiations with recipient countries for the
allocation and use of funds, it helps to assure American confidence
in the efficiency and propriety with which aid grants or loans are
used. Moreover, in countries to which the United States is extending
both military and economic aid, joint administration of the two is
facilitated. As the previous section indicated, this arrangement has
many potential advantages.
Under straight bilateral machinery, aid is attributed directly and
unequivocably to the United States. The United States thus receives
a full measure of whatever credit and gratitude may result. But a
country receiving aid often feels an inferiority which can be used to
stimulate suspicion and resentment. Bilateral aid, especially if not
surrounded by machinery for consultation and group discussion, in-
evitably focuses any such resentment on the United States. A coun-
try contributing aid will wish to establish fairly strict criteria in
order to insure that aid will be applied effectively to development
purposes. Granting of aid will depend on meeting these criteria, but
because the underdeveloped countries will not always have had suffi-
cient experience to appreciate the need for criteria, they may readily
suspect the donor country of attempting to interfere for ulterior
purposes with their sovereignty. The United States may be accused
of having political or imperialist motives, of desiring to assume eco-
nomic control of the country, or of creating special advantages for
American business interests. The possibility of such reactions is the
greater in the many countries which until after World War II were
under foreign political control; they are understandably sensitive to
any relationship which may seem to threaten in any way their newly
won independence.
The result, where suspicion is aroused, is not merely political hos-
tility to the United States; in addition, the economic criteria may be
discredited and success of the development program impeded. The
acceptance of sound criteria for aid (for example, the existence of an
effective comprehensive program for attacking deficiencies in educa-
tion, skills, and technical training, or for insuring adequate manage-
ment for an industrial venture which is contemplated) and of saga-
cious technical advice in the formation and progressive execution of
development programs can be of tremendous aid in development. To
obtain the fullest measure of acceptance of such criteria and of related
technical advice, not merely for specific projects but for the develop-
ment program as a whole, should therefore be a primary concern in
establishing aid channels.
Straight bilateral organization is also poorly adapted to the con-
tinuing disposal of agricultural commodity surpluses. United States
surplus commodity disposal to date, while conducted skillfully and in
general with attention to the interests of other major producers, has
in some instances narrowed the market previously available to other
50
ECONOMIC ASSISTANCE PROGRAMS
nations with surplus problems. In a large number of instances it has
barred them from sharing in the growth of the world market at a time
when, because of the normal growth in their total production available
for export, the producing nations must obtain a steadily growing
world market if they are not to suffer distress. Their objections con-
cerning United States actions have up to now been muffled both because
of their overall relations to the United States and because the full
impact of the United States partial preemption of the growth in some
markets has not yet had its full impact. Disposal of American agri-
cultural surpluses need not injure other surplus countries if it is wisely
related to development programs of underdeveloped countries. But
injury can be avoided only if the United States recognizes the problems
of other surplus countries and coordinates surplus commodity disposal
with them. Bilateral aid, while not necessarily an obstacle to such
cooperation, at best makes no contribution to it.
It is desirable that all advanced western countries capable of extend-
ing aid for economic development do so. This is true not merely
because the maximum amount of aid that can effectively be used for
economic development by the low-income countries of the world is con-
siderable, and because a large share of this initially will have to come
from governmental sources, but also because partnership among the
western nations in this endeavor is a healthy and desirable element in
itself. Of the possible forms of aid machinery, straight bilateral
organization is the least conducive to stimulating vigorous participa-
tion by all nations able to contribute and the most conducive to con-
fusion and cross-purposes among countries contributing aid to the
same area.
Finally, straight bilateral machinery makes it difficult to avoid
East-West competition and the appearance of political maneuvering
in the extension of aid. The impression that we are merely trying
to buy friends or hire military allies greatly weakens the effectiveness
of aid. How a modest addition to aid machinery may help to avoid
this effect is discussed below.
INTERNATIONAL ADMINISTRATION OF AID
At the other extreme bilateral extension of aid unsupported by any
group framework is appropriation of aid funds to an international
organization which in turn administers aid programs. Like straight
bilateral arrangements, channeling aid through international organ-
izations has both advantages and serious disadvantages.
Present international aid organizations are of two types. The
International Bank administers loans for projects involving little risk,
with unqualified requirement for repayment in dollars or other inter-
national currency. On the other hand, a number of United Nations
agencies, operating under the general supervision of the United Na-
tions Technical Assistance Board, with a relatively small flow of avail-
able funds, make neither financial grants nor loans, but extend tech-
nical assistance. These agencies include the United Nations Tech-
nical Assistance Administration and seven specialized agencies.2
The Food and Agriculture Organization; the International Labor Organization; the
United Nations Educational, Scientific, and Cultural Organization; the World Health
Organization; the International Civil Aviation Organization; the International Telecom-
munications Union; and the World Meteorological Organization.
ECONOMIC ASSISTANCE PROGRAMS
51
None of these international agencies provides aid similar to that pro-
vided by the United States International Cooperation Administra-
tion, a type of aid essential for many developmental expenditures in
the early stages of development; namely, financial aid through grants
and "soft" loans. If this sort of aid were to be provided through an
international organization, either an entirely new function would have
to be grafted onto one of the existing organizations or a new organiza-
tion would have to be created. A new United Nations organization,
the Special United Nations Fund for Economic Development, has
been proposed for this purpose.
Under favorable circumstances, one of the chief strengths of an
international organization as a channel for a broad program of aid to
economic development would be its freedom from suspicion of bias in
its recommendations concerning development and in its criteria for
aid. These advantages are the converse of the disadvantages of
straight bilateral organization. If an international organization were
established having a strong technical staff and distinguished leader-
ship and operating quite obviously independent of political pressures,
criteria laid down by it as requisites for the receipt of aid and sub-
sequent advice tendered by it would be much more immune from
attack and more influential than if offered by any individual nation.
It is important to emphasize, however, that this result would not
automatically follow from the fact that the organization was inter-
national. An international organization may be under considerable
pressure to extend financial aid on an appreciable scale to all members,
regardless of the quality of their plans for the use of funds. The
feeling is apparent now in some discussions in United Nations regional
organizations that an international organization should not criticize
the internal plans of its members. Hence, the success of such an
organization would be far from automatic. It would depend on the
initial selection of top personnel of the greatest capability and imagi-
nation, respect by member nations for the nonpolitical character of
the organization, and establishment of a tradition of impartial
criticism and of allocation and administration of aid according to
effectiveness of proposed use alone. It would also depend on the
availability of sufficient funds to satisfy the reasonable and well-
planned needs of all underdeveloped countries.
Within an international organization, problems affecting many
nations, such as surplus-commodity disposal and the effects of eco-
nomic development on international trade, could presumably be at-
tacked more effectively than if the administration of aid were bilateral.
Yet, not all nations are concerned with either problem in planning
their economic development or their aid to development; and the
political difficulties of organizing action among some but not all mem-
bers are such that an international organization is not the ideal vehicle
for attack on such problems.
An international organization could be a vehicle for participation
in aid programs by all advanced Western countries. It might also,
if its administration were skillful and wise, develop an atmosphere
a partnership in a world development effort among developed and
underdeveloped countries. It could also present the Soviet bloc with
an opportunity for participation in a nonpolitical aid program. If
the Soviet bloc refused to participate on this basis, the onus of refusal
would fall upon the Soviet leadership.
94413-57-5
52
ECONOMIC ASSISTANCE PROGRAMS
Soviet participation would no doubt arouse fear in the United States
that our funds might be used to serve Communist purposes (just as
it might arouse fear in the Soviet Union that their funds might serve
our purposes). If a new international agency were to succeed, there
would have to be established an organizational structure, a staff, aid
criteria, and an operating procedure, all of which left no doubt as to
the agency's devotion to the sole end of effective economic develop-
ment. An existing organization which had already evidenced these
qualities, and which continued to demonstrate its capability and
integrity, could be selected to perform the new functions.
However, even if an international organization were of great com-
petence and completely free from political influences, it would still be
difficult to obtain acceptance in the United States for the contribution
of large sums to an organization that included the nations of the
Soviet bloc. The difficulty would be greatly lessened by establishment
of an organization excluding the Soviet bloc, but such an exclusion
would involve the East-West political conflict in a highly undesirable
way in the extension of aid to underdeveloped countries. Thus, an
international organization would run the risk of failing to establish
the confidence of the main contributing countries in the proper use
of their funds, and might lead them to refuse to contribute the amounts
needed for a successful aid program. This difficulty, it should be
noted, arises especially in the case of an organization making grants
or "soft" loans, but not in the case of an organization such as the
International Bank.
Except in the Security Council, the United Nations observes the
rule of one vote for each member nation. In an international aid
organization it might be difficult to avoid this rule without alienating
recipient countries and thus lessening the effectiveness of the aid pro-
gram. But in such an organization the recipient countries would
considerably outnumber the contributing ones. One-vote, one-member
would not only be conducive to logrolling but might also be fatal to
the confidence of contributing countries in the prudent and effective
use of their funds.
One added difficulty of a quite different sort, and of lesser impor-
tance, would be created for the United States if aid were funneled
through an international aid organization. In countries to which we
extend military aid, joint administration of economic and military aid
would not be possible if the economic aid were administered by an
international organization. The difficulties of separate administra-
tion sketched above would exist.
BILATERAL AID WITHIN A MULTINATIONAL FRAMEWORK
Because of these serious difficulties involved in funneling aid
through an international organization, together with the important
disadvantages of straight bilateral aid, it is worth while to search for
an intermediate form which possesses the strengths of each without
their weaknesses. Such a solution seems possible. It lies in an ar-
rangement for the extension of aids bilaterally but within the frame-
work of a consultative multinational organization.
The arrangement should involve three features:
(1) An organization for consultation among representatives of
various nations extending and receiving aid in such groupings at such
ECONOMIC ASSISTANCE PROGRAMS
53
times and for such purposes as seems desirable. Some such purposes
are indicated below.
(2) An agreement by each nation contributing aid to report every
grant or loan to the consultative organization, and like agreement by
every recipient country to report both on every project for which it
requests aid from any source and on development plans and progress.
The extension of aid would continue to be bilateral, by arrange-
ment directly between a country extending aid and each country
receiving it.
(3) An international staff of technicians with prestige and capa-
bility to serve as a technical clearinghouse and to give advice of
various sorts.
The international consultations would vary in frequency and nature.
Representatives of all the countries extending aid to a given region
of the world might meet annually with representatives of the receiv-
ing countries of that region to review progress, compare notes on aid,
and discuss criteria for the receipt of aid and the allocation of aid
among recipient countries. Representatives of the major agricul-
tural exporting countries and of agricultural deficit countries might
plan cooperative arrangements whereby surplus commodity disposal
was related to economic development. The implications of develop-
ment programs for international division of labor and for foreign ex-
change problems could be discussed by groups of nations involved in
major trade interrelationships.
The consultative organization could perform staff work for the
conferences suggested above. It would constitute a valuable means
for the transmission to all countries and agencies extending aid of
information concerning the combined activities of all others, and to
all underdeveloped countries of information concerning alternative
sources of aid open to them. It might also, on request from under-
developed countries recommend economists or other technicians to
serve as resident advisers to be paid by and directly responsible to the
officials of the underdeveloped country. The effectiveness of such
advisers, when they have demonstrated that they owe no obligation
or loyalty except to the countries employing them and to their pro-
fessional consciences, has been demonstrated in several countries.
A vital function of this organization would be to provide critical
analyses designed, among other things, to establish criteria by which
to judge development programs and aid allocation. Its staff should
review the development programs of underdeveloped countries and
should examine the adequacy of their development plans. These
analyses could make recommendations to every country receiving aid
concerning the improvement of its program and could recommend de-
sirable criteria for aid allocation to every country and agency extend-
ing aid. Its reports should point up duplications and complementar-
ities among the development programs of different countries and their
implication for international division of labor in a growing world
economy. The organization should also prepare critiques of the
effectiveness in aiding development of the aid programs of donor
countries. Contributing countries as well as developing countries
would benefit from detached reviews of their work.
Since the work of the consultative organization would be advisory
only, its effectiveness would be particularly dependent on its quality.
If the organization were established with a strong and imaginative
54
ECONOMIC ASSISTANCE PROGRAMS
technical staff, it could engender in underdeveloped countries greater
assurance of unbiased, competent, helpful advice, even when critical,
than an international organization would probably be able to. The
fact that the consultative organization would be itself dissociated from
the extention of aid would increase its effectiveness in this respect,
as would its freedom to criticize the aid programs of contributing
countries as well as the development programs of recipient countries.
The effectiveness of the organization would depend not only on
the competence and integrity of its director and staff but also on the
will of the main contributing countries to have it operate free of all
pressures except that it do a distinguished job. Firm and consistent
indication by the United States, the main contributor, that it sup-
ported such operation would do much to insure the success of the
organization. An example of the possibility of developing the neces-
sary integrity and capability is provided by the Economic Commis-
sion for Europe, which recruited a staff on the basis of ability alone.
despite initial pressures from some member countries to dictate the
choice of staff, and which has established a tradition of reports guided
only by the professional capability of that staff and its director.
Existence of such an organization to draw together in consultation
all nations interested in development problems would be conducive
to the widest participation by advanced nations in the granting of
aid. The members of the Soviet bloc should be invited to membership.
If their unwillingness to give aid except on political terms does not
permit them to join, the door should be left open. The west can only
gain from a continuing demonstration of its willingness to participate
with the Soviet bloc in providing nonpolitical aid for the develop-
ment of underdeveloped countries.
The international consultations suggested within the framework
of the organization might do much to create the feeling of partner-
ship among contributing nations and between them and developing
nations that is essential for the most effective development progress.
The fact that countries receiving aid can themselves in a number of
cases usefully contribute technical assistance to other underdeveloped
countries helps to foster this feeling. Both factors have been influ-
ential in creating the feeling of warmth and cordiality with which
the Colombo Plan Organization is regarded in recipient as well as
contributing member countries.
Finally, the granting of aid within such an organizational frame-
work would preserve the full confidence of the United States and other
contributing countries in the prudent use of their funds, since aid
would continue to be extended bilaterally. If the analyses of the
consultative organization did not influence the quality and adminis-
tration of aid programs and the development programs of recipient
countries, the organization would not have achieved its full purpose;
but that influence would be exerted by informing and advising member
countries, not by controlling them.
The United States should take the lead in forming such an organi-
zation, which might appropriately be named the International Devel-
opment Advisory Council. It should be entirely independent of
international aid organizations, i. e., the World Bank, International
Finance Corporation, and United Nations agencies. The Interna-
tional Development Advisory Council should have access to their
ECONOMIC ASSISTANCE PROGRAMS
55
studies and their accumulated information, but they should not par-
ticipate in nor in any sense share responsibility for its analyses.
The establishment of an International Development Advisory
Council would demand no change in the direct aid and technical
assistance functions of present national, international, and private
organizations. The experience in technical assistance acquired by the
United Nations Technical Assistance Administration and by the
specialized agencies of the United Nations would be no less valuable
than at present. The operation of United States organs-the Inter-
national Cooperation Administration, the Export-Import Bank, and
the surplus commodity disposal activities of the Department of Agri-
culture could go on as before except for more effective coordination
with the relevant economic activities of other nations and agencies.
Our aid missions could continue to function, and joint administra-
tion of economic and military aid in countries receiving both could
continue without difficulty.
SECTION VI
CRITERIA FOR ALLOCATION OF AID TO COUNTRIES
We have explained in section II a rationale for a United States
program to aid the development of the underdeveloped countries. We
have discussed in section III some of the reasons for separating such
a development assistance program from military and other nondevel-
opment aid programs at least in planning and budgeting. It is the
purpose of this section to consider what kinds of criteria ought to
govern the amounts of aid made available under a development assist-
ance program and how they might be distributed among recipient
countries.
It should be emphasized at the outset that we are concerned in
this section only with criteria to govern the allocation of aid the pri-
mary purpose of which is the promotion of economic growth. Other
studies discuss criteria for military aid. It is doubtful, as suggested
earlier, whether any general propositions can usefully be set down to
govern the allocation of aid for other nondevelopment purposes, since
this aid must be given largely according to the special circumstances
of each case. The importance of having clear criteria for develop-
ment aid suggests, however, that short-run political considerations
should not be allowed to influence this particular program. Economic
development should be an aim in itself and not an instrument for
driving small bargains unrelated to its central purpose.
FUNDAMENTAL CRITERION OF AID: TO MAXIMIZE ADDITIONAL EFFORT
IN UNDERDEVELOPED COUNTRIES
We should be clear, to begin with, that the function of outside capital
in a development program is not directly to raise standards of living
in the recipient countries but to permit them to make the transition.
from economic stagnation to self-sustaining economic growth. The
principal element in this transition must be the efforts that the citizens
of the recipient countries themselves make to bring it about. Without
these efforts, outside capital will be wasted. Thus the general aim of
aid (loans, grants, and technical assistance) is to provide in each
underdeveloped country a positive incentive for maximum national.
effort to increase its rate of growth. The increase in income, savings,
and investment which aid indirectly and directly makes possible will
shorten the time it takes to achieve self-sustaining growth. Economic
progress is measured primarily by increases in income per head over
a period of time, say one or two 5-year periods. The overall aim of
development aid is not to equalize incomes in different countries but
to provide every country with an opportunity to achieve steady growth.
Aid should continue not until a certain income level is reached in un-
derdeveloped countries but only until these countries can mobilize a
level of capital formation sufficient for self-sustaining growth.
To give a numerical example, if a country has a population increase
of 1.5 percent per annum, if an adequate rate of growth is judged to
56
ECONOMIC ASSISTANCE PROGRAMS
57
be 2 percent per annum per head, and if 3 units of investment are re-
quired to produce 1 unit of additional income, then to achieve this
rate of growth requires foreign aid until the country has reached a
point where it can invest each year in its own growth at least 10.5
percent of its annual output. When it can do this it no longer requires
foreign help to maintain the development process. The main func-
tion of foreign capital inflow is to increase the rate of domestic capital
formation. Additional capital resources and techniques provided by
aid produce an additional product. The proportion that can be saved
and invested out of this additional product can be very much higher
than the average savings at the preexisting income level. While the
proportion of total income saved and invested is, for instance, about
5 percent in most of Asia, the proportion of additional increments of
income which can be saved can be stepped up to 20-25 percent. Thus,
when a country is very poor, its capacity to plow back its output into
its own growth is limited, but as its income grows its ability to invest
in its own further development grows even more rapidly.
Ideally, aid should be allocated where it will have the maximum.
catalytic effect of mobilizing additional national effort or preventing
a fall in national effort. The primary criterion is thus to maximize
additional effort, not to maximize income created per dollar of aid.
If this last were the aim, dollars invested in developed countries might
easily show better results. Nor would a criterion of maximum increase
in income suffice even if only underdeveloped countries were con-
sidered. At different stages and different phases of development
more investment may be required to produce a unit of additional
income than in others. This is invariably the case where, for instance,
what is called social overhead capital (roads, railways, electric power,
etc.) has to be built up first. Such investment in economic infrastruc-
ture yields directly only small increases in income. It creates, how-
ever, a framework necessary to the profitability of more immediately
lucrative subsequent investments. Direct increase in income is less
important here than the increase in investment opportunities. Income
created per dollar of aid may, therefore, at first be low; far from
being an argument for less aid, there are circumstances in which this
might well be an argument for more. Thus immediate return per
dollar of aid is not the criterion we are looking for.
HOW TO MEASURE ADDITIONAL EFFORT IN A COUNTRY
Since return per dollar of aid may not be easy to foresee, although
it is a definite and unequivocal criterion, how, then, does one measure
or assess additional effort in a country? When can we say that it is
"sufficient" or "deficient," when can we reasonably say that there
should be "more of it," and how can we describe "how much more
of it" is needed? Can various degrees of "effort" be measured or
compared? If they cannot be measured, additional effort cannot be
the criterion of aid.
Fortunately, no exact measurement is needed. Rough, common-
sense rules of thumb may indicate desirable and practicable targets
of national effort, two categories of which are important.
The first has to do with the country's efforts to generate an increas-
ing rate of domestic saving and investment. Here one can get little
guidance from the average proportion of income saved and invested,
58
ECONOMIC ASSISTANCE PROGRAMS
since the poorest countries needing development help the most will
probably have the lowest average saving rates. The significant index
of national saving effort is the relation between the average rate of
saving and the rate on new increments of income. This so-called mar-
ginal rate of saving must be substantially higher than the average
rate if the country is ever to reach a point at which it can finance all
the capital formation it requires for growth. Thus one index that
national effort is being mobilized for development is the launching of
measures to capture a good fraction of increases in income for the
purpose of further investment.
The second category of effort requiring attention is the effort the
country is making to prepare itself to use additional capital, whether
from at home or abroad, effectively and productively. In most of
the underdeveloped countries there are very sharp limits on the
amounts of additional capital which they can use productively at any
given time. These limits are described as the "absorptive capacity"
of the economy for new investment. Absorptive capacity is limited
by a wide range of factors, some fairly easily measurable, others
intangible and elusive. A project may not be feasible because the
raw materials it requires are not available; because there is insufficient
power to operate it or inadequate transport facilities to bring in inputs
and take away outputs; because too few people in the country have
the required skills to make up the work force or the necessary training,
experience, and drive to manage the enterprise; and so on. Or a
sufficient market may not yet have developed within the country for
the product of a proposed enterprise to justify its construction. Many
projects are complementary to each other and should be undertaken
simultaneously. But if too many projects are undertaken at once
there may be bottlenecks of resources which cannot be imported and
the price of which will rise enough to threaten the economy with a
general inflation. The intangibles include such things as the develop-
ment consciousness of the people, the imagination and courage with
which they pursue new opportunities and ideas, their willingness to
take long-term risks, and the adaptability of the labor force to new
technical tasks.
It is almost never possible to judge the capacity of a country to
absorb a single project in isolation. Economic activity even in primi-
tive economies is so interconnected that one must look at the entire
pattern of proposed development activities as a whole. Thus one
measure of national effort which must be applied in assessing absorp-
tive capacity is the degree to which a country's leaders have worked
out an overall development program.
IMPORTANCE OF A DEVELOPMENT PROGRAM
The development program sums up a coherent, comprehensive, and
consistent economic policy of a country. It assesses and selects the
maximum amount of investment which can be mobilized from national
(and supplementary international) resources and the optimum compo-
sition of investment, i. e., one which taken as a whole will secure an
acceptable standard of living and a larger growth of income than
other compositions. The program will elaborate in detail the public
investment sector and form an estimate of the probable private invest-
ment, including incentives for its desirable extent and directions. The
ECONOMIC ASSISTANCE PROGRAMS
59
program should be within the managerial and administrative capa-
bilities of the country, making use of foreign managerial and technical
expertise without compromising domestic control and without stifling
the growth of domestic entrepreneurs.
If the program is to be implemented in a practical way, it must be
spelled out in projects, not only "ideas"; but it must be far more than
a mere agglomeration or a "shopping list" of projects. The various
projects composing a development program are interrelated and rein-
force each other. Their "balance" depends on whether complementary
activities have been planned on the required scale. It is therefore
practically impossible to judge the soundness of any individual project
without knowledge of the whole program of which it is a part. A
program approach, not a project approach, must determine the criteria
of productive use of aid capital. There are two reasons for this.
First, only a knowledge of the program as a whole can provide the
assurance that any particular project financed by aid constitutes addi-
tional investment. The project might have been carried out from
national resources in the absence of aid. In this case the resources
released by aid may be directed to consumption or to "unsound”
projects. Second, the success of any particular project depends upon
the entire set of investments being undertaken simultaneously. For-
eign capital aid increases the range of the program as a whole. Since
this may require a reshuffle and change of several projects, a loan
cannot with any exactness be said to have been given to one specific
project only; it should be considered as a contribution to the whole
program. It follows that only the program as a whole, i. e., all
projects taken together and not necessarily single parts of the pro-
gram, should be self-liquidating. The narrower criterion of whether
a project can repay from its own revenues is at best irrelevant and at
worst may be seriously misleading.
Where a development program is not yet fully worked out, it may
be justifiable to go ahead with some projects which would obviously
be of high priority in any program. Absorptive capacity and hence
the amount of aid given will necessarily be smaller in this case. A
well-worked-out development program not only allows us to measure
the effort of a country, it is at the same time an instrument of increas-
ing its absorptive capacity.
Thus capital shortage is by no means the only bottleneck in develop-
ment. Additional capital is frequently a necessary, but not sufficient,
condition of economic progress. Mobility of resources and adapta-
bility to new kinds and forms of activity are vitally influenced by
the vigor, drive, and development consciousness which alone can trans-
form the necessary into the sufficient conditions for success. Countries
with very similar "economic resources" have had very different rates
of growth in the past. Turkey and Syria, for instance, after the First
World War had a similar income per head, a similar amount of cul-
tivable land per head, and a similar population and production pat-
tern; Turkey developed, and Syria did not. Mexico and Guatemala.
are similar examples. In neither comparison did the original amount
of capital available make the vital difference.
An observer in Turkey or in Mexico in the 1920's might have
"sensed” effervescence, drive, and vitality. Although such judgments
are necessarily uncertain, are not verifiable in advance, and may easily
be arbitrary or controversial, the noneconomic factors in development
60
ECONOMIC ASSISTANCE PROGRAMS
have an effect on and can be partially measured by technical economic
factors. A high degree of drive and development consciousness will
lead to a greater mobility of resources, a higher rate of capital accumu-
lation, and greater adaptability to new kinds and forms of activity.
Since these intangible "causes" and their effects cannot be foreseen
accurately, development aid should be given in the form of a standby
agreement for a period of say 5 years conditional on progress with a
list of specific targets: (1) A realized amount of additional invest-
ment and a high marginal rate of savings, (2) avoidance of undue in-
flation, (3) avoidance of unforeseen difficulties with the balance of
payments. If these indexes show that the orginal assessment of need
for and ability to absorb capital was underestimated, the estimate
should be revised and the amount of aid increased. If they show that
the absorptive capacity was overestimated, disbursement of aid should
be lower than the originally appropriated and conditionally committed
amount.
The first and preliminary step in the assessment of absorptive ca-
pacity of a country is an answer to the question: "Has there been and
is there a sufficient mobilization of national effort?" This question
should not imply a puritanical judgment, a sitting in court dispensing
implacable justice; but it provides a good guide to an understanding
of the difficulties which stand in the way of raising the rate of growth
and to an assessment of the prospects that a promise of aid will stimu-
late forces to make up deficiencies. Where the bottlenecks are numer-
ous and the difficulties great, a feeling of hopelessness and resignation
may prevail. The removal of one bottleneck, capital shortage, and
the contribution of technical assistance may overcome apathy and re-
lease new hope and energy. Realization of inadequacies in the
domestic effort may then be a stimulus to action. Aid should be made
conditional on and synchronized with agreed-upon targets of domestic
performance. It is neither necessary nor useful to say: "You perform
first, then aid will follow."
Where the degree of inflation makes orderly economic programing
impossible, an agreement to stabilize must form part of the economic
program and part of the effort required. Aid may precede the realiza-
tion of this target but should be disbursed in this phase only in smaller
amounts characteristic of specific project loans. Greater amounts of
aid should be definitely envisaged, however, if the specific project of
monetary stabilization is realized. Expectations of major aid and
development would be thus incorporated in a “package deal.”
For countries which have not achieved self-sustaining growth, aid
should be given up to the limit of the absorptive capacity of the coun-
try, assuming that the contribution from national resources is sufficient.
The increased contribution from national resources will usually grow
in time through the mechanism of a higher marginal rate of savings.
This may require higher taxation and other unpopular measures.
Other things being equal, more aid may have to be given where more
"painful" steps for national reforms are required.
ABSORPTIVE CAPACITY AS A MEASURE OF AID ALLOCATION
Capital aid should be offered wherever there is reasonable assurance
that it will be effectively used. The problem of how to allocate avail-
able funds "equitably" need not arise. A positive incentive to in-
ECONOMIC ASSISTANCE PROGRAMS
61
creased national effort will be present only if it is believed that all
requests which meet functional criteria of productivity will be granted.
Absorptive capacity becomes thus the measure of allocation of aid be-
tween different countries.3
Absorptive capacity relates to the ability to use capital productively.
While not every single investment project need be "self-liquidating,"
total investment must not only cover its costs but must also yield a
reasonable increase in income. Total investment entails a multitude
of projects, a diversified investment program which requires varie-
gated managerial and technical resources. While some single proj-
ects may use foreign consultants and experts, the bulk of the adminis-
trative and organizing effort must be undertaken by the country's own
personnel if it is to develop successfully.
These two requirements, diversification and predominantly domes-
tic management and administration, set narrow limits to the absorptive
capacity of underdeveloped countries. At a low level of development,
investment must first create preconditions for subsequent growth. An
irreducible minimum quantum of transport, power, and other public
utilities ("social overhead capital") is needed as a framework for more
diversified agricultural and industrial investments. Even if more
than the irreducible minimum of basic investments could be built and
in this too narrow sense technically absorbed, there can be no certainty
that it can be productively used. Productive use implies not only the
supply of basic services but also sufficient demand for those services.
This will be forthcoming only if investment opportunities created by
"social overhead capital" are taken up. The probability that the cata-
lytic effect of inducing additional productive investments will ma-
terialize is difficult to assess. No more than the irreducible minimum
should, therefore, be built at first. Risk considerations require that
only a block, not a whole city, be built as long as it is uncertain whether
there will be sufficient inhabitants. Here, then, the postulate of di-
versification of the development program coincides with the principle
of limiting risks. Risk considerations are thus not absent from the
assessment of absorptive capacity.*
At a low level of development, success of the catalytic effect of
basic investments may be so difficult to assess as to be almost unpre-
dictable. The first "dose" of development may or may not make peo-
ple "tick." On the other hand, an irreducible minimum has to be
invested if there is to be a chance. Where risk is a bottleneck, absorp-
tive capacity may be higher than creditworthiness. This may fre-
quently obtain in the poorest countries, with incomes per head under
$100. In these conditions grants should supplement loans. The total
amount of aid should still be determined by absorptive capacity. The
division of aid between loans and grants will be determined by a coun-
try's capacity to repay. The grant component of aid should, there-
fore, be determined according to the total creditworthiness of a coun-
try, not according to the nature of single projects to which grants are
allocated.
8 Absorptive capacity is so limited in many underdeveloped countries that relatively small
amounts of capital ($2.5 to $3.5 billion more per year from all sources) would amply suffice
even if every underdeveloped country of the free world were to avail itself fully of this
opportunity. In practice it is unlikely that more than 50 to 60 percent of this amount
would be taken up.
The nature of these uncertainties is the justification for public credit and special aid
provisions, since private credit cannot be expected to shoulder such risks.
62
ECONOMIC ASSISTANCE PROGRAMS
An intermediate form of aid, so-called "local currency loans" (see
sec. IV), may ideally fit the case of not easily predictable risks and of
limited creditworthiness. They raise the marginal rate of savings
of the recipient country, while effective repayment and transfer need
not burden the balance of payments for 40 or 50 years. "Local cur-
rency loans" may in many cases partly or wholly replace grants.
To sum up: The fundamental criterion for allocation of aid to coun-
tries is their absorptive capacity. The composition of aid as between
loans, "local currency loans," and grants should be determined by the
countries' creditworthiness. The capacity to absorb is the fundamen-
tal, the capacity to repay the supplementary principle of aid.
TWO LIMITS TO THE CRITERION OF ABSORPTIVE CAPACITY: (a) HIGH
INCOME PER HEAD, (b) LARGE SINGLE PROJECTS
(a) Where absorptive capacity is high, but income per head and
rate of growth are already on a relatively high level, a smaller amount
of aid is appropriate. This may be the case notably in several coun-
tries of Latin America which have incomes of over $200 per head and
a rate of growth of 4 to 42 percent per annum which yield an increase
in income of 2 percent per head per annum. Where the rate of do-
mestic net savings is already sufficient to warrant a sustained rate of
growth of 412 percent, for instance, recourse to normal international
capital markets should provide additional foreign capital inflow.
Absorptive capacity may easily be higher than domestic capital forma-
tion, but the excess can in this case be provided for by normal capital
flows. Where the proportion of national investment is just short of
the target of self-sustained growth, and where a high national effort
in the form of a high marginal rate of savings can be expected, aid for
a shorter period (for instance 5 years instead of 10 years) and in
smaller amounts may suffice. Absorptive capacity thus should de-
termine the amount of aid only up to the level at which the reasonably
possible domestic capital formation will suffice for a self-sustained
rate of growth.
(b) It has been pointed out above that absorptive capacity refers
to a differentiated development program in which the major part of
the organizational effort is by nationals of the recipient country. It
is not only the amount of capital which could be used but also its
diversification and its national administration and management which
determine absorptive capacity. Many countries may be capable of
completing large single projects (for instance, power dams and irriga-
tion projects) if these projects, as well as some narrowly interrelated
projects, are not only designed and constructed but also administered
by foreign technical assistance. It would be misleading to say that
such large projects are truly within the technical absorptive capacity
of the country.
SUMMARY
The general aim of aid is to provide an incentive for greater national
effort in each underdeveloped country so as to shorten the period after
which self-sustaining growth is reached. The overall aim of aid is
not to equalize incomes in different countries but to assist each country
in achieving a steady, self-sustaining rate of growth. Aid should not
continue until a certain income level is reached in underdeveloped
ECONOMIC ASSISTANCE PROGRAMS
63
countries but only until these countries can mobilize a level of capital
formation sufficient for self-sustaining growth.
Thus the primary criterion is to maximize additional effort, not to
maximize income created per dollar of aid. Rough commonsense rules
can indicate desirable and practicable targets of national effort. A
well-worked-out development program not only allows us to identify
these targets and to measure the effort of a country; it is at the same
time an instrument for increasing the country's absorptive capacity.
Aid should be given up to the limit of the absorptive capacity which a
country can attain with a sufficient national effort. Capital aid should
be offered, in other words, wherever there is reasonable assurance that
it will be effectively used. The problem of how to allocate available
funds "equitably" between different countries need not arise. The
principle of positive incentive implies that requests which meet func-
tional criteria of productivity should be granted. Absorptive capacity
is thus the fundamental criterion of aid and the measure of its alloca-
tion between different countries. The absorptive capacity of under-
developed countries is so limited that relatively small amounts of aid
capital would suffice even if every underdeveloped country were to
avail itself fully of the opportunity to use such capital.
While the total amount of aid is determined by the country's absorp-
tive capacity, the composition of aid as between loans, "local currency
loans," and grants should be determined by the country's creditworthi-
ness. The capacity to absorb is the fundamental principle, the capac-
ity to repay the supplementary principle of aid.
These principles must be applied with intelligence and imagination.
They are not a substitute for wise administration. They can, how-
ever, provide a framework within which functional criteria of aid
can be mutually agreed upon.

HOW CAN THE
SECTION VII
AMERICAN
PEOPLE
DETERMINE
WHETHER THE OBJECTIVES OF ECONOMIC AID PRO-
GRAMS ARE BEING ACHIEVED?
DIFFICULTIES OF EVALUATION
In the complex economic and social world clear lines of causation
are difficult if not impossible to establish, and the importance of any
one among myriad interacting forces is virtually immeasurable. In
the physical sciences, where experimental methods are more readily
applied, the significance of a given factor can be measured by repeat-
ing a process with and without its intervention. In social questions
this technique can rarely be employed. When 2 situations are com-
pared, 1 country, let us say, receiving economic assistance and another
going without, the comparison of the outcomes is relevant to establish-
ing the contribution of the economic assistance only in the extreme
case when all other conditions are identical. If a country successfully
achieves economic growth with economic assistance, it may be possible
to argue that the growth would have occurred in any event. Similarly,
if it receives assistance and fails to achieve the expected rate of eco-
nomic development, the fault may lie with the inadequacy of domestic
effort, on the one hand, or else with the insufficiency of aid—the 15-foot
rope for a drowning man 20 feet away, to use Senator Vandenberg's
expression.
For these reasons, evaluation of the effects of economic aid calls for
judgment and interpretation rather than scientific measurement.
Since judgment is involved it is inevitable that different observers will
express different opinions. These differences will be minimized, how-
ever, if the evaluations are directed to the same level of analysis,
whether the particular economic project, the overall economic pro-
gram, or the political consequences of the program.
It is necessary to evaluate the success of United States aid and do-
mestic efforts on all three levels: In carrying out projects, in the
fulfillment of programs, and in the impact of economic programs on
political development. The smaller the scale of the evaluation, the
more effectively and rapidly it can be made. The success of a project
can be established sooner than that of a program; and the fact that
a program to stimulate economic growth or to correct balance of pay-
ments of a country has been successfully carried out is more easily
ascertained than the success of such a program in encouraging the
development of free political institutions.
If there are a variety of long-run objectives of unequal importance,
evaluation becomes still more complex. World War II was won by
the Allies with the vital assistance of lend-lease, but the objective of
article VII of the lend-lease agreements to construct a world of
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ECONOMIC ASSISTANCE PROGRAMS
65
multilateral trade-was not reached. Similarly, the European recov-
ery program achieved its long-run aims of preserving free democratic
institutions in Western Europe but did not eliminate discrimination
against dollar exports. Most observers would regard the objectives
accomplished as of greater significance than those missed; but a net
evaluation, when some objectives are achieved and others not, calls
for value judgments on the separate goals.
ANALOGY WITH EVALUATION OF STRATEGIC BOMBING
It may be suggestive to use as an analogy the evaluation of the ef-
fectiveness of strategic bombardment during World War II. This
evaluation was continuous-running from strike photographs taken by
the raiding aircraft, through photographic assessment by special re-
connaissance squadrons and interpretation by trained architects and
economists and, finally, after the war, to a survey by a special commis-
sion, the United States Strategic Bombing Survey, which undertook
to measure the overall effectiveness of the bombardment by on-the-
scene exploration in Germany and Japan. At the project level-strike
photographs and first-phase photographic interpretation--it was pos-
sible to obtain an idea of whether the target was hit and of the amount
of roof area destroyed. This evaluation was important for operational
purposes but generally superficial in terms of longer-range objectives.
Second- and third-phase photographic interpretation was needed to
determine whether the structure was sufficiently damaged to do seri-
ous long-run harm to the plant's production. The importance of the
plant in the industry and of the industry in the war effort called for a
separate evaluation of economic and military accomplishment. If the
industry suffered serious damage, the enemy war effort might suffer.
The degree to which this was true, however, depended upon enemy
success in redisposing other economic resources to meet particular
shortages and to convert military losses to civilian belt-tightening.
Finally, after the war, the Strategic Bombing Survey concluded that
the air offensive had been an important instrument in winning the
war but that it could have been done more economically; these con-
clusions were not undisputed, however, and it was impossible to reach
universally agreed conclusions that the air effort had been of the
appropriate size in relation, say, to the naval effort in Japan and the
ground attack in Germany.
The less significant the question to be evaluated, then, the clearer
the answer attainable. On the bigger questions of the quantitative
contribution of the air offensive relative to other operations, more
than one interpretation was possible. Most observers were never-
theless able to agree that the air offensive played a qualitatively sig-
nificant role in winning the war, even though its effect could not be
assessed with any degree of exactness.
THE EVALUATION OF PROJECTS
It is important to evaluate projects of all sorts, whether investment
projects, technical assistance undertakings, specific uses of counterpart
funds, or surplus commodity loans. Several levels of evaluation ex-
ist, including the physical success of the undertaking, its contribution
to a program, and its cost in relation to estimates.
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ECONOMIC ASSISTANCE PROGRAMS
Failure at the physical level is not unknown in United States and
other aid programs. Electrical equipment has been sent where no
power existed, and power developed in places lacking outlets for its
use. The most spectacular physical failure since the war has been the
British groundnut scheme in Tanganyika. The annals of United
States and United Nations economic and technical assistance are not
without further examples.
For an investment project, physical success requires that the project
be completed and able to produce the output for which it was designed.
The physical success of a technical assistance project is measured by
the fact that skills are transmitted; that an agricultural demonstration
attracts peasant interest and emulation; that a training center wins
students; or that students brought to the United States for training
actually return to the countries from which they were brought rather
than arrange to remain here.
A project may succeed in physical terms but fail for broader rea-
sons. Output may be forthcoming but go unused in the development
program; or students may be unable to employ their newly learned
skills for lack of equipment or markets or because of the resistance of
consumers. Further requirements for success, therefore, are that the
complementary resources needed for production come into being and
that the market for the product or service absorbs the new output. An
example of failure of this sort is furnished, according to an account
in the New York Times, by the Helmut River Dam in Afghanistan,
where newly irrigated land found no settlers among the essentially
nomadic peoples expected to benefit from the investment. In tech-
nical assistance schemes an important test is the willingness of the local
Government to support the undertaking after initial United States aid
is withdrawn. This constitutes a sort of market test, on the assump-
tion that Government resources are limited and will be used to
continue only those assistance schemes which make a significant
contribution.
A project may be a physical and economic success in the senses
indicated but still deserve to be scored as a failure if the original
estimates very much underestimate its costs. Such underestimation is
usual in public projects even in developed countries, but its importance
is greater in underdeveloped countries because of their limited re-
sources. Not only are there limits to the physical resources available
for the project, but the indirect effects, particularly the spillover of
income into imports, will impinge on limited foreign exchange re-
serves. Where the project is very large in relation to the program,
the need for careful estimates is all the greater; and a large degree of
uncertainty over cost is reason to go slowly, since underestimation may
involve serious inflationary and balance-of-payments consequences.
An outstanding example of the need for caution is the Aswan Dam.
In evaluating projects it is important to avoid the pitfall of over-
generalization from the particular. It is easy to recount in detail
the success of a series of projects, thereby implying the success of the
whole program. Anecdotes and case histories frequently substitute
in inspirational writing for supportable generalization. The enthu-
siasm of the public relations officer at the squadron who reports targets
suffering extensive roof damage as utterly destroyed ultimately creates
doubts in the evaluation system when it proves necessary again and
again to return to the same target.
ECONOMIC ASSISTANCE PROGRAMS
67
PROGRAM EVALUATION
Evaluating programs is both more important and more difficult than
keeping tabs on project fulfillment. In most cases the program ex-
tends well beyond the projects in which United States aid is involved.
Further, while program evaluation addresses itself to the growth of
national income, changes in industrial production, the evolution of
the balance of payments, the formation of new capital, the emergence
of habits of savings, monetary exchange, banking practice, etc., these
vital measures of the economic development of a society are affected
by factors outside the scope of the development program. For ex-
ample, sizable changes from one year to the next in national income
and the balance of payments result from fluctuations in the harvest or
monsoon, the effects of which have tended to be neglected. Over
longer periods the effects of weather may be supplemented by other
factors such as changes in foreign markets over which the development
program has no control and only limited capacity to forecast.
The striking improvement in economic conditions in Western Europe
between 1947 and 1948 was partly brought about by interim aid and
the prospect of the European recovery program. In significant degree,
however, it was the consequence of the contrast between the bad
harvest of 1947 and the good crops of the subsequent year. In similar
fashion, the initial impact of the roadbuilding program on Turkish
economic development after 1947 was as strong as it was because of
excellent growing seasons for wheat in 1950 to 1952; and the rapid
growth of the Indian economy in the initial 4 years of the first 5-year
plan is ascribable in significant part to a succession of good monsoons.
Likewise, the strong progress in economic development of a number of
Asian countries-Burma, Thailand, Ceylon, Pakistan from 1950 to
1952 was stimulated in part by the commodity boom resulting from
the war in Korea. When the conflict subsided the pace of development
slowed down. The impact of economic assistance on a national pro-
gram of economic development can thus be determined by factors
which lie outside the control of grantor or recipient.
Having said this, it still remains true that different programs of
economic development will produce different results in identical cir-
cumstances, and that different programs of assistance to identical
development plans in identical circumstances will produce different
degrees of success. The nature of the assistance can even be adjusted
so as to compensate for the external uncontrollable circumstances:
for example, the provision of stocks of foodstuffs for India out of
United States surpluses will limit the possibility that development
may be blocked through poor harvests which worsen the balance of
payments, raise agricultural prices, encourage grain hoarding, etc.
After allowance for external conditions, the main criterion of cur-
rent success of development programs is the rate of growth of national
income in real terms per capita. As was pointed out in section VI,
development aid should continue until the rate of growth becomes
self-sustaining. Whether a given rate can be sustained, however,
involves more subtle considerations, especially the rates of progress
in separate sectors such as agriculture, industry, production for export,
and the rate of savings out of increases in output. More elusive
still, and more difficult to evaluate, are the social changes which are
conducive to economic development-for example, the emergence of
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ECONOMIC ASSISTANCE PROGRAMS
new habits of response to economic stimuli, the awakening of interest
in new production techniques, and the growth of occupational and
spatial mobility. It is not enough, therefore, to know that national
income has expanded by 2 to 5 percent per capita to regard a program
as a success; the performance by sectors, the development of savings,
and the social evolution must all follow appropriate paths if growth
of income is to be sustained and become cumulative.
Another frequent difficulty in evaluation arises when the achieve-
ment of one goal-expansion of national income-is accompanied by
a setback in progress toward another or by a worsening in the balance
of payments. In such a case growth of income has been exceeded by an
increase in expenditure on imports. Apart from the operation of
forces external to the program, income growth plus deterioration in
the balance of payments may result from underestimation of the
cost of the program and consequent underestimation of the need for
external finance; from overoptimism regarding the internal rates
of saving which can be achieved out of the increases in output; or
from inadequate monetary and fiscal steps to restrain other forms
of consumption and investment. In most cases it will be possible to
apply more effective restraints on nondevelopmental expenditure or
to reduce the scope of the investment program on projects of lesser
priority. In some instances, however, the integral nature of the
investment program and domestic resistance to further monetary
and fiscal measures may make it impossible to improve the balance
of payments without serious setback to the rate of growth. If this
is really so, the situation calls for either further borrowing from
abroad or further aid.
POLITICAL RESULTS OF AID
The primary objective of economic aid programs as envisaged in
this report is the preservation and strengthening of free democratic
institutions through holding up the prospect of economic betterment.
It is recognized that at certain very low levels of income an improve-
ment in the level of living may be accompanied by political unrest
on the part of people who had previously been too close to the margin
of subsistence to have the energy for political agitation. It is also
true in some circumstances that initial improvement in standards of
living brings about an increase in the appetite for further improve-
ment which cannot quickly be satisfied and so is accompanied by
unrest. Finally, it may happen that social and political institutions
blocking economic development are destroyed without the creation of
new institutions which effectively harness the social energy; where
this happens, the society may be particularly responsive to demagogic
appeals of a nationalist or Communist nature. The correlation be-
tween levels of living and free institutions is therefore by no means
one for one. For these reasons it is impossible to fashion a running
evaluation of success in achieving long-run political objectives, which
are the principal rationale for economic aid. The proof of the pud-
ding lies not in the taste of each bite but in its long-run nutritional
value.
Short-run political objectives such as gratitude, friendship for
the United States, and acceptance of the current goals of United States
foreign policy must be similarly excluded as measures of the success
ECONOMIC ASSISTANCE PROGRAMS
69
of the program since they were not its objectives to begin with. As
countries develop and strengthen their free political institutions, they
may be expected to show some independence in their external relations.
To the extent that their short-run interests differ from those of the
United States they may be opposed to some United States diplomatic
policies, but this opposition is in no way necessarily inconsistent with
the political objectives of an aid program. If economic growth leads
to a multiplication of centers of power, initiative, and decision making
in the world, as this paper envisages it will, it must be expected that
some of the power and initiative will be used and that some decisions
will be taken toward ends not consonant with United States foreign-
policy objectives in the short run. But the long-run direction is right.
Even short-run lapses into totalitarian techniques may be tolerable;
the action of Premier Mossadegh in undermining Iranian democratic
institutions and nationalizing the Anglo-Iranian Oil Co. was properly
not used as the basis for abandoning United States technical assistance
to that country; and the expression of United States interest in the
Iranian peoples seems to have paid off in the longer run.
SUMMARY
Evaluation of the success of United States assistance should pro-
ceed concurrently on the levels of the economic project, the economic
program, and the long-run political objectives, but not in terms of
the short-run political interests of this country. The smaller the
scale of analysis, the easier it is to arrive at objective evaluations,
and the less significant. Project evaluation, particularly in terms
of the human drama involved, is no substitute for higher level analy-
sis. In evaluating the success of programs it is important to make
allowance for those external forces which cannot be controlled by
the development program or by outside economic assistance. Where
more than one economic objective exists, clear-cut evaluation may not
be possible without assigning priorities among objectives.
Regarding the political goals of assistance, it cannot be expected
that progress toward them will be steady and continuous. Progress
toward democratic political development should not be judged in
terms of the outcome of particular elections or surges of social unrest.
Judgment is required to ascertain whether the long-run underlying
movement is in the right direction even though it is broken by tempo-
rary setbacks. It must be expected, in consequence, that evaluations
at any given moment may be ambiguous and that opinions may differ.
Informed people with good historical perspective should nevertheless
be able to agree as to the general direction which the political devel-
opment of a country is taking.
CONCLUSION
THE ESSENTIALS OF A DEVELOPMENT ASSISTANCE PROGRAM
The foregoing analysis of the basic assumptions which should
underlie economic-assistance programs has led the authors to a num-
ber of conclusions about American policy. These have been stated
at various points in the argument. We feel confident of the validity
of some of them; others are tentative judgments which might be
altered by further study and reflection. It seems valuable to sum-
marize here the conclusions we have come to regard as containing
the essential features of any future development assistance program
which attempts to serve the purposes outlined in section II.
1. Since economic growth is inherently a slow process, and since
the economic and political results we seek from an economic develop-
ment program will accrue only over a considerable number of years,
the program must have continuity. As an instrument of short-term
policy, development assistance is wasteful and ineffective. If we
have any hope of achieving desirable results from a development-
assistance program, we must be clear in our own minds and must
make it clear to the rest of the world that this is a program which
we propose to pursue consistently for at least 5 or 10 years and which
we will not permit to be affected by changes in the international or
domestic political climate. If we are not prepared to make this kind
of long-term commitment, we should probably not support develop-
ment assistance programs at all.
2. There is a minimum level of resources that must be devoted to
such a program if it is to have any chance of success. Launching a
country into self-sustaining growth is a little like getting an airplane
off the ground. There is a critical ground speed which must be
passed before the craft can become airborne; to taxi up and down the
runway at lower speeds is a waste of gasoline. Debate is possible as
to precisely what level of aid is required to get a country over this
minimum threshold. We suspect that for many countries it is above
recent levels of development assistance-but not so far above as to
raise serious doubts about the ability of the United States to sustain
the effort.
3. A development assistance program will be most effective if it
concentrates on the objectives of promoting self-sustaining economic
growth in the recipient countries. If we attach a variety of political
or military strings or otherwise attempt to make a development pro-
gram serve purposes peripheral to its central objective, we shall com-
promise its chances of success. We can and probably should use eco-
nomic assistance programs to pursue other ends, but such programs
should be kept separate, at least in planning and budgeting, from the
development assistance program.
4. The effectiveness of a development assistance program will be
greatly increased if it includes a substantial measure of international
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ECONOMIC ASSISTANCE PROGRAMS
71
cooperation. As explained in section V, we doubt whether inter-
national administration or allocation of funds is either possible or
wise, but every effort should be made to secure international plan-
ning, coordination, and agreement on criteria.
5. If the rationale for development assistance outlined in this pa-
per is valid for one underdeveloped country in the free world, it is
valid for all. Since this is not a program designed to put out fires
which are already burning but rather to prevent fires from breaking
out, and since over the next decade fires may break out almost any-
where in the world, we should apply this progam not only to areas
currently in crisis but to all underdeveloped areas. Indeed, the long-
term value of such a program to the United States may be ever greater
in areas where unrest has not yet come to a boil and where the ef-
fects of a slow-acting policy have more time to make themselves felt.
APPENDIX
(This outline was prepared by the staff of the special committee to
serve as a guide for MIT in preparation of its report to cover subjects
of interest to the committee.)
THE OBJECTIVES OF UNITED STATES ECONOMIC ASSISTANCE PROGRAMS
SUMMARY OF CONCLUSIONS
1. Objectives of economic aid programs undertaken by the United
States since World War II
A review of the stated purposes of United States economic assistance
programs since 1946, as reflected in the policy statements and presenta-
tions to Congress of the executive branch, in congressional discussion
of aid legislation, and in the legislation itself. Special attention will
be paid to an evaluation of the objectives of legislation currently in
force.
II. Alternative concepts of the United States interest in providing
continued economic assistance to foreign countries
An evaluation of the circumstances under which various different
United States interests may be served by economic assistance programs.
III. The relation between the objectives of economic and those of
military assistance
It is proposed, after consultation with those responsible for project
No. 1, basic assumptions underlying military assistance programs, to
examine (1) how military and nonmilitary objectives are related,
(2) the degree to which programs with nonmilitary objectives can and
should be separately administered from those with military objectives,
and (3) where military and nonmilitary programs are to be undertaken
in the same country, how they can be designed so as to reenforce each
other in furthering the overall objectives of United States policy.
IV. Specific purposes of particular forms of nonmilitary aid and their
relation to each other and to the United States interests out-
lined in II
A. An evaluation of the relationship of the objectives of the different
types of direct economic assistance (including gratis cash grants,
grants in kind, technical assistance, military defense support, offshore
procurement, use of counterpart funds, surplus agricultural products,
loans, other).
B. An evaluation of the relationship of the objectives of the differ-
ent types of indirect economic assistance (including strategic stock-
piling; public inducements to private investment; strategic buying
(Burma rice) and selling; pertinent domestic policies, as tariff, visa,
merchant marine, foreign exchange, agriculture, public and private
debt).
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ECONOMIC ASSISTANCE PROGRAMS
73
V. Through what channels might economic aid be supplied in order
best to achieve objectives?
A. An evaluation of the channels of assistance (i. e., bilateral
arrangements, regional organizations, international organizations) as
related to the attainment of objectives.
B. Evaluation of the role of types of national channels, both public
and private, in achieving objectives.
VI. How can the United States determine what countries should re-
ceive aid and in what amount in order best to achieve the
objectives of economic aid programs?
An examination of the problems of allocating assistance as related
to the attainment of objectives: criteria for selecting countries; criteria
for determining amount of assistance; criteria for determining type
of assistance; the implications of refusing, increasing, downscaling, or
terminating assistance.
VII. How can the American people determine whether the objectives
of economic aid programs are being achieved?
An analysis of criteria for measuring the effectiveness of economic
assistance programs.
VIII. Conclusion
Is it or is it not in the national interest for the United States to con-
tinue economic aid programs, and why? If some form of continued
economic assistance is in the national interest, what general character-
istics must such a program have to achieve its purposes?
STUDY NO. 2
PERSONNEL FOR THE MUTUAL
SECURITY PROGRAM
BY
LOUIS J. KROEGER AND ASSOCIATES
FEBRUARY 1957
75
CONTENTS
1
Page
79
81
83
85
I
I
I
87
98
103
109
112
114
122
124
127
129
133
146
147
77
Letter of transmittal___
Introduction_..
Findings and recommendations___
Chapter I. What is the problem?_
I
I
1
I
I
II. What manpower is needed and available?……….
III. Foreign personnel resources.
IV. How are manpower requirements and resources matched?.
V. Personnel administration..
VI. Classification and compensation_-
VII. Recruitment and employment practices.
VIII. Employee utilization……….
IX. Orientation and training-
X. Tenure_.
XI. A proposed personnel system.
1
11
XII. Personnel for the military assistance program_
XIII. Conclusions__
Appendix..
|
I
The CHAIRMAN,
LETTER OF TRANSMITTAL
LOUIS J. KROEGER & ASSOCIATES,
San Francisco, Calif., December 15, 1956.
Special Committee To Study the Foreign Aid Program,
United States Senate, Washington, D. C.
DEAR MR. CHAIRMAN: In accordance with the contract dated Sep-
tember 26, 1956, entered into pursuant to Senate Resolution 285, we
submit herewith our report on Personnel for the Mutual Security
Program.
We have inquired carefully into all matters designated by the com-
mittee, and here report our findings, conclusions, and recommen-
dations.
We have reviewed congressional testimony and numerous reports
bearing on the subject. We conducted scores of interviews with
administrative officials and have secured detailed comments from the
staffs of some 20 field missions. Many individuals have contributed
to this report, but, in particular, our work was facilitated by the
cooperation and active assistance of officials connected with the
mutual security program. While the study points up the complicated
and unique nature of the personnel problems faced by the Interna-
tional Cooperation Administration and related agencies, the 2%2
months did not permit time to develop absolute solutions for all of
them.
The major sources of advice on manpower data problems have been
the Bureau of Labor Statistics, the National Science Foundation, pro-
fessional groups, and officials of other Government agencies concerned
with specialist personnel. The organizations and individuals were
particularly helpful in providing data and indicating useful source
material.
Very truly yours,
LOUIS J. KROEGER.
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PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
INTRODUCTION
This analysis of manpower and personnel requirements of the
mutual security program deals primarily with policy matters rather
than with administration and management. Where personnel ad-
ministrative practices are directly affecting policy, we have called
attention to the situation, so that the agency itself may determine
and carry out remedial measures.
The
Because of time limitations, this report is based principally on data
and opinions supplied by those administering the programs.
facts which might have been obtained by on-the-spot investigations
in the missions and countries concerned simply could not be gathered
within the time and funds available. However, we sent questionnaires
to some 28 overseas missions and verified information as far as possible
with those able to give impartial advice based on experience overseas.
In addition, opinions and conclusions were tested against our own
experience with similar problems in scores of other administrative
settings.
The material having been furnished by administrative officials,
there will be little here that is new to them. The solutions to many
of the problems were themselves largely suggested in our discussions
with administrative officials. What should be of interest to all con-
cerned is the summary in one place of findings and conclusions from
many sources, with our evaluation and proposals for improved per-
sonnel policies and practices to add vitality to the mutual security
program.
We
Implicit in a study such as this is the question of whether the prob-
lems found are to be solved by legislative or executive action.
find that International Cooperation Administration officials are well
aware of most of these problems, and that within the limits of the exist-
ing conditions, they are attempting to solve them. While the agency
could be charged with lack of action on certain points, considering the
temporary status of the agency and the host of problems they have had
to deal with, it would be unjust to find fault. In fact, they are far
ahead of many Government agencies in awareness and in willingness
to try new approaches to their personnel problems.
Naturally, the Special Committee To Study the Foreign Aid Pro-
gram will desire to see as many of the problems as possible eliminated
through action by the agency itself. We believe that essentially
what is needed is encouragement by the Senate, so that the agency
concerned will promptly adopt the recommendations. The publica-
tion of this report will in itself serve to highlight the problems and
encourage the administering agencies to adopt appropriate courses
of action.
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PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
Those obstacles which underlie many of the personnel problems,
such as the temporary nature of the agency and delays in appropria-
tion and program approval, require action by the Congress. While it
is not within the scope of this report to advise as to the future of the
agency, it is apparent that fundamental improvements in manpower
utilization and personnel policies and practices hinge on the extent to
which Congress acts to assure a stable future for the mutual security
program.
FINDINGS AND RECOMMENDATIONS
These findings and recommendations are repeated and supported
in the balance of the report.
FINDINGS
The manpower requirements of the mutual security program are
not enough of a strain on available resources to require drastic modifi-
cation of programs.
Manpower requirements of the program are specialized rather than
extensive.
Programs and projects have been seriously affected because man-
power requirements are not met.
Difficulties in filling manpower needs are caused by conditions,
policies and practices that can be corrected by Congress or by
administrative action.
The main obstacles are
The uncertain life of the International Cooperation Adminis-
tration.
Criticism of the program.
Cumbersome program planning procedures.
Relatively unattractive terms and conditions of employment
(pay, location, housing, tenure, and others.)
Inadequate recruiting and personnel procedures.
The International Cooperation Administration should be com-
mended more for doing its best under trying circumstances and
criticized less for failures caused by conditions generally beyond its
control.
The resources available to the military services in staffing military
advisory groups abroad dramatizes the differences possible under a
more stable organization with long-range objectives and plans.
RECOMMENDATIONS
These proposals depend on the assumption that Congress will
support the long-range extension of a mutual security program.
Without that assurance, the International Cooperation Administra-
tion can do little to correct present conditions.
1. Program and projects should be planned to meet program needs
rather than on the basis of apparent manpower shortages.
2. The supply of specialists and technicians available for overseas
assignments should be increased by eliminating deterrents.
3. Non-United States personnel resources should be utilized by
drawing on third-country nationals and the resources of international
agencies.
4. The Mutual Security Act should be amended to provide for ade-
quate benefits to attract and employ qualified foreign experts.
5. In its program planning, the International Cooperation Adminis-
tration should develop comprehensive manpower budgets, based on
realistic appraisals of manpower needs.
94413-57———7
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PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
6. Personnel recruitment requirements need to be anticipated earlier
in the programing cycle.
7. Timing and scheduling in program planning should be improved.
8. Regular methods of program and project evaluation are needed,
including appraisal of manpower and personnel aspects.
9. The International Cooperation Administration should make the
following improvements in personnel management:
Appoint a permanent Director of Personnel, with requisite
experience in personnel administration.
Improve organizational and working relationships between the
personnel and operating staffs.
Utilize the flexibilities permitted in salary and classification
plans by the Foreign Service Act of 1946.
Simplify existing salary schedules.
Develop classification standards specifically for overseas
positions.
Determine comparability of salaries and other benefits with
those granted by other employers.
Improve the orientation program by clarifying the roles of
Washington and the field missions.
Initiate staff training and development, and explore the pos-
sibilities of language training.
Improve recruiting by clarifying responsibilities and extending
recruitment efforts.
Reduce procedural delays in employment and processing.
Reduce turnover by exit interviewing and by emphasizing
reassignment possibilities.
Use written and oral tests and other selection devices to assure
better employees.
Develop a career system which meets the specific needs of the
mutual security program.
CHAPTER I
WHAT IS THE PROBLEM?
The mutual security program has existed in one form or another
since 1948. Although there has been a full and constant consideration
of the program's financial and material requirements, it was only
recently that manpower requirements and personnel policies and
practices have attracted attention by the Congress. Agencies have
always been aware of the importance of securing qualified individuals
for overseas employment, but only in the last few years have program
planners feared that limited manpower resources might be a handicap.
To determine the possible effect of manpower limitations on the
future of mutual assistance, the Special Committee To Study the
Foreign Aid Program asked us to make a critical review of manpower
resources and personnel requirements, and of the extent to which
broad programs and specific projects have been affected by manpower
shortages or by personnel policies and procedures.
There is ample evidence that manpower problems deserve this
attention by the committee. Inability to meet personnel requirements
is hampering mutual aid and is damaging our prestige. To measure
the seriousness of the problem we queried 28 field missions to deter-
mine if projects were being hampered. Twenty answers received
show that scores of projects involving millions of dollars have been
unduly delayed or otherwise adversely affected by inability to secure
technicians when needed. The countries most exposed to the Com-
munist threat are among those whose programs are most seriously
affected.
These examples, condensed from mission and Washington responses,
emphasize both the nature of personnel shortages and their implica-
tions on program objectives.
In April 1955 the Ministry of Finance requested the "serv-
ices of four experts to advise in the preparation of construc-
tion drawings, including the necessary design of details, and
to advise on the procedure and organization for the super-
vision and inspection of construction." They specified that
the 4 be a civil engineer, a mechanical engineer, and 2
construction engineers, and suggested to International Coop-
eration Administration that they be obtained from the United
States Bureau of Reclamation.
The United States has nominated several candidates-
some have later declined, some have been disqualified and
none has yet arrived. Since the inception of the technical
cooperation program, the United States Government has
spent $6,420,533 on the development. To date we have
been unable to supply advisory services necessary to assure
that the equipment furnished to this project is being used
advantageously.
85
86
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
In the Near East: An important public-health demon-
stration on training project (project No. 66-53-016) has
been intermittently hampered over the past 4 years because
of shortages of technical personnel. Required on the project
were a medical officer, sanitary engineer, sanitarian and
public health nurse supervisor.
The medical officer was requested in September 1952.
Twenty-two months later the medical officer arrived on
temporary assignment, later changed to permanent. He
did not have the qualifications in public-health work speci-
fied by the position, but was accepted because the position
had been long vacant. He stayed 8 months and left because
of illness of his father in the United States. The position
was not filled afterward and was finally abolished in the
fiscal year 1957 budget.
The sanitary engineer was requested in September 1952.
The position was vacant until March 1954. He was trans-
ferred in June 1956. A replacement was requested January
1956 but did not arrive. The position was dropped in the
fiscal year 1957 budget.
The sanitarian was requested in September 1952. The
position was vacant until March 1954. He left in February
1956. Replacement was requested November 1955. The
position is still vacant.
A public health supervisor was requested in March 1953
to report as soon as possible. She arrived December 1953
and stayed until December 1955. Replacement was re-
quested August 1955. Replacement arrived August 1956.
Delays discourage realistic planning by the host country because of
uncertainty about whether the projects will be started. Moreover, by
the time the personnel arrive, much of the enthusiasm for the project
subsides, and staff initially assigned by the host country to the project
have gone to other jobs or have left the government service.
QUESTIONS AT ISSUE
The specific questions posed by the Special Committee To Study
the Foreign Aid Program for our examination fall under three headings:
First, what are the manpower requirements of the program
compared to the supply of available manpower? This is essen-
tially a question of whether we have the manpower resources to
supply the requirements of the programs without undue loss to
the domestic economy.
Second, how are manpower requirements matched with man-
power resources? This requires a review of program planning
and the development of the operating programs and projects.
Third, what is the effect of the actual administration of the
personnel program? This is the critical point where manpower
requirements are converted into personal transactions and where
personnel policies and practices of the agency directly affect pro-
grams and individual projects.
CHAPTER II
WHAT MANPOWER IS NEEDED AND AVAILABLE?
The effectiveness of the mutual security program depends upon the
Nation's ability to supply well-qualified individuals to fill the overseas
administrative and technical posts. They must be secured at a time
when the domestic economy is making increasing demands for
specialized personnel. This causes two points of concern to the
committee. First, what are the present and future personnel require-
ments of the mutual security program? Second, what are the resources
and demand for such personnel in the domestic economy in comparison
with program needs?
What are the manpower requirements of the program?
Eight thousand positions for United States citizens are established
for nonmilitary aspects of the mutual security program. The greatest
number, some 5,800, are with the International Cooperation Adminis-
tration. Another 1,300 persons are employed through contracts
financed by the agency. In addition, about 1,000 are on the rolls of
other United States agencies. The International Cooperation
Administration has interagency agreements for the employment of
560 people with the Departments of Agriculture, Interior, Commerce,
Labor, and Health, Education, and Welfare, and with the Housing
and Home Finance Agency. The State Department employs 450
persons on escapee, mutual defense assistance controls, mutual security
liaison and other functions. This is indicated in the following table:
TABLE 1.-United States citizen positions in mutual security program, by employing
agency

Agency by which employed
Total..
International Cooperation Administration.
State Department.
Other Federal agencies.
Contractors…….
Number of
positions
1 Figures based on IBM system in process of installation at ICA and subject to minor errors.
• United States citizen contract personnel actually employed as of September 1956.
MUTUAL ASSISTANCE SPECIALIST REQUIREMENTS
8, 091
1 5, 791
450
560
* 1, 290
Over a third of these employees are in occupations generally identi-
fied as professional or highly technical. The larger part are engaged
in general administrative, reporting, clerical, and other nonspecialist
activities.
Specialists are in demand in the United States. Their number
cannot be rapidly increased because of the time it takes to develop
the necessary competence and because of limits on facilities for their
87
88
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
training. Since the question of manpower requirements is most
significant in the need for professional and technical personnel, the
analyses which follow are concerned with these occupational groups.
Limiting the study to recognized professional and technical occupa-
tions means excluding many groups of employees, even though they
are important to the program. Positions in the fields of housing,
community development, marketing and distribution, commodities
specialties, transportation, vocational education (other than agri-
culture), labor, and public administration are omitted because entries
in the fields are from such varied sources that they cannot be identified
with specific types of advanced training. This is also true of execu-
tives whose personal characteristics, such as leadership, are frequently
more important than training in a specialized field. The skilled
trades are omitted, as are general administrative, information, and
clerical and unskilled positions. Educators below college level are
excluded because qualification requirements vary too greatly to
provide a satisfactory basis for study.
More than half of the specialist groups studied are in agricultural
and industrial fields. The balance are employed in education, health,
social sciences, and other professions.
About 2,500 specialists are employed directly by the International
Cooperation Administration and other agencies having civilian mutual
security program functions. A third of these are in agriculture, one-
fourth in social sciences, and fewer in industry, health, education, and
other activities.
Less than one-fourth of the specialists are employed by contracts.
The bulk of these are in the industry, education, and agriculture pro-
grams, with a few in health, social science, and other activities.
The following table summarizes employment by principal fields
broken down by direct hire and those engaged under contract.³
3
TABLE 2.-Mutual security program specialist positions by activity and method of
employment

Total...
Agriculture.
Education.
Health..
Industry.
Social sciences..
Other...
United States
employee
Contract
positions
Total posi-
tions
positions
2,530
787
3, 317
900
179
1,079
186
209
395
282
30
312
385
306
691
601
24
625
176
39
215
• These data were extracted from rosters and summaries of positions supplied by the International Co-
operation Administration and other participating agencies. The ICA material is from IBM records now
in the process of completion and is subject to minor errors. Thus, while the basic conclusions which may
be drawn are not affected, numbers of positions in individual occupations are subject to correction.
A greater problem exists with reference to data on contract positions. These were drawn from summaries
of current contracts specifying personnel requirements. The information relating to contract positions
must be considered therefore as only approximate. Since contract positions are less than one-fourth of the
requirements studied, however, the effect of any error will be small.
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
89
FUTURE REQUIREMENTS OF THE MUTUAL SECURITY PROGRAM
Because political developments influence program directions and
because the mutual security program has been considered to have a
limited life, long-term projections of manpower requirements are not
easily obtained. Generally, no drastic changes in specialist require-
ments are anticipated for the next year. In specialties covered by
this study, it may be assumed that agriculture and public health
personnel demands are relatively stable. A somewhat greater ex-
pansion for eduction may be expected. In other fields it is unlikely
there will be any increases of significance. Although projects in
countries may be completed and individual specialists released, there
is little likelihood that personnel requirements in any field will lessen
appreciably, unless political developments disrupt activities in host
countries.
Reasonable increases would not make serious inroads on specialist
resources of the United States, although they would intensify recruit-
ment problems in several occupations. Upon the assumption that a
maximum increase of 25 percent in the personnel requirements of the
International Cooperation Administration might occur over the next
3 years, the following table indicates how this would affect agency
demand:
TABLE 3.-Estimated maximum increase of specialist demands in mutual security
program

Total....
Agriculture.
Education...
Health
Industry.
Social sciences.
Other...
Estimated
maximum
Present
demands
future
demands
(25-percent
increase)
3, 317
4, 147
1,079
1, 349
395
494
312
390
691
864
625
781
215
269
SPECIALIST SUPPLY AND DEMAND
The mutual security program draws specialists primarily from six
fields agriculture, education, engineering, health, natural sciences,
and social sciences. These occupations, together with a small group
of other professions, include some 3 million professionally and tech-
nically trained persons. The domestic demand for specialists from
four of these fields (education, engineering, health, and natural
sciences) is high or very high, and will continue to be for some time
to come. In agricultural occupations it is becoming increasingly
difficult to fill new positions. Only in the social sciences may demand
be considered moderate. This information is summarized in the
following table:
90
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
TABLE 4.—Supply and demand in the United States for specialists in selected fields

Estimated
supply of
specialists
State of demand
Agriculture.....
Education (college).
Engineering.
Health
Natural sciences..
Social sciences.
Other..
246,000
210,000
700,000
897, 200
Variable but insufficient new en-
tries in field.
High for well-qualified teachers.
Very high.
High.
200,000
47,000
4 712, 750
Do.
Moderate.
Variable.
• Includes accountancy, architecture, law, library work, and social work.
How mutual security program demands compare with the supply
can be judged by determining the needs for specialists in each field.
The following information indicates the relationship of programs to
the total supply.
Agriculture
This accounts for the largest group of specialists in the mutual
security program. Over 1,000 positions, one-third of the total, are
in this field. They comprise, however, only 0.4 percent of the almost
250,000 agricultural specialists in government and industry in the
United States. Of the 1,000, almost 400 are positions for agricultural
educators, economists, engineers, and biological scientists, which are
included in analyses in later parts of the study. Some additional 400
are general agriculturists, such as directors of divisions, and other
agricultural specialists for which comparable manpower figures are not
available. The greatest number of positions in the three specialties
shown below are extension workers, which are less than 3 percent of
the county agents actually employed in the United States on June 30,
1956. Home economist positions in the agriculture program are 0.9
percent of the estimated 5,000 qualified workers. The mutual
security program's veterinarian needs are only 0.1 percent of the
17,000 estimated available.
TABLE 5. Agriculture personnel in the United States compared with personnel
requirements of the mutual security program
Agriculture
personnel in
United
States
(1955-56)
Mutual
security
program re-
quirements
Mutual
security
program re-
quirements
as percentage
of agriculture
personnel
Total.
* 246,000
1,079
0.4
Selected fields:
Extension..
$ 7,000
203
Home economics...
7 5,000
Veterinarian..
® 17,000
2223
2.9
47
.9
24
.1
•
Source: Wolfle, Dael, America's Resources of Specialized Talent, 1954.
• Number of county agents and directors of extension that were actually employed as of June 30, 1956.
Figure is less than total qualified extension workers for which figures are not available.
7 Source: American Association of Home Economists, 1955.
Source: Blanch, Lloyd E., Education for the Professions, 1955.
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
91
Education
Colleges and universities are having difficulty in recruiting well-
qualified professors and instructors, particularly in such fields as the
natural sciences. Both industry and Government are competing
for the services of people who might otherwise become faculty mem-
bers. Only a negligible part of this, however, may be attributed to
the mutual security program.
Proportionately, the program's greatest requirements are in the
fields of education, agriculture, and business and commerce. In
engineering, health other than medicine and social sciences, the demand
is negligible. In other specialties such as physical sciences, earth
sciences [includes geologists, mining engineers, and meteorologists},
languages, medicine, law, and other professions the program requires
less than 0.1 percent of the estimated educators available.
TABLE 6.-College professors and instructors in the United States in selected fields
compared with personnel requirements of the mutual security program
Mutual
security
program
Mutual
security
requirements
program
as percentage
Professors
and instruc-
tors in United
States (1956)
requirements of professors
and instruc-
tors
Total
Selected fields:
Natural sciences:
Physical science.
Earth science.
Social sciences..
Languages..
Engineering.
Applied biology:
Agriculture.
Home economics..
Health fields:
Medicine.
Others..
Business and commerce.
Education..
Other fields:
Law.
Other professions-
210,000
395
16,800
4, 200
23,100
13
212 87
57
€€
· 3
1.0
0.2
(10)
(10)
28
14, 700
14, 700
11
(10)
42
8,400
85
4, 200
8,400
(10)
6,300
7
1
6,300
45
.7
14,700
157
1.1
2,100
(10)
14, 700
(10)
22
102
Source: Wolfle, Dael, America's Resources of Specialized Talent, 1954. Wolfle's estimates adjusted
for current period.
10 Less than 0.1 percent.
Engineering
An official of an engineering society has stated that to obtain an
engineer, an engineer must be taken off a going project. A recent
study of the demand for engineering graduates made by the Engineers
Joint Council indicates "a rise in demand for engineering curriculum
graduates in 1955 and 1956 substantially above that in any year
since 1951" and states that programs employing graduates should be
planned to reflect the deficiency. Despite this, the mutual security
program's need for 723 positions can hardly be said to affect seriously
the domestic supply of an estimated 700,000. In civil engineering, to
which half of the program's requirements relate, the 367 positions are
only 0.2 percent of the 168,000 total. The program's need of chemical,
electrical, and mechanical engineers comprises less than 0.1 percent
92
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
of the United States supply in each of these specialties. In all other
engineering specialties, including agricultural and sanitary engineers,
the program draws on only 0.1 percent of the available manpower.
This is illustrated by the following table:
TABLE 7.—Engineers in the United States compared with personnel requirements of
the mutual security program

Total...
Chemical
Civil.
Electrical
Mechanical.
Other
Engineers
in United
States
(1956) 11
Mutual
Mutual
security
security
program
program
requirements
requirements as percentage
of engineers
700,000
723
0.1
42,000
5
(12)
168,000
367
.2
140,000
46
(12)
168, 000
114
(12)
182,000
191
.1
11 Source: National Science Foundation, Scientific Personnel Resources, 1955. Foundation estimates
adjusted for current period.
12 Less than 0.1 percent.
Medical and health
There are almost 900,000 health personnel in the United States.
The increasing specialization of physicians, the ability of large num-
bers of people to pay for health services and similar factors create
great demands for them. However, the mutual security program's
specialist positions are less than 0.1 percent of the supply. In indi-
vidual fields, the program's requirements for specialists such as
physicians, dentists, nurses, and pharmacists are equally small when
compared to the total available. Even including other specialties
connected with the health program, such as sanitary engineers,
biological scientists on health projects, health educators, and public-
health administrators does not materially affect the relative position
between the supply of health personnel and the mutual security pro-
gram's requirements, as indicated in the following table:
TABLE 8.-Health personnel in the United States compared with personnel require-
ments of the mutual security program

Health
personnel
in United
States
(1955-56) 18
Mutual secu-
Mutual security program
rity program requirements
requirements as percentage
of health
personnel
Total..
Medicine.
Dentistry.
Nursing.
Pharmacy.
Other..
13 Source: National directories of each profession.
14 Less than 0.1 percent.
897, 200
312
(14)
218,000
65
(14)
97,500
2
(14)
430,000
67
(14)
109, 000
1
(14)
42, 700
177
0.4
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
93
Public health
Within the general health field, competition for personnel is particu-
larly acute. One estimate is that only half of some 5,000 annual
vacancies can be filled. Unfortunately, estimates of total public-
health manpower are not available. However, some idea of the signifi-
cance of the mutual security program's requirements can be obtained
when they are compared with a report of the filled, full-time positions
in selected fields in Federal, State, and local public health departments.
Since the number of these positions is somewhat lower than the total
of qualified public health personnel, the program's demands on total
supply would also be proportionately lower. Even so, the program's
needs are only 0.6 percent of total full-time filled positions in selected
fields in public health departments in the United States. The largest
group of positions is in sanitary engineering, where the requirements
are less than 5 percent of the filled full-time sanitary engineering posi-
tions in public health departments. The requirements for physicians
are 1.8 percent of filled full-time positions. The numbers of nursing
and laboratory personnel positions required are 0.4 percent and 0.3
percent, respectively, of the number of full-time employed specialists
in these occupations. Sanitarian requirements are less than 0.1 per-
cent of filled positions.
TABLE 9.-Public Health filled full-time positions in selected fields in Federal,
State, and local health departments compared with personnel requirements of the
mutual security program

Total
Medicine
Nursing.
Engineering.
Sanitarian work…….
Laboratory personnel.
Health
positions
(1956)15
Mutual
security
program
requirements
Mutual
security
program
requirements
of public-
health
positions
as percentage
31,000
189
0.6
3, 100
15,000
55
1,400
64
8,600
2,900
157
78
55
1.8
.4
4.6
(18)
8
.3
15 Source: U. S. Public Health Service, Division of General Health.
10 Less than 0.1 percent.
Natural sciences
Two hundred thousand people were estimated in 1954 to make up
the pool of natural scientists from which the United States could draw.
Demands were then and still remain high. Among the competitors
for natural scientists' services the mutual security program is a
modest claimant. Its 289 positions are only 0.1 percent of the 1954
estimate. It requires only 0.5 percent of the biological scientists and
0.2 percent of the earth scientists. Less than 0.1 percent of the
chemists and other natural scientists are used in the program.
94
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
TABLE 10.-Natural scientists in the United States compared with personnel require-
ments of the mutual security program

Natural
scientists
in United
Mutual
security
Mutual
security
program
States
(1954) 17
program requirements
requirements as percentage
of natural
scientists
Total
200,000
289
0.1
Chemistry.
Earth sciences.
100,000
10
(18)
Biological sciences.
24,000
47
Other..
50,000
227
.5
25
26,000
5
(18)
17 Source: National Science Foundation, Scientific Personnel Resources, 1955.
18 Less than 0.1 percent.
Biological scientists
Because the program's use of natural scientists is so heavily con-
centrated in the biological sciences, the subclassifications in this field
have been examined separately. This examination indicates that in
certain specialties the mutual security program uses a somewhat
higher proportion of the supply than is the case in other fields, although
its demands are still relatively small.
Using the 1954 manpower estimates, the mutual assistance pro-
gram's needs are proportionately highest in the fields related to
agriculture: agronomy, soil science, and horticulture. Demands in
other specialties range from 1.5 percent of the other biological sciences
to less than 0.1 percent in anatomy and microbiology. These data
are summarized in the following table:
TABLE 11.-Biological scientists in the United States in selected fields compared with
personnel requirements of the mutual security program
Total...
Selected fields:
Agricultural science:
Agronomy.
Horticulture..
Soil science.
Animal science:
Anatomy.
Entomology.
Fish and wildlife.
Pathology.
Physiology.
Microbiology-
Plant science:
Botany-
Phytopathology-----
Pharmacology..
Genetics.
Other biological sciences..
Biological
scientists
in United
States
(1954) 19
Mutual
security pro-
gram re-
quirements
Mutual
security pro-
gram re-
quirements
as percentage
of biological
scientists
50,000
227
0.5
2, 150
2,000
1,900
222
74
3.4
31
1.6
42
2.2
1,700
3,750
34
2,450
1,050
2,300
6, 400
122541
(20)
9
(80)
•
.2
62
5
(30)
2,350
1,850
1,200
1,000
1,000
15
40216
5
..5
.2
.1
1. 5
252 - LO
19 Source: National Science Foundation, Scientific Personnel Resources, 1955.
20 Less than 0.1 percent.
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
95
Social sciences
Some 600 positions in the program fall in the field of social sciences.
About half are in economics and the balance are primarily in political
science, sociology, and statistics. Some are sufficiently general in
function that they draw from manpower whose training lies outside
any of the fields considered in this study. Even assuming that all
came from the pool of professional social scientists, they would be
only 1.3 percent of the supply of 47,000 estimated to exist in 1953.
Other professional fields
Two hundred fifteen positions in the mutual security program are
concerned with five unrelated occupations. Of these, two-thirds are
in accountancy and the balance divided among architecture, law,
library work, and social work. In none of these are the program's
requirements as much as 0.1 percent of the total supply of manpower.
USE OF INDIVIDUALS WITH SPECIAL QUALIFICATIONS
Account must also be taken of a possible factor not revealed in
statistics. That is the utilization of the relatively few individuals
whose peculiar experience, qualities, or field of specialization make
them particularly important to developments within their fields.
One such group may be immediately excluded-the scientists engaged
in fundamental research. On this resource, so indispensable to
progress in the United States, the mutual security program makes no
direct demands. It may, however, from time to time require the
services of specialists whose individual contributions in one way or
another loom relatively large in domestic activities. Here it may
fairly be said that in competition for such services, the domestic
economy is given precedence. To the extent that these experts can
be made available to the program, their assignments are scheduled for
periods when they can most readily be spared from other activities
and are generally of short duration.
Despite unquestionable shortages of specialists in the United States,
it must therefore be concluded that the mutual security program's
requirements are such a small proportion of the supply that they con-
stitute no danger to domestic activities. The country has a chronic
need for additional trained personnel in many occupations, but this
need will remain substantially unchanged regardless of the direction
taken by the program.
EFFECTIVE MANPOWER AVAILABILITIES FOR THE PROGRAM
With abundant domestic employment opportunities, what are the
mutual security program's chances of recruiting specialists? Prob-
ably not more than 5 to 7 percent of the specialists in most occupa-
tions-particularly those where the supply is limited-may be
considered as available and suitable for the program. "Available"
manpower means that potential work force which is willing to under-
take and is suitable for foreign assignment. Willingness involves such
considerations as motives and incentives to seek or accept an overseas
assignment; and the extent to which family and personal situations
permit going overseas. "Suitability" involves primarily character,
96
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
personal qualities, and technical qualifications required by the exacting
nature of overseas work. (Some of these factors will be discussed at
length later in this report.)
From the most conservative view of available supplies in broad
occupational fields, program requirements are still relatively small
in comparison with total manpower. Within occupational fields,
however, there are individual specialties where 5 percent of the
total supply offers an extremely restricted recruitment potential. It
is in seeking experts in these specialties that the agencies administering
the program have difficulties. These may be sufficiently great under
present circumstances to cause lengthy delays or perhaps even force
abandonment of desirable projects. For example, requirements for
sanitary engineers constitute almost 5 percent of the filled full-time
public health positions in this specialty. In other words, the program
has exhausted its apparent market. Even if the available supply is
double the estimated number, it still would be difficult to obtain from
so small a pool the right man at the right time for a post in a distant
and underdeveloped country. To secure sufficient agronomists from
an available supply of 5 percent of the total field means attracting 2
out of every 3 men considered. Certain education specialties and bio-
logical science fields would afford almost as limited resources from
which to draw. Examples are presented in the following table:
TABLE 12.-Available supply of specialists for the mutual security program in
selected occupations

Mutual
Available
supply (5
Mutual
security
percent of
program re-
total)
quirements as percentage
security
program re-
quirements
of available
supply
Education:
Agriculture..
420
Business and Commerce..
Education...
315
735
157
Public health:
Medicine.
Engineering.
Biological sciences:
Agronomy..
21 155
21 70
108
Horticulture.
Soil science….
Entomology.
Animal pathology
Phytopathology-
100
95
188
695 BY NIG
85
20
14
21
21 35
21 91
69
31
44
18
53
5
9
93
10
11
"Available supply calculation based on filled full-time positions in public health departments, not actual
total supply for which information is lacking.
INCREASING AVAILABLE MANPOWER
Before rejecting otherwise essential projects, on the grounds of
unavailability of personnel, the factors which so sharply reduce
availability might well be analyzed.
A greater part of the total might be available if employment con-
ditions were more attractive, or if better recruitment methods in-
creased interest in the program. To the extent that requirements for
employment could be modified without significant harm to program
objectives, the number of suitable candidates could be increased.
Either of these approaches deserves consideration. Even with present
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
97
inducements and requirements, recruitment might be more successful
if procedures which discourage qualified applicants were revised. So
long as qualified specialists exist in substantial number, as they do in
almost every field, the policies and factors which discourage their
employment should yield to the essential nature of projects requiring
their services. This is a normal approach to the problem and is
discussed in detail in other sections of the report.
MANPOWER RESOURCES AND UNITED STATES POLICY
The question of manpower resources in comparison with the needs.
of the mutual security program thus becomes a matter of United
States policy. For any vital purpose, our data indicates a manpower
reservoir which, though employed, is available under certain conditions
in almost every specialty. Manpower responds to such economic
incentives as pay and attractive employment conditions. In addition,
in these times of critical shortages the manpower supply may be
induced to participate as a byproduct of national policies related to
the assistance programs. The importance of the mutual security
program relative to other needs in the United States becomes the
determinant. For instance, in determining the availability of engi-
neers, we must consider the effect of withdrawing those engineers
from the local employment market. We must consider whether it is
more important to build a superhighway in the United States, an
important road link in the Near East, or a "barrio" road in the
Philippines.
Before the final answer about manpower availability can be given,
Congress must declare the order of importance of the mutual security
program in comparison with other governmental and nongovernmental
activities. Only Congress can give the answer because it involves the
fundamental policy question of the extent to which domestic interests
may be subordinated to international obligations and interests. It is
clear that in certain critical technical specialties sufficient manpower
may not be available to the mutual security program unless the
program is assigned an importance over all but the most essential
domestic programs.
CHAPTER III
FOREIGN PERSONNEL RESOURCES
Where there is a shortage of United States specialists, one possi-
bility is to consider the sources of manpower outside this country.
This interest is reinforced by the international scope of the program
and by cost considerations. Three possible foreign sources are:
Nationals of the host countries, third countries' experts, and tech-
nicians provided by international organizations.
NATIONALS OF HOST COUNTRIES
The International Cooperation Administration directly employs
over 3,000 nationals of host countries. Their functions, however, are
almost exclusively of a subprofessional, interpreting and translation,
clerical, custodial or unskilled nature. No estimates are available on
the total number of local nationals employed with host-country funds
in connection with mutual assistance projects, but over 2,000 are
paid for out of trust funds supplied by the countries. Included on
country-financed payrolls are generally the specialists that can be
provided locally. The program, however, is now operating in coun-
tries where there are few qualified experts. It is benefited by local
specialist services to the extent that they are available, but they
supplement rather than supplant the need for United States specialists.
THIRD COUNTRY NATIONAL PERSONNEL
Potentially an additional source of manpower for the mutual
security program lies in countries other than the United States or the
host country. Such personnel are known as third country nationals.
Many specialists found in the United States are also available in the
Western Hemisphere, the United Kingdom and Western Europe, and
to a lesser extent in other areas. John B. Hollister, the Director of the
International Cooperation Administration referred to the use of third
countries in a statement before the Committee on Foreign Affairs,
House of Representatives, on the Mutual Security Act of 1956:
The International Cooperation Administration has occa-
sionally utilized third country technicians in its technical
cooperation projects. In some highly specialized fields, the
United States has no suitable technicians, and in others the
supply of United States technicians is inadequate to meet the
demand. The International Cooperation Administration
tries in such cases to have foreign technicians supplied (a)
through the United Nations multilateral program; or (b)
directly by the cooperating country; or (c) by the techni-
cians' home country as its contribution to the overall mutual
program. However, where these approaches are not prac-
98
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
99
ticable, for one reason or another, the International Co-
operation Administration is prepared to furnish such techni-
cians usually under contract. This practice provides a
valuable way in which the United States can help to bring the
countries of each area of the free world into closer contact
with one another.
Authority
The agency derives its authority to contract for the services of third
country nationals from Section 307 of the Mutual Security Act which
provides that-
The President may make and perform contracts and agree-
ments in respect to technical cooperation programs on behalf
of the United States Government with any person, corpora-
tion or other body of persons however designated, whether
within or without the United States or with any foreign gov-
ernment or foreign government agency.
In the case of direct hire of third country nationals to be employees
of the agency, the International Cooperation Administration relies
on section 527 (d):
For the purpose of performing functions under this Act
outside the continental limits of the United States, the Secre-
tary of State may, at the request of the Director, appoint for
the duration of operations under this Act alien clerks and
employees in accordance with applicable provisions of the
Foreign Service Act of 1946, as amended.
Precedents in the United States use of third country nationals
Certain precedents exist for such employment. Third country
nationals already residing in a host country have long been employed
by United States civilian agencies abroad. In these cases, as local
residents, the third country national has been considered to be in the
same category as the host country national. Terms of employment,
including salary and privileges, have been identical. Third country
nationals so employed have ordinarily been clerical, custodial, and
unskilled workers coming from the general labor market of the host
government. The arrangements have been wholly a local matter, in
which the personnel practices of the local United States embassy rather
than worldwide requirements have been considered.
The specific recruitment, selection, and sometimes transportation
of the third country national to meet technician or specialist require-
ments has also been carried out on a limited basis. Perhaps the most
intensive effort was that made by the European regional office of
the Mutual Security Agency, a predecessor of the International
Cooperation Administration. At one time the regional office was
faced with acute shortages of non-American, English-speaking per-
sonnel. It was also expanding its information program and required
various non-American information technicians who could not be sup-
plied from the local market. A systematic and successful effort was
made to recruit in the United Kingdom and Western European coun-
tries, to enable work to go on which otherwise would have suffered
from inadequate staffing. To recruit successfully, however, the
Mutual Security Agency found it necessary to recognize basic differ-
ences between the personal situation of the national working in his
94413-57-8
100
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
home country and the third country national forced to relocate for
the duration of the assignment. This was reflected by payment of
an allowance to cover extraordinary housing costs. Other benefits,
such as those provided to United States citizens who are relocated,
were not considered necessary because the movement was between
countries relatively close to each other and having similar living
standards and conditions.
International Cooperation Administration use of third country nationals
The International Cooperation Administration has utilized third
country nationals, but only fragmentary reports of their direct em-
ployment are available in Washington.
However, 19 current contracts (17 of which are related to a single
group of projects) are with European and South American contractors
using third country national technicians. A few other third country
nationals have also been obtained by contract as in the case of a
Danish expert on cooperatives sent to Iran for 6 months. Occasionally
one may be included as part of a larger group of United States tech-
nicians, as in the case of a Canadian member of an otherwise United
States medical team. In general, this has only occurred after failure
of normal sources of supply to produce qualified United States citizens.
In Korea forty-odd third country technicians employed by inter-
national agencies, some of whose functions are now being carried on by
the International Cooperation Administration, have been loaned to
the agency and in general have proved useful. However, they are
being replaced by United States technicians, largely because of agency
policy.
Objections to third country national use
Policy considerations have had much to do with the very sparing
use of third country technicians. Foremost is the assumption that the
technical cooperation program's objective is to provide leadership by
transmitting United States know-how, which is possessed by United
States nationals. The host country may itself feel that the United
States is the only acceptable source of technological information and
advice. Third countries themselves have shortages of trained man-
power which may delay fulfillment of programs contributing to free-
world strength. Newly independent nations might be particularly
averse to third country nationals identified with earlier colonial
administration.
There are positive advantages to the United States in exporting its
own technicians. For, while an absent specialist subtracts temporarily
from domestic resources, the returned specialist may have broadened
and increased his capabilities to the eventual enrichment of the econ-
omy. Furthermore, if the United States is to continue to exert leader-
ship in assisting underdeveloped nations, it must encourage and
develop United States technicians with the background and experience
to do the job.
Advantages in the use of third country nationals
Against these policy considerations must be arrayed the advantages
of employment of third country specialists. When manpower is
scarce, no additional source may be dismissed lightly. There are
fields in which third country specialists equal or excel those from the
United States, such as certain phases of tropical agriculture. People
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM 101
from slightly less advanced economies may more readily adjust to
underdeveloped areas and more easily comprehend problems with
which United States specialists are wholly unfamiliar. A common
language may make a third country technician more acceptable. In
those countries where United States officials have reported too great a
concentration of United States personnel, the third country technician
may meet this criticism. In some cases the transportation costs may
be reduced and in others local currencies belonging to the United
States may be utilized.
Administrative deterrents
Aside from policy considerations, other obstacles deter the use of
other country nationals. To recruit, select, clear and process per-
sonnel beyond the borders of the United States requires new and
sometimes complicated relationships with both United States and
other country institutions. Only United States nationals may occupy
positions affecting policy or those concerned with security classified
material. Even in positions of a less sensitive nature, opportunities
might arise for other nationals to acquire information which could be
used adversely to the interests of the United States.
The final problem is, of course, the necessity of making positions
attractive to qualified third country technicians. The most formi-
dable barrier to direct hire is the necessity of relying on local employee
regulations stemming from the Foreign Service Act, which lacks
authority for travel of dependents, transportation of household goods,
or home leave. Clearly this is too restrictive to attract any great
number of well qualified third country specialists. The use of con-
tracts to provide adequate inducements could continue to be satis-
factory, so long as there are few cases. Substantially greater use of
third country experts would require employment benefits parallel to
those for United States nationals.
INTERNATIONAL ORGANIZATION MANPOWER RESOURCES
The United Nations, certain of its specialized agencies, and the
Organization of American States have technical cooperation pro-
grams 22 which often use experts in occupations also needed in the
national mutual security program. These experts are recruited mainly
from countries other than the United States.
The mutual security program's technical assistance facilities are com-
plemented by international organization activities in instances where
the International Cooperation Administration and an international
agency have undertaken related projects in a country. The use of
Organization of American States technicians has been more directly
provided for in a contract with the International Cooperation Admin-
istration under which the former agency undertakes to assist in train-
ing programs in agriculture and home economics.
Beyond this, the mutual security program has made little use of
international agency specialists. Opportunities for such use are greatly
restricted in any event. Permanent staff of international organiza-
tions ordinarily cannot be spared. Technicians hired for limited terms
are selected for projects requiring their services during the entire
period of employment. At most, therefore, the mutual security pro-
22 Mutual security appropriations include the United States contribution to these international organiza-
tions' programs.
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PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
gram might borrow international agency staff for short periods. There
is a limitation, too, in the fact that international agencies are also
having difficulty filling specialist positions. Thus, while international
agency specialists should be taken into account, no great hope can be
placed in their ability to alleviate specialist manpower shortages.
One way international agencies might help is in the recruitment
of third country national technicians. The United Nations has a
recruiting organization, assisted by international committees, which
operates in other countries. One of the major administrative obstacles
to selection of foreign technicians by our Government is the lack of
such an organization. The International Cooperation Administration
might, therefore, find it fruitful to explore arrangements for using
United Nations facilities for locating and evaluating qualifications of
third country nationals. Similarly, the Organization of American
States maintains a roster of Latin American technicians with ad-
vanced training which it would make available.
FULLER UTILIZATION OF THIRD COUNTRY SPECIALIST RESOURCES
Giving full consideration to policy deterrents, the employment
of third country nationals may be the only feasible solution where
the International Cooperation Administration is recruiting for very
rare specialties, for employment in areas completely undesirable
to most United States personnel, or for positions which may be
filled at much less cost from nearby countries. In less drastic situa-
tions there may also be good reason to look outside for experts. The
extent to which administrative hurdles are lowered and imagination
is used by the agency in borderline cases may well affect the success
of an individual project, even if it does not appreciably relieve domestic
shortages. Encouragement should therefore be given the agency to
devote greater attention to this source of specialists. In addition,
section 527 (d) of the Mutual Security Act should be amended to
authorize the agency to establish a personnel system capable of
attracting qualified third country experts.
CHAPTER IV
HOW ARE MANPOWER REQUIREMENTS AND RESOURCES
MATCHED?
This chapter discusses how manpower requirements and resources
are matched. It is concerned mainly, therefore, with program plan-
ning and the development of the operating program and projects.
We were asked specifically to study these five issues for the com-
mittee:
1. The relationship between type and size of programs and
personnel requirements.
2. How such relationships are determined during the process
of program planning and development of operating programs.
3. The extent and manner in which personnel requirements are
given consideration in the program planning process.
4. The timing of the programing process and its relationship
to effective utilization of personnel resources.
5. The method by which programs and projects are evaluated
to cover, among other points, success in meeting personnel
requirements.
PROGRAM PERSONNEL REQUIREMENTS
The following table indicates the personnel requirements by pro-
grams authorized by the Mutual Security Act in comparison with the
amount authorized by programing:
TABLE 13.—Mutual security program appropriations for programs employing
personnel and regular United States employee positions

United
Appropria-
tion 23
Percentage
of appro-
priations
States
national
regular
employee
positions 24
Percentage
of positions
Defense support...
Development assistance.
Technical cooperation..
$1, 161, 700, 000
250, 000, 000
135, 000, 000
75
242
6
16
17
(25)
9
3,643
Control act..
1, 175, 000
Escapee program..
6, 000, 000
33
(25)
105
(25)
70
832
Total..
Administration.
1,553,875,000
33, 595, 000
100
4,077
2, 724
100
Total including administration..
1,587, 470,000
6, 801
23 Excludes military assistance appropriations, appropriations for international organizations or appro-
priations for programs not requiring personnel.
24 Includes filled and vacant positions. International Cooperation Administration component based on
IBM system in process of installation and subject to minor errors.
25 Less than 1 percent.
This indicates that, excluding administration, the program costing
only 9 percent of the total is using 89 percent of the manpower, and
that the majority of the manpower is employed on technical assistance
103
104
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
programs. With increasing emphasis on technical assistance, Con-
gress can expect an increase in the manpower requirements of the
program in comparison with appropriations.
PROGRAM PLANNING
An examination of the International Cooperation Administration's
program planning processes must precede all personnel considerations.
Manpower requirements in kind and number, begin to emerge the
moment a project is conceived. Defects and delays in the programing
process therefore necessarily affect adversely the personnel process of
the agency.
One Far Eastern mission comments as follows:
Excessive delay in program approval is a major difficulty.
New technical assistance positions requested for fiscal year
1957 cannot be filled until the country program is approved
by the International Cooperation Administration in Wash-
ington and funds are made available. As of this date (No-
vember 30, 1956) the fiscal year 1957 program is not yet
approved. It is hoped that modifications not yet fully
implemented in the programing process will substantially
lessen this difficulty.
A Middle East mission, commenting on defects in the program
planning process, states:
Frequently the staff chief or program officer due to
ministry request is in a position of planning a project which
must coordinate budgets by the host government and the
United States, and must be implemented in a particular
time period with no assurance of the necessary United States
personnel to implement the project. It is difficult for the
field to have advance information as to the availability of a
technician when projects or programs are in a planning stage
between the two governments. After United States funds
are approved and project agreements signed, there may be
a period of 6 months to a year prior to the arrival of the
desired technician. Thus, project activities are necessarily
carried into a second or third budget which had not previ-
ously been planned in a work schedule. This type of program
also results in the unrealistic practice of prior planning by a
staff chief in an area in which he may not be specialized.
The technician upon arrival may be faced with the problem
of reorganizing or revising the project in terms of his special
training, and later in terms of his firsthand field experience.
While many aspects of program planning are within the realm of
administrative discretion, some defects in the process may affect the
execution of legislative intent. Conversely, legislative practices and
requirements which adversely affect program planning should be
of immediate concern to the committee.
Program development involves these points:
1. Determination of a nation's requirements for assistance,
based upon a consideration of both United States objectives and
the other country's needs.
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
105
2. Determination of the amount and character of the resources
(scarce raw materials, personnel) that are available in the United
States, in the host country, and other free countries, to meet the
requirements with due consideration of the importance, urgency,
and validity of these requirements in relation to all other com-
peting demands for such resources.
3. Modification of the program to suit limitations in resources.
Programing begins at a mission abroad at least 18 months to
2 years before the actual recruitment of personnel can be started.
The program planning process can best be explained by illustration,
as follows: Mission A began planning its fiscal year 1957 program in
April 1955. General objectives having previously been established,
discussions were held with the host government to reach tentative
agreements on the projects to comprise the proposed 1957 program.
Observing guidelines sent from Washington to the mission in August,
the mission submitted to Washington in November 1955, a brief
description of the program for fiscal year 1957, including its estimated
cost and the number and type of personnel needed. This document
was reviewed by the appropriate area desks, technical services, and
management and personnel officials, as well as by interested agencies
such as the Departments of State and Defense. These reviews, evalu-
ations, and revisions ordinarily consume 3 to 4 months and provide
the basis for the so-called illustrative programs submitted to the
Bureau of the Budget and eventually to Congress.
After final administrative approval and concurrence by participating
and reviewing agencies, the program would ordinarily be ready for
hearing before the Congress late in February 1956. The necessity for
4 separate hearings, 2 before the appropriate House committees and
2 before the appropriate Senate committees delayed the appropriation
until the end of the session. Additional time was consumed while
the Bureau of the Budget apportioned the funds to the agency.
It was not until this point that the actual operating program
could be given renewed attention. The mission's original submission
and the congressional mandate governing the moneys to be available
were then reviewed again by all concerned, and documents submitted
for final administrative approval. As a consequence, it was not until
December 1956, that the mission had a green light on its program and
projects. Only then could personnel requests be submitted and actual
hiring begin. The fiscal year is half gone before a step is taken to get
personnel on the job in new projects. On the present hiring schedule,
another 3 to 6 months will elapse before the employee starts work,
the need for which was first seen 2 years earlier.
Concerning the timing and scheduling of projects, 1 mission com-
ments that—
* * * the fiscal year approach to planning and operations
introduces further complications into the task of recruitment
and utilization of technical personnel. Recruitment of
technical personnel under specific fiscal year projects cannot
be initiated until such time as the project proposals have
been fully approved and funds obligated, usually late in the
fiscal year. Given lengthy recruitment process, it becomes
difficult to secure technical personnel at the precise time
projects are otherwise ready to be initiated.
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PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
Another mission states:
It is very difficult to precisely tie recruitment or assign-
ment of personnel to project scheduling, especially where
the arrival of a commodity element of a project is also
involved. Major difficulty stems from program planning
which results in a compression of the time element and
prevents orderly scheduling.
Other comments indicate that sometimes equipment arrives long
before the technicians expected to use it, and on the other hand tech-
nicians arrive and in some cases depart before the arrival of equipment.
More appropriate scheduling could remedy these difficulties.
In net administrative effect, the program planning process requires a
mission to repeat the process at three separate times: First, upon
initial submission; second, when the program has received Washington
review; and third, after the funds have been appropriated by Congress.
The International Cooperation Administration is making a serious
effort to simplify the process for the fiscal year 1958 program. These
changes can be summarized as follows:
1. The annual program cycle is to be revised to eliminate,
insofar as practical, the necessity of thrice repeating a large part
of the process. The initial program submitted will be more fully
developed, rather than purely illustrative. Subsequent sub-
missions from the field mission will need only to expand and
supplement the original information.
2. The development and submission by the field missions to
Washington of complete project data and other detailed program
material is to be undertaken much earlier, to facilitate the com-
plete review of individual projects by the start of the fiscal year.
3. The development of the annual program for a country will
be undertaken within the context of a long-term program. Since
the basic problems with which the mutual security program is
normally concerned are those which can best be solved over a
period of years, this procedure will make each annual program
a step in the fulfillment of a long-term plan.
These changes are expected to produce:
1. Clarity of programing.
2. Reduction in number of program submissions.
3. Development of a more coordinated and well-rounded
program.
Many other improvements have been made and can be made in the
program planning process.
With the general nature of the programing and appropriation
process in mind, the effects of it on personnel administration might
be summarized as follows:
First, the involved illustrative program planning is stretched out
for so long that the preparation of the operating program must be
compressed into a comparatively short period of time.
Second, because the appropriations are received relatively late in
the fiscal year, project implementation is likely to be deferred until
a time far beyond that when the need arose
Third, as a result of the delays, exact personnel requirements can-
not be specified soon enough by the field missions. The missions

PERSONNEL FOR THE MUTUAL SECURITY PROGRAM 107
have not under present arrangements fully defined personnel require-
ments until they have received the approval of the operating program
and its component projects. This leaves the personnel office too
little time to supply personnel when needed
These conclusions imply their own points for improvement.
recommend, therefore:
We
First, that the program planning processes be simplified and
shortened even further. This can and is being done by the agency
itself. Congress should encourage this progress. If it should be
the will of Congress that the agency be placed on a permanent basis,
thus elminating the need for yearly justification of its existence,
it would expedite planning and speed appropriations.
Second, that specific personnel requirements be formalized by the
field missions far earlier in the program planning process. Essentially,
this will involve the preparation of detailed manpower budgets indi-
cating personnel requirements to be measured against resources.
This should be feasible with a reasonably stable program. It will in
turn enable the agency to plan a longer range, more comprehensive
personnel recruiting campaign.
Third, that the personnel office be brought more closely into the
program planning so that manpower requirements can be more
exactly defined.
Fourth, that actual recruiting be started on the basis of needs
recognized early in program planning. This would mean starting
recruitment 3 to 6 months in advance of the present schedule. With
recruiting now requiring from 3 to 6 months, there is little danger of
employees being recruited before they are needed. In those few
cases where an employee is hired before he is needed, he could be
usefully engaged in ways suggested later in this report.
These steps, coupled with a new personnel system described else-
where in the report, should make it possible to staff posts relatively
quickly after a vacancy occurs.
PROGRAM AND PROJECT EVALUATION AND CONTROL
However well programs and projects may be planned, their success
cannot be taken for granted. Constant evaluation is needed to assure
that programs fulfill their purpose and to determine their effects on
concurrent and future programs. Because mutual assistance is rela-
tively new, much program planning has had to be on a trial-and-error
basis. Hence, it is particularly important to evaluate each project as
it is completed or at regular intervals. Some evaluations of projects
are made by the technicians, by the mission directors, and by the
Washington staffs, but they have not been on any systematic basis.
To determine progress on a project or its success or failure requires
determinations from a large number of people and would necessitate
the piecing together of bits of information from a number of sources.
Failure to provide a systematic method of project evaluation and to
require project evaluations at regular intervals has affected personnel
processes as well as other processes in the agency. The agency itself
would have recognized personnel deficiencies more quickly and done
more to improve its personnel techniques if it were constantly measur-
ing the effect of manpower difficulties on individual projects.
108 PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
Among other points, an evaluation should determine whether per-
sonnel with specified qualifications were supplied in accordance with
program and project needs.
Without project evaluations, the staff groups themselves are handi-
capped in meeting criticism of specific projects. Project evaluation
should not be left to the initiative of individual technicians. A
planned program of project evaluation is needed which will insure
that criteria are developed, that regular reviews and reports are made
and that evaluation reports are made available to officials of the
executive branch and to the appropriate committees of the Congress.
Each project should be tested and evaluated in terms of how well
it was carried out and the factors that affected it. The availability
of necessary personnel, the type of operational organization and pro-
cedures in the host government, the availability of physical resources,
the time required for procurement and production, the capacity and
willingness of the host government to undertake necessary comple-
mentary measures and effectively to utilize the assistance given are
but a few of the points to be considered in any project evaluation
plan. We are aware of the recent creation of an Office for Evaluation
reporting to the Director of the International Cooperation Adminis-
tration. However, it apparently will be primarily interested in
evaluating overall programs, with only incidental concern for indi-
vidual projects.
We recommend that the agency embark on systematic project
evaluation. It would have many values for top management, beyond
the quick recognition of manpower deficiencies and personnel system
breakdowns which are the concern of this report.
CHAPTER V
PERSONNEL ADMINISTRATION
ORGANIZATION AND POLICY
When manpower resources are adequate and program planning is
effective, the remaining question of interest will be the administration
of the personnel program. Inasmuch as the International Coopera-
tion Administration is the principal administering agency for those
mutual security programs in which the major portion of civilian em-
ployees are engaged, this segment of the study is largely confined to
this agency's operations.
Personnel administration by the agency is affected by so many
internal and external factors that it cannot be appraised by the ordi-
nary criteria against which personnel operations are usually measured.
The very mobilization of personnel for this undertaking was a tre-
mendous task in which uncertainty and variable factors predominated.
It is little wonder that mistakes have been made under such circum-
stances, and that improvements of necessity have been delayed until
experience is gained.
Personnel administration has been a victim of the temporary
nature of the agency. With the necessity of securing new legislation
each year, with public criticism of overseas operations, and with
economic and political uncertainties, it has been difficult for the
International Cooperation Administration to make long-range per-
sonnel plans in the full sense of the word. In fact, to have made
extensive personnel plans up to this time might have laid the agency
open to the criticism that it was exceeding the bounds set for it by
the Congress.
We find that personnel work of one kind or another is performed in
every major part of the agency. The technical services and the
country desks, in addition to the personnel staff, tend to concern them-
selves with such personnel matters as recruitment and placement,
training and reassignment. Agreements with the Public Health
Service and the Office of Education as well as other agencies provide
that those agencies are responsible for securing personnel in certain
occupations. As a result, the Personnel Office fills little more than a
processing role for some occupations. Classification and pay deter-
mination have been largely made by the Personnel Office, but as a
supplier of personnel, the personnel office has not had either sufficient
resources or the full confidence of the operating services. Because of
the technical nature of the positions for which the agency is recruiting,
many of the personnel officials have not had either the understanding
or the contacts in such fields. They are thus forced to depend upon
the operating officials to a greater extent than usual to seek the
personnel needed.
109
110
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
To the extent that this has enabled the agency to secure people when
needed, it has helped. To the extent, however, that it has diluted per-
sonnel responsibility throughout the agency, it has hindered the pro-
gram. Being unable to determine where the ultimate responsibility
for recruiting lies is serious when responsibility for errors and omis-
sions and for securing improvements must be assigned.
Much of this diffusion of responsibility will be eliminated if the
agency is placed on a more permanent basis and if the Personnel Office
itself acquires additional employees with overseas experience and
knowledge of recruiting sources and the needs of the agency. In addi-
tion, the new personnel program should aid in systematizing and fixing
responsibilities for personnel operations.
The International Cooperation Administration as a Government
agency is subject to numerous detailed controls and regulations. The
methods and freedom of action which might be appropriate to a busi-
ness firm under similar circumstances are not feasible. Even with the
wide latitude granted by existing legislation, it has and will continue
to be subject to certain fundamental controls inherent in its status.
as a Government agency. Moreover, it is not the only agency oper-
ating overseas. The State Department proper, the United States
Information Agency, and the Department of Defense all have respon-
sibilities overseas; and no single agency can step too far out of line
without creating administrative difficulties for the others. As a
matter of fact, compared with the Defense Department and the De-
partment of State itself, the agency is conspicuous by the relatively
small number of people it sends overseas.
All this is said to remind the committee that unique and pressing
as the agency's problems are, they cannot be treated without due
regard for its relationship in the total governmental administrative
and personnel structure.
ORGANIZATION FOR PERSONNEL ADMINISTRATION
As pointed out earlier, the entire operating side of the agency is in
the personnel business. However, the personnel office directs the
personnel program, according to the following statement taken from
the organization manual:
The Office of Personnel is responsible for the development
and administration of an effective worldwide program. The
objective of the International Cooperation Administration
personnel management is to recruit, place, maintain, moti-
vate, and develop the best available persons capable of
making an immediate and sustained impact. To achieve
these objectives the office plans for and maintains recruit-
ment, compensation determination, employee use, staff
development, and personnel relations operations.
The Office of Personnel is in the Office of Management. The Di-
rector reports to the Deputy Director for Management, who in turn
reports to the Director of the International Cooperation Administra-
tion. The Office of Director of Personnel has been occupied by
three incumbents in the last few years and is now filled on an acting
basis. It ought to be filled as soon as possible on a permanent basis
with a qualified individual.
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM 111
The Office of Personnel is divided into an Office of the Director, a
Classification Branch, Recruitment Branch, Employee Relations
Branch, Staff Development Branch, and regional personnel offices
representing Far East and Europe, Latin America, and Near East,
South Asia and Africa, as well as a departmental personnel office.

Office of
the Director
Employee
Relations
Staff
Development
Departmental
Latin
America
Classification
Recruitment
Near East
South Asia
Africa
Far East
Europe
A number of individuals queried expressed dissatisfaction with the
existing organization for personnel administration, with no consensus
about what should be done. Some believe that such personnel re-
sponsibilities as recruitment, placement, training, and development
should be vested in the technical services. Others suggest that they
be transferred to the regional offices as the principal operating unit of
the International Cooperation Administration. Officials on the
management staff argue that such proposals would split the personnel
program and leave it without policy or procedural control.
From the perspective of a detached observer, we expect suggestions
to change organization whenever a personnel office fails to meet fully
an agency's personnel needs. The real answer is to strengthen the
personnel office.
The agency needs a skilled personnel staff thoroughly familiar with
overseas matters to establish its personnel policy and to coordinate its
personnel practices. If it then finds that certain personnel functions
can best be done in operating units, it should so provide, subject to
direction by the central personnel staff. Whatever arrangement
exists should be the conscious decision of the agency and not a seizure
of authority by operating units or a default by the personnel office.
The details of this organization are for administrative rather than
legislative determination. We believe that under existing organiza-
tion major personnel responsibilities belong to the management staff
and that the operating units have a contributing role-a role we will
define further in the following sections.
CHAPTER VI
CLASSIFICATION AND COMPENSATION
The way jobs are classified presently determines their salary and
influences the effort to fill them. When a job is properly classified, it
can be filled with some one qualified to perform its duties and carry
its responsibilities. If classification practices are vague, inaccurate,
or indifferent, recruitment can be no better.
This is not the place to expound the need for a better classification
plan for the entire Federal service; but it is difficult to avoid men-
tioning it when present practices contribute to a breakdown of all
other personnel practices. Federal classification practice is virtually
dedicated to the justification of a given salary grade. It has justi-
fiably been called "gradification" rather than classification. As such,
it fails to provide the basic support for other personnel functions which
are expected of it at other levels of Government and in business.
By law the International Cooperation Administration-in its
overseas operation-is not tied to the restrictive practices that
hamper many other agencies in Washington. It may apply a classi-
fication plan of its own devising to salary schedules set by the Foreign
Service Act of 1946. Instead, the agency has, in essence, adopted
the plan set forth in the Classification Act of 1949 in allocating jobs
to classes. The allocation of a position, based on a comparison of the
duties and responsibilities against appropriate standards and specifi-
cations based on the Classification Act of 1949, is then used to deter-
mine the base salary of that position according to the schedules set
up by the Foreign Service Act of 1946.
A classification plan must be tailored exactly to the needs of an
organization. It is a vital tool of good management. Administered
and controlled properly, it is the most important influence for the
economical and efficient employment of personnel. It fails when it
resorts to standard descriptions to justify standard salaries, instead
of describing positions first and then attaching the salary that duty,
responsibility, and competitive conditions require.
A number of officials criticized the classification and salary system
of the International Cooperation Administration, principally for its
lack of flexibility when applied to overseas posts. It is claimed that
standards based on the Classification Act of 1949 are inappropriate
when used in conjunction with the Foreign Service Act of 1946. It
was also suggested that the application of the classification system is
hampered by lack of understanding of the exact nature of some of the
jobs being classified.
Problems of classification and employee qualifications are evidenced
by the fact that between January 1 and September 30, 1956, 44 jobs
were filled at grades higher than allocated and 204 at lower grades
than allocated. With a modern classification and salary plan in
effect, standards would be clear, the salary would be right, and the
recruiters would be in a position to secure qualified individuals.
112
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
113
We recommend that the agency develop a classification plan more
exactly suited to all its needs by taking advantage of the flexibilities
in the Foreign Service Act of 1946. A new plan will be particularly
needed in the agency if it is to adopt a contemplated new personnel
system, basing pay on the personal rank of the employee rather than
on the job.
SALARIES
The International Cooperation Administration uses a number of
salary schedules. In addition to the general service schedule being
used in Washington departmental service, Foreign Service staff and
Foreign Service reserve schedules are utilized, as well as International
Cooperation Administration schedules. All these schedules plus the
excepted positions, with different regulations applying to their use,
lead to administrative hairsplitting to complicate the already complex
job of salary administration. The schedules ought to be combined.
We have received many indications that the salaries of International
Cooperation Administration personnel, particularly in the higher level
jobs, are not adequate. To attract people overseas from their present
positions, sufficient financial incentive must be provided. Although
the agency's salaries are comparable with those paid by other Gov-
ernment agencies, in too many cases these are either lower than those
paid elsewhere by private employers or not enough higher to attract
candidates to an overseas position. This situation could be met either
by increased differentials for overseas employment or increases in
the basic salary scale. Lack of time precluded any detailed study of
salaries and fringe benefits, but we believe that the agency should
sponsor a detailed salary survey of rates of pay in comparison with
those offered by other overseas employers, including industrial and
business firms, for similar work. Such a study would point up the
need for salary adjustments.
One obvious difference in fringe benefits would require legislation.
Federal income-tax regulations provide that American technicians
proceeding overseas and remaining at their jobs for 510 days or longer
are not subject to Federal income tax on their salaries up to $20,000
per year. This is to encourage technical assistance abroad. The
regulation, however, does not extend this exemption to Government
personnel. The result has been that so-called contract technicians
working side by side with United States Government technicians
have a distinct advantage. In one manner or another, this condition
needs to be more nearly equalized.


CHAPTER VII
RECRUITMENT AND EMPLOYMENT PRACTICES
We have reported that there need be no shortage of manpower for
mutual assistance programs. We have discussed the steps needed to
speed planning and to describe more accurately the exact manpower
needs of the agency. This leaves for examination the way in which
the agency goes about finding the people it needs and the conditions
which affect that process, both adversely and favorably.
In scores of interviews with officials and employees engaged in
various aspects of the mutual assistance program in which they
expressed many points of view on personnel problems, it was almost
universally agreed that recruitment is fundamental to the success of
the program, and that lack of personnel is a serious handicap. One
personnel official estimated that 75 percent of the agency's projects
were being delayed by staffing difficulties. Being aware of the magni-
tude of their problems, both Washington and mission officials have
been critical of the recruiting process of the agency. Many indi-
viduals indicated that they did not believe that all recruiting sources
were being tapped. Others complained of lack of understanding and
delays in the recruiting process. A Far East program director
summed it up in this fashion:
In the opinion of an officer with previous experience in
other missions during the last 3 years, it would appear highly
probable that the real reason for the delays is largely one of
improper organization within the International Cooperation
Administration in Washington office responsible for recruit-
ment of overseas technicians. Recruitment of this type is
unlike that encountered in those instances where the job
specifications are reasonably standardized. In this instance,
which confronts the mission, most of the positions are special-
ized, with unusual job requirements. Therefore, recruitment
becomes somewhat personalized in nature, and for its success-
ful conclusion places more exacting demands upon those
who have the responsibility for this phase of operations. The
mere sending of letters, followed by interminable waiting
periods for replies, is not sufficient in this particular case.
There must be a more aggressive and intelligent approach,
together with an understanding of the job requirements.
This can only be accomplished by men whose backgrounds
equip them for such situations. A mere willingness to do a
job is scarcely sufficient.
When foreign assistance was largely confined to Europe and Latin
America, many qualified individuals sought employment. The loca-
tions were desirable and the prestige of the Marshall plan and the
public backing it received encouraged this interest. Now that the
program operates in less attractive parts of the world, and with an
appreciable degree of public criticism, it no longer has the same
"glamour."
114
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
115
Long-range planning and systematic recruiting has been severely
handicapped by the temporary nature of the agency, marked by yearly
debates about its continued existence. Any real easing of the recruit-
ing problem requires assurance that the program and the administering
agency are not on a "here today, gone tomorrow" basis.
What is the situation regarding recruitment? As of October 1,
1956, the International Cooperation Administration reported 588
vacancies. Of these, 108 were in Latin America, 9 were in Europe,
61 in Africa, 244 in the Middle East, and 166 in the Far East. These
vacancies are approximately 17 percent of the total overseas strength
of 3,415. The preponderance of vacancies in parts of the world with
relatively unfavorable living conditions verifies the point that a shift
in program has created a recruiting problem in those very places where
our foreign policy may require that mutual security programs be
emphasized.
Numbers alone do not tell the whole story. The mutual security
program requires a relatively new type of broad gage individual.
One former Far East mission director described him this way:
What the mutual assistance programs require are mature,
well-integrated individuals who are not only expert tech-
nicians in the sense that they can do and teach others to
do, but that they have a clear understanding and basic
knowledge of the techniques they are applying a knowledge
that enables them to adapt their technique to the particular
socioeconomic structure of the country in which they are
assigned. Of course, they must have the ability to meet
and deal with foreign counterparts, to rise above living and
work frustations, to provide enthusiasm, to bear up under
unfavorable climatic and living conditions.
The number of individuals who fit such a description are few indeed,
and the number who can be attracted to an overseas program are even
fewer. Truly skilled recruiting is required to seek out these few;
and favorable conditions are required to attract them. In short, the
International Cooperation Administration manpower requirements
are specialized rather than extensive; and they are specialized in ways
that are unique to this branch of public service.
RESPONSIBILITY FOR RECRUITING
Organizationally, recruiting is a responsibility of the personnel
office. The assignment of the Recruitment Branch is described in
the manual of the International Cooperation Administration in the
following fashion:
Recruits technical, professional, administrative, executive,
and clerical personnel for worldwide International Coopera-
tion Administration programs. Cultivates and develops
sources of applicant supply.
Evaluates candidates and conducts tests where appropri-
ate to insure adherence to International Cooperation Admin-
istration standards of experience, adaptability, suitability,
social skills, and education.
Develops qualifications standards where no previous guides
exist.
94413-57-
116
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
Plans, publishes, and maintains informational material
concerning conditions at overseas posts.
Conducts worldwide placement programs for clerical
employees.
The Recruiting Division consists of a chief and nine recruiters, with
supporting clerical staff. They are said to find some 110 willing can-
didates each month, but one-third of these are lost for various admin-
istrative reasons. The remainder may or may not be found to meet
the specific needs of program and administration, or may reject a
given assignment when finally offered.
The recruiters appear to be engaging in most of the typical devices
used by the Government in attracting personnel. But this is not a
typical problem and cannot be solved by typical means. This agency
needs to apply initiative and imagination to analyzing its precise
manpower needs and then filling them by precise and concentrated
recruiting efforts.
Frequent contacts are maintained between the recruiting office, the
regional offices, and the technical services. It is general practice to
have eligible candidates interviewed by both offices.
Although the personnel office is organizationally responsible for
recruitment, the technical services themselves in many areas have
taken over a large part of this job. For instance, agricultural spe-
cialist recruitment is largely done by the Agriculture Service, through
the Department of Agriculture and land-grant colleges. Because of
long Government interest in agriculture, the manpower resources in
that specialty are well known. Agricultural programs have been able
systematically to tap qualified individuals from Federal, State, and
local governments.
The Public Health Technical Service has also assumed primary
responsibility for recruitment of its specialists. An agreement with
the United States Public Health Service provides that it is to be the
major source of employees inasmuch as it has the most immediate
knowledge of kind of personnel required and where candidates can be
located.
We question the organizational sense of assigning recruiting respon-
sibility to another agency of the Government by agreement. The
needs for personnel suited for technical assistance assignments over-
seas must be met by people to whom these needs are of paramount
importance. That degree of understanding and intent can exist only
in the International Cooperation Administration. The other depart-
ments of government-all of them-should be looked upon as a
potential manpower resource upon which the agency can draw for
permanent or temporary assistance; but that is far different from exist-
ing agreements by which some departments virtually dictate the
appointments in their own specialties.
If any department has a monopoly over specialists in its field (as
may well be the case in Public Health), it may be necessary for Con-
gress by law of the President by Executive order to declare the extent
to which technical assistance assignments in foreign missions deserve
priority.
In general, the departments of the National Government would
prove a richer source of manpower for overseas assignment if policies
were more liberal in permitting their employees to accept such assign-
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
117
ments without prejudice to their right to return and without loss of
privileges. An occasional tour of duty abroad by an "old-line"
agency official would provide valued assistance to fill a need in an
underdeveloped country, and would enrich the experience of the
individual for return to his old post.
The regional offices play a role, too, in the recruitment process,
particularly for Latin America. The Institute of Inter-American
Affairs, because of its long history as an autonomous government
corporation, though it is now an integral part of the International
Cooperation Administration, actively participates in recruitment.
The regional offices and technical services, as previously indicated,
have had to assume this role because the personnel office's lack of
resources prevented it from doing a competent job. The staffing of
technical offices, however, is predicated upon their program and
related functions. When they undertake extensive recruiting, they
sacrifice time needed for their more important programing operations.
Recruitment is a personnel function. As such it should be done by
employees trained in recruiting and selection techniques. If personnel
and recruitment responsibilities were placed with either regional offices
or the technical services, personnel staffs would normally be assigned
to them. Under existing organization arrangements, the personnel
office is assigned recruitment responsibilities, and it should be provided
with the means to carry them out. The technical services and
regional offices should review and define personnel requirements sub-
mitted by field missions and assist in determining qualifications
required, and, of course, suggest where suitable candidates might
be found.
RECRUITING PROBLEMS
Recruiting difficulties stem from many factors. Some have been
discussed but will be recalled here. Others need elaboration because
they make this recruitment job unusually difficult and different from
that of other Federal agencies.
The International Cooperation Administration is carrying out a
unique mission. The mobilization of personnel resources in a new
program, in which neither experienced personnel nor experience itself
was available, was complex and difficult.
Administrative and procedural problems have hampered an accurate
appraisal of personnel needs. In some cases it is apparently difficult
for either the mission or headquarters to know the exact status of
personnel requests.
The temporary nature of the agency has certainly not helped.
These are times of full employment. Attractive vacancies exist here
at home. Both government and industry are aggressively recruiting
specialists and technicians in the same occupations the mutual security
program needs. The well integrated, competent individual, with a
family to support, is not likely to be attracted to a program whose
future, and hence his own future, stands in the shadow of a question
mark.
The programs require mature, high grade specialists in positions of
responsibility. There is little place for the beginner or for the indi-
vidual who has not quite "made the grade" in his own profession.
Providing on-the-spot advice and assistance in a foreign land
requires not only competence but skilled negotiators who are able
118
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
to meet and deal with foreign nationals with different philosophies
and interests. They must be able to meet and deal with equal skill
with anyone from cabinet member to village worker. Above all, they
must have the ability to proffer advice and assistance in a manner
which opens new vistas of understanding and appreciation in the
minds of another.
Suitable candidates are likely to be family men with high school
and college age children. Lack of overseas educational facilities as
well as other family considerations deter many otherwise qualified
individuals from applying. There need, therefore, to be offsetting
advantages as an inducement to aid recruitment.
The agency is now considering the employment of junior and inter-
mediate level technicians as trainees in certain types of field assign-
ment. These individuals would understudy senior technicians and
after a period of time could expect to be placed in positions of respon-
sibility. Several field missions indicated the advantages of employ-
ing such individuals. One Middle East mission commented as follows:
Many of the technical jobs could be done by intermediate-
level professional employees, rather than high-level and ex-
pensive advisers. It is believed that a careful evaluation of
the level of work being done in the various divisions of over-
seas missions would suggest where and how this could best
be done.
The development of these individuals will require several years at
best. While it offers no immediate hope of alleviating recruiting
difficulties, we believe that over a period of time it will prove to be
a practical solution. We therefore recommend that the agency con-
tinue its efforts to utilize junior and intermediate technicians.
One problem continually stressed by our informants was the im-
portance of securing well-adjusted employees for overseas positions.
We were told that emotional stability was required not only of the
employee, but of his wife, in addition. Here, paraphrased, is one
official's assessment of the importance of personality considerations:
Assuming technical competence and good physical health in
a person selected for overseas service, the first essential for
success in the assignment is emotional maturity. Such ma-
turity is evidenced by a healthy outlook on life and by satis-
factory interpersonal relationships in work situation and in
personal life.
The demands for emotional maturity during an overseas
assignment are much greater than those made upon an Ameri-
can at home. Here, if his relationships with his colleagues,
with his neighbors and with his family are satisfactory, he is
considered an emotionally stable person. Most of the people
he comes in contact with during his life in the United States
are essentially of the same cultural background as he, and
communications with them are usually uncomplicated by a
language barrier or radical differences in background.
A family abroad is thrown immediately into other relation-
ships which to some people are extremely complex. The
citizens of the host country, different usually in appearance,
language, habits and customs, and point of view, surround

PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
119
him. His work relationships must be effective with personnel
of the ministries, and his office is partially staffed with foreign
nationals whose training and background are different from
American staff and who, therefore, must be handled with
patience and understanding beyond that demanded of him
in his relations with American staff. When he comes home
from work, his wife may be tense and bewildered by her day
of attempting to communicate successfully with the wives
of the ministry personnel; with servants with whom under-
standing is difficult on both sides due to language barriers
and differences in cultural background; and with merchants
whose business philosophy differs substantially from that of
merchants at home.
An American who doesn't "know all the answers" is more
acceptable to the people of other countries than one who must
impress every group with his omniscience. Humility to ask
questions and admit the need to learn is a successful trait in
handling overseas relationships, and patience beyond that
required in any former position in the United States is a
valuable asset.
Although the importance of maturity and personality adjustment
was stressed, and has received constant attention by the International
Cooperation Administration, we found little use of selection methods
normally used to measure these qualities. The Civil Service Com-
mission has conducted studies of the United States citizen overseas
and has concluded that tests would improve selection. We are not
prepared to propose what selection devices the agency should use.
It has had sufficient experience to establish for itself a more systematic
method of appraising the potential employee's ability to adjust to an
overseas assignment. We recommend that the agency give more
systematic attention to the problem and explore the possibilities of
using written and oral tests and other proven selection devices to
determine the fitness of employees.
With the International Cooperation Administration conducting its
program in underdeveloped parts of the world, technicians must be
found for service in tropical or subtropical countries, with relatively
unfavorable climatic and health conditions. In Korea and Laos, for
instance, housing and health conditions have prevented dependents
from accompanying the technician. In some parts of the Middle
East and Far East, amoebic dysentery and tropical diseases are so
prevalent that most Americans can expect members of their family
to suffer from them.
Recent events in the Middle East underscore the political and
military uncertainties that are an obvious deterrent to recruiting.
Another recruiting difficulty is the necessity for foreign language
facility. In South and Central America, Spanish is almost a require-
ment; in southeast Asia, French is highly desirable. There are few
American technicians with such language facility. While the agency
has operated on a year-to-year basis, it has not been practicable to
provide language_training.
An analysis of International Cooperation Administration personnel
needs as of October 30, 1956, illustrates some problems just discussed.
The extent of the need for specialists is illustrated by the table on
the following page:
120 PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
Specialty:
Engineering..
TABLE 14-Type of specialization
Food and agriculture...
Community development.
Education and training….
Public administration
Public health---
11
4
11
Number of
vacancies
46
125
21
51
33
111
The agricultural vacancies are relatively less pressing because the
recruiting resources are so great. Public health and engineering needs
are critical.
The geographical areas in which recruiting is a problem are pointed
out by the following table:
TABLE 15.-Geographical areas

Total overseas.
Far East..
Near East and South Asia….
Africa..
Current em-
ployment
Oct. 1, 1956
vacancies
Vacancies
as percent of
current em-
ployment
3, 415
588
17.2
1,004
166
16.5
1,140
244
21.4
238
61
25.6
182
9
4.9
851
108
12.7
Europe.-----
Latin America..
----------
The less developed areas in themselves are obviously a major
recruiting deterrent. Although special allowances have been provided
to supplement salaries, they apparently are not enough incentive.
Directing our attention to specific critical vacancies, the list is
even more revealing. For instance, a concrete engineer adviser
position in India has been vacant since August 1955-well over a year.
A job for a dam design engineer in the same country has been vacant
since December 1955. An electronics engineer has been needed in
Korea since October 1955. A ground water engineer job in the Philip-
pines has been vacant since November 1955. A housing adviser in
Guatemala, since August 1955. A police adviser in Laos, since
October 1955. A health education consultant in Eduador, since
September 1954. Even if all these specialists were found tomorrow,
from 3 to 6 months might elapse before they could enter on duty in
the country.
The global character of this operation adds the administrative
problem of accurately determining the qualifications sought. It is
difficult enough when the personnel technician can discuss the matter
with the operating official who requires the employees. It is far more
difficult when the mission requiring the services is thousands of miles
away and requires individuals to meet peculiar technical, political,
and social conditions, difficult to describe under any conditions;
particularly difficult to describe in writing. All this is complicated
by program and project changes which require frequent revision of
personnel needs. Add delays in the employment process and the
result is endless communication on individual cases. While much of
this type of problem is inherent in an agency which must deal at
arm's length with its missions, some of it will yield with time and
experience and as country and technical desks become occupied by
individuals experienced in the country in question.


PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
121
Anticipation of mission needs is essential. We have suggested in
the chapter on program planning how and when this might be done.
We urge manpower budgets for each mission, indicating both present
and future needs and showing when technicians are scheduled to arrive
and depart. A composite of such mission manpower budgets would
quickly show headquarters existing resources, added needs, and
recruiting problems.
Obviously, recruiting techniques must be improved and the recruit-
ing staff strengthened. With obstacles such as those indicated above,
nothing less than continuous and systematic recruiting will suffice.
We suggest that the agency analyze its needs, determine the sources
from which vacancies will be filled, set deadlines for filling such
vacancies, and give those responsible sufficient authority and re-
sources to meet needs and deadlines.
Finally, the agency should ease its recruiting problem by reducing
its turnover. Each employee retained means one less to recruit.
This requires that the agency plan ahead for the reassignment of the
employees it wishes to retain.
These measures, if coupled with the basic congressional and adminis-
trative actions previously suggested, should mean a substantial in-
crease in the agency's ability to meet its personnel needs.

CHAPTER VIII
EMPLOYEE
UTILIZATION
The amount of manpower needed depends partly on how well that
on hand is used. Full employee utilization includes using as much of
the employee's time as possible, using his time in the most efficient
and productive circumstances possible, and using him at his highest
skill.
As in other phases of this study, we have fixed our attention pri-
marily on overseas technical personnel.
Measuring utilization by the amount of an employee's time used
requires answers to such questions as the following:
1. How long does it take to get people on the job once they are
selected?
2. What are the principal causes of the delay between selection
and actually getting them on the job?
3. How much time is lost in actually preparing employees to
leave for a foreign land and to return from the foreign country?
4. What time is required for leave at the post?
5. What portion of the total overseas work force is away on
home leave or in travel status?
Many factors affect the length of time it takes to get a person on
the job. After selection by the personnel division, he must be ap-
proved by the technical services and area desks. He must receive
mission, and, in some cases, country approval. Medical and security
checks must be made. The employee must be oriented. Finally,
travel time is added. From the time the average technical employee
is requested until the time he is selected and gets overseas, over 6
months will elapse.
A schedule, recently compiled by the International Cooperation
Administration based on a study of 275 cases indicates the average
length of time required to secure and process technicians in various
specialties is 202 days.
Apart from the delay due to the difficulties in securing qualified
individuals, from 2 to 4 months is taken by procedural and processing
delays. Administrative short cuts can surely be found here. We
believe the agency can shorten processing time by at least 25 percent.
It has already proven possible in certain cases where processing time
has been cut to 2 weeks.
It takes 22 weeks for the employee's orientation training.
An average of 5 days are consumed for travel-varying, of course,
with the area to which the employee is assigned. When the employee
gets to the post, it is normal for him to spend several weeks securing
quarters, receiving mission orientation, and learning about the country
to which he is assigned.
It would be a rare technician who was able fully to assume his
duties upon his arrival at the mission. Even after formal orientation,
he must become accustomed to the people with whom he will work-
122
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
123
in short, to make an adjustment to the job itself. Under favorable
stateside conditions this often takes several months. Under overseas
conditions, in unfamiliar surroundings, working with people of differ-
ent backgrounds, it can take much longer. One southeast Asia mis-
sion director probably speaks for all when he says that the new
technician assigned to his mission should not attempt to develop new
projects until he is thoroughly familiar with conditions in his country.
One International Cooperation Administration official with long
experience overseas described utilization of the employee at the post
in the following fashion:
The overseas employee has to make his own "niche." If
he is able to gain the confidence and acceptance of himself
by host officials, his utilization will be complete. This he
has to do for himself; no one else can do it for him. The
project plan can prepare the stage and setting for his services;
his supervisor can give him guidance and help; but the em-
ployee will have to make much of his own way. He must
have personality factors which are persuasive; he must
understand and like people and not be in a state of "cultural
shock" most of the time.
Utilization at a post will be influenced by health conditions in the
country. While statistics are not available as to sick leave taken at
each post, it is known that some 129 employees were returned from
overseas on sick leave during the period July 1, 1955, to June 30, 1956.
Undoubtedly an even larger number were on sick leave for extended
periods in the country to which they were assigned.
At the end of a technician's tour, particularly if he is severing his
connection with the mission, the final period of 30 to 60 days, during
which he is winding up his affairs, is one during which he is unable
to devote full attention to his job.
Reciting these conditions is not meant to imply that the time
spent in orientation, on-the-job training or in preparing to leave is
unwarranted. It is necessary and inevitable. Our purpose, instead,
is to show that even the comparatively small number of International
Cooperation Administration employees cannot all be counted as
being fully engaged on the job overseas at a given time.
Not only are the employees at the post not fully engaged, but
there is another group temporarily away from the post. Of the
3,400 overseas employees, it is estimated that 15 to 20 percent are in
travel status or home leave, on consultation, or otherwise unavailable
to the field missions. With the staff of a mission never what it appears
on paper, it is even more important to speed appointments to
vacancies.
Inability to utilize fully the entire working force at a given time is
so inherent in overseas employment that it should be taken into
account in planning recruiting schedules. The agency should be
encouraged to start recruiting for apparent needs ahead of actual
authorization on the basis that any temporary excess can be used to
offset the loss of working effectiveness just described. We understand
the agency is already considering the use of such "pools" where
qualified individuals may be used pending assignment to a post
of duty.
CHAPTER IX
ORIENTATION AND TRAINING
Employee orientation and training has two general aspects: First,
the manner in which the employees are prepared for overseas duty;
and, second, the manner in which the employee is developed for full
participation in the mutual security program. Our study was focused
on the following points:
1. The length and type of orientation being provided in
Washington.
2. The reaction of the overseas missions to the adequacy of
such training.
3. The changes and revisions that overseas missions advocate.
4. Whether additional orientation should be provided in
Washington or at the mission.
5. The type of training and staff development required.
With regard to the first point, the International Cooperation
Administration is now providing 2 weeks of orientation to most
new employees. The International Cooperation Administration
describes the training in the following manner:
International Cooperation Administration's orientation
program is basically designed to provide employees with
information and instruction to assure effective job perform-
ance in overseas assignments. To achieve this, it is organized
into three phases: (1) during the first few days in Wash-
ington, each orientee receives information of a personal
nature pertaining to his employment, travel, personal health
practices, information necessary to complete his arrange-
ments for departure, etc.; (2) the orientee then learns about
the International Cooperation Administration, its organiza-
tion, programs and objectives (regional and country briefings
are included), discusses how to adjust to overseas living, and
is instructed on security regulations; (3) finally, the orienta-
tion deals with the technical aspects of the employee's
assignment and operational techniques-how to function
within a mission, how to develop and successfully implement
a project, etc.
Individual briefings by the International Cooperation
Administration and other agency technical and regional
specialists are arranged whenever necessary. Persons
assigned as executive officers, deputy directors, and directors
go through a more extensive orientation, which is tailored to
the individual's needs.
Wives are encouraged to attend as many of the orientation
sessions as possible. In fact, several sessions have been
established especially for them.
124
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
125
The basic orientation program is a flexible one. New
courses are added and others dropped in accordance with
changing requirements. Recently, sessions on the Inter-
national Cooperation Administration participant training
and information programs have been added. By constantly
reviewing the courses, the orientation program is better able
to meet the needs of individual employees and of Interna-
tional Cooperation Administration programs.
This formal orientation is accompanied by individual briefings of
technicians by both the technical services and the area desks. As a
way of imparting specific knowledge of the job and administrative
practices, the program appears to meet the purpose for which it is
designed. We were impressed by the interest of the trainees, as
shown in their generally favorable responses to the orientation; and
by the serious approach of the Washington staff conducting the
training. Participation by the orientees is sought. The section on
program planning is particularly noteworthy in this respect. Training
officials recognize that additional orientation is needed, but question
whether additional time should be taken in Washington in view of the
urgency of getting new employees to the post.
From the comments of orientees, it appears that the technical
services and area desks are not as systematic and thorough in their
individual briefings as they might be. Several trainees commented
that "desks" seemed to have no personal knowledge of the country
and had less knowledge than they did of the position they were to fill.
Apparently the press of other work and lack of adequate scheduling
had made it difficult to give some new employees the required intensive
briefings.
Our questionnaires indicate that while the missions believe Wash-
ington orientation is adequate, they also recognize the need for
additional orientation, to be provided by the mission itself. One
North African mission expressed it in this fashion:
On the whole, new staff members have received an ade-
quate amount of orientation prior to arrival. However, due
to lack of information in Washington on this country, new
staff members are rarely able to get detailed and adequate
information on conditions and job responsibilities at this
post. Also, because of the delays in recruitment and arrival
of the technician, there has been inadequate time once the
technician reaches the post to provide local orientation pro-
grams before he takes on full job responsibilities.
We recommend that the role of Washington headquarters and the
missions be clearly delineated. Washington orientation should con-
tinue to emphasize information of a personal nature, describe Inter-
national Cooperation Administration organization, programs and
objectives and review the overall technical aspects of the employee's
job. Orientation at the post should emphasize living and health
conditions, as well as background on the specific country, including
historical, economic and sociological considerations.
With regard to Washington orientations, there needs to be a more
systematic method of job orientation by the technical services and
country desks to insure proper briefing of employees at this level.
126 PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
Orientation introduces an employee to the organization and to the
job. It needs to be followed by staff development training if the
agency is to continue for any time. Many officials point out that
orientation alone cannot supply the type of training that is needed
to equip an individual fully to operate effectively in an overseas
situation. As one official expressed it,
What is lacking is the type of training and education which
conducted over a period of time gives an individual an under-
standing and appreciation of the fundamental economic,
social, and cultural factors in a particular country, par-
ticularly an underdeveloped country, that will eventually
enable him to make his own reasoned appraisal of conditions
as he finds them.
Training is but another of the many activities suffering from condi-
tions those administering the mutual security program have faced and
still face. Because there has never been a program like it, in the
beginning there was no experience from which to draw training ma-
terial. Lacking exact knowledge, the best that could be done was to
proceed by trial and error. Later, systematic development of em-
ployees was hampered by year-to-year extensions which gave no
basis for long-range training and set no objectives for it.
Now, with almost 10 years of experience to fall back on, it is time to
develop employees and remedy revealed deficiencies. What is needed,
according to those best informed, is instruction similar to, but with a
somewhat different emphasis than, that provided by a school of foreign
service. It should emphasize such matters as the historical, economic,
sociological, cultural, and anthropological considerations underlying
our mutual assistance effort.
This type of staff development can be supplied by the Foreign
Service Institute, by existing schools of foreign service and by courses
specifically slanted toward the needs of the mutual security program.
Staff development raises again the matter of foreign language
training. While language facility is necessary in only a few areas-
Latin America and the French-speaking portions of southeast Asia-
language facility is desirable in many other places. Unfortunately,
most Americans do not have the second language facility found among
well educated Europeans.
If the program continues, the agency would be justified in providing
language training as a regular part of staff development. Such train-
ing is now available through the Foreign Service Institute, and, while
the mechanics of such training are still to be worked out, we believe
that the committee should encourage the International Cooperation
Administration to make use of this and other appropriate language
training facilities.


CHAPTER X
TENURE
A sound personnel program concerns itself with tenure, because
high turnover nullifies recruiting efforts. It has been estimated that
up to 40 percent of the International Cooperation Administration
overseas employees leave after their first assignment. In a program
where experience overseas is so vital a factor, this loss is critical.
The number of employees who leave each month is of equal concern.
The following table presents this turnover data with respect to over-
seas employees for the current year, showing terminations compared
to new employments:
January 1956...
February.
March
April.
May.
June.
July..
August.
September..
Total...
TABLE 16.-Overseas quit rates 20

Total Accessions Separa-
strength
Percent-
tions
quit rate
3,254
3,268
3,293
3,253
3,274
3, 322
3, 347
3,387
118
3, 415
REEONNIE
110
72
2.23
101
87
2.67
68
2.07
59
1.82
73
52
1.59
41
1.24
116
91
2.73
78
2.32
34
1.00
836
582
17.61
26 Includes personnel of other Federal agencies who work directly under ICA supervision.
With turnover averaging 2 percent per month or 24 percent per
year, as compared with less than 1 percent for the Federal Govern-
ment generally, the International Cooperation Administration has,
as one official put it, "*** to run awfully hard just to stand still.'
It should be obvious that some of the need for better recruiting can
be relieved if the quit rate can be reduced. Lack of reliable data
in this field prevents any valid conclusion as to whether this rate
is abnormally high, considering the conditions under which the inter-
national Cooperation Administration operates. However, a respon-
sible management official predicted that the quit rate could be reduced
by as much as one-third if systematic attention was focused on the
problem.
Detailed information is not available about why these employees
leave, but it appears that many do so because no suitable new assign-
ment is offered before the end of their tour of duty. Lack of adequate
consideration for promotion causes other employees to seek employ-
ment elsewhere.
One personnel official described some of the major causes of turnover
in the following fashion:
From 1948 until the present, lack of future security was
considered an important contributing factor to high turnover
127
128
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
in the International Cooperation Administration overseas
employment. A question constantly raised by candidates
during recruitment and by new appointees during orienta-
tion was: "What happens to me after the 2-year assignment?"
Until recently no assurance as to continuity of employment
could be given. It is expected that the recently initiated
personnel system which emphasizes continuity of employ-
ment will result in a more stable employee group.
An additional and possible permanent factor contributing
to high turnover is that expert technicians are frequently
recruited for short terms only from university faculties, with
the clear understanding that the employee will return to his
university employment. Usually his first interest is his
university career; he has substantial investment in its retire-
ment program; and his family's schooling is planned around
the academic setting. An assignment overseas is regarded
as a short-term opportunity to make a contribution to the
foreign-aid program and to provide a stimulating experience
for his family.
Another cause of high turnover in the past has been the
lack of a coordinated program in International Cooperation
Administration, Washington, for returning employees during
the time spent in Washington after their overseas assign-
ment. Operating officials, under heavy work pressures,
failed in some instances to realize that returning technicians
are a valuable source of information as to progress of pro-
grams at the post and that after an overseas tour, technicians
usually wish to discuss their work with a Washington official.
The returnee often needs assistance also in the resolution of
problems which may have developed during his assignment.
A program is now in operation in the International Co-
operation Administration, Washington, to coordinate the
reception and utilization of returning personnel. This pro-
gram includes exit interviews, which are expected to assist in
the retention of employees whose services have been valuable.
In summary, the problem of high turnover is now being
met in two ways: by establishment of a personnel system
which for the first time offers the possibility of continuity of
employment; and by providing a means of recognizing the
needs of returning employees.
The lack of a systematic exit interviewing program to determine
the reasons for employees' leaving has been unfortunate. Most
progressive concerns use this to cut down on employee turnover.
It would appear that the International Cooperation Administration,
by emphasizing a well-planned exit-interviewing program, could per-
suade some employees to remain; and could learn from others what
causes provoke resignations.
The new personnel system with its planned system of assignment
will materially reduce turnover in the long run. The casualty rate
for employees completing their first assignment may be materially
increased due to a more vigorous weeding out process. This initial
weeding out process, however, is more than justified as it should
eventually insure a more stable work force comprised of employees
found most suitable for overseas work.
CHAPTER XI
A PROPOSED PERSONNEL SYSTEM
During this study, a new personnel system was announced by
the International Cooperation Administration. This new plan
recognizes that improvements are necessary and shows that the
agency wants to make them. The committee will be interested in
the new system, both in terms of the personnel study and its affect
on future program needs.
What were the particular difficulties that led to the development
of the new system? They are the obstacles to effective utilization
of personnel which have been stressed in this report. Some of these
major difficulties are:
1. Inability to make full use of existing staff through difficulty
of assigning employees where needed.
2. Inability to rotate employees between missions and between
a mission and Washington.
3. Lack of tenure for field employees.
4. Faulty compensation practices.
5. Lack of an orderly and systematic promotion system.
6. Difficulty in separating unsatisfactory employees.
The new system seeks to provide a career service, with planned and
orderly assignments for employees. It is expected to benefit em-
ployees by assuring continued employment and scheduled assignments.
It is expected to benefit the agency by enabling it to make better use
of its staff. Employees were given a full opportunity to comment
on the proposed system. According to the analysis furnished to us by
the agency, 90 percent of the employees responding to a questionnaire
indicated that they were favorably disposed toward the new plan.
The following description of the new personnel system is based on
material furnished by the International Cooperation Administration:
The proposed new overseas personnel system is designed
(1) to permit the agency to retain more of its valuable tech-
nicians, (2) to assign members of the overseas staff where they
are most needed, and (3) to accelerate the rotation of compe-
tent people between Washington and the missions. Essen-
tially, the aim of the plan is to achieve greater continuity of
employment for International Cooperation Administration's
overseas personnel, subject to program needs, and to provide
a more orderly system of assignments and promotions.
The main provisions of the plan include:
Tenure. Priority for all overseas vacancies will be given to
qualified officers now in service instead of recruiting new em-
ployees for those posts. Officers will have an obligation for
worldwide assignment and will be eligible for duty in the
United States and for training, subject to funds limitations.
129
130 PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
Compensation.-Salary will be based predominantly on the
qualifications of the individual, taking into account such
facts as education, years of activity in his profession, effi-
ciency performance, and duties assigned, rather than the
classification of the overseas position filled by the officer.
Assignment board. Such a board, functioning as an
advisory group to the Director of Personnel, will be estab-
lished in International Cooperation Administration, Wash-
ington to recommend the assignments of all overseas officer
personnel and of International Cooperation Administration,
Washington personnel who should be considered for rotation.
The board will be concerned with all categories of officers in
the Foreign Service Reserve and in the grade of FSS-9 and
above in the Foreign Service Staff Corps and will consider
officers who are eligible for assignment to International
Cooperation Administration, Washington positions which
are open to both civil service or overseas personnel. United
States Operations Mission Directors and Deputy Directors
will not be subject to this procedure.
Guidelines for assignment actions.-Two years at a post
will establish eligibility for reassignment; 4 years will nor-
mally be the maximum period of tenure at a post; after a
minimum of 6 years of overseas duty, officers will become
eligible for consideration either for one of the limited number
of positions available in Washington or a period of training
in the United States, subject to funds limitations. (No
change is contemplated in present arrangements for home
leave.) Assignments will be made in most cases to a position
classified at the same grade as the officer. There may
be occasions, however, where an assignment will be made to a
position slightly lower or higher in grade than the officer. In
such cases, the officer will retain his current grade and
salary.
Promotion.-Ultimately, promotion boards will be estab-
lished and staffed by senior officers with current or recent
overseas experience. Considerations for promotion will be on
a worldwide basis within appropriate professional fields.
Consideration shall be given to the qualifications of each
individual based upon such facts as relative standing as
compared with other employees in the profession in com-
parable grades, performance, education, and years of experi-
ence. Approved promotions will become effective without
regard to the grade of the individual's current assignment.
Until these promotion panels are established, promotions will
be processed as they have been in the past.
Recruitment. Future recruitment will be made to fill
vacancies for which qualified officers, both overseas and
International Cooperation Administration, Washington, are
not available. The objective of all future recruitment will
be to obtain officers willing to serve anywhere required to
fulfill obligations of the International Cooperation Adminis-
tration program.
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM 131
It is difficult to appraise a system which is still untried, although
it resembles the plan of the State Department for its Foreign Service
officers. We can expect that the proposed system will exhibit about
the same strengths and weaknesses.
It appears, therefore, that those who administer the new plan will
have to be particularly mindful of such probelms as:
The problem of specialists
The State Department career system was built upon the assumption
that "generalists" would be employed. Although the system has
been modified to meet changing times, the problem of absorbing
specialists has not been fully met.
International Cooperation Administration programs depend upon
highly trained specialists. It will be difficult to build career ladders
in each specialty and still maintain some degree of equity between
technical groups, considering their different size and structure.
Moreover, the reassignment processes appear to require a degree of
interchangeability within groups, and this may prove difficult in such
fields as public health, agriculture and engineering.
The problem of lateral entry
A career system, such as is proposed, can either be a closed system,
i. e., one in which employees are brought in at the bottom and pro-
moted by successive steps; or an open system, in which employees
are brought in at appropriate levels in accordance with their qualifi-
cations, and then promoted. Because of the nature of International
Cooperation Administration program, it will be necessary to provide
an open system, to allow ample opportunity for bringing in mature
specialists at all levels to fit changing program needs. The new system
will need specific provisions to permit this.
The problem of maintaining an appropriate relationship between job
classification and assignment
One of the purposes of the new system is to base salary on the rank
of the individual rather than on the classification of his position. At
the same time gross inequity could develop if there is too great a gap
between the classification of the job and the rank of the employee
assigned to it. This will require special attention if equity is to be
preserved.
The problem of assignment and promotion boards
No one, as one employee puts it, likes to work where people are
handled like pieces on a checkerboard. There is always the danger
when an assignment and promotion board bases judgment of employees
on paper records, with inadequate firsthand knowledge of performance,
that hasty and arbitrary action will be taken or that whim, caprice
and personal relationships will influence decisions. Obviously, steps
must be taken to guarantee the impartiality of the boards, while
providing latitude for legitimate judgment. This clearly requires an
effective employee evaluation plan, with sufficient attention given to
it to insure realistic apparisals of performance.
The problem of providing recognition for superior employees
If modeled after the State Department career system, employees
will be promoted one step at a time and there will be little opportunity
94413-57- -10
132
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
for superior employees to be promoted in accordance with their
abilities. The existing system makes it possible for some employees
to move ahead quite rapidly, but at the same time, it denies promotion
to others equally qualified whose geographical location makes them
unaware of vacancies. The new system must provide enough flexi-
bility in promotion to enable the demonstrably superior employee to
move rapidly up the promotion ladder and at the same time avoid
unduly blocking the progress of those performing adequately.
The problem of an "elite corps"
There is an ever-present danger that an "elite" bureaucracy may
be created which tends to improve its own condition at the expense of
the program with which it is associated. International Cooperation
Administration technical assistance programs have been described as
requiring a "shirt sleeve" approach. It is important to preserve this
idea of a corps of technicians working in close association with their
host country counterparts. The new system must be dynamic and
not just another special corps with extensive mutual protective
devices.
These problems are not arguments against the plan, but points for
care in its administration. Despite them, the committee should
encourage the International Cooperation Administration in this
attempt to develop a better planned personnel system for its em-
ployees. The existing situation is not satisfactory. The new
system, or modifications evolved, offer the best hope of stabilizing
the employment situation and providing the agency with trained
employees. While legislation authorizing the system does not appear
to be required, it should be incumbent on the agency to report its
progress in developing the new system to the committee at regular
intervals.
Some fear that this new plan is the first in a series of steps toward
the complete integration of mutual assistance staffs with the Foreign
Service Officer Corps of the State Department. If we thought so,
we would have grave misgivings about the whole idea. The Inter-
national Cooperation Administration has a very special mission to
perform. It faces very special problems in performing it. It is
attempting a special plan as one solution to some of those problems.
No one can foresee exactly the future requirements of our Govern-
ment abroad. For the foreseeable future, at least, both the Inter-
national Cooperation Administration and the State Department have
problems enough without taking on the added burden and conflict
of an attempt at complete integration of their staffs.
CHAPTER XII
PERSONNEL FOR THE MILITARY ASSISTANCE PROGRAM
Since the end of World War II the United States has conducted a
worldwide program of military aid to friendly countries. The com-
mittee requested that we examine the practice of the military services,
with particular respect to the selection and orientation of personnel
employed in the program. We are concerned in this portion of our
report with the military-to-military relations, and more precisely with
the United States military advisory groups located throughout the
world. Further, we are concerned only with the selection, orientation
or indoctrination training, and overseas personnel administration of
the officers and enlisted men and civilian employees of these groups.
The standards and methods of the military services are here re-
ported in some detail; (1) Because they illustrate the benefits of a
stable organization asked to plan long range objectives; and (2) Because
they include examples the civilian agencies might profitably copy.
ORGANIZATION OF THE MILITARY ASSISTANCE ADVISORY GROUPS (MAAG)
The program of the Department of Defense includes the provision
of military end-items, training foreign personnel in the use and
maintenance of military equipment, United States contribution to
the North Atlantic Treaty Organization's public works program and
development abroad of special weapons and additional military pro-
duction facilities. Provision is also made, insofar as the Military
Assistance Advisory Groups are concerned, for coordination of activ-
ities within the country. The Chief of the Military Assistance
Advisory Group is one member of a group of agency representatives
called the country team. The other members are the Ambassador,
who serves as team captain, the International Cooperation Adminis-
tration's Mission Chief, and other representatives of agencies in the
area.
The Military Advisory Group is a joint operation in each country,
composed of Army, Air Force, and Navy personnel. Each service
has a distinct section of the group. The section is usually headed by
an officer of the rank of colonel or equivalent. In a very large mili-
tary assistance advisory group a section chief might be a general
officer. Which service will supply the chief depends upon the objec-
tives. If the primary function of the military assistance advisory
groups is army advice, the Chief is an Army general; if it is Air Force
activities, the Chief is an Air Force general; and if it is naval, the
Chief is an admiral.
The administrative hierarchy is confusing to the layman, but it
fits regular military organization in a practical manner. The Chief
of the Military Assistance Advisory Group reports to the area
commander, such as the Commander in Chief of the European Area
133
134
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
or the Commander in Chief of the Pacific Area. The service command-
ing this area becomes the executive agent for the other services in
administering and servicing the Military Assistance Advisory Groups.
Thus, for operational matters the Military Assistance Advisory
Group is tied back into the regular military channels.
For administrative and policy matters, there is a channel that runs
from the Chief, Military Assistance Advisory Group to an adminis-
tration office in the Department of Defense. This office has its own
channels up through the Department of Defense, extending through
an Assistant Secretary for International Security Affairs, and even-
tually the Secretary of Defense.
There are approximately 11,000 persons stationed overseas in
the Military Assistance Advisory Group program-roughly four times
the number stationed overseas by the International Cooperation
Administration. This includes officers, men, civilians, and nationals.
The composition of the Military Assistance Advisory Group is
preponderantly officer personnel. Since 1950, more than $14 billion
worth of military equipment, supplies, and services have been
furnished our allies. Along with this aid must go the "know-how"
for its maintenance and use. This is a prime necessity in an age of
rapid advances in the technology of warfare. Both maintenance and
training are so highly complex and difficult that it would do little good
to export the complicated fighting equipment without training its
recipient in its use.
There are two types of Military Assistance Advisory Groups.
One is logistics and the other is training, with considerable overlap
between the two types in activities. Those devoted primarily to
training work directly with the military units of the host country.
The logistics group remains somewhat aloof from participation in
the operations of the army of the host country, but provides materials
and supplies to them and instructs them in its use.
RESPONSIBILITY FOR THE SELECTION OF PERSONNEL
Each service has the primary responsibility for selecting replace-
ments for its personnel in the Military Assistance Advisory Groups,
including the Chief. However, in this particular position the gen-
eral or admiral nominated by the service is subject to approval by
the Assistant Secretary of Defense.
The selection and processing of civilian employees is the responsi-
bility of the service acting as executive agent for the Military Assist-
ance Advisory Group. The employment of host country nationals is
by the Chief of the Military Assistance Advisory Group.
SELECTION OF THE CHIEF OF THE MILITARY ASSISTANCE ADVISORY
GROUP
The Chief of the Military Assistance Advisory Group must pri-
marily be a soldier. Yet he must be able to deal diplomatically
with his counterparts in the host country, civilian officials of the host
country, the Ambassador, and his own superiors in the three major
services of our military system. In addition to his official duties, he
attends many social functions. He is a man who is known and
watched by many citizens, politicians, and molders of public opinion
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
135
in the host country. He must conduct himself in an exemplary
fashion, bring credit to his country, and inspire confidence in our
friendly intentions, our efficiency, and our ability.
Such responsibility requires the selection of the best possible person
available for the position. Keeping in mind that the person must
first of all be a soldier, the problem is to find one who can also be a
diplomat. The group from which the selection is made starts at the
brigadier general rank in the Army and Air Force and the rear admiral
rank in the Navy. The selection is not easy. There are about 500
potentially available for selection in each of the services. After this
number is reduced by the number of those required for our important
operational commands at home and abroad, the number soon to leave
the service, the number who have just returned from overseas and
other eliminating factors and conditions, those from whom a choice
can be made for a particular assignment is usually from 20 to 30.
A vacancy as a Military Assistance Advisory Group Chief can usually
be anticipated long in advance, since the tour of duty is known, or
it is known that an officer is approaching retirement or is due for
rotation. Action can begin many months before the officer is due to
arrive at the post. The request for a Military Assistance Advisory
Group Chief is originated by the area command having jurisdiction
over the Military Assistance Advisory Group. The request goes to
the service having provided the previous Chief unless the Joint
Chiefs of Staff have decided to change the complexion of the group.
The qualifications necessary to fill the request are determined by the
function of the Military Assistance Advisory Group, and are stated
on the request.
The service required to provide the Chief carefully evaluates its
officers of general rank against the criteria of the qualifications re-
quired. This includes the kind and quality of experience, age,
physical condition, attitude toward foreign assistance programs,
character, adaptability to the environment of the host country and
its religion, race, culture, and climate. Since the number of officers
available is comparatively small, they are known personally by those
making the selection. The selection often takes on the characteristics
of a round-table discussion about the ability of the eligible officers to
do an effective job. After the preliminary selection is made, the
officer is "nominated" to the office of International Security Affairs.
On occasion the man is interviewed by the Assistant Secretary of
Defense or is assigned to temporary duty at the Pentagon while he is
observed and considered.
After final approval by the Assistant Secretary of Defense, the man
is nominated to the State Department and through the State Depart-
ment to the host government for the extension of diplomatic privileges.
After selection the officer may be given special language training.
The officer is then put through a series of briefings in Washington by
officers in the various services and the Department of Defense, in-
cluding the service Secretaries. He also is briefed by officials in the
State Department and the International Cooperation Administration.
There is usually a briefing with the area commander on the way
out to his post and with the Ambassador and the International
Cooperation Administration Chief upon arrival.

136 PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
SELECTION OF MILITARY ADVISORY GROUP PERSONNEL
Selection by the Army
The head of the Army section in each Military Assistance Advisory
Group is a colonel. The other staff officers are lieutenant colonels
and majors.
The policies which guide the selection of officers are based on
memorandums and letters issued by the Department of Defense.
The procedures followed were originated by the services. In all
services the selection is by special units established to process selec-
tion for Military Assistance Advisory Groups, Supreme Headquarters,
Allied Powers, Europe, special missions, attachés, and other sensitive
or special assignments.
The requisition for an officer for a group originates in the field.
A file is maintained in Washington, which includes the complement
and assignment of persons in the Military Assistance Advisory Groups.
This file provides some information as to the probable needs of the
Military Assistance Advisory Group for officers in the future. How-
ever, because of the possibility of changes in emphasis, no action is
taken until a requisition is received. Current requirements are that
the requisition be sent to Washington 7 months before the replace-
ment is to report for duty. If there is an absolute language require-
ment, the requisition must be submitted in time to allow language
training, which in the case of the more difficult languages may take
up to 1 year. Emphasis is now being placed on having the Military
Assistance Advisory Group prepare a detailed statement of the re-
quirements of the position rather than merely to specify the military
occupation specialty number the man should have. The requisition
includes an outline of the specialties to be required of the officer, and
shows whether language fluency is necessary.
The requisition is reviewed in Washington to authorize the replace-
ment and coordinate it with the latest plans and policies affecting the
Military Assistance Advisory Group. Requirements dictated by
policy of the service, Department of Defense, or State Department
are added to the requisition.
Upon determination as to the Army branch having the rank and
type of experience likely to meet the requirements, the requisition is
passed to that branch for selection.
When the request is passed to a branch of the Army, it is incumbent
upon the branch to fill the request. Military Assistance Advisory
Groups do not have a priority as such, but because of the interest in
international security affairs the Military Assistance Advisory Groups
are staffed at about 90 percent of full complement, whereas the services
generally are staffed at about 85 percent.
Officers selected for Military Assistance Advisory Groups must be
"above average" in efficiency ratings,
After screening the available and qualified officers, the one selected
as qualified is nominated to the allocation officer.
The complete file on the officer is thoroughly scrutinized at this
point, The Army officer's file contains a frank appraisal of the officer
by his previous commanding officers. It contains comments about
the officer that are extremely pertinent when he is being considered
for a foreign assignment with diplomatic overtones. If the officer is
reported to be "blunt, ramrod, rough in speech, unpolished," he may
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
137
be excellent as a fighting man but not as a diplomat. On the other
hand, if he is reported to be "polite, soldierly, polished," he can be
considered a good candidate. These remarks are placed in the man's
record at a time when it is not known whether he will ever be con-
sidered for a semidiplomatic post.
The Army's standing instructions in this regard say:
(a) Officers assigned to these agencies represent the United
States, and enjoy many diplomatic privileges in military as-
sociations and social functions. Moreover, they often have
responsibilities outside their professional field. Accord-
ingly, personal conduct is most important, and an officer's
characteristics must be carefully weighed. In addition,
suitability of his dependents for this type of an assignment
must be carefully considered.
(b) Special consideration must be given to:
(1) Ability of the officer to adapt himself socially and
professionally to the customs of the foreign country.
(2) Officer's knowledge of the spoken language of the
foreign country, which is highly desirable.
(3) Ability of the officer to conduct effective instruc-
tion.
(4) Reputation of the officer for high moral standards.
(5) Professional qualifications of officer.
(c) Officer must have sufficient remaining service to insure
completion of a normal tour in the applicable overseas area.
(d) Officer must have credit for 2 years' college or equiv-
alent.
(e) Officer must be physically qualified for general service
in the country to which assignment is contemplated. Both
he and his dependents should be free from inherent, latent,
or incipient weaknesses which might make their residence
inadvisable in the country for which considered.
It is now the practice to send questionnaires to acquaintances of
the officer and his wife inquiring about their character, handling of
finances, drinking habits, morality, poise, and personality; and re-
questing a recommendation as to their fitness to represent the United
States in a foreign country.
Thus, it can be seen that the military is concerned about the very
important problem of adaptability of its personnel to the country.
This is a complex problem, but it is vital to the success of the military
mission. It involves the customs and religions of the people of the
host country, the climate, and the environment. Some officers who
would be excellent in most respects are unable to reconcile themselves
to the customs and conditions encountered in foreign countries.
It is important to note that the military places "ability to conduct
effective instruction" high on its list. Personnel assigned to advisory
positions must not only be experts in their field but they must be able
to teach it also.
The check made on dependents ranks high in importance. It
probably is impossible to avoid all cases of improper actions of Amer-
icans overseas. Also, incidents that would be considered minor in
this country are sometimes magnified overseas. However, the check
on dependents made by the Army will help eliminate persons who
obviously should not be sent to foreign countries.
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PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
Dependents are included in training programs after they arrive
at the Military Assistance Advisory Group post.
None of the services makes a practice of keeping officers or men in
advisory work, nor do they appear to think this is desirable. The
regular service rotation in and out of foreign service is adhered to.
Officers who have had Military Assistance Advisory Group assign-
ments are not given preference for reassignment because of their
experience. It is believed that the career of the officer is primarily
military and not diplomatic. Therefore, it is more important to
have him returned to experience or training that will keep him current
in his military skills. The only exception to this is that officers who
have special language abilities may find themselves alternately assigned
in and out of the country.
After an officer is finally selected, there are routine clearances for
himself and family.
He is provided a brochure on the country involved. If he must
learn the language, he is sent to school for as long as a year. If he
or his family need minor medical or dental attention before being
sent out, it is attended to.
The selection of enlisted men by the Army for overseas assignment
with the Military Assistance Advisory Groups has some important
variations from the selection of officers. The enlisted selection is from
volunteers, whereas the officer for the most part is by assignment.
The three services have special sections handling the selection of
enlisted men.
Standing regulations in the Army advise enlisted men that they
may volunteer for overseas duty specifying the type of duty and gen-
eral location. Army Regulation No. 611-220 states in part:
2. General.—(a) A continual requirement exists for a
limited number of specially trained, well-qualified personnel
for assignment to United States military missions, commis-
sions, and advisory groups established in various countries
throughout the world.
(b) Enlisted men assigned to these groups do not have
official diplomatic privileges in military associations and
social functions. Consequently, it is imperative that per-
sonnel be selected who, in their contact with foreign nations,
will reflect the highest credit upon the United States and the
military service. It is also essential that this requirement
apply equally to dependents who accompany, or later join,
military personnel selected for such assignments.

And further:
(e) Enlisted personnel will be selected by the Department
of the Army for this type of duty from among:
(1) Volunteers submitting applications as provided
in paragraph 4.
(2) Enlisted men nominated by major commanders
as provided in paragraph 5.
3. Selection criteria.—(a) Personal qualifications.-Appli-
cant and nominee must have demonstrated to a marked
degree the following characteristics:
(1) Pleasing personality, ability to meet, understand,
and work with foreign nationals.

PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
139
(2) Excellent character, good moral background, and
emotional stability.
(3) Soldierly appearance.
(4) Demonstrated outstanding efficiency.
(5) Mission members are, in general, specialists who will
instruct or advise foreign military personnel. Therefore,
they must be tactful, patient, and capable of conducting
courses of instruction effectively.
(6) Must be sober, possess mature judgment, and have
demonstrative initiative.
As to volunteers, the manual states:
4. Volunteers.-(a) A special file of qualified volunteers
is maintained in the office of The Adjutant General. All
enlisted personnel except those on orders for an overseas
assignment, or who are already serving overseas, who meet
the qualifications outlined in paragraph 3, may submit
applications through command channels ***
(b) Applications will be prepared as shown in the model
contained in the appendix.
The regulation requires the widest circulation so that all qualified
enlisted men will be aware of the opportunity.
In the event the list of qualified volunteers is exhausted or does not
include enlisted personnel with the military occupational specialty
or special additional qualifications or prerequisites requested by the
chief of a particular mission or advisory group, the major commanders
will be levied for qualified enlisted men to fill such requirements.
This is done by forwarding the requirements listed on the question-
naire to the major commander for action.
The responsibility for careful selection of nominees, including
recommending their dependents, is placed on the major commander.
When the applications are received in Washington, a data card is
prepared which lists the most important information from the appli-
cation. The card is filed by the military occupation specialty number
and the application by name.
When a requisition is received, the cards listing the military occupa-
tion specialty required are obtained and screened for the other quali-
fications involved. When a tentative selection is made, the applica-
tion file is reviewed detail by detail. The application includes a
picture of the man and spouse.
The special unit reviews all selections including those recommended
by the major commands and prepares orders for the men. A brochure
The
on the country to which he is ordered is sent to the man.
Military Assistance Advisary Group is also notified.
Selection by the Air Force
This section will discuss only those ways in which the Air Force
differs from the process described for the Army.
One major difference is that Air Force handles officers of the rank
of colonel as a separate group. However, the selection of both colonels
and generals in the Air Force is essentially the same process as that
described for general rank officers in the Army.
The check on wives and dependents in the Air Force is left to the
commanding officer of the command nominating the officer for foreign
140
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
duty. The assumption here is that he may personally know the
family; but, if not, that he is in the best position either to interview
them or to obtain the pertinent information. No report is made on
the wife and dependents since it also is assumed that he will not
nominate the officer if there are reasons why the family should not be
sent overseas.
Another variation by the Air Force is that they do not bring in
lieutenant colonels and below for briefing nor do they provide them
with orientation material. This, along with specific information about
his assignment, is sent to him by the Military Assistance Advisory
Group he is assigned to. Presumably, this opens up an exchange of
correspondence about the assignment between the new officer and the
officer who is leaving the Military Assistance Advisory Group. Since
there is a 7 months' requirement for requisitioning an officer, and longer
if language school is required, this correspondence may occur over a
considerable length of time and be a valuable training device.
The Air Force permits officers to volunteer for foreign duty. It
believes the motivation demonstrated by the request for overseas
duty will insure high morale. (The Army officially does not permit
officers to volunteer, but it is safe to surmise that when a requisition
for an officer reaches a command, it comes to the attention of numerous
officers, and those qualified may "suggest" that they be nominated.)
The Air Force publicizes the requisition at the command which
receives it.
The Air Force officer's record which is closely reviewed when an
officer is nominated contains a large picture of the officer.
A cooperative arrangement has been worked out with the Depart-
ment of State Foreign Service Institute for language training of Air
Force officers.
There are about 600 Air Force officers in the Military Assistance
Advisory Group program.
The length of assignment at Military Assistance Advisory Group
varies with location and presence of dependents. Generally, if an
officer takes his dependents with him, his tour of duty is longer.
Also, the tour of duty is considerably shorter for posts such as Taiwan
than for posts now in demand such as those in South America. Single
officers can spend as little as 1 year at some posts. This makes the
turnover rate quite high. The Air Force permits an officer to stay
at a post for a longer tour of duty if he wishes and the commanding
officer concurs.
Selection of Air Force colonels is made by reviewing the file of those
eligible for overseas duty. In addition to the briefings received by the
colonel, there is a policy of allowing a 30 day overlap of colonels at
the Military Assistance Advisory Groups permitting a thorough
"breaking in" of the new staff member. This also is a valuable
training method.
A top secret security clearance is required of most officers and men
sent to the Military Assistance Advisory Groups. In addition, the
officers are usually cleared through the Intelligence Branches of the
services.
The selection of enlisted men by the Air Force is essentially the
same as that of the Army.
The Air Force enlisted selection unit uses a very valuable but
unofficial tool in filling requisitions. It is a book called a Project
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
141
Guide. In this book the officer in charge has placed all of the perti-
nent information concerning appointments to each Military Assistance
Advisory Group. By turning to the proper page he has before him
all of the essential details concerning a Military Assistance Advisory
Group. For example, one note may warn against assigning men with
dependents who will complete eighth grade before the expiration of
the tour of duty, because there are no local schools beyond that grade.
Another note might be "no small children" as there are no medical
facilities for infants. This information is a compilation of reports
and suggestions received from the Military Assistance Advisory
Groups.
The Air Force enlisted men's application for overseas duty requires
a photograph of the man and dependents.
Selection by the Navy
The selection process by the Navy is similar to the Army's. The
Navy program differs in one respect. It is voluntary for officers and
men. Both officers and men in the Navy may indicate on their
personnel cards the type of duty they prefer. When a selection is
made for Military Assistance Advisory Groups duty, those having
the proper occupational codes (this applies to officers also) are sorted
out and then from these a search is made for men who have requested
this type of duty. The Navy has given publicity to its need of
personnel for the Military Assistance Advisory Groups. The October
1956, issue of All Hands magazine carries an article entitled, "Pointers
on Assignment to Military Assistance Advisory Groups, Naval
Attaches, and Missions." The article states that enlisted women
in certain rates may be assigned to Italy, France, and Japan.
Because of the nature of the foreign armed forces advised and
assisted by this country, the Army has the most men assigned to
Military Assistance Advisory Groups duty, the Air Force second, and
the Navy third.
CIVILIAN PERSONNEL IN THE MILITARY ADVISORY GROUPS
There are less than 500 civilians employed in the Military Assistance
Advisory Groups. They are technical representatives and clerical
personnel. The source of recruitment for technical personnel such as
transportation specialists has, for the most part, been from retired
officers or others leaving the service who are already in the host
country. The services say this has been an economical and satis-
factory method of employing civilians. Stenographers and typists.
are civil service employees hired through regular channels or picked
up on transfer in the host country.
There are a few nationals of the host countries hired for minor
duties. This type of employment is handled locally by the military
assistance advisory group chief.
THE LANGUAGE PROBLEM
There is a trend away from language requirements for members
of the Military Assistance Advisory Groups. Most requests received
by the services for personnel for the Military Assistance Advisory
Groups merely state that fluency in the language of the host country
142 PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
is desirable. Language is still required by some missions, as for
example, those in South America. All personnel assigned to South
America are sent to language school. French is required of Army
officers going to Vietnam.
Language training is expensive in terms of the cost of maintaining
an officer in a language school for a year, considering salary, allowances,
and instruction costs.
When this expense is considered in light of the fact that the officer
may stay in the area where the language is required for as little as
1 year (Vietnam) and then is rotated and may not leave the United
States for 4 years, a high price is paid for a very short period of usage.
There is a great deal of skepticism among the officers working
with the Military Assistance Advisory Group program as to the
value of the language training. Unless the officer has a natural
facility for the language, or a deep motivation to learn it, he does not
become fluent enough to use the language freely in the field, particu-
larly when he must explain highly technical matters to foreign na-
tionals. They point out that the host government can furnish
interpreters that are satisfactory.
The Air Force is to be commended for cooperating with the State
Department by using the facilities of the Foreign Service Institute
for language training. This combining of civilian and military
language training is economical and efficient.
If language is necessary, some believe it could be learned more
rapidly in the field where the officers and men could speak the language
in their daily work, putting immediately into practice what they learn
in the training session. The assignment of a language instructor to
each Military Assistance Advisory Group would be a great deal more
economical than maintaining the men in an unproductive period at a
language school.
One of the factors influencing the trend away from language training
is that the expense of the training must be paid from regular depart-
ment funds and is not chargeable to the mutual assistance program.

COMMENTS ON SELECTION TECHNIQUES
The three military services have given special attention to the
selection of officers and men for the Military Assistance Advisory
Groups. The techniques used appear to be excellent and under the
circumstances should produce the best of the servicemen available
for the duty.
The use of photographs of officers and men and, when applicable,
of dependents, is claimed to be a valuable aid to the selection process.
The Air Force has taken the lead in this and includes a large picture of
the officer in his official file. They require the enlisted man applying
for overseas duty to include with his application a picture of himself
and his dependents. This brings a realization and appreciation of the
size of families, the age of children, the physical characteristics of the
man and other pertinent impressions that can be drawn from the
pictures. The Army is beginning to use pictures. The Navy for
some time has used a small identification-type picture.
It would appear that there could be a valuable exchange of ideas
among the armed services with regard to personnel practices. Officers
doing identical work in all three services are located almost within
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM 143
hailing distance in the Pentagon, but they are not all acquainted with
each other. It is possible that several may be struggling with prob-
lems to which another of them has found satisfactory solutions. Since
the selectees ultimately serve together within the Military Assistance
Advisory Groups, it would appear that the techniques of selection
could be closely coordinated. This exchange of ideas should be at
the "action" level and not the staff level.
Each of the services, the State Department, and the International
Cooperation Administration provide the selectees with a brochure on
the host country. There has been considerable informal "borrowing"
of brochures and content from the brochures. By combining the
effort, one brochure could be prepared for each country, and all serv-
ices and civilian agencies could use it with brief inserts for their own
purpose.
TRAINING
The preparation of officers for Military Assistance Advisory Group
duty in respects other than language or occupational specialty refresh-
ing is handled largely by briefings. The Chief is given extensive
briefings in Washington by the Defense Department staff specialists,
the Secretaries of the services, and others. He is also briefed by
officials of the State Department and the International Cooperation
Administration. The briefings are largely discussions of the affairs
concerning the country to which the officer is going. The Defense
Department briefing is a roundtable discussion attended by a number
of staff officers who discuss their parts of the program. The Chief is
also briefed on his way out to the Military Assistance Advisory
Group by the Area Commander.
The briefings of other officer personnel are intensive, but not by
the top officials of the Defense Department. The Air Force and
Army have similar patterns in their briefing sections. The Navy
has a prepared schedule that is followed by the officer. The sched-
ule routes him to all officials having a direct interest in the Military
Assistance Advisory Group to which he is going or an interest in the
officer's particular assignment. All officers are briefed by the Intelli-
gence Section of their services on special political and military instruc-
tions.
Enlisted men are not briefed in this country.
A phase of the training program is the overlap that is permitted
officers at the Military Assistance Advisory Group. This gives the
outgoing officer an opportunity to pass his special knowledge of the
situation on to the new officer.
Another phase is the correspondence that is established between
Military Assistance Advisory Group officials and the new officer
assigned to it. Since it is often known several months in advance
who the officer is that is coming, an opportunity is created for the
Chief and other officials to send him letters of welcome, a brochure
and specific information pertaining to his work as well as answering
any questions he may have about the conditions in the country.
Each Military Assistance Advisory Group is under instruction to
carry on training programs for its entire complement and where pos-
sible for dependents. This training may be technical in various fields;
it may be for the purpose of preparing the officers and men for pro-
motion and keeping them current in military science; or it may be to
144
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
facilitate their stay in the country and include language instruction,
culture of the country, laws and other subjects.
Most officers contacted in the preparation of this report were of the
opinion that all officers should be trained in the characteristics of the
country to which they are assigned before they are sent out. Officers
who have been on foreign missions particularly stress the importance
and need of such training.
ADAPTABILITY OF DEFENSE DEPARTMENT EXPERIENCE TO USE BY THE
INTERNATIONAL COOPERATION ADMINISTRATION
All military selection units require from 7 to 12 months advance
receipt of requisitions for personnel for Military Assistance Advisory
Group duty. Only in the case of death or emergency removal of a
staff member will a requisition be accepted and acted upon in a shorter
period. It is possible for the military to anticipate its needs this far
in advance since officers and men are sent out for definite tours of
duty, at the end of which they must be replaced. However, even in
the case of new programs and changes in emphasis the need is antici-
pated and the requisition is filed 7 months in advance. The period is
increased if language training is necessary. We have urged that the
International Cooperation Administration adopt a similar policy of
anticipating needs to allow a definite period for recruiting and training
personnel.
The Army employs a questionnaire which seeks information about
the dependents of the officer. Since the wife of the International
Cooperation Administration official and his dependents exemplify the
United States while in the foreign country, the International Coopera-
tion Administration should continue to seek information about the
adaptability of the wife and adult dependents for overseas duty.
The military services require the officer to have any remedial
medical or dental conditions of himself and dependents taken care
of before they leave the United States. This might be made a part
of the International Cooperation Administration instructions.
The unit selecting enlisted men for the Air Force uses a Project
Guide which includes all pertinent information concerning the selection
of men for a particular Military Assistance Advisory Group. Such
a guide should be invaluable to the recruiting officers of the Inter-
national Cooperation Administration. It would avoid reliance upon
memory of the multitude of details concerning each mission and
would avoid sending persons who will find themselves in difficulty at
a particular mission.
SUMMARY
The Army, Air Force, and Navy are giving special attention to the
selection of personnel for overseas assignments. Each of these
services has established special units to process the selection of men.
Special qualifications have been established. Procedures have been
originated which are designed to provide the best possible men for
this type of assignment. Although no priority is established, the
importance of the military assistance program is stressed, and when
a command is levied for personnel, the service is obliged to supply
them. Language training is required of all personnel going to South
America. Special language training is provided elsewhere if deemed
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM 145
necessary, but there is a trend away from requiring the officers and
men to speak the foreign language. Briefings are given officers
entering the Military Assistance Advisory Group program. Pro-
vision is made for training after arrival in the country.
The requirements of the military services impose no unusual strain
on manpower resources for overseas assignments. The services enjoy
a distinct advantage in meeting their own requirements on a schedule
because of long-range plans made possible by a more stable
organization.
CHAPTER XIII
CONCLUSIONS
Compared with the specialized manpower resources of the United
States, the requirements of the mutual security program is small
indeed. While it is true that the highly qualified individuals the
International Cooperation Administration needs are employed else-
where, the demands of the agency are so small that it could hardly
be claimed that recruiting is impossible or even very difficult.
Rather, it is other factors, such as the temporary nature of the pro-
gram, lack of congressional and public support, program and pro-
cedural difficulties and recruiting obstacles, which affect the agency's
ability to fill positions.
If the International Cooperation Administration programs are
prominent enough in our national policy to justify the personal inter-
est of legislative and executive officials; if they are truly a method of
erecting both a defense against communism and securing a friendly
reception to American ideas-then it would appear doubly important
to secure qualified personnel to staff the projects.
The significant fact is that the agency is no longer recruiting in a
situation in which there are many technicians and relatively fewer
jobs. It is now competing in a situation in which there are many
jobs and relatively fewer technicians. In other words, to get people
of the caliber and the type necessary to do an effective job overseas,
the agency must have and be able to offer something over and above
what the technician is receiving on his present job, whether in private
industry or Government.
A primary need is a specific and clear endorsement of the program
by the Congress so that Government agencies and the business world
will encourage people to transfer to the foreign aid program.
To attract specialists from Government and private industry
additional incentives must be offered. They may take the form of
higher salaries, more liberal fringe benefits, or a new career system
which offers tenure and opportunities.
Finally, the International Cooperation Administration should be
encouraged to streamline its operating and personnel procedures to
take full advantage of such actions as the Congress may take.
146
APPENDIX
(This outline was prepared by the staff of the special committee to
serve as a guide for Louis J. Kroeger & Associates in preparation of
their report to cover subjects of interest to the committee.)
PERSONNEL FOR FOREIGN ASSISTANCE PROGRAMS
This project will examine the need for and availability of United
States personnel in the foreign aid program and the extent to which
programs and projects have been affected by either basic manpower
shortages or by existing personnel policies and practices.
I. Civilian personnel needs of existing mutual assistance programs:
A. Inventory and appraise International Cooperation Ad-
ministration present and future personnel requirements.
B. Inventory and appraise present and future contractor
personnel requirements.
II. Available personnel resources of the United States:
A. How many Americans are available in the specialized
fields described above?
B. What is the need and demand for such personnel in the
domestic economy?
III. Relationship between type and size of programs and personnel
resources:
A. Program and project planning.
B. Methods of coordinating programs with personnel re-
quirements.
C. Program scheduling and timing.
D. Adequacy of program and project control.
IV. Non-American personnel resources and the extent to which they
are used or could be used:
A. Nationals of recipient countries.
B. Third country nationals.
C. Use of United Nations or Organizations of American
States as instruments for extending assistance.
V International Cooperation Administration personnel policies and
practice:
A. International Cooperation Administration's organization
for personnel administration-how and where is per-
sonnel administration carried out, responsibility for
personnel administration, relationship of personnel
policies to that of other departments.
B. Recruitment and employment practices:
1. Present procedures.
2. Criticisms and difficulties.
3. Suggestions for improvement.
94413-57-
-11
147
148
PERSONNEL FOR THE MUTUAL SECURITY PROGRAM
C. Orientation and training:
1. Present provisions.
2. Criticisms and difficulties.
3. Suggestions for improvement.
D. Pay and compensation:
1. Present practices.
2. Criticisms and difficulties.
3. Suggestions for improvement.
E. Employee utilization:
1. Factors affecting utilization of employees.
2. Criticisms and difficulties.
3. Suggestions for improvement.
F. Employee tenure, retention, and turnover:
1. Factors affecting tenure, retention, and turnover.
2. Criticisms and difficulties.
3. Suggestions for improvement.
G. Staff development.
VI. Personnel for military assistance program:
This section would be primarily an examination of the military
services practice with respect to selection and orientation of
personnel employed in the program.
STUDY NO. 3
THE ROLE OF FOREIGN AID IN THE
DEVELOPMENT OF OTHER COUNTRIES
BY
THE RESEARCH CENTER IN ECONOMIC DEVELOPMENT
AND CULTURAL CHANGE
OF THE
UNIVERSITY OF CHICAGO
MARCH 1957
149
CONTENTS
Page
tion...
Letter of transmittal_
Summary__
I. The state of economic development in the world.
A. Measures of economic development.--
1
I
B. Capital formation and the level of economic development---
C. Levels of economic development and occupational distribu-
II. Determinants of economic development of nations_
153
155
159
159
161
162
165
A. The role of human resources as determinants in the economic
development of nations__
165
1. The quantity of population and its impact on economic
development.
166
B. Nonhuman resources as determinants of economic develop-
2. The quality of population.
ment_
1. Natural resources_
2. Agriculture and land resources…..
3. The supply of capital.
4. "Social overhead" capital_
5. Capital for the production of goods and services_
6. Capital formation and balanced growth___
C. Social, cultural, and political factors in economic development.
1. Some influences of noneconomic factors on the develop-
.168
172
172
173
1
174
1
I
I
177
179
183
184
ment process-
184
2. Social, cultural, and political change
186
III. Differences in the past patterns of economic development of different
advanced countries.
190
A. Introduction__
190
1. Some differences in development patterns of advanced
countries: Timing and resource endowment..
190
2. The role of government...
191
B. Some similarities in the development patterns of advanced
countries__
192
C. The impact of international economic relations in the develop-
ment of advanced countries...
IV The potential for economic development of presently underdeveloped
countries.
194
199
A. Introduction__
1. Differences and similarities in resource endowment___
2. Differences and similarities in governmental policies__
3. Differences and similarities in population density.
B. Development prospects in selected countries and regions.
V. The effect of foreign aid on the pattern of development in underdevel-
oped areas.
A. The role of external assistance in the development of advanced
countries..
B. Effects of different forms of direct foreign aid to underdevel-
oped countries__.
1. Direct cash grants.
2. Commodity grants...
3. Technical assistance__
4. Loans__
199
199
201
204
206
211
211
1. Limitations of private investment as a means of eco-
nomic development-
211
214
214
215
1
1
t
216
219
5. Other direct forms of assistance__
222
1
151
152
CONTENTS
V. The effect of foreign aid—Continued.
C. Indirect forms of foreign aid.
1. Stockpiles of strategic materials and commodity
agreements.__.
2. Encouragement of American private investment.
3. United States foreign trade and exchange policy…….
D. The interrelations of the pattern of foreign assistance and
effective development.--
VI. Foreign economic aid and the American national interest
Page
225
225
226
228
228
231
A. The motives of American interest in foreign economic aid_.
B. Who should receive economic assistance?.
231
233
C. How much economic aid should be given?.
D. What kind of economic aid should be granted?.
E. Conclusions...
235
236
1
238
Appendix I. Estimates of national product.
239
Appendix II. Selected statistical data on nonmonetary measures of
material welfare…….
242
Appendix III. Some statistical relations between gross national product,
gross capital formation, and the distribution of the labor force..
Appendix IV. Major divisions in appropriations and expenditures in
current United States foreign aid programs..
Appendix V. Committee staff outline…….
243
244
245
LETTER OF TRANSMITTAL
The University of Chicago, Research Center in
Economic Development and Cultural Change,
Chicago, Illinois, December 14, 1956
THE CHAIRMAN,
Special Committee To Study the Foreign Aid Program,
United States Senate, Washington, D. C.
DEAR MR. CHAIRMAN: With reference to the contract between the
Special Committee to Study the Foreign Aid Program of the United
States Senate and the Research Center in Economic Development and
Cultural Change at the University of Chicago, I have the pleasure of
submitting to you the report this research center produced.
In the preparation of the study the following personnel of the
research center have collaborated: Dr. Bert F. Hoselitz, professor of
social sciences in the division of social sciences, director of the research
center; Dr. Lionel J. Lerner, research associate of the research center;
and Mr. Robert S. Merrill, research associate of the research center.
In preparing this report, the authors have drawn exclusively upon
published sources, and there is no portion of this study in which
restricted information of any kind has been used.
I should like to repeat that we considered it a special privilege to be
selected to do this report for the special committee, and we hope that
it will meet with your approval. I shall be ready to come to Wash-
ington at any time desired by you in order to testify before the special
committee in connection with the enclosed report.
Very truly yours,
BERT F. HOSELITZ, Director.
153
1564
LETTER OF TRANSMITTAL

THE
DISTRIBUTION
UNDERDEVELOPMENT
OF
estimated national product per capita
$ 0-149
150-299
600-899
900-1199
300-599
1200-1699
2343
Base: Goode's Polar Equal-Area Projection
1000 2000
3000
miles
DEPARTMENT OF GEOGRAPHY
UNIVERSITY OF CHICAGO
AEL
1956
THE ROLE OF FOREIGN AID IN THE DEVELOPMENT OF OTHER
COUNTRIES
SUMMARY
1. The degree of economic development of the countries of the
world is measured customarily by means of their per capita annual
gross national product. Countries with a per capita gross national
product above $750 may be regarded as fairly advanced; countries with
a per capita gross national product below $300 are those most in need
of economic development. Those with a per capita gross national
product between $750 and $300 are in an intermediate stage. The
countries of North America, Oceania, and Western Europe fall in the
first category; most of the countries in Asia, Africa, and Latin America
in the second. The Soviet Union and a few scattered countries in
Central and Eastern Europe and elsewhere fall in the third category.
2. Among the characteristics of underdeveloped countries is not only
a comparatively low level of economic welfare, but also a preponder-
ance of the labor force in agriculture and a low level of capital forma-
tion. These countries have fallen behind in their economic perform-
ance because the quality of the human resources employed in produc-
tion and the quantity and kind of capital they use are far below those
employed in the advanced countries.
3. The major problem of economic growth for the underdeveloped
countries consists, therefore, in their being placed in a position of
improving the quality of their human resources and the quantity of
capital, especially "social overhead" capital.
4. Most underdeveloped countries are unable to mobilize a sufficient
amount of funds of their own to carry through a successful process of
rapid economic development. Although they are able to prevent an
actual decline in living levels, their aspirations have been aroused to
the extent that a significant improvement of living standards has
become an important objective of their policy.
5. In attempting to meet this objective, many countries in Asia and
Africa rely upon governmental action and guidance. These govern-
ments are aware of the economic progress which has been made in the
Soviet Union during the last 25 years, and are impressed by the Soviet
record. Although they are not committed to join the Soviet camp, they
would be ready to adopt coercive totalitarian policies for economic
development as a last way out.
6. These tendencies are enhanced in some underdeveloped countries
because of the social dislocations that have been initiated by the be-
ginning modernization and westernization of their societies. Many
of the Western-educated intellectuals form a newly rising group which
finds in the anticolonial, nationalist sentiments and in the aspirations
for economic advancement of these countries a sphere of action in
which they may attain or preserve positions of power. These middle-
class intellectuals provide the leadership in many political and social
155
156
SUMMARY
movements, and their attitude with respect to totalitarian methods,
though as yet by no means firm, is not unfriendly to the use of violence
if it seems to be the most effective means of social action.
7. In this situation of instability and lack of commitment, it is pos-
sible to satisfy the aspirations of many elements in underdeveloped
countries by providing them with assistance from abroad by aiding
in the process of capital formation and the improvement of the qual-
ity of their human resources. The major aspects of such an aid pro-
gram would consist in the continuation of the present programs of
technical cooperation and developmental assistance on a considerably
larger scale.
8. The general support for an American policy of extended foreign
economic aid for development is based on the following propositions:
That the United States is a country of vast and increasing
wealth, and is able to transfer substantial amounts of resources to
foreign countries not only without sacrifice to domestic living
standards, but even with continuously rising living standards at
home;
That American economic assistance to other countries, if it is
sustained and on a sizable scale, can lead to economic growth of
substantial proportions in all or most underdeveloped countries;
That the extension of American economic assistance and the
resulting economic growth will lead to politically more stable and
mature societies in the underdeveloped countries;
That successful economic development, contingent upon Amer-
ican aid, of a substantial number of underdeveloped countries,
chiefly in Asia, is likely to lead to a decrease in political tension
in the world at large by substantially reducing the chance of
Soviet political successes in that area;
That American economic aid, supporting the self-devised de-
velopment plans of underdeveloped countries, is capable of dem-
onstrating that over a period of 15 to 20 years the underdeveloped
countries are able to meet and progressively resolve their internal
problems without resort to totalitarian measures; and
That the ultimate result of this process is a likely strengthen-
ing of democratic forces in the underdeveloped countries and
that the establishment of more stable political relations in them,
coupled with their nationalistic aims, directed toward the strict-
est maintenance of political independence, will leave open to
the countries in the Soviet orbit only one rational choice: a nego-
tiated settlement with strong built-in safeguards against inter-
national violence.
9. In supplementation of this objective, it is necessary that the
United States engage in a sustained and extended program of eco-
nomic aid to underdeveloped countries. All countries outside the
Soviet orbit should be included in this aid program, even those that
are not military allies of the United States; and American aid should
under no circumstances be used as a reward for military alliances with
the United States. Moreover, since economic aid is of maximum bene-
fit if it is sustained over a period of time, some suitable measures
should be taken to insure that it can be extended on a sustained, long-
run basis.
SUMMARY
157
10. It is estimated that economic aid to the strategically located
countries in Asia, the Middle East, and Africa, if provided on a basis
large enough to achieve the objectives envisaged in this report, and
yet to be absorbed suitably by the economies of the aid-receiving coun-
tries, would run at a minimum of $2 billion per year in the early years,
but that this amount may have to be raised to approximately $3 billion
annually, that it might rise to a minimum of $5 billion annually at a
later stage, and that it would decline after that, as the aid-receiving
countries become progressively more able to sustain their own economic
development out of their own resources and savings.
CHAPTER I
THE STATE OF ECONOMIC DEVELOPMENT
IN THE WORLD
A. MEASURES OF ECONOMIC DEVELOPMENT
An analysis of the impact and potentialities of foreign aid in the
underdeveloped countries requires some insight into the present state
of economic development in the various regions of the world. Con-
siderable effort has been devoted to finding some adequate simple
measure which would indicate the overall level of economic develop-
ment of a country or region, but social scientists are by no means unani-
mous on what this measure should be, nor whether any adequate
measure of this kind is available now or could ever be made available.
Nevertheless, it has become customary to regard per capita (or aver-
age) national income or gross national product as a measure.
Per capita gross national product has several advantages as a
measure. It embraces all kinds of economic activity and hence is a
comprehensive index. In addition it is a rough measure of material
welfare, unless the distribution of income and wealth in different
countries is very different. Finally, it seems to be rather well corre-
lated with a series of other nonmonetary indicators of material welfare.
For example, if we rank countries in terms of their average gross
national product and compare that with a list of countries ranked
by some index composed of such items as food consumption; con-
sumption of textiles; availability of doctors, hospitals, and other
facilities for health; the proportion of literate persons; and other
nonmonetary indicators of material welfare, we obtain a closely par-
allel ranking of countries.
The greatest danger in using per capita gross national product as
a measure of the level of economic development of a country is to take
its absolute value as fully indicative of the spread in actual economic
performance between the countries which are compared. In general,
the data for gross national product in poorer countries are under-
valuations. Since national income or gross national product is usually
expressed in terms of money, many goods and services produced in
underdeveloped countries which are not sold for money but directly
consumed by the family unit that produced them fail to be counted
altogether, or are counted only at less than full valuation. Moreover,
in reckoning the money equivalent of commodities which are consumed
by the same unit which produces them, much processing activity that
would be included in estimates of the gross national product of richer
countries is necessarily omitted because of the lack of adequate data,
159
160
FOREIGN AID
or simply because it is impossible to estimate the value of these
processing activities. There are numerous other reasons why the
actual differences in per capita gross national product give less than
a fully accurate picture. A further source of inaccuracy is the need
to convert all national prices into a common currency, when the actual
purchasing power of a national currency in domestic markets may not
fully correspond to its foreign exchange rate. Finally, it is difficult
to estimate the value of many commodities which are sold daily in
different markets at different prices, depending upon the general state
of supply and demand, the shrewdness of the bargainers, or the par-
ticular local conditions under which a commodity is traded.
Table I of the appendix contains a list of per capita gross national
product for 1954 and 1955 in a number of countries. As can be seen
from that list, the spread is enormous. In the United States, per
capita gross national product in 1955 was $2,343, in Japan it was only
$240, and in India only $72. This does not mean that the average
person in the United States is roughly 10 times better off than the
average Japanese and roughly 30 times better off than the average
Indian. Nor does it mean that the average Japanese fared as badly
as would an American with an annual income of $240, or the average
Indian as an American with an income of $72. If we compare food
intake, for example, we find that whereas the American, on the aver-
age, consumed 3,090 calories per day in 1955, the average Japanese
consumed 2,180 calories, and the average Indian 2,004 calories. But
the differences are greater if we compare the kinds of food the Amer-
ican, the Japanese, and the Indian consumed, and if we compare the
many other items which are common household objects in the United
States but quite beyond the reach of all but the wealthiest Japanese
or Indians. Some comparisons between countries in terms of non-
monetary measures are contained in table 3 of appendix II.
Thus the value of the per capita gross national product figures does
not lie in the absolute magnitudes they display, but rather in the
rough general ranking of countries they indicate. Thus we find that
in the United States average gross national product was $2,343 in 1955;
in many Western European countries, it was around $1,000; and in
some of the more prosperous Latin American countries it stood around
$300 to $500 per year. In most Asian and African countries annual
average gross national product was, however, less than $250 in 1955.
In general, we may say that a country with an economic performance
so low as to yield less than $250 per person on the average makes much
less than optimal use of its human and nonhuman resources and is
probably capable of improving its economic performance if the proper
steps are taken. A country with so low an average gross national
product must be regarded as poor, even if a fortunate minority of its
citizens may be owners of great wealth. Such poor countries are
almost invariably economically underdeveloped countries. The only
poor countries which cannot properly be regarded as underdeveloped
are those which lie in such inhospitable climatic regions that, with
our present technical knowledge, it is impossible to make them pro-
ductive. Only icebound regions beyond the Arctic Circle, countries
in the northern tundra, and in desert regions fall into this group. In
contrast to these scarcely habitable countries, the underdeveloped
countries are usually quite densely populated and the impact of pov-
erty is experienced by a large number of persons.
FOREIGN AID
161
If we combine the per capita gross national product, data of table
I of the appendix into regional averages, we obtain the following
rough data for average gross national product for 1955 (more detailed
data may be found in table 2 of Appendix I):
United States and Canada.
Oceania__-
Western Europe (OEEC countries)
Latin America__
Near East_.
Africa___
Far East and south Asia (except China)
U. S. S. R. and European satellites--
Mainland China__
$2,300
1, 050
750
275
200
110
100
600
55
From this rough regional calculation we may draw the conclusion
that the United States, Canada, Australia, and the more highly indus-
trialized countries of Western Europe are in the class of economically
developed countries; that the Soviet Union and its European satel-
lites, as well as some of the less highly industrialized countries of
Western Europe and 2 or 3 economically leading countries of Latin
America and the Middle East (Venezuela, Uruguay, Israel, and
1 or 2 others) are in an intermediate position; and that the remaining
countries, i. e., all of Asia, Africa, the Near East, and the bulk of
Latin America, fall into the class of economically underdeveloped
countries. In terms of population figures, this means that only some
800 million, or somewhat less than 30 percent, of the almost 2,700
million persons who make up the population of the world live in
countries which have overcome economic backwardness.
B. CAPITAL FORMATION AND THE LEVEL OF ECONOMIC DEVELOPMENT
Differences in the level of average gross national product provide
only a rough measure of the overall degree of economic advancement
of a population. Fuller examination requires answers to several fur-
ther questions. Among the problems that appear to be most important
is the question of whether differences in already achieved levels of
economic development determine in some way the capacity of an
economy to grow further. A simple and unambiguous answer to this
question is not possible. On the one hand, it appears to be true that
the economically most advanced countries have shown in the past the
greatest capacity to grow, and that, in this way, the gap between
rich and poor countries, on the whole, has widened. At the same
time there are on record several cases of countries which, coming
from behind, have outdistanced those that have been economically
more advanced.
In general, we may say that a country can experience genuine
economic growth only if it can add a certain amount annually to its
productive capacity, i. e., only if it can save and invest a portion of its
gross national product which is larger than the depreciation, deple-
tion, and obsolescence of its existing capital, and which furthermore
equips each worker with a larger quantity of capital than in the pre-
ceding period. If we assume a society in which population is steadily
growing, some addition to the capital stock of the society must be made
to provide tools and equipment for the growing labor force. If this
provision is not made, the new entrants in the labor force will become
openly or disguisedly unemployed, a phenomenon about which we will
have more to say later. For the total output of an economy to grow by

162
FOREIGN AID
1 percent per year, capital investment of approximately 3 or 4 times
this amount must be made. Thus, if we assume that the annual rate of
depreciation and depletion is about 3 percent of the gross national
product, and that a population growth rate of roughly 1 percent
necessitates "demographic" investment of another 3 to 4 percent of the
gross national product, then average gross national product is not
going to increase unless a society can invest at least 6 percent of its
gross national product annually. And if population grows at a faster
rate than 1 percent per year, the share of the gross national product.
which must be invested to maintain existing standards of living must
increase correspondingly. In fact an economy can break out of the
vicious circle of poverty and underdevelopment only if it succeeds in
allocating a minimum of 15 percent of its gross national product for
capital investment. This requires a tremendous effort, and very few
underdeveloped countries actually have achieved such a high rate of
investment for any but very brief periods.
However, we can see what an important role foreign aid may play in
helping a country's economic growth, even if it is not granted in
very large amounts. This can be exhibited by an example. The cur-
rent gross national product of Pakistan is approximately $4,500
million. Its annual rate of population growth is slightly over 1 per-
cent. Hence, if Pakistan can save out of its own resources approxi-
mately $300 million annually, it can maintain the current level of liv-
ing of its population, which is admittedly very low. Capital funds
which it received in addition to this could then be applied to increas-
ing available capital, and any such funds-whether private invest-
ments by foreigners or aid granted by foreign governments or inter-
national agencies-would form a basis for raising living standards in
Pakistan. It goes without saying that the larger the amount of capital
imported, the faster will be the rate of capital accumulation, and
hence the rate of economic growth. Thus foreign aid (of certain
kinds, which will be discussed below) may exert, in some instances, a
strategic effect upon a country's potentiality for growth. Of course, if,
and to the extent to which, the people of Pakistan are unable to save
6 to 7 percent of the gross national product of $4,500 million, foreign
aid will help not in increasing the level of material wefare in the
country, but in maintaining it at the present level.
In table 4 of appendix III are contained the ratios of capital forma-
tion to the gross national product in selected couutries. It will be
observed from this list that the underdeveloped countries show, on
the whole, lower rates of capital formation than the economically
more advanced ones, although there are some exceptions. We can
confidently say that countries in which gross capital formation is less
than 5 or 6 percent of gross national product are definitely stagnating,
that countries where this ratio amounts to around 10 to 12 percent of
the gross national product are maintaining their present levels of
living, and only in countries in which the ratio exceeds 10 or 12
percent of the gross national product is there a real expectation of
economic development and rising levels of material welfare.
C. LEVELS OF ECONOMIC DEVELOPMENT AND OCCUPATIONAL DISTRIBUTION
There are, of course, good reasons why countries with a low level
of economic development show, on the whole, lower rates of capital
formation than advanced countries. Not only do these countries
FOREIGN AID
163
produce with a less efficient technology, but also they are primarily
agricultural and often largely dependent upon subsistence agricul-
ture. There is no inherent reason why agriculture should be less
productive than industry, and indeed, in an advanced country like
the United States, farming is as efficient and economical an occupation
as industry, commerce, or other service trades. But subsistence agri-
culture, characterized by very low capital intensity and very high
labor intensity, often yields only little more to a farm family than
the absolute necessities of life. Hence there is very little that can be
saved. Nevertheless, one should not underestimate the amount of
savings that can be extracted even from the poor subsistence farmers
of underdeveloped countries. It has been the function of the govern-
mental tax collector, and in his absence of the rural moneylender or
the landlord, to collect in the form of rent or interest those amounts.
that a farm.family managed to spare from consumption. But the
landlord or the rural moneylender has usually been content to spend
what he collected on consumption and has not reinvested it in improve-
ments of the land or in other forms of productive activity. As long
as these patterns of forced saving and conspicuous consumption con-
tinue, the poverty of the subsistence farmer is merely a prop for the
more comfortable life of the landlord or moneylender and does not
have its counterpart in the accumulation of productive capital. This
is one of the reasons why land reform programs are so popular and
find such wide support. But it should be noted that an indiscriminate
program of land distribution may not lead to higher capital invest-
ment either, although it may lead to a changed and more equitable
distribution of income.
In general, the growth of industry is an important factor in improv-
ing the rate of savings of an economy. It would lead too far to discuss
in detail the social and ideological conditions which tend to produce
a higher rate of savings in an industrialized society than in an agri-
cultural society. But it was the common experience of European
countries which already had rapid economic development that busi-
nessmen and industrialists tended to build up capital, whereas land-
lords-except for the relatively few "improving landlords”—tended
to engage in conspicuous consumption. Once industrialization and
urbanization takes hold of a country, the rural population-peasants
as well as landlords-tends to adopt some of the values and behavior
patterns, together with some of the technology and forms of economic
organization, of industry and to begin to accumulate capital on a
relatively sizable scale.
There is yet another reason why the rate of savings is higher in
industry than in agriculture, especially in underdeveloped countries.
In view of the predominance of subsistence agriculture and the small
scale of individual peasant holdings, agriculture has a low produc-
tivity. Industry, on the other hand, usually employs modern im-
ported machinery and uses some of the most advanced methods of
production. Hence the yield per person employed in industry is con-
siderably higher than the yield per person in agriculture. This means
that industrial wages may be higher and may enable a working class
family to save with somewhat less of a sacrifice of the necessities of
life than a peasant family. At the same time, since capital is applied
in more concentrated lumps in industry than in agriculture, the
94413-57-12
·
164
FOREIGN AID
accrual of interest to the owners of the capital and of profit to the
entrepreneurs constitute rather large funds out of which further
capital investment can be made.
For these reasons we usually find that countries with a relatively
larger proportion of the labor force in industry also can save a
higher proportion of their gross national product, and that countries
which are the wealthiest and economically most advanced usually
have only a small proportion of the population in agriculture. This
has led to the theory that economic development invariably is asso-
ciated with industrialization. Without entering into the merits of
this theory-which appears to be supported fairly well by historical
facts-we may say that, in general, an underdeveloped country has a
very large proportion of its labor force in agriculture or associated
occupations. In Asia, Africa, and the Near East, the 3 poorest areas
of the free world, between 70 and 80 percent of the labor force
are in agriculture. In Latin America, which is somewhat better off
materially, only about 60 percent of the labor force is in agriculture.
In Western Europe this proportion drops to 30 percent, and in the
United States and Canada, which enjoy the highest average gross
national product, the proportion of the labor force in agriculture is
only about 15 percent. These relations emerge fairly clearly if one
compares the first and last columns of table 4 in appendix III.
In summary, we may characterize an underdeveloped country in the
following terms: it is a country with a low level of per capita gross
national product, in monetary value usually below $250 in 1955. Fur-
thermore, it uses a relatively antiquated and inefficient technology, and
lacks extensive educational, health, and sanitation facilities. More-
over, it has shown little capacity to grow during the last three decades.
The economy is stagnating, due partly to the fact that the rate of gross
capital formation barely keeps up with the growth of population.
Finally, the population of an underdeveloped country is primarily
rural, and most of the rural people are engaged in subsistence
agriculture.
In contrast, an economically advanced country not only has a high
average gross national product, in general in excess of $1,000 in 1955,
but it also has shown the capacity to grow in the past decades and has
added, during at least a portion of its period of growth, steadily
around 20 percent of its gross national product per year to its capital.
It is predominantly industrialized, and a rather large proportion of
the population is urban. Education, sanitation, and health services
are relatively well-developed; the technology used is modern, up to
date, and rational.
Finally, there is a small group of countries which fall in between
these two extremes. They form an intermediate group and show some
characteristics of both underdeveloped and developed countries.
Usually they still have a large proportion of their population in agri-
culture, but at the same time they have a large, modern, technological-
ly efficient industry. Levels of gross capital formation vary some-
what but are, on the whole, rather high. Per capita gross national
product in 1955 amounted roughly to somewhere between $300 and
$750
CHAPTER II
DETERMINANTS OF ECONOMIC DEVELOPMENT
OF NATIONS
We have argued in the previous section that a ranking of the coun-
tries of the world in accordance with their per capita real incomes
yields several classes, among which the most significant are those with
very high and those with very low per capita incomes. We have seen,
moreover, that the level of per capita incomes roughly measures the
degree of average material welfare, and that living levels are fairly
closely correlated, on the whole, with average real incomes. Finally,
we have seen that the important differences between the countries at
the two extremes of the scale include not only differences in the real
income and material welfare of the average citizen and the difference
in the capacity to save and invest, but also different recent experience
with rapid economic growth. The advanced countries have shown a
capacity for maintaining a process of self-sustained growth, some-
times at high rates, whereas the underdeveloped countries have shown
little, if any, growth in the past, and then only in brief spurts. The
result of this has been an ever-widening gap between levels of material
welfare in advanced and underdeveloped countries, and a growing
recognition that more effort must be devoted to the study of the deter-
minants of economic growth than has been done in the past. In this
study some results have been achieved, though our knowledge of the
process of economic development is as yet far from sufficient. In part,
this knowledge was derived from a study of the past history of pres-
ently advanced countries, and, in part, from an analysis of the eco-
nomic and social impact of various strategic factors on the development
process. Although in various previous studies different factors have
been stressed prominently, it may be convenient to group them under
three general heads: (1) human resources; (2) nonhuman resources;
and (3) social and cultural factors. It should be pointed out that, in
practice, such a neat distinction is not always possible, and that espe-
cially the supply of human and also of nonhuman resources for eco-
nomic development depends to a considerable extent upon social and
cultural conditions.
A. THE ROLE OF HUMAN RESOURCES AS DETERMINANTS IN THE ECONOMIC
DEVELOPMENT OF NATIONS
In evaluating the impact of human resources on the economic devel-
opment of nations we must distinguish between their quantity and
quality. A serious deficiency of population may be an important
factor of the lack of economic growth, and, conversely, too dense a
population may also affect importantly the capacity of a country to
grow. For example, the sparsity of population on the North Ameri-
can Continent before its settlement by populations with European
165
166
FOREIGN AID
background was doubtless an important factor in its state of primi-
tiveness, and, on the other hand, "excess" population in countries like
India and Egypt is a serious bottleneck to economic development of
these countries. Moreover, under conditions of high population den-
sity, an important consideration is not only the existing number of
people in proportion to developed and developable natural resources,
but also the rate of population increase.
With reference to the quality of the population, it is not difficult
to see that the degree of health, technical training, and average educa-
tional attainment of a population are important factors in the pro-
ductivity and adaptability, and, hence, in the level of economic
development of that population. But the quality of population at
the same time affects the density of population which a given area
can support. A more highly skilled labor force can get the same out
of poorer resources or more out of the same resources than a less skilled
one. Hence, from the viewpoint of development, there is some inter-
relation between the quantity and quality of a population which must
be borne in mind, even if-for reasons of simplicity-we discuss quan-
tity and quality of population separately. Thus, in discussing the
impact of population size, we will assume that skills and technology
do not change, and will examine the influence of changing skills,
technological know-how, and educational attainment later.
1. The quantity of population and its impact on economic development
If it is granted that neither too sparse nor too dense a population may
produce optimum results, it follows that there is some number or
range of population in between the two extremes which constitutes an
"optimum" in terms of output of goods and services of a given country.
As population increases to this level, real incomes can increase faster
than the rate of population growth, since large-scale and cost-saving
methods of production become possible and overhead costs are spread
over a larger number of persons. But once population increases be-
yond the optimum point or range, further gains along this line are
outweighed by the appearance of "decreasing returns" in many types
of production. Limitations of agricultural land resources or mineral
resources will form important obstacles to further expansion of pro-
duction, so that additional workers-assuming technology and skills
to remain unchanged-will produce smaller and smaller additions to
the society's total output.
This situation is manifest today in several underdeveloped countries,
especially in South Asia and in Egypt, and contributes to the low out-
put per head of farmers and agricultural workers in these countries
and to the appearance of what has sometimes been called disguised
unemployment in agriculture. Any further expansion of the rural
population in these regions without concomitant technical change
would lead to a worsening of conditions, especially since in some
villages of India and elsewhere the minimum levels of subsistence have
apparently already been reached. It is not difficult to see that in such
a country, the crucial problem for economic development is either the
drawing away of population from agriculture, i. e., industrialization,
or the development of new and more productive techniques in agri-
culture, or indeed, a combination of both approaches. A simultaneous
need is limitation of population growth, but this is a factor about which
more will be said later.
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167
It appears that one of the most critical problems in economic de-
velopment is posed by those countries in which the pressure of popula-
tion is serious. There the methods and potentialities of foreign aid
will have to be attuned to the very difficult problems posed by the likeli-
hood of further rapid growth of population, and the serious strains
which this is likely to exert on the potentiality for economic develop-
ment.
(a) Nations with high population density and the problem of indus-
trialization. In a country in which relatively large amounts of
unoccupied natural resources are available, the major problem of
economic development is making available the capital which will
permit the geographical extension of settlement and productive
activity. This was the task faced by the United States and countries
with similar overall topographical and resource features during the
19th century. Economic development in the United States, Canada,
Australia, and other areas with relative abundance of agricultural
land, consisted in considerable part in finding ways and means of
pushing the frontier further and further into the wilderness. The
overall problem of development in countries like India, Indonesia,
parts of Pakistan, Egypt, and elsewhere is precisely the opposite.
Those patterns of economic growth which were most promising in this
country have little applicability there, and the overall relationship of
human and nonhuman resources requires the application of plans
and policies which differ considerably from those that were tradition-
ally used in the United States and countries with similar develop-
mental tasks.
An underdeveloped country with a relative scarcity of fertile land
and other raw material resources must, in order to improve its level
of material welfare, develop industries which make relatively small
demands on scarce resources and which may rely to a greater degree
on labor-intensive methods of production. Thus, manufacturing in-
dustries and service trades must be expanded, which will check an
increase in the supply of labor in the relatively overpopulated rural
sectors of the economy and at a later stage offer opportunities of
nonagricultural employment which will tend to reduce, in the long
run, the proportion of the labor force in agriculture. The most con-
spicuous example of a country in which a fair measure of economic
development has taken place, even though it was faced with a dense
and rapidly growing population, has been Japan. For this reason,
the most important lessons to be learned for the densely populated
countries of Asia and Africa come from the history of Japanese
economic development, rather than from Europe, North America, or
Australia.
(b) Effects of the rate of population growth. The problem of
development in countries with dense agricultural populations will be
easier if they can prevent population from continuing to grow rapidly.
Unfortunately, there is every likelihood that industrialization and
economic development, in general, is likely to give an impetus to,
rather than retard, the rate of population growth. Most underde-
veloped countries with proportionately large rural populations have
high birth rates, which in the past were counterbalanced in most of
them by high death rates, resulting from endemic diseases, low nutri-
tional levels, and high rates of infant mortality. One of the first
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steps in economic development is an improvement of health conditions,
with the result that death rates are reduced, whereas birth rates remain
at their customary high level for some time. An additional agent
counteracting the maintenance of high death rates in developing
countries is the improvement in transportation, since a major reason
for past famines has been the local unavailability of foodstuffs, rather
than their general scarcity.
The factors determining birthrates lie in large part outside the
field of economic relations, and include various cultural and religious
views and beliefs. Such practices as birth control or other means
of reducing the incidence of conception or birth, and rules concerning
the customary age of marriage, as well as customs relating to extra-
marital sexual abstinence, are normally regulated by the legal and
cultural systems of a society and, for this reason, are only to a small
extent influenced by economic or social policy. In some underde-
veloped countries, however, as infant mortality has been reduced,
signs of a desire for smaller families, or at least fewer births, have
been noted. In such countries, the teaching of birth-control
methods or the establishment of birth-control clinics may serve an
important function. If the experience of the more advanced countries
can serve as a guide, the rising trend of births associated with the early
stage of economic development and industrialization tends to subside
after a time, and both birth and death rates tend to level out at a lower
level than before. Clearly, in countries in which population pres-
sure is already high, it would ease the problem of economic develop-
ment if the period during which high population growth rates prevail
could be shortened. But attempts to attack this problem directly,
i. e., through an effort to influence the number of births, encounter
strong objection and even if made, would probably not be successful.
The attainment of rapid economic growth and rapid urbanization
may bring in their wake a decline of the birthrate. Thus the appli-
cation of foreign aid to the development of industry, and especially
urban industry, may be the most effective method by which foreign
aid can become a factor in this aspect of economic growth.
2. The quality of population
(a) Problems of the quality of the human factor. Next to the
sheer numbers of people, the skills and technical competence of the
labor force is an important determinant of the potentialities of eco-
nomic growth. In part this depends upon the regularity with which
employment opportunities and a labor market for personnel with
certain skills are provided, and in part upon the system of education
and vocational training, as well as professional training available to
the population of a country. It is usually said that the labor prob-
lem is the least serious problem in underdeveloped countries and that
there is an abundance of labor available. This is true in many under-
developed countries, and especially so if we speak of unskilled labor.
But it should be noted that the efficiency, and hence the quality, of
unskilled labor in many underdeveloped countries is often adversely
affected by low nutritional standards and the prevalence of disease.
The early introduction of programs designated to eradicate endemic
diseases and to improve public health in general is a common feature
in most governmentally sponsored development plans. However,
FOREIGN AID
169
unless measures designed to improve conditions of health are accom-
panied by complementary measures designed to increase the food sup-
ply and productive output in general, many of the old diseases may
be replaced by new ones or, in some extreme cases, the old diseases
may return again. This dilemma does not apply to such measures as
malaria control, which result in higher output even without taking
other measures, since it permits the cultivation of land which pre-
viously was unused because of disease hazard.
There has been a considerable amount of foreign aid in the fields of
control of disease and general public health. On the whole, these
programs are cheap, and the results are striking. The World Health
Organization has developed a series of quite efficient techniques
in the control and eradication of endemic disease and in technical
aid with public health programs. The United States has had
some excellent success with health and sanitation programs in Latin
America, where these programs were administered chiefly by servicios
staffed largely by personnel native to the aid-receiving country. An
account and evaluation of these programs appears in Ten Years of
Cooperative Health Programs in Latin America (U. S. Public Health
Service, Washington, 1953). Health programs on a similar scale have
also been undertaken in other parts of the world on the basis of bi-
lateral agreements, by the World Health Organization, and by private
philanthropic and religious organizations. They have become an im-
portant ingredient of foreign aid programs.
(b) Skilled labor and professional services.-The overall effect of
health and sanitation programs has been the improvement of the
quality of labor in underdeveloped countries. They have also con-
tributed to the quantity of labor (and population in general) by saving
lives, especially by reducing infant mortality, and by extending the
life span of individuals. Thus the advantages of health programs
have been counteracted in a strictly accounting sense, in that on the
one hand they improved the productivity of the human factor, but on
the other they caused an increase in the number of people in unpro-
ductive ages (children and old people) whose consumption needs must
be provided for by the labor of the actively employed working
population.
Equally important with the improvement of health has been the
improvement of the quality of labor by means of education and spe-
cialized training. In order to discuss the role played by labor of
various skills and kinds in the process of economic development, it is
useful to distinguish between the following types of labor services:
(1) skilled manual labor; (2) white-collar workers and labor in
administrative services; and (3) professional services, including the
services of persons employed in educational institutions.
We are omitting here mention of the problem of eradicating illit-
eracy. The main burden of technical aid in literacy programs in
underdeveloped countries is carried by the United Nations Educa-
tional, Scientific, and Cultural Organization, which has developed
a worldwide series of training programs for elementary education
and the abolition of illiteracy. There is no question that literacy
is an important factor in an improved labor force, but fundamental
education is so basic that apart from UNESCO programs, this is
a matter normally left to national governments and their agencies.
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FOREIGN AID
The United States maintains, however, some fundamental education
programs in several Far Eastern countries. Of equal importance is
the widespread activity sponsored by the United States in the field of
agricultural extension services.
With reference to the three categories of skilled labor services which
were listed earlier, experience has been that it is, on the whole, easiest
to train skilled manual workers. In many instances this training has
been left to the industry or firm itself, and on-the-job training pro-
grams have produced, on the whole, very good results. In general
the supply of skilled manual labor has not been a serious bottleneck
to economic development. In some instances schools concentrating
on vocational training have been established, and in other cases schools
for mechanics have been provided by some form of foreign aid. Many
of these special schools teaching manual skills concentrate, however,
on the training of very highly skilled operators, and in some instances
on training in artistic or semiartistic handicrafts.
A more serious problem for economic development is the supply of
white-collar workers, administrators, and especially, certain classes of
managerial and administrative personnel and technically trained pro-
fessionals. There is no question that the need for people with these
skills grows commensurately with capital investment. Moreover, the
increasing scope of governmental services in developing countries
requires a supply of Government workers and administrators; the
growth of urban centers requires the services of municipal workers;
and the development of industrial and large-scale enterprises in gen-
eral makes imperative the employment of managerial personnel from
top management down to foremen and shop supervisors. It is labor
of these grades which is usually in short supply in underdeveloped
countries. Moreover, even in those countries in which there is no
dearth of persons with a modicum of advanced education, these people
often specialize in law or certain liberal arts and shy away from pro-
fessional or semiprofessional jobs in public administration, business,
or industry.
Technical assistance has played an important role in the field of
qualitative improvement of this type of labor in underdeveloped
countries. In the field of public administration, technical aid has
contributed by means of projects which included the setting up of
training institutes for public administrators. Foreign experts from
advanced countries have accepted positions as advisers to governments
and municipalities, as well as to private organizations in business and
other fields, and have helped develop rational programs of adminis-
tration as well as train native administrators for new tasks. Ex-
change of persons programs and the availability of training oppor-
tunities in the United States for public officials and others from
underdeveloped countries have also been projects with similar objec-
tives. A recently established Economic Development Institute at
Vanderbilt University, attended by selected administrators and of-
ficials from underdeveloped countries, is one instance of the provision
of such a program for better qualified public servants supported by
the International Cooperation Administration.
Technical assistance has also been successfully applied to the im-
provement of labor services in special fields of professional compe-
tence. The availability of fellowships for foreign students in the
FOREIGN AID
171
United States in various fields, but more especially in different
branches of technology, medicine, science, and many other branches
of knowledge, has been an important factor toward this end. Some
of these fellowships were made available by private institutions,
foundations, and schools, but a large number were also provided by
international organizations and various agencies of the United States
Government. We shall return to the overall evaluation of this aspect
of foreign aid in a later section of this report.
One of the crucial shortages in underdeveloped countries of a quasi-
professional nature is the general lack of entrepreneurial and mana-
gerial personnel. Modern production, and especially large-scale pro-
duction, requires a proportionally larger number of managerial per-
sonnel than small-scale manufacturing. The sheer number of em-
ployees, as well as the high value of the machinery and other equip-
ment installed in a modern industrial process, require a greater degree
of coordination, checking, and supervision than the employment of
similar numbers of workers on a small scale. Moreover, large-scale
production also demands a greater degree of specific training on the
part of its managerial personnel than is true of the entrepreneur who
operates a small shop. Some comparative studies of the steel industry
in the United States and selected European countries have shown that
the relatively greater number and more extensive specialized training
of American managerial personnel may be responsible in considerable
part for the considerably greater output of American, as compared
with European, steel plants of similar size. Similarly, some tentative
conclusions reached in a comparative study of American and Egyptian
cotton manufacturing plants seem to show that the superiority of the
American plants is not due to better capital equipment, but rather to
a more productive labor force and, equally important, to more numer-
ous and more highly skilled managerial personnel.
This indicates that the shortage of adequately trained managerial
personnel is an important bottleneck in economic growth and that
educational and training facilities must be made available in order to
achieve effective economic development, not only to increase the avail-
ability of public officials and administrators, but also of industrial,
commercial, and other business managers. To be sure, some business
and commercial managers are trained like skilled workers, on the job.
But these men usually have few of the technical competences which
make for good management. These deficiencies can be made up only
to a small extent by providing training in universities, colleges, and
other institutions of higher learning in the advanced countries. They
call ultimately for a complete remodeling of the systems of higher
education in the underdeveloped countries themselves. It would lead
us too far to go into a detailed examination of the changes in educa-
tional policies which are necessary, but one may say in brief that one
of the most indispensable tasks appears to be strengthening higher
education in medicine, science, and technology, and administration,
economics, and business management. Only an increased supply of
persons well trained in these fields can make an underdeveloped
country independent of recurring needs for experts in these fields from
abroad.
In several underdeveloped countries, particularly in those where,
owing to the fear of Communist aggression, large armies are main-
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tained, a substantial number of skilled workers and administrators are
drained into the army, thus adding to the shortage of these persons in
the civilian economy.
B. NONHUMAN RESOURCES AS DETERMINANTS OF ECONOMIC DEVELOPMENT
We now turn to a brief discussion of nonhuman resources and
the role they play in the process of economic development. Here
several distinctions must be made in order to arrive at a better under-
standing of the factors affecting economic growth. First we must
distinguish between natural resources and manmade nonhuman re-
sources, or capital. Secondly, we must distinguish between capital
installations which form social or general economic overhead, and
those which are directly applied to the production of a specific com-
modity or service. And thirdly, we must distinguish between re-
sources employed in different branches of production, notably
between primary production, i. e., the production of raw materials
in agriculture, fishing, forestry, and mining, and secondary produc-
tion, i. e., manufacturing, industry, and the output of various services.
1. Natural resources
Among natural resources must be counted all those free gifts of
nature which exist independently of the exertion of man. To be sure,
what is a natural resource will depend upon available technological
and scientific knowledge. For example, before the discovery of the
process of nuclear fission, uranium ores were a much less valuable
natural resource than at present, and for this reason many uranium-
bearing deposits remained unexploited. Similarly, at a certain level
of technological knowledge, some of the low-content mineral ores are
just so much rock, whereas with greater technological knowledge
these same "rocks" may become valuable natural resources.
A further point which must be understood about natural resources
is that the mere presence of a natural resource is irrelevant for eco-
nomic development so long as it is beyond reach, i. e., until access
to it has been established. For example, the iron-ore deposits in
Labrador did not contribute to the economic development of Canada.
until they had been made accessible by the establishment of transport
and communications facilities to the region where these deposits were
found.
Finally, we may say that only those objects are resources which
are known. As long as some of the most precious ores are undis-
covered, they are not resources, and a man owning a piece of land
in which they are discovered later, may give it away for a pittance.
The object of geological and general land surveys an important
aspect of technical assistance-is then to determine the full endow-
ment of natural resources of an underdeveloped country.
This means that the amount and the kind of natural resources at
the command of a given society are to some extent under the control
of that society. The building of an irrigation system or the drainage
of a swamp which result in the increase of agriculturally usable land
are controlled operations adding to the amount of natural resources
available. Since this land has been gained by manmade works, it
would be difficult to maintain that it is an entirely free gift of nature.
Hence, a considerable number of resources, which are commonly re-
FOREIGN AID
173
garded as free gifts of nature, are on the borderline of manmade
resources, and it is chiefly due to their similarity to other resources
which are freely available that they are classified together with them.
It need not be pointed out that the quantity and kind of natural
resources available to a country are important determinants of the
kinds of industries that can be established there. In discussing this
problem somewhat more in detail, it is useful to distinguish between
two kinds of primary (or extractive) activity. First there is agri-
culture, and some associated occupations such as fishing or forestry
if carried on on a small scale. Secondly, there is mining and forestry
if carried on in the form of large-scale exploitations. This distinc
tion is of special importance for underdeveloped countries, since the
typical unit of agricultural output there is small and uses a rather
primitive technology. At the same time most mining operations in
underdeveloped countries, as well as the exploitation of some of their
forest resources, are carried on by means of modern technology, em-
ploying often large-scale machinery and resembling on the whole, in
the technology employed and the organization preferred, modern in-
dustry. For this reason we shall discuss first agriculture by itself,
and will include our discussion of mining and other modern rational-
ized extractive productions as a branch of industry.
2. Agriculture and land resources
Since most underdeveloped countries are predominantly agrarian,
the availability of usable land resources is an important determinant
of the level of economic performance in these countries. Whether
or not land is usable for agriculture depends not merely on its fertility
and its accessibility, but also on the climate and especially the amount
of rainfall in a given territory. Since man is as yet unable to control
climate in any significant manner, land which would otherwise be
productive but is poor in moisture is unusable agriculturally unless
irrigation installations, often large-scale, are made. The immense
importance to a country like Egypt of an installation like the High
Dam at Aswan lies largely in the increased supply of agriculturally
usable land that this dam would provide, although, like most irriga-
tion works, it would also have additional benefits, such as flood con-
trol, improvement of navigation, and so forth.
We see from this that the amount of natural resources which are
available to a society depend only in part on the free gifts of nature,
and that in those cases where, owing to natural conditions, there is
a scarcity of certain resources, including agricultural land, the amount
of the resource available to this society can be increased by suitable
capital installations. Thus, if nature has treated a country relatively
niggardly with respect to land, the amount and quality of land can be
increased by drainage, irrigation, terracing, and the application of
fertilizer. If the ore resources of a country consist of low-grade ores
only, technological processes which enable us to extract metals from
low-grade ores may be applied. If certain raw materials important
for the supply of power-as for example, coal-are scarce, alternative
power resources such as waterpower can be exploited. In all these
cases the resource deficiency can be made up to some extent by capital
installations of various forms. It is, of course, granted that these
applications of capital, i. e., manmade installations, can replace de-
ficient resources only within limits, and that absent resources-
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FOREIGN AID
especially certain minerals and agricultural raw materials whose pro-
duction depends upon special climatic conditions-must be imported.
It should also be pointed out that an important and, in fact, often
decisive factor in the substitution of capital installations for a quali-
tative or quantitative deficiency of natural resources is the cost of
creating the capital. Often poor and deficient resources continue to
be used because the funds for capital formation are not available and
the country which has poor resources is, for this very reason, unable
to form capital rapidly on its own. The role which foreign aid can
play in this process is obvious. In fact, foreign aid applied to the
creation of basic capital resources is one of the oldest and tradition-
ally most widely approved functions of foreign aid.
But the important fact to bear in mind is that under conditions of
modern technology, the dependence of a given economy upon naturally
given resources is much less than would be the case under more primi-
tive technological conditions. Since many underdeveloped countries
still employ rather primitive technologies, their agriculture and other
extractive industries depend heavily upon natural conditions. But
the application of modern technological and scientific knowledge
allows them to depart from time-honored but old-fashioned and in-
effective methods of production and to use their natural resources
in the production of new products. It is in this field of applying
modern technology to an improved use of natural resources that
foreign aid programs can contribute and have actually contributed.
Among the specific types of projects which may be and have been
undertaken by the United States, the United Nations, and some of
its specialized agencies (notably the Food and Agriculture Organiza-
tion) are the following: resource surveys (both of land and agricul-
tural resources and of minerals), land clearance, irrigation projects,
drainage and other forms of land reclamation projects, surveys of
fishery resources, and surveys of forest resources. These programs,
especially the agricultural programs, are supplemented by programs
designed to affect the quality of the human factor engaged in agri-
culture, and also to supply manmade capital to agriculture. The first
objective is served by projects designed to help establish agricultural
extension services and by agricultural research projects; the second by
foreign aid programs supplying agricultural machinery, fertilizer,
improved seeds and/or animals, and new crops.
3. The supply of capital
It has been argued that with increasing technical knowledge the
dependence of an economy on naturally available resources becomes
less, and that scarcities in these naturally available resources can, to
a certain degree, be counteracted by the application of capital. It is
often said that the lack of adequate amounts of capital is the chief
bottleneck to economic advancement, and a good deal of foreign eco-
nomic aid has been looked upon chiefly as supplying capital to under-
developed countries, either in the form of private investments or in
the form of loans or grants from private, governmental, or interna-
tional institutions located outside the underdeveloped countries re-
ceiving the loan or grant. One may also regard the disposal of sur-
pluses or the making of grants in the form of commodities-practices
which the United States has used widely in its foreign aid program-
as measures contributing to the formation of capital in underdeveloped
FOREIGN AID
175
countries. This is because to the extent to which these countries re-
ceive the surplus commodities, they can divert resources to the forma-
tion of capital which they otherwise would have had to employ in the
production of substitutes for the surplus commodities or commodity
grants.
Nevertheless, although capital imports in various forms from abroad
make up an important factor in foreign aid, few if any underdeveloped
countries experience any genuine economic growth unless they them-
selves participate substantially in the formation of their own capital.
Successful economic development, as we have argued before, means
the attainment of a level of economic performance which makes self-
sustained growth possible and practicable. But self-sustained growth
requires the constant accumulation of capital, and for this reason the
stage of underdevelopment is not successfully overcome until a country
has been put in a position of providing the bulk of its own capital
needs from its own savings.
The major way in which capital can be formed domestically in un-
derdeveloped countries (as in any other economy) is by saving. When
we talk about saving, we do not mean the mere putting aside of a cer-
tain amount of income each payday—although this is an important
personal habit to be formed on the part of many income recipients
in underdeveloped countries-rather we mean the appearance of real
savings, i. e., of a situation in which consumption remains behind pro-
duction, so that the difference can be applied to capital formation.
(a) Capital formation and inflation in underdeveloped countries.-
Real saving may either be voluntary or forced, and forced saving may
be achieved either by fiscal measures or inflation. We do not propose
to discuss these differences in detail, for they lie somewhat off our
main trend of argument, but it should be pointed out that the attempt
to obtain real savings by means of inflation in an underdeveloped
country often has very undesirable consequences. Its main danger
is that it will discourage the kind of investment most needed for eco-
nomic development. By creating a lack of confidence in the currency
inflation causes savings to be diverted into land, hoards of gold and
jewels, and speculative holdings of commodities, foreign exchange,
and even luxury apartments as a hedge against inflation. In this way,
productive investments which would yield much needed real returns
are starved for funds. Moreover, inflation tends to bring about a re-
distribution of income in which unskilled labor and the recipients of
pensions and other fixed incomes suffer, whereas skilled labor and busi-
nessmen in general gain. Since income distribution is already quite
unequal in underdeveloped countries, the enhancement of inequalities
through inflationary trends is likely to lead to discontent and its pos-
sible expression through political propaganda of a radical kind.
This redistributive aspect of inflation is its chief attraction as a
means of capital formation. If prices rise more than wages and other
incomes, consumption will be curtailed and more resources will be
available for capital formation. But this theory is of questionable
validity. In an underdeveloped country with a substantial propor-
tion of the population in subsistence agriculture, inflation will have
little effect upon this part of the population. Moreover, though it
may lead to some additional investment which without inflation would
not be forthcoming, its disadvantages, notably its impact on misalloca-
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FOREIGN AID
it is generally said that its provision is one of the first tasks of eco-
nomic development. But in view of the increased functions taken
on by governments in many underdeveloped countries, there has been
some doubt as to what kinds of capital installations fall under the
heading of social overhead and which ones do not. We will limit this
concept for purposes of this paper to include two kinds of installa-
lations: (1) Buildings and other capital installations which serve di-
rectly the orderly performance of govenmental tasks, including public
buildings, schools, museums, public recreational facilities, hospitals,
and a number of municipal institutions, such as fire stations and
sewage-disposal plants. These installations will be designated as social
overhead in the narrow sense. (2) In addition, there is social overhead
in the wider sense, or economic overhead, as it has sometimes been
called, which consists of capital installations in such fields as the
provision of power (electric power stations), transportation (roads,
railroads, airlines, harbors, and shipping lines), and communications
(telephone, telegraph, and radio), which are under the management
and general care of the government in most underdeveloped countries.
Social overhead installations include, therefore, all those forms of pro-
ductive capital which may be included under the concept of public
utilities in the widest sense of this term.
The shortage and inadequacy of social overhead capital usually is
an important bottleneck to economic development. Although during
the 19th century a not inconsiderable amount of private foreign invest-
ment went into the provision of social overhead capital items, espe-
cially railroads, private investors at present are reluctant to finance
the construction of this capital. It has also become increasingly diffi-
cult for governments of most underdeveloped countries to raise loans
on the international capital markets which will enable them to provide
these capital items. To some extent the International Bank for Recon-
struction and Development has made loans for the purposes of over-
head capital construction in underdeveloped countries, and so has the
Export-Import Bank. But the need for funds for this type of capital
outlay is greater than can be raised through the customary channels,
and thus the governments of underdeveloped countries have spent a
sizable amount of their revenue on overhead capital construction.
The fundamental role played by social overhead capital is due to the
so-called external economies which accrue to a society through its
existence. A country which is without adequate communications and
transportation facilities suffers from inadequacies in resource alloca-
tion. Important raw materials in one part of a country cannot be made
available to another where they could be used. Shortages of food or
other necessities in one part of a country cannot be remedied by ship-
ments from other parts, for the intervening transport facilities are not
available.
Similarly, the availability of power is an indispensable prerequisite
of industrialization, and also of urbanization. But in spite of their
basic importance for economic development, the rate of return on most
overhead capital items is very low. To be sure, overhead capital is
normally very durable, but it becomes amortized only over a long
period of time. It represents, therefore, a considerable amount of
resources immobilized for a long time which only pay off at a very
slow rate. Whereas an industrial plant in an underdeveloped country
FOREIGN AID
179
may pay off its cost of original construction and equipment in a few
years, a road or a railroad may not pay off for 15 years or more. And
if the cost of construction of such an installation is high (because of the
difficulty of the terrain over which it goes), it may not be paid off in
even a longer time.
The great initial capital outlay required for most installations of
social overhead and the slow rate of return make it virtually imperative
that such capital items be provided for and owned and operated by
the Government. This puts a serious strain on Government budgets
and also increases the administrative load on the Government. In
another direction, it permits the Government to exercise more eco-
nomic power and, in fact, forms the basis of governmentally designed
development plans. Since the objectives of governments in under-
developed countries are not merely the furtherance of economic wel-
fare, but also include political and military ends, a certain amount
of social overhead capital is employed not for purposes of economic
growth but for strategic or political purposes. Much has been said
and written about the "modern equivalent of pyramids" in under-
developed countries, and it is admitted that such installations often
represent a misallocation of resources from the viewpoint of optimum
economic growth. The construction of capital installations which have
little or no economic significance at least in the short run-is one
of the unfortunately indispensable forms of waste which any country,
whether rich or poor, engages in for social or political purposes. The
role of foreign aid in this field can at best be to attempt to restrain
excessive expenditure for "pyramids" and to try to channel funds
provided by foreign aid into productive equipment. But it would
be vain to expect that waste can be entirely eliminated in develop-
ment programs. The worthiness or unworthiness of a country to re-
ceive foreign aid should not be judged upon whether or not it manages
to avoid all waste in its capital construction programs.
5. Capital for the production of goods and services
If, as we have seen, a large proportion of capital formation in under-
developed countries is in the field of construction (of roads, dams,
plants, and buildings), and if, under the circumstances of scarcity of
savings and the need to use large amounts of capital in construction
projects, the majority of these must be performed by governments,
the overall scope for private enterprise in underdeveloped countries is
limited to capital formation in manufacturing, agriculture, mining,
commerce, and certain service industries.
Even in these fields, government intervention and various forms
of direct or intermediate planning are frequent occurrences in many
underdeveloped countries. But, with the exception of the countries
under Communist domination, a large sector of these branches of pro-
duction is left to private initiative. To be sure, developmental plans
often concern themselves with industrial growth, and in particular
with the establishment of heavy industries, both because of their
relatively large capital requirements and their potential or actual
military and strategic importance. But planning, even in this field,
is often indirect; government construction is usually called for only
in those instances where a deficiency of private capital formation is
expected or foreseen.
94413-57-13
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FOREIGN AID
A favorite device employed by many underdeveloped countries to
integrate industrial and commercial development under private ini-
tiative with overall governmental developmental plans is the setting
up of a development corporation (or similar institution, sometimes
called by various euphonious names.) A development corporation is
the equivalent of an investment bank, except that it is subject to vary-
ing degrees of public supervision and receives a part of its funds from
the government or through the intervention of the government. Its
board of directors is often composed, at least in part, of government
appointees, and in some cases even of high officials from various minis-
tries concerned with economic affairs or from a central planning com-
mittee. The function of the development corporation is to provide
loan or equity capital to private firms which it is desired to set up
under the development plan, but for which insufficient funds are forth-
coming from private sources. Financial subsidization of a develop-
ment corporation is often a convenient form of foreign aid. For ex-
ample, the International Bank for Reconstruction and Development
and also the Export-Import Bank have granted sizable loans to de-
velopment corporations in some underdeveloped countries with the
understanding that the funds so received would be used for the fur-
therance of certain forms of industrial investment. It appears that
the presence of a development corporation in an underdeveloped coun-
try and its role as recipient of foreign loans are more suitable to foreign
aid extended by banking institutions like the International Bank for
Reconstruction and Development or the Export-Import Bank than
to foreign aid extended by governments. It should be noted, however,
that in all those cases in which loans from abroad are channeled
through development corporations in an underdeveloped country, the
lending agency will usually be concerned with the overall development
plans and potentialities of the underdeveloped country. Thus a pre-
requisite of this kind of foreign aid will be a general survey of the
developmental prospects of an underdeveloped country of the kind as
have been undertaken by the International Bank for Reconstruction
and Development. Such general surveys will contribute, at the same
time, to the better planning of development sequences in the under-
developed country itself, and hence will provide better guidelines for
the optimum strategic application of foreign aid of different forms.
It appears that an eminently suitable task for technical assistance
teams, whether sponsored by an international agency or by the United
States Government, is to carry through an overall survey of the
developmental prospects of an underdeveloped country, and such sur-
veys have actually been made by the United Nations, some of its spe-
cialized agencies (notably the International Bank for Reconstruction
and Development), and also by United States technical assistance.
missions.
The intervention of a development corporation is usually not re-
quired in those fields of production in which private funds are applied
to capital formation in sufficient quantity. However, the complete
absence of regulation and a perfectly free market in capital may some-
times lead to undesirable investments. In underdeveloped countries,
as well as elsewhere, the fields into which capital flows will depend
upon a series of factors, among which the expectation of maximum
profits is one of the most important. But what matters to the private
FOREIGN AID
181
investor-and we are here concerned with the private investor in an
underdeveloped country investing his savings (or those he has col-
lected from others) in some enterprise in his own country-is the net
amount of profits, i. e., gross profits discounted by some premium for
risk and other costs of holding an investment. Under these circum-
stances most investors in underdeveloped countries will often give high
preference to those commodities and forms of capital or enterprise
which are relatively liquid, or which yield a relatively high return with
a minimum amount of investment in fixed capital. This attitude, as
well as the circumstances they face, accounts for the relatively wide-
spread habit in most underdeveloped countries of investing one's
savings in land or urban real estate, or of holding them in cash, pre-
cious metals and jewelry, or even foreign securities. Moreover, if
savings are invested in actual enterprises, some investors in underde-
veloped countries prefer certain forms of traditional enterprises which
are known to yield high return. Hence investments are made in small
loan companies which lend at excessively high interest rates; in pawn-
shops, which profit from a similar mechanism; or in certain forms of
commercial transactions in which the investor can exploit some local
monopoly situation, or even some national monopoly situation, espe-
cially if he can command some political support.
A considerable amount of private investment in many underde-
veloped countries thus would flow into productive activities which are
highly profitable from the individual viewpoint of the investor, but
which contribute little to fundamental economic growth. Another
portion of funds potentially available for investment in productive
enterprises will be hoarded or exported (in the form of purchase of
foreign stocks or foreign cash balances), and in this way be lost to the
improvement of the capital equipment of the underdeveloped country.
It is not our intention to suggest that all available savings are allo-
cated or hoarded in this fashion, and investment practices by private
individuals in some underdeveloped countries deviate markedly from
this pattern. But in all underdeveloped countries there occur "leak-
ages" in the process of capital formation, either in the form of hoard-
ing, capital export, or investment in enterprises in which private bene-
fits vastly exceed social benefits. In a country in which there is an
abundance of investable funds, this leakage is not serious. Moreover,
in countries with a large amount of capital, a relatively small propor-
tion of such leakages do occur. In a country in which the scarcity of
capital presents one of the most important bottlenecks to economic
development, the appearance of such leakages can be crucial. Recog-
nition of these leakages has led to private investment being somewhat
discredited, as well as to an insistence on a greater degree of govern-
mental intervention in the process of capital formation than in eco-
nomically more advanced countries.
As we have seen, the reasons for these leakages are in part based
upon economic considerations, i. e., the expectation of private gains.
and the difference between private profit and social benefits; the
desire for a high degree of liquidity; and the relatively high discount-
ing for risks and uncertainties. In the last resort, some of these fac-
tors can be reduced to the prevalent social, cultural, and political con-
ditions prevailing in underdeveloped countries, and we shall return
to this point further below in this paper.
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FOREIGN AID
A final point should be raised in connection with private capital
formation in underdeveloped countries, and that is its relationship to
income distribution. In many of the presently economically ad-
vanced countries, a large proportion of capital formation took place on
the basis of private initiative. It has been said that this was possible
because in the industrialization process the poor became even more
impoverished and income accumulated in the hands of enterprisers
who invested it in the expansion of capital plant. Although statis-
tical studies on income distribution during the industrial revolution
are far from conclusive, it appears that this interpretation is false.
The poor neither became poorer absolutely, nor relatively, and in fact,
to the extent to which capital was accumulated and contributed to a
raising of productivity and output, the laboring classes participated
proportionately in this increase of economic performance. What
appears to be true, however, is that the relative share of income of
laborers did not change much and that, therefore, the overall distribu-
tion of income between workers and owners of capital remained rela-
tively unchanged.
It is likely that a similar relationship will persist in an under-
developed country if continuous private capital formation from do-
mestic sources is to take place. Since laborers normally save a smaller
proportion of their income than the wealthier receivers of income
from property or enterprise, a redistribution of income from the latter
to the former would reduce the society's capacity to save, and hence
to accumulate capital at a constant or increasing rate. At this point,
however, an important political consideration enters. In many under-
developed countries, there are strong political movements favoring not
only social equality, but also greater equality of economic status and
opportunity. Often these political movements are associated with
local Communist propaganda, but in many instances they are inspired
by genuine egalitarian welfare considerations and are free from Com-
munist influence. However, their presence, whether Communist-
inspired or not, imposes upon the government policies which tend to
favor distribution of income from the wealthier classes to the poorer
classes, especially to the more vociferous, more urban, and more com-
pactly organized industrial workers. Thus an underdeveloped coun-
try which relies to a large extent upon private capital formation may
find itself between Scylla and Charybdis. On the one hand, the re-
quirements of speedy economic development, and implicitly with this
the long-run improvement of mass living standards, appear to demand
the preservation of existing inequalities in income distribution,
whereas the political demands of the workers call for the mitigation
and possibly the complete eradication of these inequalities in income.
In this dilemma there are three possible ways out. One is the in-
creasing substitution of government enterprise for private enterprise,
and another is the attempt to attract foreign capital as a substitute for
private domestic capital formation. Yet, in underdeveloped countries
with vociferous radical movements (whether Communist or not) there
is an understandable reluctance of private capital to move in. Hence
a difficult problem may be posed for a governmental foreign aid pro-
gram in judging the extent to which commitments to extend foreign
aid to such countries should be undertaken. On the whole, it would
appear preferable for part of foreign aid-if it is decided to grant it in
order to avoid forces of social disorganization and disturbance from
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183
becoming stronger-to be granted in the form of transfers of consumer
goods rather than in the form of capital investment. These consumer
goods can be applied to raising mass living standards, and to this
extent a somewhat greater equality of material welfare between the
richer and poorer classes in the underdeveloped country may be
achieved. Many higher incomes in underdeveloped countries are de-
rived from landholding, monopoly profits, and political favoritism,
activities that do not serve as incentives for the recipients of these
incomes to engage in capital formation. A third way out of the
dilemma may be redistribution of income through taxation-by re-
ducing incomes of these kinds and supplementing those of persons
actively engaged in capital formation. This would also provide an
impetus for private enterprise. Thus, private initiative in capital
formation is not seriously impaired, and if a more or less temporary
period of protest can be weathered, the long-run economic develop-
ment of the underdeveloped country stands a better chance of proceed-
ing in an orderly fashion than if this initiative is killed off and invest-
ment is gradually taken over completely or almost completely by the
government.
6. Capital formation and balanced growth
We have previously discussed the possible wastes or leakages that
may occur in underdeveloped countries, either under a system of public
or under one of private investment. In the area of public works these
wastes consist of large capital installations which do not have any
obvious and real short-run effects on productivity; in the area of pri-
vate investments these leakages consist of hoards, capital exports, or
investments in such fields as luxury hotels and night clubs, in which
private profit exceeds social gains from the investment. But even a
system which avoids or minimizes both these types of relatively unpro-
ductive investment may not lead to economic development if capital
formation in the various sectors of the economy is in serious imbalance.
For example, as we pointed out earlier, a program improving health
and sanitary conditions in an underdeveloped country with relatively
dense population should be accompanied by a program designed to
raise either food production or production in other than agricultural
occupations, since otherwise the additional population would face
serious deficiencies in the necessities of life. Similarly, a program of
industrialization must be properly balanced by measures improving
agricultural output and the supply of power. Moreover, the develop-
ment of new agricultural or industrial enterprises must be accom-
panied by the construction of the required means of transport and
communications, since otherwise the various newly developed resources
remain isolated from one another and an optimum division of labor
between the various newly created capital installations cannot be
achieved. In addition, as we have seen, the process of capital accumu-
lation, especially the growth of large-scale enterprise, demands a simul-
taneous increase in the supply of trained managers; and increased
governmental duties and prerogatives in the economic field as well
as the process of urban concentration of a larger proportion of the
population calls for an increase in administrative personnel and
public servants in general.
What we have done in the preceding paragraph is nothing else but
spelling out the fact that economic development is a process which,
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FOREIGN AID
if it is to succeed in establishing permanently higher levels of welfare
and an economy which proceeds by self-sustained growth, requires a
certain balance between its many facets. The reason for overall coun-
try surveys is to determine the relative weights which these various
factors have given the resource endowment, population densities, skills,
wants, and requirements of a particular economy. It is, therefore,
wrong to look merely to industrialization as a panacea for the ills of
underdeveloped countries. Industrial development by itself may pro-
duce serious disproportions between the various factors making for
growth in a country unless it is accompanied by a simultaneous devel-
opment of human resources, agriculture, and various forms of public
utilities. Economic development is a total process, in the sense that
there are no aspects of the economy of a country which are not affected
by it. But it is not only the economy which changes in all its parts
if a process of decisive development takes place, but also the social,
cultural, and often the political background upon which the country's
economy rests. We shall now turn to a brief discussion of the role
these factors play and of the strategic importance that must be assigned
to them.
C. SOCIAL, CULTURAL, AND POLITICAL FACTORS IN ECONOMIC DEVELOPMENT
The question of the role of noneconomic factors in economic develop-
ment has two main aspects. On the one hand, there is the question of
what kinds of social systems are favorable to sustained economic
growth and what kinds are unfavorable. On the other hand, there is
the question of how and under what circumstances changes in direc-
tions favorable to economic growth take place.
At the outset, it should be said that we have few, if any, well-founded
general answers to these questions. We know enough to say that non-
economic factors are exceedingly important; that the role of single
features is often variable, so that whole complexes have to be con-
sidered together; and that interaction between noneconomic factors,
economic factors, and the pattern of economic change itself is im-
portant. But these very complexities, together with the difficulty
of discovering regularities in historical change, make it very hard to
find more precise and detailed answers.
Under these circumstances, we want to discuss two main points.
First, we want to indicate the variety of ways noneconomic factors
penetrate into the economic processes of development and some of the
implications of this fact. Second, we want to examine some of the
factors involved in social, cultural, and political change.
1. Some influences of noneconomic factors on the development process
In the previous sections of this chapter, we have pointed out the
problems posed by the availability of human and nonhuman resources
in underdeveloped countries, the changes in these resources required
for economic development, and some of the institutions and policies
needed to bring about these changes. Part of the significance of social,
cultural, and political factors in economic growth lies in their influence
on the impact of such institutions and policies.
(a) Cultural values and response to institutions and opportuni-
ties. One major part of the culture of a people consists of those
norms, standards, values, and beliefs to which people adhere and which
FOREIGN AID
185
guide their choices among alternatives. Such values and beliefs play
a major role in influencing the way people respond to the institutions,
policies, and opportunities associated with economic growth.
In the field of education, for example, a people's values affect whether
and how long parents send their children to school; the kind of tech-
nical or other advanced education, if any, selected; the kind of selective
learning that takes place; and the use made of training after leaving
school. Not infrequently, high value is placed almost solely on edu-
cation in the liberal professions, the educated seek careers remote from
business or any tinge of manual labor, and even the technically trained
consider it demeaning to get their hands dirty while performing their
duties. Thus, even when appropriate educational facilities are avail-
able, a supply of effective engineers, agriculturists, business managers,
and entrepreneurs may not be forthcoming.
In the field of medicine and public health, most measures require
fairly widespread public participation. Therefore, people's ideas
about sanitation, diet, cleanliness, disease, and treatment may make
effective action very difficult.
In the field of economic action proper, the value placed on economic
security as against economic advancement; the value of economic suc-
cess as compared to social, religious, intellectual, or political positions
reached through noneconomic channels; the value of leisure or of the
intrinsic satisfactions to be obtained from certain kinds of work, apart
from their economic reward, as compared to the value of increased
consumption or wealth; the values accorded various ways of utilizing
wealth; and many others are relevant. These values influence work
habits, occupational choices, practices related to family size, the level
of savings and how they are used, the use of resources for public
purposes, the kinds of opportunities and pressures to which business-
men respond, and the kind of response they make.
Thus, the effectiveness of policies designed to improve education and
health, to make capital available, to provide social and economic over-
head facilities, to spread technical knowledge, etc., all depend on how
people respond to such opportunities. And these responses, in turn,
are influenced by the prevalent value system.
(b) Social relations and the implementation of economic change.—
Another effect of noneconomic factors is the role of patterns of social
relations on the formation and operation of organizations designed
to implement economic change. Where people feel that only relatives.
can be counted on not to betray their trust, the circle from which
capital funds may be mobilized is narrowed, and the size and character
of firms is limited. Where public office is a prestige symbol involving
little responsibility or where it is viewed as an opportunity to be
exploited for private gain, the effectiveness of governmental adminis-
tration is diminished. Where factional loyalties to friends, relatives,
or others outweigh responsibility to an organization or a community,
these agencies may be rendered ineffective. And where people lack
traditions, skills, and experience in establishing voluntary organiza-
tions for special purposes, their ability to handle new problems is
curtailed.
In addition, the pattern of social relations between organizations
or professionals and others can have marked effects. Where doctors,
teachers, agriculturalists, and other technical experts have little con-
tact with or understanding of the people they are to serve and look
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FOREIGN AID
down upon them, they are likely to be ineffective. Where the rule of
business relations between strangers is that of unrestrained caveat
emptor, the growth of firms which depend upon reliable suppliers of
needed goods and services is likely to be restricted, and the business
community viewed with distrust by people at large. Where the expe-
rience of people with government officials has been confined in the
past chiefly to tax collectors, police, and military_recruiters, over
whom they had little control, the most well-informed and well-inten-
tioned efforts of the government to arouse enthusiasm for its program
and to expand its services to local communities and other groups are
likely to be met with suspicion and distrust.
(c) Some implications.-The preceding discussion merely touches
upon a few facets of the influence of cultural, social, and political
factors on the implementation of economic growth. A more extended
discussion would reinforce the conclusion that sustained economic
growth requires deep and comprehensive support from the total social,
cultural, and political structure of a society.
However, through practically all of human history people have
lived without any conception that continuous economic progress was
possible; that the useful arts could be rationally and systematically
improved; that the sciences, consciously cultivated, could revolu-
tionize the techniques of medical care, transport, communications,
and production, thus making possible large and continuing increases
in levels of living. That insight was the recent, unique, and difficult
achievement of Western Europe and the countries derived from it.
Thus, even though there is great diversity among nonwestern societies,
their structures all presuppose an almost totally different range of
economic possibilities from those now available. Their long histories
did not include many of the crucial intellectual, economic, social, and
political developments which in Western Europe culminated in the
industrial revolution. It is therefore not surprising that other so-
cieties do not have forms of economic, social, and political organiza-
tion; systems of values, beliefs, and interests; or modes of thought
oriented toward or readily adaptable to the requirements of modern
forms of economic development. The fact that even among European
countries which shared in these developments, marked differences in
economic growth related to sociocultural differences are found, sug-
gests that countries even more remote from this tradition face for-
midable problems.
This line of reasoning leads us to expect then that among nonwestern
societies, some will be more adaptable to modern technology than
others, but that in practically every case, self-sustaining growth
would require radical alterations in the whole fabric of society. Re-
cent history appears to be consistent with this conclusion. Therefore,
the crucial question is not so much how traditional forms of society
as such affect economic development, but rather what are the poten-
tialities for change? In other words, what we primarily need to know
about social, cultural, and political factors is how they influence the
ease or difficulty of bringing about transformations of society capable
of sustaining economic growth.
2. Social, cultural, and political change
In considering how societies change so as to be capable of sustained
economic growth, it is noteworthy that all the changes required in the
FOREIGN AID
187
long run do not have to precede the initiation of rapid growth. Eco-
nomic change, if it is on a large enough scale and meets with enough
success, tends to generate the conditions, both economic and cultural,
of its own continuance. There is considerable evidence that the
changes associated with industrialization and urbanization are par-
ticularly effective in this respect. Though growth also gives rise to
social and cultural disorganization which must be dealt with, such
disorganization, by loosening traditional structures, may aid in fur-
ther favorable changes, if new substitutes and new alternatives are
also available. Thus, the most strategic problems appear to center
around the development of conditions rendering a takeoff into rapid
growth possible.
Somewhat arbitrarily, we can look at the problem of such societal
change as having two major aspects: the formation of ideologies re-
lated to economic growth; and the spread and adoption of such ideolo-
gies as effective bases for action.
(a) The formation of ideologies.-If we think of the masses in un-
derdeveloped countries as at one time unfamiliar with the kinds of
results modern economic growth can achieve and with the economic
and technical means by which these results are obtained, we can then
envision the initial process of change as one of becoming acquainted
with these phenomena and trying to decide what it all means.
outcomes of such a process can be thought of as ideologies in which par-
ticular groups of people define the significance and implications of
economic growth for them.
The
One element in such ideologies is a desire for improved levels of
living. Such aspirations are already widespread throughout most
underdeveloped countries as a result of direct and indirect contact with
the West, though their content varies widely between different coun-
tries and between different groups in a single country. These aspira-
tions imply that people have seen something meaningful and desirable
in the prospect of certain economic changes and hope for, or even de-
mand, their fulfillment. This provides a basis for an interest in eco-
nomic development, but it does not mean that people understand what
needs to be done to fulfill their aspirations, or that, when they learn,
they will be willing to play their part or even understand the connec-
tion between what is asked and their own desires. For example, most
peasant people do not appear to associate economic improvement with
any great change in their traditional way of life.
Thus, one major problem in the formation of effective ideologies is
to give significance and meaning to changes which are apparently
remote from the results people have in mind. This is even more diffi-
cult when, as in most underdeveloped countries, quick economic re-
sults cannot be realistically promised, and the changes required involve
sacrifices and new kinds of insecurity. Thus, an effective ideology
cannot be based solely on an appeal to the eventual economic improve-
ments to result from the changes advocated. It must make a broader
appeal which lends intrinsic significance to the intermediate steps to
be taken and binds these steps into a meaningful whole. This, in turn,
means that ideologies have to be closely adapted to local values, beliefs,
and situations, and that economic problems become intertwined with
other issues which seem irrelevant or contradictory to the outside
observer.
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These phenomena are found in the kind of nationalism prevalent in
many underdeveloped countries. Resentment of western influence
and rule, and disrespectful personal treatment, and derogation of
their way of life, which they regard as an outflow of a former or still
extant colonialism, has given people in Asia and Africa a strong desire
to put their country into a position of prestige and influence and to
show the world their ability to modernize. Thus, a deep appeal to
pride and to the opportunity to revenge injured self-respect can be
evoked to support many kinds of changes conducive to economic
growth which would not be supported on economic grounds alone.
Moreover, the broad appeal of nationalism can reduce internal cleav-
ages and give meaning to national issues and problems to people who
previously had no such involvements, thereby enhancing the ability
of a country to take effective collective action.
But, at the same time, nationalism also involves the repudiation of
foreign ideas and practices, a hypersensitivity to situations implying
undue foreign influence or dependence on foreigners, and the reaffir-
mation of traditionally honored ways. Even with respect to moderni-
zation, there is a tendency to devote resources to modern facilities
which are economically irrational and largely of symbolic significance.
From a rigorously economic point of view, all of these seem to be
hindrances to economic development and hence constitute waste in a
certain sense. There is no doubt but that they are hindrances, in part,
and that they reflect the ambivalence of trying to restore one's self-
respect by both reasserting the validity of one's own values and at the
same time insisting that one merits respect according to another's con-
tradictory values. Nonetheless, a deeper look reveals positive poten-
tialities, as well. For example, economically irrational modern struc-
tures (the "pyramids" of an earlier section) may be effective in pro-
viding some of the short-run symbolic satisfactions so necessary in
building up and maintaining morale during the long pull before more
solid results are forthcoming. Or, since fundamental values are al-
ways somewhat vague and ambiguous, their reaffirmation in new con-
texts may lead to a recognition of new meanings. For example, in
praising one's spiritual values as superior to the (supposed) material-
ism of the West, one may come to stress the ascetic aspect of these
values as lending significance to the sacrifices required in building a
new society.
The example of nationalism may suggest how intricate and difficult
it is to form an ideology capable of meeting the problems posed by
economic growth in underdeveloped countries. One implication of
this is that foreign aid policy should try to avoid adding additional
complications to an already difficult situation. For example, a policy
of “tied” aid which makes assistance conditional upon adopting a par-
ticular international policy (favorable to the aid-giver), on establish-
ing a particular form of government (e. g., democratic), or on adopt-
ing a particular economic system (e. g., free enterprise) is likely to be
self-defeating. On the one hand, it is likely to arouse great resent-
ment and to accentuate the more negative aspects of nationalism. And
on the other, the changes imposed on the aid-receiving country are
likely to fail, since they do not take into account the problems of com-
bining social transformation with the maintenance of social and polit-
ical cohesion in particular countries. (The assumption that demo-
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189
cratic government and free enterprise are preconditions for economic
growth is false.)
(b) Factors influencing the acceptance of new ideologies.-The fac-
tors influencing what kind of ideology is accepted and the extent to
which it is capable of sustaining effective action are exceedingly nu-
merous, and their interrelation is very complex. Many are internal to
the countries involved and both internal and external factors are
seldom affected directly by measures within the scope of foreign aid.
However, foreign aid policy, if it is to be as effective as circumstances
permit, must be adapted to these circumstances. This requires an
intimate and profound understanding of just how the various seg-
ments of each particular society see the world, how these views are
changing, and why.
Since we cannot go into detail concerning particular instances here,
we will try to indicate some of the factors involved in the acceptance
of new ideologies by outlining one constellation of forces not infre-
quently found in underdeveloped countries.
In many underdeveloped countries wealth, political power, and
education are concentrated in a small group of people, and not in-
frequently the very individuals who control political power are also
the richest and best educated men in the society. If such a group is
sufficiently satisfied with its position (or even if it is not, but if it
fears that economic modernization will threaten its position), it is
likely to resist change strongly.
Moreover, the existence of such a group strongly affects the nature
and role of any incipient "middle class" which develops in the
great gap between the privileged and the masses. Such a middle-class
group, consisting chiefly of educators, government officials, and mem-
bers of the intelligentsia, must, in order to assure its maintenance,
either aline itself with the ruling group or suffer being pushed into
positions of harsh antagonism to that group. Hence intellectuals often
attain positions of leadership among the discontented, the unprivi-
leged, the poor; hence the appeal of Communist ideology exerted on
intellectuals in underdeveloped countries; hence also the enhanced
social cleavage which becomes little, if at all, mitigated by the rise
of the middle class. Moreover, the cleavage of the world into two
antagonistic camps becomes reflected in the political and ideological
issues in a developing country. More and more evolutionary develop-
ment toward higher levels of living ceases to be a practical third alter-
native between the maintenance of the social status quo on the one
hand, and a revolution which threatens to throw the country into the
arms of communism on the other.
If the issues are seen in this light, the rigidities of the class structure
in many underdeveloped countries become understandable. But the
very sharpening of the issues, the fact that many enlightened people
see as the only alternative to the maintenance of the existing class
structure a Communist revolution, makes them reluctant to advocate
rapid and decisive innovations, which, if they are to take root, inevi-
tably affect the social status quo. Hence technical and economic inno-
vations, if sponsored at all, are received with the greatest caution, are
severely limited in application, and supporting ideologies are not
formed or accepted.
CHAPTER III
DIFFERENCES IN THE PAST PATTERNS OF ECONOMIC
DEVELOPMENT OF DIFFERENT ADVANCED COUN-
TRIES
A. INTRODUCTION
We have seen the preceding chapter how several important factors
impinge upon the economic growth of nations. Among the chief
variables which we have stressed are the relationship between the
quantity and quality of human and nonhuman resources; the condi-
tions under which capital formation is carried on and the rate at
which it takes place; and the general social and cultural, as well as
political, conditions prevailing during a nation's economic growth.
We may now test the usefulness of this discussion by first apply-
ing it to those countries which are among the more highly developed
ones, or at least which are in an intermediate position between the
economically most advanced and the economically most underde-
veloped countries. Later, in the next chapter, we will apply our
general theoretical findings, together with the lessons of the historical
experience of advanced countries, to the conditions of the under-
developed countries.
1. Some differences in development patterns of advanced countries:
timing and resource endowment
Although only a minority of mankind lives in countries which have
overcome the fetters of economic backwardness, we have the economic
history of many nations to fall back upon for our material. The
economically advanced countries show considerable differences. First,
they differ in terms of when their period of rapid development and
industrialization started. There are early birds and latecomers
among them. Since the latecomers could adopt the technology which
had to be slowly elaborated by the countries which industrialized
earlier, they were in a position to skip over some developmental steps.
In principle, those among the more highly advanced countries that
started last could change from an antiquated technology to the appli-
cation of automatic or near-automatic machinery and processes. At
the same time, a latecomer is in the disadvantageous position of having
stagnated longer and of having to catch up faster or move a greater
distance in order to equal the countries which started economic devel-
opment earlier.
A second difference is in the original endowment of resources with
which the process of development began. We only need to compare
two advanced countries, like the United States and Switzerland, to
see that very different original resource endowments may lead to high
levels of economic performance. The United States has ample land
resources as well as extensive deposits of coal, oil, and many important
minerals. Switzerland lacks deposits of most important minerals and
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191
has relatively little land which is usable for agriculture. Neverthe-
less, its average gross national product is one of the highest in Western
Europe.
2. The role of government
A third difference lies in the role government has played in the
process of economic growth. In general, it may be said that gov-
ernments have played a rather prominent role in all countries, even
those in which it is generally assumed that economic development
occurred under a regime of laisser faire. For example, in Britain,
the classical country of economic liberalism and free enterprise, the
foundation of British industrial development was laid by some of
the state-inspired mercantilist policies of the 16th and 17th centuries.
Even as ardent a partisan of economic liberalism as Adam Smith
supported the navigation laws-a clear case of indirect governmental
subsidization of the British shipping industry. Similarly, in the
United States the governments of the various States and later the
Federal Government subsidized various forms of capital formation.
The States achieved this end by sponsoring public works of various
kinds, by sponsoring mixed private-State-owned corporations, by
licensing certain trades and enterprises, and by a multitude of other
devices. The Federal Government contributed by such measures as
its homestead policy, land grants to railroads, and its tariff legislation.
Nevertheless, the role played by government in directing economic
development remained, on the whole, much smaller in the 19th cen-
tury than in the period after the First World War. This is true even
of countries like Germany and Japan, which are commonly regarded
as more highly centralized and more subject to governmental pater-
nalism than other states in Western Europe or North America.
Yet there were noticeable differences in the role played by govern-
ments even in the 19th century. For example, the Czarist government
of Russia eagerly sponsored certain forms of industrialization, mostly
of strategic significance, and there was more statism visible in Ger-
many and Japan than in Britain, the United States, or the Scandi-
navian countries. It is difficult to measure with any precision the
degree of state interference or state promotion of economic develop-
ment. Sometimes a regulation which appears rather innocuous may
have far-reaching effects, and sometimes a law which appears very
restrictive may produce little change.
But there is one general difference that stands out, and that is the
difference between countries in which the initiative for development
and its overall planning is regarded as one of the main tasks of govern-
ment, and other countries where decisions favoring economic develop-
ment are left to private individuals and groups and where the gov-
ernment only intervenes to regulate, to eliminate certain inequities,
or to sponsor a few selected branches of production which are clearly
in the public interest. It is in this latter sense that Adam Smith's
approval of the Navigation Act must be understood, and it was moti-
vations of a similar nature which induced the Congress and adminis-
tration of the United States to sponsor the land-grant policy for rail-
road construction, the development of agricultural colleges, and other
measures.
The intervention of governments in the development process de-
pends in part on the prevailing social and political philosophy. But
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apart from this factor, it appears to be a fact that in more recent
decades government sponsorship of development plans has been on
the increase. This is not only true of the Communist countries, where
the main reason for governmental planning of economic growth is
to be found in the totalitarian character of government, and hence,
in the last resort, in the social and political philosophy of the elite.
Even in democratic countries in which individual freedom and free-
dom of personal initiative are respected, on the whole, governmental
plans for development have been drawn up, and attempts are made
to implement them. In many of the countries of Western Europe,
the role of government is much more extensive than it used to be in
the same countries before 1914. In newly developing countries, such
as the countries of south and east Asia or the Near East, develop-
mental plans are the order of the day.
In general, it can be presumed that several factors may be held
accountable for this increased role of the state in economic develop-
ment. Most important among them are: the relative backwardness
of a country, the speed with which economic growth is thought to be
necessary, the scarcity of resources in relation to population pressure,
and such ideological factors as nationalism and a sentiment of dis-
crimination which we discussed in the previous chapter. The more
backward, the more unfavorable the original composition of resources,
the speedier the development desired in a country and the more nation-
alistic it is, the greater (other things being equal) will be the role
assigned to the government. There is a further factor which, however,
plays only a minor role in the advanced countries, and that is the
overall social and educational distance between the various classes in
a country. The more egalitarian societies are also the ones in which
private initiative has a greater room for free play. On the other hand,
in the more hierarchically structured societies, or in those where there
is a deep gap between the elite on top and the popular masses on the
bottom, governmental initiative and control will stand out more promi-
nently. We shall return to a discussion of this point in the next
chapter.
B. SOME SIMILARITIES IN THE DEVELOPMENT PATTERNS OF ADVANCED
COUNTRIES
Just as we were able to point to some important differences in the
developmental patterns and conditions for economic growth in differ-
ent advanced countries, so may we emphasize some similarities. Most
outstanding among them are the association of economic growth and
industrialization, the association of early economic growth and a
population "explosion," and the association between economic devel-
opment and a restructuring of internal social relations.
The first factor has already been commented upon briefly in the
preceding chapter. Although it has been impossible to show that
industrialization is necessarily associated with economic development,
there is no instance of genuine long-run economic growth on record
in which the very core of the development process did not consist in
industrialization. One of the first statesmen and writers to argue in
favor of industry as a means of economic development was Alexander
Hamilton, whose Report on Manufactures of December 5, 1791, is
one of the classic statements of the growth-fomenting capacity of
FOREIGN AID
193
industrialization. Hamilton's views were absorbed and given popu-
larity by the German, Friedrich List, who propounded the idea that
the superior technical equipment of manufacturing enterprises and
the greater rationality of industrial production could not fail to have
a beneficial effect on agriculture. He believed that technological and
organizational improvements in agriculture would only be adopted in
an industrialized country, and that in order to make agriculture more
productive it was necessary to industrialize first.
Whatever the merits of views such as these, the various countries
which have escaped the fetters of economic backwardness have done
so by becoming industrialized, and one of the similarities in the past.
history of the currently economically more advanced countries is the
fact that their real developmental spurt began when they experienced
an "industrial" revolution.
This industrial revolution led to a simultaneous growth of cities
and a constant migration, in the more densely settled countries, from
the countryside to the cities. In some advanced countries, notably
the United States, Canada, Australia, and New Zealand, this pattern
of migration from country to city did not appear until very late, owing
to the abundance of fertile land available in these countries and to
the absence of a dense rural population. With the growth of cities,
medical services as well as sanitary and health conditions improved,
and the death rate and infant mortality rate declined. A rather sud-
den and very rapid increase in numbers of population took place,
which has sometimes been called a population "explosion." All coun-
tries of the west experienced this population explosion, and so did
Japan. One may assume, therefore, that economic development as-
sociated with industrialization and urbanization also tends to increase
a country's population.
We shall discuss in the next chapter the effects that this has had
on underdeveloped countries. But it may be well to point out that
most western countries-though not Japan-experienced this fast and
proportionately large population growth at a time when their popu-
lation density was considerably below those prevailing in some under-
developed countries today. Moreover, in the 19th century when first
in Britain and later in the countries of continental Europe, popula-
tion pressures began to mount, there were available three continents-
the Americas and Australasia-to serve as safety valves for the sur-
plus population. Most underdeveloped countries have much more
limited opportunities for getting rid of excess population through
emigration. This is an important factor creating a significant dif
ference between the developmental potentialities of currently under-
developed countries and of those countries of Europe which started
their economic development at an earlier stage.
Finally, the combined impact of economic development resulting in
higher standards of material welfare, of industrialization, and of
urbanization, remodelled the social structures of the developing coun-
tries. In those countries in which longstanding aristocratic preroga-
tives had prevailed, these prerogatives tended to fall before the grow-
ing wealth and political importance of the middle class. In the
course of the 19th century, the franchise was greatly extended,
and it became possible in almost all developing countries for a man
with intelligence and initiative to move up to a position of wealth and
influence. The fact that many American presidents and legislators
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started life, if not in log cabins, nevertheless in poor and narrow cir-
cumstances, is one of the more patent examples of this process. And
what is true of presidents and legislators is also true of a good many
business leaders in industry, trade, and finance. Although this process
of rising in the social scale was particularly characteristic of the
United States, it was not confined to this country, and there are
numerous examples in other advanced countries in which men starting
from small circumstances attained success in politics, business, or
the professions.
it
The process of economic development and associated social change
has thus had the general effect of tending to introduce more demo-
cratic, egalitarian social relations. As a society becomes wealthier
it can afford to distribute its wealth more equally. As persons ac-
quire a greater share in society's output and a greater amount of
wealth, they recognize more and more clearly that they have a stake
in the nation and that economic progress benefits them, whatever else
may do for others. This is an important fact to bear in mind, since
a policy of foreign aid pursued by a democratic country may be justi-
fied by the fact that, where it is successful in actually helping to raise
living standards noticeably, it is likely to extend the attraction of
responsible democratic government and to constitute a blow against
Communist irresponsibility and aggression. However, as we shall try
to show in the next chapter, the path to genuine economic advance on
a mass basis is slow and subject to many interruptions and potential
blind alleys. The next few decades are the most crucial for the process
of economic advancement of some of the most strategic countries
situated in Asia and the Far East and may be of decisive influence in
the development of the future political alinement of that area.
C. THE IMPACT OF INTERNATIONAL ECONOMIC RELATIONS IN THE
DEVELOPMENT OF ADVANCED COUNTRIES
In our discussion of differences and similarities in the past economic
development of advanced countries, we have left out of consideration
so far the international interaction between developing countries. In
order to complete the description of the process of economic growth in
the West European countries and their overseas offshoots, we must
now discuss briefly the impact of three factors which played a some-
times not insignificant role in their growth process. These factors
are international trade, international investment, and foreign aid.
As concerns international trade, we may distinguish again two
different patterns of growth. Some countries were large enough and
endowed with sufficiently varied resources so that the main impetus for
their economic development came from the gradual extension of their
internal markets. Other countries were and are small and depended
for their development on supplying certain goods in international
demand, exchanging them for raw materials and/or foodstuffs which
they were unable to produce cheaply or efficiently enough. An ex-
ample of a developed country which was greatly dependent upon find-
ing markets for its products abroad is Denmark. Denmark was a
predominantly agricultural country, producing most of its own food
and feed for its cattle throughout most of the early 19th century. By
the third quarter of the 19th century, the availability of cheap Ameri-
can, Canadian, and Argentinian grain cut the ground from under the
FOREIGN AID
195
traditional agricultural economy of Denmark. The country was faced
with a fateful choice. It could either erect high tariff barriers and
continue its old pattern of agricultural production, which had obvi-
ously become incapable of competing on the world market, or it could
maintain free trade in grain and turn to the production of high-grade
foodstuffs-eggs, bacon, and butter-for sale on the world market.
We know what Denmark's choice was. It specialized in the produc-
tion of the more expensive foods, supplemented its high-grade farm
products by initiating some small but high-quality industries, and
entered an important period of economic growth. But it should be
noted that the success of Denmark's choice depended upon the fact
that its products were freely salable on the world market, and it became
a half industrial and half agricultural appendage of the economic
sphere of Britain, and to a lesser extent of Germany and some other
countries which consumed Danish products. Switzerland made a
similar choice at about the same time, and also succeeded in adapting
its products-high-grade animal products, precision machinery, high-
grade textiles, and similar products requiring considerable skill-to
the demand pattern which had developed in the large European con-
suming areas surrounding Switzerland.
Therefore, one of the needs of a small country with relatively
specialized resources is to adapt its productive pattern to the demand
which exists in the world at large for specialized products which the
country is particularly capable of producing. It goes without saying
that such a policy is successful only in a system of free multilateral
nondiscriminatory trade. For if the products of a small country en-
counter high and sometimes insurmountable tariff barriers abroad, or
if they meet with discriminatory practices, quantitative restrictions of
various kinds, or exchange controls, the developmental possibilities of
a small country are seriously impaired. Thus the present United
States policy in the international trade field is of great importance to
many small countries, regardless of their state of economic develop-
But it is of special importance to small countries which must
rely on certain often highly specialized exports to provide them with
the foreign exchange to purchase on the world markets those raw ma-
terials, foods, and other commodities they lack. In this manner, the
stanch advocacy by the United States of nondiscriminatory multi-
lateral foreign trade is of great indirect benefit to many small under-
developed countries.
But foreign trade and relatively open world markets also were of
great significance to some of the larger countries. Take, for example,
the United States. For several decades during the early 19th century
the vast resources of the interior were developed. The many migrants
who settled first the Middle West, then the Plains States, and finally
the Rocky Mountain area and the Pacific Coast States depended upon
the absorptive capacity of world markets for their raw materials and
foods. The development of the great West was associated with im-
mense costs, in terms of human effort and money. If the markets
of the world had been closed to the products which those regions of
our country produced in abundance by the end of the 19th century,
the benefits derived from pushing the frontier farther and farther
west would have been much less. To be sure, there was a large market
for Western and Middle Western products in the United States itself.
But the fact that many American products found ready acceptance
94413-57-14
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abroad was of considerable importance. We may safely say that the
addition to domestic demand of a strong foreign demand for the raw
materials of the United States was one of the decisive factors in
aiding the economic development of the United States.
The United States benefited not only from relatively open world
markets, but also from foreign investment. All through the 19th
century the United States was an attractive market for foreign invest-
ors. Although no accurate figures are available, it is estimated that
foreign investments in the United States amounted to $400,000 in 1860,
to $1.5 billion in 1875, and to between six and seven billion dollars by
1914. Although the United States had started to export capital by
1914, the contribution of foreign capital invested in American railroad
and Government bonds should not be underestimated, and it must be
assumed that this investment contributed greatly to American economic
development.
The United States was, of course, not the only country receiving
foreign capital. It was estimated that by 1913 Britain held foreign
investments of £3,763 million, of which £1,780 million were invested
in the British Empire, £755 million in the United States, £757 million
in Latin America, and the remainder in the rest of the world. Of
the £755 million invested in the United States £617 million were
invested in railway bonds. French foreign investments were some-
what below those of Britain, and were concentrated in French overseas
territories and Russia. Germany also held substantial foreign invest-
ments which, unlike French foreign investments, were spread more
evenly over the whole globe. These foreign investments were a power-
ful stimulus to the economic development of the less advanced coun-
tries. Since a large part was concentrated in transport and power
supply companies, private foreign capital was an important source of
aid in building up installations which come under the general heading
of social or economic overhead. In addition, foreign investments
could be found in mines, plantations, and factories.
In considering the impact of foreign investment, the relative mag-
nitude of total world production before the First World War and
today must be borne in mind. The total foreign investments of the
3 major European countries amounted to approximately $32.5 billion
in 1914. This is an immense sum, almost equal to the net national
income of the United States at this period. To reach a comparable
level, the amount of private foreign investment outstanding today
would have to be in the neighborhood of $300 billion.
It is obvious, therefore, that a large amount of foreign capital, which
today is supplied by national governments in the form of foreign aid
programs, as well as by international organizations and such official
fending agencies as the International Bank for Reconstruction and
Development or the Export-Import Bank, was supplied before 1914
by private investors.
Clearly private capital is less easily available today than some 50
years ago. This is due to a multitude of factors which we will discuss
in greater detail in later chapters. But it exhibits one important
advantage which countries whose economic development began before
1914 enjoyed. In general, capital has become less generously avail-
able, and many sources which flowed copiously before 1914 have
almost completely dried up.
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197
In view of the relatively easy availability of private capital, the
problem of foreign aid was of subordinate importance in the period
before 1914. But here again some of the countries whose development
falls in this period enjoyed certain advantages which are not at all
available today, or at least not to the same degree. Consider, for
example, the degree of foreign aid a country enjoyed when it received
an annual stream of immigrants. Many of these immigrants were
young and vigorous adults. The costs of educating them and sup-
porting them until they reached a productive age had been borne by
the country of origin. To be sure, many of these men and women
were not skilled in the kinds of jobs they had to perform in the
country to which they immigrated. But even if they were only
unskilled workers, the receiving country gained an adult person who
could immediately contribute to the productive activity of that country
without first drawing upon that country's resources for his food,
clothing, education, and preservation of health while he was in infancy
and childhood and unable to earn his own livelihood. Moreover, many
of the immigrants were not unskilled laborers, but highly skilled
persons and professional people. They brought with them skills
learned in Europe and added to the stock of technical competence
available in the countries in which they settled. Since the United
States was one of the chief areas of European emigration, it derived
a major share of the advantage of this situation. Many of the most
distinguished teachers, ministers, and other professional men in the
United States during the 19th century were born and brought up
abroad. Many American-born scientists and scholars received all or
part of their training in European schools and universities. Here
again, as in the field of private investment, technical assistance (or
its equivalent) was carried on not by official missions or planned pro-
grams, but on the basis of private initiative. Nonetheless, its effects
were equally and perhaps even more significant, since the technical
experts did not come for a short stay, then to return home again, but
remained in the country to which they had emigrated.
The countries which were the chief recipients of immigrants in the
19th century stand out in this pattern of free flow of population across
frontiers. But one should not forget that international migration of
skilled artisans was much more common in the 19th century than it
is today. Many workers born and raised in one European country
served an apprenticeship in another country and there learned new
methods and new skills. Many of them returned home after their
period of learning, but some stayed in the country to which they had
migrated. The 19th century is often described as a wonderful period
for the traveler, because passports were needed only if one traveled to
some far away country, and were usually superfluous. But more im-
portant than the comfort to sightseeing tourists was the fact that the
absence or slight importance of restrictions on free movement across
national frontiers made possible the relatively unhampered interna-
tional travel of craftsmen and technical experts of all sorts. It was
this exchange of persons which was the closest equivalent to modern
technical assistance programs, and it was, in many ways, a truly multi-
lateral process.
These factors the relative freedom of international trade, the large
role played by international investment, and the freedom to migrate—
were important to those countries which started the decisive period
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of their economic advancement in the period before 1914. All the
countries which today appear at the top of the list of countries ranked
according to per capita gross national product had their beginnings
of economic growth in that period. In many ways the world has
changed, and the presently underdeveloped countries have fewer op-
portunities today. International trade is more restricted and, in spite
of American efforts to combat discriminatory practices, less equal than
before 1914. Private foreign investment still forms an important
factor in the field of international capital transfers, but its relative
magnitude has declined drastically. Migration has been restricted,
and most of the populations of economically underdeveloped coun-
tries must look forward to the growth of their own economies rather
than to sharing in the growth of countries to which they could emi-
grate. All this is not said in the spirit of glorifying a "golden age"
of the past, but to point to some of the opportunities which favored
the economic development of early comers and which militate against
that of latecomers. Many of the advantages and "safety valves"
which were available when the Western countries broke through the
fetters of economic backwardness are not available any more. We
shall have to examine whether other policies might be put in their
stead which will have similar results.
CHAPTER IV
THE POTENTIAL FOR ECONOMIC DEVELOPMENT OF
PRESENTLY UNDERDEVELOPED COUNTRIES
A. INTRODUCTION
From the viewpoint of purely formal analysis, the problem of
economic development of currently underdeveloped countries could
be treated as that of latecomers in industrialization. In such an
analysis, the economic development of India, for example, would be
regarded as similar to that of Japan, with the difference that Japan's
first efforts to industrialize were some 75 years ago, whereas those
of India are just beginning now. Or, in other words, whereas
Japan was a latecomer-compared with Britain-by some 100 years,
India is a latecomer by some 175 years. Unfortunately, the problem
is not that simple, since, as we have seen in the previous chapter,
different countries have followed widely different patterns of develop-
ment, and the experiences of one latecomer may or may not have
relevance for those of another. Just as in the past, the major obsta-
cles faced by a country like the United States and one like Switzer-
land differed in magnitude and kind, so the obstacles facing presently
developing countries differ perhaps even more in kind and certainly in
magnitude. In saying this, one states merely that an evaluation of
the potential for economic development of each presently developing
country must be undertaken separately, and that any attempt to gen-
eralize does a certain amount of violence to the very special condi-
tions of economic growth in the various nations.
However, in order to remain within tolerable limits, we must con-
fine ourselves to discussing types of potential development, rather
than actual cases of potential development. In order to simplify our
discussion somewhat, we will attempt to state some differences and
similarities in economic development problems, as was done in the
preceding chapter, and will then point to some of the most crucial and
strategic factors in the prospective development of the major under-
developed countries and regions.
1. Differences and similarities in resource endowment
Perhaps one of the major points of difference in currently underde-
veloped countries is the difference in natural resources and the overall
ratio between nonhuman and human resources. This latter may also
be designated as the resource density of the population. Since eco-
nomic development requires the importation of machines and many
other products aiding in the formation of capital from advanced coun-
tries, an underdeveloped country, which is usually short of capital,
is in a relatively favorable position with respect to development if it
disposes of resources which are easily salable abroad. Thus, in Latin
America, those countries which have mineral deposits producing
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metals or other minerals in extensive and continued demand abroad
are among the most highly developed countries, if development is
measured in terms of per capita national income. Venezuela's oil and
Chile's copper and nitrates are the major factors determining the
relatively high level of average gross national product in these coun-
tries. Of similar though somewhat less overriding importance is the
availability of certain agricultural raw materials for which demand in
the highly developed countries is strong. Coffee, bananas, sugar, cacao,
rubber, and vegetable oils have been the chief commodities in this
class, and countries which can produce large exportable surpluses of
these commodities often have in them an important source of foreign
exchange which can be applied to procuring some of the needed
capital for development. Such exports, which may be taxed, also
contribute revenue, lessening in this way dependence on foreign aid
and easing the inflow of private capital.
Countries which produce few of these commodities in exportable
quantities are considerably worse off. For even if they can save the
necessary amounts to make investments in economic development proj-
ects, they are often in a difficult position if they need to obtain the
foreign exchange with which to buy the machinery and other equip-
ment going into the building of capital installations for development.
In some instances, such countries may obtain the needed foreign ex-
change through triangular trade; that is, they may develop an export
surplus with other countries, which in turn have one with the eco-
nomically advanced countries, from which the machinery and equip-
ment can be had. But in order to attain such an export surplus trade
between various underdeveloped countries, they must be relatively free
and unhampered, and, above all, unencumbered by exchange controls
and other forms of rationing of the currencies in greatest demand
internationally. Unfortunately, at present, the dollar, which is the
currency most widely in demand in underdeveloped countries, is
usually subject to exchange control, so that one underdeveloped
country building up an export surplus with another usually does not
thereby obtain dollars, but often merely a credit in the currency of the
other underdeveloped country. The need for convertibility is thus an
important aspect of the capacity of some countries to support their
economic development programs by means of exports of their staple
commodities.
Another important aspect imposed on a country's capacity to develop
economically by its resource endowment, is the pattern of imports
which it will require. We have seen in previous parts of this essay
that the general path to development will be sought through indus-
trialization. Now a large country with a relatively large population
may look forward to developing a variety of industries for which a
domestic market can be found, especially if the level of income of the
population rises. Thus a large country will try to include in its
development plans industries in various fields of consumer goods, as
well as those capital goods industries which are intermediate in the
production of consumer goods, such as machine building, chemicals,
and various metallurgical industries. Its main limitation in indus-
trial diversification will be imposed by the availability of minerals and
power, although even power often may be imported.
A small country, on the other hand, will be limited in the number
and variety of industries to be established there by the relative small-
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201
ness of the domestic market. Hence it will be driven much more
forcefully than a large country to specialize its industrialization pro-
gram in those fields of production in which it has a clear comparative
advantage, or in which it can best fit its production pattern into the
gaps left by several larger countries with which it trades. This was
precisely the pattern selected by countries such as Denmark or Switzer-
land in the 19th century. It is clear, however, that if a small country
tends to be dependent in its industrialization program-and in general
in its program of economic growth-on markets abroad, its pace of
development will be dependent to some extent on the pace of develop-
ment in the countries with which it trades. It can try to alter its
trading pattern, but this will not always be possible, and may subject
the country to temporary setbacks in its foreign exchange receipts.
This means, however, that smaller countries in general are more inter-
ested in the general level of economic performance in the world at
large than larger countries. A large country may concentrate on a
pattern of "balanced growth" within its own boundaries. A small
country will often not succeed in developing a program of fully
balanced growth, and will to that extent remain more deeply dependent
upon international trade and markets beyond its own frontiers.
2. Differences and similarities in governmental policies
In discussing the past experience of developed countries, we have
pointed to the role governments have played in their process of eco-
nomic development, and have pointed out that, on the whole, the role
of government has become greatly enlarged in recent times. This
statement is true of all countries, even those which are already more
advanced. But in general, one might observe a close correlation be-
tween the general level of backwardness of a country and the relative
magnitude of governmental operations in the development fields.
This impact by the government is even enhanced if we take account
of the social and political aspirations which were discussed in the final
section of chapter II. It was explained there that the aspirations of
peoples in underdeveloped countries usually require some form of
ideological underpinning if they are to be transformed into realistic
social action, and that this underpinning is provided normally by the
more highly educated elite which also occupy positions of political
leadership. In its outward manifestations, this ideology appears usu-
ally as an enhanced nationalism, which has both favorable and poten-
tially unfavorable implications. On the one hand, it tends to destroy
old-inherited local particularistic loyalties and to replace them by a
sense of belonging to a common people. This makes possible the har-
nessing of human and nonhuman resources to the economic and politi-
cal aims of the nation. At the same time, it creates potential and
actual antagonisms against foreigners and provides a seedbed for
various radical movements which may lead a country into the Com-
munist camp.
In its impact on economic relations, this enhanced sentiment of
nationalism tends to transfer to the government many functions which,
in a period when public excitability ran less high, were left to private
initiative. Thus we see that in most underdeveloped countries, the
primary initiator of developmental programs is the government, and
that the execution of a large portion of the economic development
program is also left to the government or specified agencies created
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and supported by it. In all underdeveloped countries, development
plans and programs have been set up which usually throw the main
burden of development on the government, and even where provision
for private action is made, this is rigorously circumscribed within the
public effort.
The role of the government becomes enhanced not only through the
ideological trends already indicated, but also through the apparent
magnitude of the task of economic development in a country with
very disappointing economic performance as compared with the more
advanced countries. The difference in material levels of living is
great, the aim of achieving rapid development requires an effort of
unusual proportions, and that leaves only the government as the pri-
marily responsible agent for economic growth. On the one hand,
this creates certain advantages, in that it allows a more highly planned
and presumably less wasteful program of development. It also makes
possible the application of foreign aid through the channel of govern-
ment. At the same time, it creates a serious danger to the survival
of democratic institutions where they exist and an awesome block to
their development where they do not as yet exist in any real way. In
most underdeveloped countries, some form of totalitarian movement,
either of a Communist or a nativistic Fascist variety, is constantly
present.
With the government controlling not only the apparatus of political
government and enforcement, but also in command of all the crucial
economic installations, a concentration of power is created which may
be used potentially for the good of the country, but may also be used
for evil.
The situation is aggravated in many underdeveloped countries be-
cause of the almost total lack of a middle class. As was explained
earlier, a middle class is as much a product of economic growth as
one of its creators. In the advanced countries, the middle classes,
composed of merchants and industrialists, intellectuals and opinion
leaders, have, on the whole, exerted an influence of moderation. They
have recognized clearly that they would only lose from war or civil
disturbance and have therefore been a force favoring compromise
and combatting extremism of various sorts. In the underdeveloped
countries, the rising middle class is placed somewhat in a dilemma,
especially if it is made up-as seems to be the case-to a large extent
of intellectuals. Unless these persons can be integrated into the gov-
ernment machine or its branches, or find a place in political or volun-
tary organizations operating under the general guidance of the govern-
ment, they are likely to become disaffected and to develop leadership
ties among all sorts of freely floating disgruntled elements. The
rapid growth of many capital cities in underdeveloped countries has
led to a congregation in them of a large number of such homeless,
shiftless individuals, and it is not too difficult for political adventurers
to gain influence among them. Thus the danger of civil disturbance
in underdeveloped countries is often great, and it sometimes takes only
a slight setback in economic performance, or some relatively insig-
nificant incident in international relations, to provide these leaders of
the rabble with political ammunition of a deadly sort. The mass
demonstrations in many countries of Asia in support of Nasser's posi-
tion in the Suez Canal crisis are an example of the highly unstable
situation existing in many capitals in underdeveloped countries.

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203
Thus the political and social equilibrium in underdeveloped coun-
tries is highly unstable. A country which may at one time appear to
be firmly within the free world camp, may turn the next day to Com-
munist sympathies, and may turn back again the following day. Since
economic affairs are largely controlled by the governments of under-
developed countries, the changing sympathies of these governments, or
an actual change in government owing to a coup d'etat are ever present
possibilities which must be reckoned with. A program of economic
aid to such countries may run the risk of eventually helping to build
up strength in a country which will turn its back on the West and may
become a partisan or sympathizer in the Communist camp.
At the same time, economic development and a genuine improvement
in material conditions of living of the masses of the people are two
of the most important prerequisites of democracy and genuine self-
determination. Only a population which has risen above a level of
abject poverty, which is literate and enjoys some of the fruits of its
own efforts, can be assumed to take an independent and responsible
interest in the fate of its nation, and can be expected to react through
orderly, democratic procedures to actual or potential excesses of its
rulers. To the extent, therefore, to which foreign aid can be applied
to bring about a rise in material welfare, its ultimate political signifi-
cance may lie in bringing about a greater degree of responsibility,
moderation, and political stability.
It is as yet an undecided question what direction the underdeveloped
countries, especially those crucial countries located on the southern
and eastern rim of Asia, will go. A policy of timidity would advise
no aid or a minimum of aid, since there is a possibility that they may
turn their sympathies to the Communist orbit. At the same time, a
more or less extended program of development would count upon the
capacity of political leadership to be developed in these countries to
lead them, if not into the political orbit of the free world, at least into
an orbit of their own. One should not forget that if south Asian or
Near Eastern nationalism turns against the "imperialists" of the West,
it also recognizes that it has little to expect from the imperialism of
Russia and its satellites. Perhaps the best that can be achieved in this
part of the world is a policy of neutralism, and it may be the function
of foreign aid to preserve this neutralist position and to prevent any
further encroachments of communism in this part of the world. The
danger of such encroachments is sometimes increased by Soviet aid
programs. Many noncommitted countries try to receive aid from both
the United States and the Soviet Union, so that part of the purpose
of American aid to these countries would be to counteract the intended
political effects of Soviet aid.
At best a policy of foreign aid in this part of the world is a calcu-
lated risk. It is foolish to expect that foreign aid programs, even if
they were much larger than those at present, would gain the United
States inalienable friends in Asia and Africa. But at the same time,
it would be a foolish policy to be so stinting in aid programs that
the chances for the success of communism were materially enhanced
by the continued unfulfilled aspirations of the masses of poor Asian
and African farmers and workers.
In the preceding paragraphs we have discussed some similarities
facing currently underdeveloped countries in one general region of
the world: in Asia, the Near East, and Africa. It was there that
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FOREIGN AID
colonialism was most highly developed, and it is there that nationalism
is most rampant and aspiration for higher living standards most
vociferous. These are also the regions in which economic performance
is relatively most disappointing, and in which the obstacles to economic
development appear to be greatest.
In countries with somewhat more satisfactory economic perform-
ance, notably in the countries of Latin America and the poorer coun-
tries of Europe, the degree of political instability is greatly reduced.
In these countries planning for economic development is also largely
a function of government, and most of the developmental effort is
inspired or at least channeled and regulated by the government or cer-
tain of its agencies. We do not wish to give the impression that our
analysis is based on some modified form of economic determinism,
i. e., that countries with somewhat higher levels of economic perform-
ance are safer from totalitarian encroachments than countries with less
satisfactory economic performance. Among the countries which are
safest against Communist inroads are Burma and Thailand, both of
which have very low levels of average income. What matters, how-
ever, is apparently the fact that once a country overcomes the greatest
bottlenecks to its economic advancement, it can devote its attention
more to the business of economic improvement and less to the search
for sudden and purely illusory panaceas, which all too often lead into
the direction of Communist entanglements. The need for economic
development and political recognition becomes less desperate, though
they are still strong and even overriding motives of social action. But
the procedures applied become more routinized and regularized, and
though they remain important public issues, they cease to appear to
be matters upon which hinge the apparent survival of the nation.
3. Differences and similarities in population density
Underdeveloped countries also differ in the density of population,
especially rural population, with which they enter the phase of indus-
trialization. This factor is merely a reflection of the one discussed
earlier-differences in resource endowment. But whereas we discussed
earlier the differences in the chances for development of a country
with large or small area or with varied or unsatisfactoy natural
resources, we now turn to a discussion of the differences depending on
whether the general relationship between population and resources is
favorable or not. It is in this field that some underdeveloped countries
differ most markedly from the presently advanced countries which
went through their period of early industrialization in the 18th or 19th
century. A developmental pattern such as that open to the United
States or Canada is completely beyond the reach of any currently
underdeveloped country, unless technological inventions are made
which will allow it to convert at low cost desert country into fertile
agricultural land, or to overcome the barriers to transport and agri-
culture imposed by such masses of mountains as the Himalayas or the
Andes. Only in the Soviet Union and to a limited extent in South
Africa and Brazil could an overall expansionist pattern of economic
development, characteristic of the United States in its crucial period
of growth, be followed.
Thus as compared with the economically most advanced countries,
the underdeveloped countries all start from a less favorable man-land
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205
(or better man-resource) ratio, and this is an important factor which
influences, at least within the limitation of present technological
achievements, their ultimate capacity to develop economically. The
countries of Europe were less favorably situated in this regard than
the United States, and there are some underdeveloped countries which
resemble in the proportion of population to agricultural land, and
possible other resources, the countries of Europe when they started
their process of development. These underdeveloped countries are
in the position of latecomers who are burdened with all the disadvan-
tages, but also some of the advantages, all latecomers face. Some
Latin American countries, some regions of Africa, and one or two
of the smaller countries of Asia may be reckoned in this group.
But many of the presently underdeveloped countries have a popula-
tion resource density which is considerably greater than that of even
the most densely populated European countries at the time of their
industrial revolution. Moreover, this dense population is due not
to the abundance of large and populous cities, but rather to the high
density of rural populations in all but the most niggardly regions of
the country. Thus expansion of settlement is difficult, and an exten-
sion of the agriculturally usable area, though not impossible, is asso-
ciated with very high costs. In this way, the problems faced by densely
populated countries, such as India, Ceylon, or Egypt, differ funda-
mentally from those faced by some of the more highly industrialized
countries. Even in Europe, where population was more densely settled
than in the New Worlds of America and Oceania, it was still possible
to extend agricultural settlement within most countries when their in-
dustrial revolution set in, and where this was not possible, the "surplus"
population, to the extent to which it did not migrate to the cities, found
new economic opportunities overseas. This alternative is virtually
closed to the densely populated underdeveloped countries of today, and
the only place where the rural "surplus" population can congregate
is cities.
This situation enhances the need for capital formation, especially
in industry, but also in agriculture. Industrial capital is required
in order to provide opportunities for the productive employment of
those individuals who leave the countryside where they are under-
employed, as well as for new entrants to the labor force who cannot
find suitable employment in agriculture because of the already existing
overcrowding there. Capital investment in agriculture is required
in order to increase the output of food and fibers which are needed in
growing amounts in order to supply the population with more con-
sumer goods. It is clear that in countries in which present levels of
output are low, so that average real income is low, the savings necessary
to form such relatively vast sums of capital are difficult, if not impos-
sible, to procure. Among methods which might be applied to force
the population to save are totalitarian policies, and such policies are
tried with varying success in China. Terror and compulsion have
the disadvantage of giving people little incentive to work hard and to
take good care of tools. There does not seem to exist clear proof that
totalitarian forms of compulsion are better suited to starting a poor
economy on the road to relatively high levels of capital formation than
a policy of less coercion and one in which more free play is left for
private initiative and personal effort. Nevertheless, the Communist
countries have succeeded in persuading many members of the intelli-
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gentsia in Asia and other underdeveloped countries that their methods
have been successfully applied in Russia and continue to be successfully
applied in China.
Since the successful overcoming of the basic obstacles to economic
growth is one of the primary concerns of many governments in under-
developed countries, the Chinese claim of having successfully tackled
this problem will be observed by many statesmen and politicians in un-
derdeveloped countries with a great deal of interest. It is for this
reason that the achievements attained in Communist China are of con-
cern to the free world. Not only is the power potential of China one
which may have to be reckoned with, but of equal importance is the
propaganda effect which Chinese economic growth is likely to exert
on the minds of Asian and African leaders. If China's performance
should succeed in outstripping that of other Asian and African coun-
tries by a noticeable degree, an important advantage for the Commu-
nist bloc will be gained. In the present international situation one
may, therefore, consider it a matter of considerable importance for
the countries of the free world to insure, as much as they can, that the
non-Communist countries of Asia and Africa are provided not only
with the military means of resisting Communist aggression by force
arms, but also with the means for developing their economies at a
pace which is at least commensurate with that of Communist countries.
For if these countries fail to satisfy at least some of the aspirations of
their peoples in the economic sphere, their military arms against com-
munism may prove to be a chimera.
of
We shall now turn to a discussion of some of the concrete problems
and potentialities of economic development in Asian and African coun-
tries. We shall omit Latin America from our survey, because in that
part of the world the problems are relatively simpler and may be
solved by the more orthodox means of capital transfers and private
investment. We shall concentrate mainly on economic factors, but,
as will be seen, in some instances in which political factors loom large,
their decisive influence upon the chances of economic growth must be
considered.
B. DEVELOPMENT PROSPECTS IN SELECTED COUNTRIES AND REGIONS
1. India
India is a vast subcontinental area with a large population, pre-
dominantly agricultural, much rural "disguised unemployment," and
a very low level of living which according to best estimates has been
almost static in the last 75 years. India obtained independence in
1947 and had to deal with difficulties brought about by the separation
of Pakistan. The first 5-year plan (1951-56) involved a planned
Government investment of about $5 billion, of which less than $1
billion was to come from foreign aid. About one-third was spent on
agriculture (including community development projects, irrigation,
and flood control), one-fourth on transport and communications, one-
fourth on social services, and the remainder on electric power, manu-
facturing, and minerals (most industrial development was under pri-
vate auspices). Only about $4.2 billion was actually spent, and not
all foreign aid granted was used.
As a result of the plan, total production increased 12 to 13 percent,
which meant only 1 percent per year per capita, since population
FOREIGN AID
207
increased at a rate of about 12 percent. Although industrial output
rose by 50 percent from 1950 to 1954, employment in "organized
industries" remained at 2,500,000, while real earnings of workers in-
creased, but only to the very low 1939 level. Unemployment, both
open and "disguised," actually increased, the total labor force in-
creasing by about 9 million, while employment only increased by half
as much.
The second 5-year plan (1956-61) involves a planned governmental
investment of about $10 billion, a projected rise of total output of
25 percent, a greater stress on industry, an increase of 8 million in
nonagricultural employment and of 2 million in agriculture, with
unemployment expected to remain the same. This would require
(allowing for private investment and $900 million new foreign aid)
a rise in the rate of savings from about 7 percent of national income
in 1955-56 to about 12 percent by 1961. It is doubtful, however,
whether such an increase in savings or in output can be achieved, and
it has been estimated that the gap between resources available and
those needed to finance the plan may be as high as $5.5 billion. It
is planned to stress industrialization, especially basic and heavy indus-
tries, to continue land reform, to place a ceiling on the level of salaries,
and to encourage small-scale industries.
Despite difficulties, the prospect for Indian economic development
appears to have some favorable aspects. The fact that as small a
percentage of foreign aid as 10 to 15 percent of the development
budget is planned shows that India is attempting to rapidly develop
its own resources and productive capacity, even though this may
involve great sacrifices. India also appears to be willing, quite inde-
pendently of any foreign aid program, to engage in the necessary
social changes required in the process of economic development.
2. China
Chinese development under Communist auspices differs from India
in still greater stress on heavy industry, in a much more drastic agrar-
ian reform, and in attempting to collectivize agriculture. Because
of these and other differences in policies, investment in China was
about 12 percent of the national income in 1952 (as compared to 7
percent in India), and may increase to about 20 percent by 1962 (as
compared to a planned 12 percent for India). But it is not clear
whether this will mean a faster rate of development in the next 5
years than in India. For the greater proportion of resources available
in China may be offset by disadvantages, including wastes involved in
centralized planning, the need to build a whole network of railways
before China's natural resources can be used, emphasis on heavy in-
dustry which yields a more delayed return, and also the diversion of
a larger portion of the total product to the governmental bureaucracy
and to military purposes. But, like India, China appears to be break-
ing out of a long period of stagnation, and output may grow from
2 to 4 percent per year, but without a corresponding increase in con-
sumption per head, or even the slow rise that will probably take place
in India.
3. Southeast Asia
Apart from Java, parts of east Pakistan, and the island of Singa-
pore, countries in southeast Asia are not heavily overpopulated, and
the problem of "disguised unemployment" is less acute. The econo-
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FOREIGN AID
mies of these countries depend mainly on the export of raw materials
and rice to India, China, Japan, and Europe. Several countries (e. g.,
Burma, Malaya, and Indonesia) have the difficult problem of sizable
foreign immigrant groups-Chinese and Indian-which have per-
formed in the past crucial economic functions, e. g., in commerce, and
yet are the objects of a suspicion which is mutual. Several southeast
Asian governments have established marketing monopolies. Since
these operate like a heavy tax on producers, and since these countries
have received proportionately more foreign aid, than India, for ex-
ample, their ability to accumulate capital is enhanced. On the other
hand, Government trading may not be a perfect substitute for foreign
merchants, and native enterprise, whether private or governmental,
has not yet fully replaced foreign enterprise.
Developmental prospects for South Korea, South Vietnam, and Tai-
wan, which receive proportionately the most foreign aid, are obscured
by the effects of the heavy cost of defense against Communist aggres-
sion. Taiwan and South Korea have carried out land reforms and
undertaken a fairly rapid industrialization program largely based
on American technical assistance and aid in capital investment projects.
4. The Middle East
Population everywhere in the Middle East is increasing rapidly—
at a rate of 2 to 32 percent per year-mostly by natural increase, but
in Israel by immigration. Except for Egypt, Jordan, and Lebanon,
the problem of overpopulation and of "disguised unemployment" has
not been very acute. Per capita income has probably fallen in Egypt
and Jordan, and risen elsewhere, though data are fragmentary. Since
water, rather than land, is the crucial agricultural shortage, irrigation
is of great importance. Major irrigation projects have been started,
especially in Iraq, and during the last 30 years, there has been a
rapid increase in both agricultural area and output in Syria, Iraq,
Israel, and Iran. Except in Israel, and in a qualified sense in Egypt,
no full-scale revolution in the system of land tenure has been attempted,
but some public lands have been distributed to small holders.
Despite the fact that some $1 billion per year in royalties and local
disbursements derived from the extraction of oil becomes available,
development prospects are not very favorable for the Arab countries.
of the Near East, largely because of political conditions. Outstanding
among these is the tension between Israel and the Arab States, which
deflects an inordinate amount of human and capital resources-which
could otherwise be used for economic development-into the buildup
of military power. Another important political impediment to the
economic development of most Arab States in the Near East is the
political fragmentation of Arab countries, resulting in insecurities
arising out of mutual quarrels on the one hand, but having as a con-
sequence also the fragmentation of markets and potential overinvest-
ment in a few industrial spheres. Moreover, one must not omit
mentioning the influence of large landowners, who are usually ab-
sentee landlords, enjoying often immense incomes. These landowners
are content with matters as they stand. Improvement in agricultural
techniques on their holdings might produce various new difficulties
which they try to prevent by attempting to maintain traditional social
and productive relations. Finally, the changing political relations
between various Arab countries of the Near East and the Western
FOREIGN AID
209
World on the one hand, and the Soviet on the other, make them poor
risks for investments in other fields than oil and possibly a few min-
erals. Thus the economic development of the Near Eastern Arah
countries is greatly hampered by the unstable political relations in that
area, and is not likely to have much chance of success until this political
instability is considerably reduced.
5. Africa
It is impossible to give even a brief sketch of developmental possi-
bilities in Africa. This continent is composed of countries on differ-
ent levels of political independence, and this is one factor which plays
a considerable role in the developmental potential of the various
regions. In addition, the European powers who have established
colonial or trusteeship relations in various regions differ in their
economic policy at home and with regard to the countries within their
sphere of interest.
Among the African areas south of the Sahara which in the past
have shown the greatest capacity for economic progress are the Sudan,
the Central African Federation, and the two large British territories
in West Africa, the Gold Coast and Nigeria.
All these countries have certain external similarities. All have a
small number of valuable export products which have made possible
the importation of consumer goods from the advanced countries, but
also some capital investment. In the Sudan, Nigeria, and the Gold
Coast, moreover, the main export crops are produced by small and
middling native farmers, and these persons have, in an indirect way,
thus been tied into the network of world trade. Although in Nigeria
and the Gold Coast, the staple exports have been subjected to regula-
tion by marketing boards, the resulting large revenue has been ap-
plied, in considerable degree, for the creation of social overhead, thus
enhancing the chances of economic growth in these countries. In all
three countries the masses of the indigenous population have succeeded
in acquiring political rights, in general more extensive than those of
Africans elsewhere, and the countries either have already gained or
are close to gaining political independence. There are still great diffi-
culties in the path of economic progress in all three countries, but they
appear to offer rather good opportunities for economic development.
The Central African Federation (Southern Rhodesia, Northern
Rhodesia, Nyasaland) unlike Nigeria, the Gold Coast, and the Sudan,
where permanent European settlers form only a negligible minority
of the population, has a relatively larger permanent European popu-
lation. There are some 200,000 Europeans and about 6.5 million
Africans. This Federation has developed rapidly in the past on the
basis of European exploitation of minerals.
Just as cotton forms a staple export of the Sudan, and cacao and
palm oil of Nigeria and the Gold Coast, so minerals form a major
export staple of the Central African Federation. But whereas the
agricultural exports of the three countries in northern and western
Africa are grown by a large number of small farmers, the production
and export of minerals from the Central African Federation depends
to a large extent upon European enterprise. Nevertheless, investment
rates in the Federation have been extremely high in the last few years,
varying from above one-third of national income in Southern Rhodesia
to about one-fourth of national income in Northern Rhodesia.
Euro-
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FOREIGN AID
pean settlers have also developed tobacco and tea for export and some
manufactures for the small home market. Most of the skilled and
professional labor is provided by whites, the unskilled by Africans.
The racial division and the serious obstacles imposed upon Africans
to move upward in the social and occupational scale are among the
most important impediments for continued economic development of
the Federation, commensurate with its past performance. The rate
of increase of Africans in the "westernized" sector of the economy has
been very rapid in the last few years. However, this rate is likely
to be reversed since migration of Africans to urban centers encounters
increasing obstacles, and the main impact of the population growth
among Africans is likely to occur among the "nonwesternized" sub-
sistence farmers, rather than the dwellers of cities, towns, and mining
camps. Unless greater freedom of movement (both in a geographical
and occupational sense) is permitted for Africans, the rate of increase
of income is likely to decline, and although further economic growth
may continue, the aroused aspirations of Africans are not likely to
be met in full. This may have one of two results. Either it may
end in a policy of suppression of Africans, similar to that of South
Africa, or it may develop into a period of internal strife, similar to
that of Kenya. Under either alternative, the progress of economic
growth is likely to come to a standstill.
This indicates that in Africa various patterns of development are
possible and likely. The Portuguese colonies are likely to continue
to stagnate, and west Africa and the Belgian Congo are likely to
show the most satisfactory rates of progress. In east Africa, as in
South Africa, the potential conflict of Africans and whites may exert
an important impact upon economic development and political sta-
bility. The same is true of north Africa, where the problem is en-
hanced because of the traditional animosities between Moslems and
westerners.
Thus, whereas in Asia the possibilities of economic advancement
are profoundly dependent upon the question of what will be Com-
munist strategy, in Africa they are dependent upon whether the con-
flicts between Europeans and Africans can be resolved and a more or
less stable settlement reached. Whereas in Asia the abundance of
population presents one of the most difficult impediments for economic
growth, in Africa and the Near East it is the waste of resources for
political or military aims and the rigidity and castelike appearance
of the occupational structure. These problems cannot be solved di-
rectly by the application of economic aíd, and can be solved only very
partially by the granting of military aid. They are problems which
each country must work out for itself, and which have deep roots in
its historical traditions and its cultural and social relations. What
foreign aid can do is to help economic development provide a more
favorable framework within which these conflicts and obstacles to a
final victory over economic backwardness can be overcome.
.
CHAPTER V
THE EFFECT OF FOREIGN AID ON THE PATTERN OF
DEVELOPMENT IN UNDERDEVELOPED AREAS
A. THE ROLE OF EXTERNAL ASSISTANCE IN THE DEVELOPMENT OF ADVANCED
COUNTRIES
As was already pointed out in earlier chapters, external assistance
in a wider sense played an important part in the development of
currently economically advanced countries, while assistance in the very
narrow sense of the term was virtually nonexistent. There was no
deliberate Government policy in early 19th century Britain of aiding
the economic development of such countries as Germany, the United
States, or even its own colonial areas. In fact, up to 1824, the emigra-
tion of skilled workers from Britain was prohibited, and up to 1842
the export of certain types of machinery was restricted. But despite
these restrictions-which proved to be unenforceable-British busi-
nessmen, managers, and skilled workers started some of the first fac-
tories on the European continent and elsewhere. There was also some
British foreign investment on the European Continent, although the
bulk of British foreign investment went to overseas areas, chiefly the
dominions, the United States, and Latin America.
In the United States, British investors helped finance railways,
canals, and other enterprises belonging in the class of economic over-
head. Some of this investment turned out to be unplanned economic
assistance when States and railway companies defaulted on bonds.
Perhaps the most important foreign contribution to American econom-
ic development was made by the hundreds of thousands of immi-
grants, whose education and early training and support had been paid
for by the countries from which these immigrants came. This reduced
substantially the amount of capital formation the United States had
to undertake. We have already pointed to the fact that this flow was
much larger than the present movement of technical experts from the
United States and other economically advanced countries to the under-
developed areas. Moreover, the important fact must be borne in
mind that these immigrants came to stay permanently, rather than
for a visit of more or less short duration.
Although most of the international investment and movement of
skilled workers was an outflow of private initiative, government
policy both in aid-giving and aid-receiving countries was not with-
out importance. For example, the French Government induced
private investors to finance strategic railways in Czarist Russia, al-
though these investments, which were riskier than normal industrial
investments, did not yield higher returns than other securities.
1. Limitations of private investment as a means of economic develop-
ment
Since almost all economic assistance which the developed countries
received was in the form of private capital—including capital in-
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FOREIGN AID
vested in Government bonds-and since even technical assistance was
being paid for by the recipient countries, we must inquire if private
forms of investment and capital transfers would suffice in the present-
ly underdeveloped areas to contribute in a similar degree to their eco-
nomic development. This question must be answered in the negative
for the following reasons: (1) Compared with the period before 1914,
the total amount of private investment which is forthcoming is pro-
portionally much smaller than at that time, and considerably below
the capital needs of the developing countries; (2) private investment
is distributed most unequally, both in terms of industrial fields, as
well as from a geological viewpoint; (3) a relatively large amount
of capital in underdeveloped countries is needed for the development
of social and economic overhead. The creation of these forms of capi-
tal is normally the function of governments, and private investors
would have to be willing to accept the bonds of the governments of
underdeveloped countries freely if this type of capital accumulation
were to be financed by private investment. Since rates of return in
these types of investment are very low, though spread out over a long
period of time, and since they are widely scattered over the economy,
the private financing of many of these capital installations would meet
with difficulties either on the part of investors or the borrowing gov-
ernment; (4) finally, private investment is discouraged in some of
the smaller underdeveloped countries because of their limited markets.
These markets are limited because the countries are poor and popula-
tion relatively low. Thus, in spite of capital shortages in such a coun-
try, investment in industries other than export industries is not very
attractive to private investors, both foreign and domestic. Thus pri-
vate foreign investment tends to be concentrated in the production
of exportable raw materials, which may have little stimulus to the
rest of the economy, normally, because these export commodities are
produced in plantations or mines which technologically are complete-
ly different from traditional forms of production.
In attempting to explain the first two points in this list, i. e., the
relative decline in the magnitude of private foreign investment and
its unequal geographical and industrial distribution, two sets of ex-
planatory factors appear to be significant. The first is economic and
the second political. Foreign investment in the 19th century was rel-
atively greater than it is now because the overall difference in tech-
nological performance in the lending and borrowing country was
smaller than today. For this same reason, private investors were will-
ing to put their capital into installations which were similar to the
ones created in their own countries, whereas today they are willing
to put their capital, preferably, into only those lines of production
which are clearly complementary to their productive or marketing
position.
When the leading countries of Europe had built a reasonably com-
plete railway network, the same persons who had financed the railway
networks of France and Britain turned to exporting capital to Spain,
Austria, Russia, and the United States, in order to produce compara-
ble railway networks there, and after that to Brazil, Argentina, and
South Africa, to repeat the performance. It was the same with power
installations, with the development of harbors and ports, and with
communications systems. Today this is not the case. A glance at the
distribution of American private investment will show that the bulk of
FOREIGN AID
213
it is in extractive industries, and only a small part in industries which
are adaptations of American forms of industrial or commercial enter-
prise to the needs of other countries. The reason for this difference
between the patterns of private investment in the 19th century and to-
day appears to be the relative difference in risks of various forms of
capital investment in different lines.
Among the political factors, and these appear to be overwhelming,
are mainly two: nationalism and the threat of Communist revolution.
As concerns nationalism, we have already mentioned that it is wide-
spread and deeply rooted in many important underdeveloped areas.
In regard to foreign investors, it is based upon an attitude of the
nationalist elite which, though founded in the past upon prejudice
against the "foreign capitalist exploiter," has in some instances some
foundation of truth. In many of the previously colonial areas in
Asia, a large class of indigenous enterprises has not been developed,
and to the extent to which anything approaching native free enterprise
exists, it is only a thin imported veneer over more traditional types of
economy. In some cases underdeveloped countries have, in effect,
been governed by an alliance of foreign capitalists and local landlords
who tacitly agreed not to interfere with one another's economic sphere.
Thus, too often in the past, imported capital has failed to lead to the
cumulative self-perpetuating patterns of growth that alone can lead to
a substantial rise in material welfare of the population. Though this
outcome was often prevented by other factors, such as natural-resource
endowment and the quality of population, nationalists in underdevel-
oped countries have attributed it to foreign governments and foreign
investors and have developed vigorous antagonisms against foreign
investment, which prevent the flowing of private capital into many
fields into which it normally would flow.
A second political factor discouraging private investment in many
areas is the danger of political change, especially the danger of a
Communist coup d'etat. Although this danger appears to be some-
what reduced after the decisive opposition which Communist
aggression met in Korea and Vietnam, recent developments in the
Middle East indicate that the appearance of Communist aggression is
a constant threat which will exist as long as Communist regimes are in
existence. Under these circumstances, private investors are not will-
ing to sink their funds into industrial or agricultural investments in
countries in which these dangers appear closer at hand than elsewhere.
Apart from sheer Communist aggression, there is in many countries
also a danger of actual or virtual expropriation of foreign-held invest-
ments, and these conditions, as well as governmental policies in gen-
eral, are also a deterrent to private investment.
It appears that these factors account largely for the relative decline
in the amount of investment and the change in its geographical and
industrial distribution. But given these considerations on the part of
private investors, it would be vain to expect private investment
alone to meet all the legitimate demands for capital in underdeveloped
countries. Thus there are certain politically or economically vulner-
able areas where only governmental or internationally sponsored in-
vestment can contribute to capital formation. And there are, even in
the politically and economically safe countries, certain forms of capi-
tal investment-especially in various forms of social overhead-in
which prospective rates of return are so low that only intergovern-
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mental loans and loans by agencies such as the International Bank for
Reconstruction and Development will be acceptable.
Finally, quite apart from the problem of creation of real capital,
there are areas of foreign aid in which private investment cannot func-
tion at all. One example is the carrying out of extended technical
assistance programs, which private persons would not undertake. To
be sure, the expert advice which is provided under technical assistance
programs could be obtained by hiring the services of experts or expert
agencies, but the point in technical assistance is often that the govern-
ment of the country receiving technical assistance is unaware of the
kind of expert advice it needs, and that only extended study by foreign
experts contributes the knowledge of what developmental programs
can and should be undertaken. There are other fields of foreign aid in
which governmental action is required. Apart from military assist-
ance and defense support, this is true of such forms of direct economic
aid as the granting of loans under better than ordinary market condi-
tions, or foreign economic aid given through disposal of agricultural
and other surplus commodities, and of such forms of indirect aid as
alterations in the country's tariff and trade structure, price stabiliza-
tion of the exports of underdeveloped countries through commodity
agreements or stockpiling of strategic materials, and other measures.
Thus the intervention of government into the field of foreign aid has
not only made possible an increase in the amount of aid granted, but
also an increase in the variety of aid available to underdeveloped
countries. This has increased the flexibility, and with it, in some
measure, the efficacy of aid programs.
B. EFFECTS OF DIFFERENT FORMS OF DIRECT FOREIGN AID TO UNDERDEVELOPED
COUNTRIES
The total size of American foreign economic aid is often exagger-
ated, largely because of a confusion between military and nonmilitary
programs. Thus out of $4.6 billion spent on aid programs in the fiscal
year 1956, $1.6 billion was spent on nonmilitary programs, of which
not more than about $1 billion was aid that contributed to economic
development. Of this, about $150 million was spent directly on grants
for development assistance, $170 million was spent on technical cooper-
ation, $200 million on loans, and the rest in such forms as the use of
surplus farm products and part of defense support.
Another way of classifying economic aid is by those portions of aid
which were spent for definite projects and those spent outside such
products. Of the total economic aid extended in the fiscal year 1956,
close to $400 million was spent in the form of project aid, close to $1
billion on nonproject aid, and somewhat more than $130 million on
miscellaneous economic aid. The meaning of these different classifica-
tions is made clear in appendix IV.
1. Direct cash grants
In the last resort there is litle difference between the economic ef-
fects exerted on an underdeveloped country's economy by direct
grants, loans, or other forms of governmental assistance. All forms
of aid may be viewed as implying a subsidy, either by extending a
grant or loan under conditions less onerous than would be the case
under private investment, or accepting risks which private investors
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215
would not be willing to undertake. Some of the factors that discour-
age private investment also make doubtful the ability of countries to
repay loans even those granted on subsidized terms. Countries in
comparatively early stages of development are able to save only a
comparatively small proportion of the increase in income brought
about by developmental aid, and these savings may be in forms which
are not useful for repayments of foreign loans. In addition, in order
to maximize the speed and ultimate chances of success of development,
any such savings should be used for local investment. Thus, for
countries in earlier phases of development, cash grants are the most
effective, as well as the most straightforward and undisguised, form
of aid. However, there is always the danger that because they do not
have to be repaid, such grants may be used only to increase con-
sumption-and in particular the economically wasteful consumption
of a privileged elite. The result would be a temporary increase in
consumption and no movement to higher production and development.
Such an undesirable outcome could only be avoided by careful control,
not only of the aid granted, but also of the local spending, in order to
insure that the net result of the aid program was an increase in
spending on development projects from domestic sources by an amount
at least equal to the foreign grant.
Attempts have often been made to insure optimal use of direct aid
by giving direct cash grants (as distinguished from commodities pro-
cured with aid money) only on specific projects, jointly agreed upon
by the International Cooperation Administration mission in an
aid-receiving country and the Government of that country. To some
extent, this prevents the diversion of aid to consumption, especially
when, as is usually done, the local government contributes its own
funds to meet all or part of the costs for local labor and materials.
But this does not prevent other, more indirect forms of waste. Some
funds that might have been used for economic development projects
in the absence of an aid program may be diverted to nonproductive
uses. More important, perhaps, many projects that appear quite
sound from an engineering standpoint may involve costs to the econ-
omy greater than the benefits produced by the investment. Such in-
vestments are actually worse than luxury consumption, for in the
latter case the loss ceases when the money has been spent, while in
the case of misinvestments, the loss may recur until the equipment is
scrapped.
2. Commodity grants
Another form in which aid is given is the grant of staple commodi-
ties such as wheat, cotton, and steel, either purchased out of surplus
farm stocks or procured directly with money appropriated for aid.
It is estimated that 70 percent of all economic aid consisted in recent
years of commodity grants, and only 30 percent of direct aid for
meeting the dollar costs of specific development projects. Often such
commodity grants are used to provide raw materials needed to keep
the industries of a country going when, owing to heavy military
spending or for some other reason, there is not enough foreign ex-
change available to pay for the required raw materials if these have to
be imported. Though such aid does not directly contribute to eco-
nomic development, it may permit consumption of goods produced
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FOREIGN AID
with the use of these raw materials to be maintained, even though at
the same time military or capital accumulation expenses are not
curtailed. Commodity grants are made also in order to provide more
consumers' goods, with the aim of preventing inflationary tendencies
which might result from expenses by the aid-receiving government
on defense and development.
Although commodity grants do not directly further economic de-
velopment, they can support it indirectly in two ways: industrial
raw materials, such as cotton and steel imported under a commodity
grant, make the expansion of industry and agriculture possible; and
counterpart funds arising from such imports may be applied to local
development projects which would not be undertaken otherwise. The
test of whether the use of a commodity grant is an indirect subsidy
to consumption in the aid-receiving country or a contribution to its
economic development consists in whether the resulting expansion of
the economy will make possible the earning or saving of the needed
foreign currency to purchase the raw materials required to maintain
the expanded production. If this is not the case, the expansion would
either cease with the cessation of further commodity grants, or else
future aid would in effect be diverted from genuine development
projects to subsidizing indirectly the losses resulting from previous
misinvestments. These misinvestments may be assumed to have arisen
because the new industries received raw materials imported on a sub-
sidized basis. Yet in the long run, economic efficiency was not pro-
moted by this subsidy sufficiently so that the goods of the aid-receiving
country became cheap enough to be sold on the world market to pay
for the raw material imports needed for the production of these new
commodities.
The effects of the use of counterpart funds in local currency, whether
obtained from the sale in the local market of commodity grants or of
farm surplus commodities, will be discussed further below, in section 5.
Another form of commodity aid consists in the gift of war surplus
material. In some circumstances such material may be useful for
development, but in others it might be more economical to sell the
surplus material to the highest bidders (unless this was precluded by
security and other considerations), and instead give aid in the form
of direct cash grants.
3. Technical assistance
(a) Technical assistance programs by the United States.-Techni-
cal assistance (or as it is sometimes called, technical cooperation) may
be defined as an attempt to encourage, by deliberate government ac-
tion, the transfer of specialized skills, techniques, and technical and
productive procedures from one country to another. It consists in
obtaining technical experts, advisers, and demonstrators, with a grant
necessary to meet their expenses, including salaries and equipment.
This latter may sometimes include the setting up of pilot plants.
Technical assistance is advocated both because it appears to be
relatively cheap, and also on the ground that underdeveloped countries
need, even more than capital, the technicians required to help them
train their own technicians and to introduce new methods of produc-
tion. Moreover, technical assistance projects embrace resource sur-
veys, and in this way they form the basis for any further foreign
FOREIGN AID
217
aid, whether in the form of technical assistance or grants or loans of
capital.
The amount of technical assistance aid granted by the United States
amounted to more than $150 million in the fiscal year 1956, the
highest amount on record. This sum includes a small amount of dis-
guised direct economic aid, but it is limited primarily by the scarcity
of experts who have the necessary technical and personal qualifications
to work on such projects in underdeveloped countries.
On the whole, technical assistance has met with more widespread
support than most other forms of foreign aid. For example, it is
argued by some that giving an underdeveloped country money to
finance the expenses of technical experts, and the import of equip-
ment needed for demonstration purposes, is a constructive measure,
helping the underdeveloped country to help itself, whereas donations
for other purposes (except military aid, defense support, and aid to
meet various emergencies) are demoralizing handouts and giveaways
of the taxpayers' money. Yet it would be at least equally sound to
argue that, if a country is unable or unwilling to pay for the compara-
tively small cost of the technical assistance, it will be equally unable
or unwilling to pay the cost of the remainder of its local development
program. Sometimes it is said that a country is able to pay the local
currency costs of its development, including the salaries of its own
experts, but not the foreign currency costs. But even this argument
is not valid, since if the services of foreign experts or certain forms
of foreign capital are considered particularly urgent for economic
development, measures can usually be taken to increase exports or
diminish imports in order to earn the needed foreign exchange to pay
for technical assistance. Thus, in the last resort, technical assistance
may be regarded as a form of foreign aid which can be substituted
for other forms of aid. If a country receives technical assistance, it
has more funds left for either import of capital or of additional con-
sumer goods. If it receives a commodity grant or direct aid in the
form of capital equipment, it can use foreign exchange to hire experts
to get advice on technical matters. From an overall economic view-
point, these different forms of aid are substitutes. The difference be-
tween technical assistance and other forms of aid has, however, im-
portant administrative implications, and if a distinction between tech-
nical aid and direct cash or commodity grants is made, it should not be
made by regarding one as useful and the other wasteful, but rather by
the different administrative and personnel problems arising out of
these forms of aid. We shall not enter into a detailed discussion of
these differences, since these matters are more appropriately taken up
in other studies on personnel problems in foreign aid and administra-
tion of foreign aid programs.
The technical experts recruited by Government-financed technical
assistance programs may be only a small part of the total international
flow of technicians from developed to underdeveloped areas. These
programs are intended to introduce new forms of techniques which
can later be integrated into the ordinary Government development
programs and extension services. Thus, one of the most effective
forms of technical assistance is the servicio approach, which was pio-
neered (at least as far as United States programs are concerned) in
Latin American economic development. In its report on technical

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FOREIGN AID
assistance in Latin America, the National Planning Association has
described a servicio as follows:
A servicio is not a program. It is like a flatcar onto which
a specific project can be loaded and carried to the point at
which it can be transferred entirely to a wholly domestic
agency of the host government. This flatcar can carry a
number of projects simultaneously, unloading each at its
appropriate destination, and taking on new projects ***.
In some cases, however, the projects initiated by the servicios could
not be transferred effectively to the governments of the Latin Amer-
ican countries. Sometimes this was due to lack of adequate adminis-
tration on the part of these governments, and sometimes to the absence
on the part of the Latin American governments of full conviction of
the value of the projects, though they had approved them because
they were induced to try them by a United States agency. Generally,
however, the Latin American governments have been paying an
ever-increasing proportion, ranging from 50 percent to 95 percent of
the total cost of the technical assistance programs, gradually replac-
ing United States technicians with their own nationals trained with
the help of the program, and thus allowing the program to expand
without an increase in the total number of United States technicians.
Officially sponsored technical assistance has greatly increased since
it was made part of United States policy in 1949. Previous to that
date, American governmental technical assistance had been confined
to specific areas, mainly to Latin America and to a lesser extent China,
as well as in a number of scattered projects in United States territories
in the Philippines and the Caribbean.
To some extent, however, technical assistance has merely replaced
movements of skilled people on private account. Some countries in
Southeast Asia and in Latin America have laws restricting the num-
ber of foreign employees that a foreign-owned corporation can
employ. Native-born citizens are favored in the distribution of import
licenses and in other ways. Partly as a result of such laws, a large
number of Indians and Britishers in Burma and Dutch in Indonesia,
for instance, have left since these countries became independent. This
has been a serious handicap to their economic growth, since these
groups formed a large part of the small class of private enterprisers,
as well as professional persons in government and business, and it
will take some time before they are adequately replaced by local busi-
nessmen or by government enterprise assisted by technical assistance.
The emphasis in United States technical assistance programs has
been shifting away from agriculture, health, and sanitation toward
industrial and public administration projects, although the former
are still predominant. Some projects which involve a greater degree
of direct capital assistance the expansion of already known tech-
niques rather than the teaching of new ones-have been included in
the technical assistance program.
(b) Technical assistance of the United Nations and private agen-
cies. The United Nations and most of its specialized agencies also
furnish technical assistance, though on a more limited scale than the
United States. Besides the large number of small programs under-
taken by the United Nations expanded technical assistance program,
there are the survey missions to underdeveloped areas sent by the
FOREIGN AID
219
International Bank for Reconstruction and Development. These
missions, undertaken at the request of the governments concerned,
make comprehensive, book-length reports on the economy of the coun-
try visited. These reports deal with every aspect of the development
of these countries, including not only strictly economic aspects, but
also health and education systems. Governments are aided, by the
survey missions and in other ways, to create coordinated development
programs. Such survey missions have been sent to Colombia, Turkey,
Guatemala, Cuba, Iraq, Ceylon, Surinam, Jamaica, British Guiana,
Nigeria, Malaya, Syria, and Jordan. These survey missions try to
estimate the amount of investment that each country can undertake
with the resources at its disposal, recommend priorities for public
investment among the various sectors of the economy, and economic
and financial policies and administrative measures necessary to assure
the success of a development program, as well as technical recom-
mendations.
The International Bank for Reconstruction and Development, like
the International Cooperation Administration, participates in other
technical assistance programs, including training programs for junior
career officials from underdeveloped countries.
Private programs which are similar in their aims to technical assist-
ance have existed for many years. Besides some of the work of mis-
sionaries, especially in the field of education, medicine, and agriculture,
and the philanthropic work of such groups as the Rockefeller Inter-
national Basic Economy Corp., the Ford Foundation, and many
smaller agencies, some business firms have been set up which offer
their services as consultants in various fields, such as engineering, of
economic development.
These private varieties of technical assistance have some advantages
over government programs. Among them are (1) a somewhat greater
flexibility, (2) no damage to the national prestige of the aid-giving
country if a program fails; and (3) less suspicion on the part of the
aided country that ulterior motives may be involved in granting tech-
nical assistance. These advantages of nongovernmental programs
are, however, counterbalanced by a number of serious disadvantages.
Among them are: (1) Many assistance programs may be too large in
scope or too expensive for any one private corporation or foundation
to undertake; (2) some projects that may be deemed to be in the na-
tional interest of the United States may not be financially attractive to
private corporations or may not be capable of being executed by any
but a public agency; and (3) most important, a technical assistance
program executed by a Government agency, such as the International
Cooperation Administration, may be integrated into a wider program
of foreign aid and may be mutually coordinated with such an extended
program of aid. This is usually impossible with private technical
assistance projects. To some extent the advantages of both privately
and publicly sponsored technical assistance projects may be combined
by subcontracting a portion of a government program to a private
organization. The International Cooperation Administration has
gained some valuable experience by such procedures.
4. Loans
In the field of loans, a distinction must be made between regular
loans given by one government to another, and so-called soft loans,
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FOREIGN AID
which contain certain aspects of a direct grant in the outward garb of
an intergovernmental loan. The general economic effects of a regular
intergovernmental loan are not different from regular loans granted
by other agencies, and we shall discuss such loans further below.
First we shall turn to a short discussion of "soft" loans, which stand
somewhat intermediate between straight grants and regular loans, and
hence have some of the features of each.
(a) Intergovernmental "soft" loans. Soft loans have, on the whole,
very similar economic effects to straight grants, except that there is
some expectation that the loans will be both serviced and repaid-
usually at interest rates well below the rates acceptable to other
lenders. Thus soft loans are always, to some extent, free grants,
since private investors, and even semi-public institutions such as the
International Bank for Reconstruction and Development or the Ex-
port-Import Bank, would not undertake loans on these terms. Soft
loans, like grants, though they may contribute extensively to economic
development, may not contribute in equal degree to repayment capac-
ity, because the benefits of the development may either be spread too
widely over the economy to be collectible in taxes, or may be concen-
trated in branches of production in which it is difficult or impossible
to raise sufficient foreign exchange for repayment. Thus the dis-
tinguishing mark of a soft loan is the fact that the lending country
realizes the difficulties in the way of repayment, and faces the possi-
bility that interest service on the loan or final repayment in full may
not be realized.
Soft loans are usually given for purposes in which political or
military-strategic factors play some role. Hence the direct repay-
ment of the loan is only a part of the expected recompense, and an-
other part may be the expectation of reduced foreign aid in other
forms, or reduced military expenditures, or other benefits which are
difficult to measure. This ambiguity in the overall conditions of
soft loans militates to a considerable extent against them. If the
loan is to be repaid, and if it is expected that it can be repaid, it is
preferable to grant a straight loan, instead of a doubtful soft loan. If
it is expected that the loan cannot be repaid, in full or in part, it is
preferable to extend a straight grant for that amount which cannot
be repaid, and a straight loan for that portion which can be repaid.
The practice of granting soft loans is due to a number of coin-
cidences which have primarily a political, rather than an economic,
background. As concerns the aid-receiving country, it may prefer
to receive loans instead of straight grants, even though it may
finally have to default. Its prestige appears to be somewhat less
affected if it can be regarded as receiving foreign aid in the form
of loans instead of straight gifts. On the part of the United States,
the granting of soft loans is influenced by legal provisions, among
others the provision of the Mutual Security Act of 1954, according
to which efforts should be made to give as much as possible of
American aid in the form of loans. In a way, the extending of soft
loans is an attempt to choose the least of several evils: since grants
are either not acceptable or cannot be made under the law, but since
aid is clearly in the national interest of the United States and the
aid-receiving country, a soft loan is given. A combination of straight
grants with regular "hard" loans, repayable at the market rate of
interest, would be more suitable from a purely economic point of
FOREIGN AID
221
view than soft loans, especially in the case of those underdeveloped
countries which can clearly be expected to meet their obligations
arising out of international indebtedness.
(b) Private, International Bank for Reconstruction and Develop-
ment, and Export-Import Bank loans.-Largely because of a record
of defaults on foreign government bonds in the 1930's, there now is
a very limited market for such bonds. But indirectly, through the
International Bank for Reconstruction and Development, interna-
tional lending has revived, since the International Bank for Recon-
struction and Development derives part of its capital from bonds
floated in the United States, Canada, Switzerland, and various other
Western European countries, although the bulk of the bank's capital
is subscribed by the member countries. Most International Bank for
Reconstruction and Development loans have been made for projects
such as improvements in railways, highways, and other forms of
transportation, and electric power, though some loans to India have
been for iron and steel plants, and some loans to Latin American
countries for the importation of farm equipment. Up to January
1954, only three loans were made for general development programs.
Most of the loans of the International Bank for Reconstruction
and Development have been not to the most underdeveloped countries,
but reconstruction loans in Europe and loans to countries in an inter-
mediate stage of development, such as Japan, Brazil, Chile, and South
Africa, mostly at interest rates of approximately 5 percent. Among
the factors considered in its loan policy are the effectiveness of gov-
ernment administration; the availability of managerial, supervisory,
and technical skills; the currencies in which debts can be paid; and
the capacity of the country to pay these debts. The International
Bank for Reconstruction and Development does not finance "social"
projects such as sewage systems, street paving, water supplies, housing,
health, and education, although these are recognized to be an essential
part of a development plan. These services must be financed out of
the underdeveloped country's own revenues, since they do not lead,
except very indirectly, to an increase in the ability to pay off foreign
loans.
The effect of the loans of the International Bank for Reconstruction
and Development has been to provide facilities such as electric power
systems and improved transportation that created new opportunities
for private investment. In a similar fashion, the Export-Import
Bank also loans on a commercial basis. It emphasizes loans to Latin
American countries, but follows, on the whole, a policy very similar
to that of the International Bank for Reconstruction and Develop-
ment.
The experience of both the International Bank for Reconstruction
and Development and the Export-Import Bank seems to suggest
that, since in no year has more than approximately $550 million been
lent to underdeveloped areas by these agencies, their capacity to repay
loans on anything like a commercial basis is limited. The coordina-
tion of direct grants with loans by these institutions, as well as with
private investment, is likely to lead to a greater amount of develop-
ment at a given total cost, since the endeavor to qualify for these
loans would lead underdeveloped countries to improve their plans
for economic development, including their taking steps to use their
own capital.
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With respect to commercial or near-commercial loans, as well as to
soft loans to the extent to which they are serviced and actually
repaid-one further observation is in order. This relates to the
actual mechanism of repayment. It is, of course, this repayment
feature which differentiates loans from direct aid, grants, and other
forms of assistance which do not require repayment. First, there is
the problem of how the underdeveloped country raises the necessary
funds for servicing and repayment of the loan, and secondly, there
is the transfer problem. This last problem will be discussed within
the context of the economic effects of indirect forms of aid in con-
nection with United States trade and exchange policy, in section
V. C. 3.
The problem of repayment and servicing of loans is one of the
central reasons for the economic surveys and similiar studies which
the International Bank for Reconstruction and Development or the
Export-Import Bank carry through in processing loan applications.
It is this scrutiny of repayment possibilities which has been a chief
factor in contributing to the overall limitation of loans granted, but
it has at the same time had the effect of imposing upon borrowing
countries more orderly forms of budgeting and administration of
public projects than would have been the case without such studies.
Thus, in the long run, the activities by the chief national and inter-
national loan agencies have contributed to the overall capacity for
economic development in many underdeveloped countries, and the
extension of loans by the International Bank for Reconstruction and
Development and the Export-Import Bank should be judged not
only in terms of the actual capital developments which they have
made possible, but also in the improvement of overall development
planning which they have promoted. These features have, in turn,
contributed to the better capacity of the underdeveloped countries
for servicing their loans, but have also made them more appropriate
objects for further loans or grants.
5. Other direct forms of assistance
(a) Defense support. "Defense support" is aid that is given to a
country in order to enable it to support a larger military effort than
it would undertake without such aid. Such aid is usually used to buy
consumption goods or raw materials that are imported in order to re-
place the drain on supplies caused by the maintenance of an army
larger than could be maintained without this aid. Some part of de-
fense support contributes positively to economic development, since
projects financed with the aid of defense support funds, such as roads,
normally increase production as well as aid the military effort. Some-
times, a project that has little direct relationship to defense as such
(like a fertilizer plant in Taiwan) is included in the defense support
program. A large share of defense support currently goes to Taiwan,
South Korea, and Free Vietnam, countries in which extreme military
efforts are necessary, due to recently past and/or threatened Commu-
nist military intervention.
A little more than a third of the amount of approximately $1 billion
per year spent on defense support represents an increase in investment
in the economies of the aid-receiving countries. If all non-Commu-
nist underdeveloped countries were given proportionately as much
economic aid, this would amount to about $3 to $4 billion a year, or an
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223
increase in total economic aid of between 2 and 3 times the amount
allocated to it at present. At the same time this would constitute an
increase in investment in all non-Communist underdeveloped countries
by between 30 and 50 percent.
(b) Offshore procurement.-Offshore procurement may be briefly
defined as the purchase of commodities (normally raw materials or
military equipment) from countries other than the one giving aid
(i. e., in our case, in countries other than the United States). If the
goods purchased for aid to an underdeveloped country are bought in
another underdeveloped country, then the offshore purchases aid both
underdeveloped countries, the one directly, the other by supplying it
with dollars to buy goods needed in its own development program.
But a dollar's worth of offshore purchases does not help the second
country's development effort as much as would a direct grant, since
the production of the materials procured absorbs local resources.
However, only a small portion of offshore purchases has consisted
of goods produced in underdeveloped areas, and most offshore pro-
curements come from Western European areas. Offshore procurement
in most highly developed areas to supply goods needed for foreign aid
has four advantages: (1) It makes possible, by permitting the use of
American dollars to buy goods for aid in the cheapest market, to re-
duce the cost of aid programs, or to have a larger aid program with
the same outlay. (2) It helps the economies of the countries in which
the goods are procured by providing them with dollars. (3) It con-
tributes to the safeguarding of American raw materials in short sup-
ply which are required in a foreign aid program, by making possible
the substitution of commodities produced elsewhere for the scarce
American goods. (4) Since the demand of the rest of the world for
American goods is limited mainly by the availability of dollar ex-
change, the offshore procurement program, by increasing the supply
of dollars available to other countries (since part of the development
plans result in increases of United States imports), stimulates Ameri-
can general exports, in comparison with a situation in which every dol-
lar of aid is spent entirely in the United States. Thus, attempts to
restrict offshore procurement in order to increase the exports of a par-
ticular United States industry will result in a decline in United States
exports and a less effective aid program. If a particular labor surplus
area, or strategically vital industry, such as merchant shipping, must
be aided, the most efficient method is a direct subsidy, not an indirect
subsidy that increases the cost of foreign aid. The most effective use
of offshore procurement would require an amendment to the Mutual
Security Act, since that act restricts offshore procurement of goods
produced in labor-surplus areas of the United States, and also requires
half of all aid goods to be shipped in United States merchant ships.
(c) Counterpart funds and agricultural surpluses.-Counterpart
funds are funds in the local currency of the aid-receiving country
which are obtained from the local sale of commodities procured
through foreign aid. They do not form a source of funds for devel-
opment additional to the dollars that were obtained in the form of
foreign aid. Rather, the aid granted in dollars represents the net
addition to the resources that the underdeveloped country can use for
development, and the spending of the counterpart fund is only a par-
ticular way of utilizing the dollar aid. If the purpose of a foreign
aid project is to increase the amount of development spending by at
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FOREIGN AID
least the amount of the aid, the use of the counterpart fund should
depend partly on whether foreign aid consists in the shipment of
consumption goods or investment goods. If investment goods, for
example, steel, are imported into the aid-receiving country, then an
attempt to use the fund resulting from the sale of the steel for invest-
ment would result in inflation, since there would be no additional con-
sumer goods corresponding to the added purchasing power caused by
the spending of the counterpart funds.
If the imported goods are consumer goods, for example, food, the
counterpart fund must be spent on local investment and, in particu-
lar, on the payment of workers employed in the investment projects.
This results in an added demand for consumer goods, especially if
these workers have been underemployed, and the added demand, de-
spite the spending of the counterpart fund, does not raise prices, since
it is met by the imported consumer goods.
Thus the use, in certain circumstances, of counterpart funds to pay
off part of the national debt of an underdeveloped country and thus
to reduce money supply in that country does not mean that the Ameri-
can taxpayer is paying off the debt of a foreign government. For
the aid has already been given in the form of the commodities im-
ported with the dollar grant. In fact, sometimes repayment of the
internal debt in an underdeveloped country-which is prohibited by
the Mutual Security Act-might help increase the effectiveness of
foreign aid by combating inflation, and thereby discouraging some
kinds of wasteful investment, for example, hoarding of commodities.
In fact, in some cases such disinflationary repayment of an internal
debt might lead to a dishoarding of gold and dollars on the part of
private investors, and thus a reduction in the amount of American
aid needed for development.
(d) The use of agricultural surpluses in development programs.-
The sale of surplus farm products for local currencies, to be given
or loaned to the aid-receiving country, can play an important part
in economic development. One of the key factors associated with an
industrial development program is the simultaneous production of a
marketable farm surplus to support the workers employed on private
or public development projects or in other nonfarm sectors of the
economy.
Such a potential surplus, however, has already been accumulated
in the United States. In a sense, the cost involved in using these
accumulated farm products for foreign aid purposes had already been
incurred (except for the cost of transport) when these products had
been purchased under loan agreements by the Commodity Credit Cor-
poration. Under Public Law 480, which provides for the encour-
agement of farm exports in ways that do not tend to "*** unduly
disrupt world prices of agricultural commodities***" (Sec-
tion 2), and which, among other purposes, would “* * * encourage
economic development * * *," some $1,350 million was authorized to
be sold for local currencies up to June 30, 1957, but only a portion of
the resulting United States owned local currency was spent on devel-
opment projects, and the rest for such purposes as defense support.
These local currencies were divided, by the Bureau of the Budget,
among various United States Government agencies: the International
Cooperation Administration was given funds for its aid programs,
FOREIGN AID
225
the Department of Defense for military aid, the Office of Defense
Mobilization for the purchase of strategic materials, and the Depart-
ment of State for international educational exchange activities. Some
$750 million of various products were sold in the fiscal year 1956, in-
cluding grains, raw cotton, fats and oils, textiles, machinery, iron and
steel, and fuels. Sixty percent of the proceeds were used for specific
development projects, and 40 percent for military activities and troop
pay. A considerable amount of funds so raised was allocated for
various relief purposes.
There are many difficulties involved in trying to finance the bulk of
aid for economic development by the use of surpluses. Development
results in the use of more machinery and other tools, as well as food
and clothing. Hence, without the provision of funds to buy these
capital goods, it will not be possible to expand the development pro-
gram, and consequently employment on the development projects, in
sufficient degree to provide an adequate market for the surplus food
and cotton. A vigorous program of selling farm products for local
currencies might reduce world prices of these goods and displace the
exports of other countries (including those of some underdeveloped
countries such as Syria, which exports wheat and cotton; the Sudan,
which exports cotton; Burma, which exports rice; and others). This
outcome is contrary to the stated aims of Public Law 480 and Ameri-
can foreign economic policy. The agreement to sell some $350 million
worth of farm products to India for local currency to be loaned for
purposes of the development program of India will not have these
depressing effects on prices, since India's second 5-year plan will result
both in a large increase in the amount of food the people of India can
pay for (in local currency), and also in the production of steel and
other capital goods to produce some of the equipment needed in the
second 5-year plan.
C. INDIRECT FORMS OF FOREIGN AID
We have now discussed the various direct forms in which foreign
aid has been given by the United States, international agencies, and
some other governments. In the remainder of this chapter, we will
discuss some indirect forms of foreign aid. Under this heading fall
the following: the accumulation of stockpiles of strategic materials
in the United States; the conclusion of commodity agreements regu-
lating the international supply and price of raw materials; encourage-
ment of American private investors who might supply capital to
underdeveloped countries in place of public funds; and the foreign
trade and exchange policy of the United States.
1. Stockpiles of strategic materials and commodity agreements
The stockpiling of strategic materials, like offshore procurement, is
a form of international trade, which by increasing the demand for the
products of underdeveloped countries, benefits them. These benefits,
as in the case of countries where offshore purchases are made, are
smaller than they would be from an equal amount of direct aid. But
the purchase of materials for stockpiling supplies countries with dol-
lars which otherwise would not be forthcoming-and enables them
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to spend these dollars for imports of commodities and services needed
in their economic development projects.
In general, the purchase of materials for stockpiling will thus be
welcomed by underdeveloped countries and may be regarded as help-
ing in a not inconsiderable degree either their balance of payments
problems or their development problems. However, stockpiling
should, in order to provide maximum benefits for the underdeveloped
countries whose commodities are purchased, be carried on in a regular
fashion, so as not to disturb price stability greatly. Provided the
prices obtained for strategic raw materials are not depressed, under-
developed countries are probably more interested in a stable level of
prices than in a momentarily high level induced by a sudden increase
in stockpiles. For these countries wish to have a reasonable assurance
that the tax and other revenues they obtain from the export of raw
materials will remain on a fairly steady level. If these revenues fluc-
tuate widely, it is difficult, if not impossible, to make allowance for
them in long-run development plans, and since exports of raw ma-
terials form in some underdeveloped countries one of the most im-
portant sources of foreign exchange, instability in the amounts and
terms of these exports imposes a serious difficulty on the governments
wishing to prepare careful plans for economic development.
Thus a program of stabilizing the prices of raw materials (which
on the average would cost nothing, since it would not raise the aver-
age prices and might, by reducing the risk of investments in raw
materials, actually reduce them) would make it possible for under-
developed countries to use more of their own resources for develop-
ment and thus reduce the need for direct aid.
2. Encouragement of American private investment
One of the arguments sometimes given for emphasizing technical
assistance in foreign aid programs is the explicit or tacit assumption
that, if only people in the underdeveloped areas had the necessary
"know-how," any capital that might be needed for development could
be obtained from private investors, if proper encouragements were
given. For reasons explained earlier, conditions in underdeveloped
areas are not similar to those that prevailed in the presently developed
countries during the 19th century. Some countries with exceptionally
rich deposits of high-grade raw materials can offer sufficiently favor-
able prospects to foreign capital to offset all the political and other
risks involved in investing in present-day underdeveloped countries.
Even in these countries, it is difficult to transfer the modern productive
methods of the foreign-controlled raw materials sector to the rest of
the economy, although some attempts have been made, for example,
in Venezuela, to tax these foreign companies to provide expanded
public services needed to make more widespread economic development
possible.
Efforts to encourage the increased flow of private capital have in-
cluded partial tax exemption (in the case of investments in the Western
Hemisphere), credits for taxes paid to foreign governments, the nego-
tiation of treaties with underdeveloped areas concerning the safeguard-
ing of the rights of investors, United States Government insurance
(called guaranties) against expropriation, insurance against inability
FOREIGN AID
227
to convert profits back into dollars, and other measures. But all of
these steps have failed to induce much additional foreign investment.
Little use has been made of the guaranty fund, and only $50 million
of guaranties had been taken up by 1954. This was to be expected,
since none of the attempts to encourage private investment could strike
at the root of the matter, which is the antagonistic attitude toward
foreign investors of important nationalistic groups in some under-
developed countries, the political insecurity in some areas, and the
poor prospects of yield in many industries in many underdeveloped
countries. These conditions are to a large extent the result, as well as
a cause, of underdevelopment. The signing of treaties against expro-
priation is less important than the day-to-day policy of the under-
developed country toward capitalists, domestic as well as foreign. In
some countries, many basic industries are reserved to government or to
local capitalists. Foreign companies, because of their general unpopu-
larity, dare not disobey the local labor laws, which may be very ad-
vanced considering the stage of economic development, while local
enterprises can ignore them. Land reforms that may be undertaken
for reasons of political stability and to provide the incentives needed
for economic development may incidentally reduce the prospects for
foreign investment in plantation agriculture. Rates charged by pri-
vate utilities are sometimes limited to levels which make investment
unprofitable.
Sometimes proposals are made to devise new means of encouraging
investment. These include complete tax exemption of returns from
foreign investment, the negotiation of stricter investment treaties,
technical assistance in ways of attracting capital, more thorough guar-
anties, and greater use of the International Finance Corporation (a
revolving, semipublic fund, affiliated with the International Bank for
Reconstruction and Development, investing in industrial equities
rather than in loans). Only the last really strikes at the root of the
problem, by encouraging the growth of local financial institutions in
the underdeveloped countries themselves.
Tax exemption will do little to encourage private investment, be-
cause even after the taxes of both, the United States and the capital-
importing countries, are paid, the return on foreign investments is often
higher than on domestic investment. What discourages investment
is not the tax on profits, nor any threats of direct confiscation or
inability to convert profits into dollars, but the numerous uninsurable
risks of a bad "investment climate."
On the whole, private investments, apart from some exceedingly
rich mineral or plantation products, play an increasing role in coun-
tries which are well along the road to economic development. These
countries enjoy, in general, greater political stability and have a more
predictable and equitable system of taxation. Thus private invest-
ment is, in general, most willing to flow into those areas where gov-
ernmental inducements or guaranties are least needed. Some of
these considerations explain why American foreign investors have
favored such politically safe and economically sound areas as Canada,
Latin America, and Western Europe as preferred regions for place-
ment.
94413—57—————16
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3. United States foreign trade and exchange policy
We have already in previous sections of this report pointed to the
great importance which relatively free trade and a high degree of
convertibility of currency have for many underdeveloped countries.
This is especially true for those underdeveloped countries which are
small in terms of population and hence internal markets, and those
which have specialized resources which can be fully exploited only if
export markets are available. Although at present most of the export
commodities of underdeveloped countries are raw materials which
meet with few impediments at the frontiers of the United States, the
advance of industrialization in some underdeveloped countries will
make them look for markets for their industrial products also in the
United States. Japan, for example, is already in such a position, and
it may be expected that some Latin American countries will soon
also have exportable surpluses of industrial goods. For these coun-
tries wider access to the markets in the United States will become
important. Such access to the United States markets may, moreover,
be of importance to enable underdeveloped countries to earn the neces-
sary dollar exchange with which to service and repay loans from the
United States.
Although American import duties have been substantially reduced
in the last two decades, the present provision of the Reciprocal Trade
Agreements Act may not be sufficiently liberal for many countries,
because of the escape clause and the peril point provisions, which pre-
vent reduction of tariff duties which may harmfully affect competing
American industries. Although, compared with costs of production
abroad, such industries might be uneconomical in the United States,
they are to be protected, according to present laws.
It cannot be doubted that a further liberalization of American tariff
provisions would be of considerable benefit to underdeveloped coun-
tries. Even in the case of industries which supply commodities not
produced in underdeveloped countries, but in Western Europe or
Japan, lower duties and larger imports would benefit underdeveloped
countries, because a large amount of dollars would be made available
to the world at large, part of which would find their way to the under-
developed countries by way of triangular trading relations. Thus a
further liberalization of American foreign trade would aid not only,
to a certain extent, in the development potential of underdeveloped
countries, but would also contribute to an earlier reestablishment of
convertibility, which in turn would have benefits for underdeveloped
countries.
Short of actual reductions in American duties under the reciprocal
trade agreements system, the championship of the United States for
freer multilateral trade is, as already mentioned earlier, a significant
move in the long-run interest of economic advancing countries.
D. THE INTERRELATION OF THE PATTERN OF FOREIGN ASSISTANCE AND
EFFECTIVE DEVELOPMENT
To state rigid generalizations about the order and size of various
types of foreign aid needed for the most effective economic develop-
ment is impossible, because conditions vary too much between under-
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229
developed countries. It would be necessary to make a detailed study
of each country, somewhat along the lines of the International Bank
for Reconstruction and Development reports, and even then, only the
broad outlines could be given. Although there is less scope for private
initiative in underdeveloped areas than in the United States, planners
in all but Communist countries try to encourage it as much as pos-
sible, especially in small industry. They also attempt to encourage
local cooperative movements in the villages. The form and impact
of foreign aid should optimally fill in the gaps in the development
pattern which are left open by limitations of domestic funds or skills.
Moreover, foreign aid should optimally be arranged so that these
result in as "balanced" a development program as is feasible. By
"balanced development" is meant one which avoids serious bottlenecks
and in which capital and other scarce productive factors are allocated
among competing uses in such a way as to attain maximum contribu-
tion to output within a planned development program. If, despite all
efforts, such bottlenecks appear, then foreign aid, to be most effective,
should be directed toward eliminating these bottlenecks.
In countries which are economically stagnant at a peasant, subsist-
ence level, the most important measure in a balanced development pro-
gram would probably lie in the fields of local community development
projects, improvement in the civil service, the creation of planning
and budgetary procedures, agronomic research, and the improvement
of transportation and communications. Except for the last item,
these measures would require little more than better internal govern-
ment, and little foreign aid apart from technical assistance. The aim
of these programs would be to create the leadership and the incen-
tives needed to make further development feasible. There would thus
be more of a preparation for economic development than economic
development itself in this stage.
But most underdeveloped countries, even such poor countries as
India and Indonesia, have already largely gone through this stage.
In these somewhat more advanced underdeveloped countries, major
emphasis is to be placed on relatively simple improvements in agri-
cultural techniques, adult education programs, the development of
small-scale industries, and an extension of social overhead capital.
Countries in this class require more capital, and probably more out-
side capital, including foreign aid, but much of this might still be in
the form of technical assistance. Development would take place, but
at a slow rate.
The next phase would be one of rapid transformation in produc-
tion techniques, social and economic organization, the development of
large-scale industries, mining, and possibly the entry of private for-
eign capital in substantial amounts. In this phase substantial amounts
of foreign aid, in the form of grants, loans, and technical assistance
projects, may be called for.
In general, development moves from the simple and relatively inex-
pensive projects at first, to more complex capital intensive projects
later on. But if more capital is available at every stage, through
foreign aid, the development process can move at a faster rate. In
any case, however, the rapid development visualized in the third phase
of rapid advance must have a prior foundation in the psychological
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attitudes of the people toward development and in technical pro-
ficiency.
In practice these phases overlap considerably, because in almost all
underdeveloped countries, there has been some development in proj-
ects and industries pertaining to the later stages, and this develop-
ment must be integrated with the generally backward state of the rest
of the economy. The problem of development may lie as much in
enlarging the already existing islands of modern technique and enter-
prise as in improving the most backward sectors.
A balanced pattern of development necessarily involves not only
consistency in the projects undertaken at present, but also consistency
in planned future projects for which the present projects will lay the
basis. Otherwise, the pace of development might be slowed down for
lack of some basic public service in the future. Thus, for aid to
contribute to a balanced pattern of development, it must itself be
planned on a long-term basis.


CHAPTER VI
FOREIGN ECONOMIC AID AND THE AMERICAN
NATIONAL INTEREST
A. THE MOTIVES OF AMERICAN INTEREST IN FOREIGN ECONOMIC AID
In the preceding chapters we have discussed the conditions under
which economic growth may take place in the underdeveloped coun-
tries of today and the role which foreign aid may play in this process.
We now turn to a brief evaluation of what place a foreign aid program
may have in the context of American foreign policy, and what might
be the approximate magnitude and direction of such a program.
American interest in foreign aid is based upon three major motives.
First, there is a strongly felt humanitarian sentiment among the Amer-
ican people, which has been reflected at various times in official Ameri-
can policy in its relief and rehabilitation programs in war-torn areas
after the last war, in shipments of food to areas of famine, the support
of victims of disaster and war, relief for the heroes of the Hungarian
resistance movement, and similar projects. In addition to official
programs of relief, a number of philanthropic organizations and reli-
gious missions have operated in various underdeveloped countries, and
the humanitarian sentiment of the American people has proven itself
again and again in generous subscriptions to various private programs
of assistance for persons in all parts of the world who suffered disease,
hunger, and misery. Though this motive is, on the whole, strong and
meets with general approval among the American people, it cannot
provide the substance of a large-scale foreign aid program.
American interest in foreign aid is also based upon economic objec-
tives. Though it may be exaggerated to assert that prosperity is
indivisible, it is doubtless true that the United States economy can gain
from a high level of real income and economic performance in other
parts of the world. If other countries within the orbit of the free
world are better off, they form better markets for American exports,
and they are better able to supply the United States with the com-
modities we need to maintain a high level of economic activity at
home. More important than this, if the economies of the other coun-
tries of the free world are sound, they are stronger militarily and
better able to defend themselves against aggression. Finally, a high
level of economic activity is, on the whole, more favorable to genuine
stability and responsibility in government than poverty and misery.
Hence the extension of stable political relations, which offers greater
scope for economic opportunity not only for the people in foreign
countries, but also for the people of the United States, is in the general
interest of the United States.
But the overwhelming interest of the United States in foreign rela-
tions, and that aspect of its foreign relations which centers around.
a foreign aid program, is the security of the United States. If an
231
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appraisal is to be made of the foreign aid program in its relation to
American national interest, we must emphasize the security interests
above all others. American security may be very narrowly conceived,
in terms of the military defense of the territory of the United States,
or at most, in terms of the military defense of its own territory and
that of its allies. If this conception of the American security interest
is adopted, foreign aid programs would play only a small role, and
would at best be confined to some aspects of defense support and mili-
tary assistance.
But American security should, in our opinion, be defined in a wider
and more comprehensive sense. It is not limited to the military safe-
guarding of American territory and that of its allies, nor is it limited
to a policy of deterrence or even containment of the Soviet Union
and its allies. Unless Amercan security is viewed in terms of the
relation between the United States to the Soviet orbit on the one
hand, and the mass of countries, located chiefly in Asia and Africa,
who form an as yet uncommitted neutral group, one is leaving out
of consideration a potentially most dynamic factor of future world
political developments. For the third countries have, as we argued
earlier, very high aspirations for economic advancement. They will
attempt to realize these aspirations to the best of their abilities and
resources, and this in itself will impose a dynamism into the inter-
national political and economic arena which it otherwise would lack.
The fact that these nations are as yet uncommitted has, however, a
twofold meaning. On the one hand, they are uncommitted in taking
sides in the cold war. On the other hand, they are uncommitted as
yet in terms of the kind of society they are to develop. Within the
next 20 years, the most crucial decisions concerning the future internal
and external political and economic status of these countries are likely
to be made. It is eminently in the American security interest, in the
long run, that these decisions should be made in a way which will
benefit rather than damage the American position on a world scale.
The main obstacle for the rapid realization of the aspirations of
underdeveloped countries is the relative backwardness of their econ-
omy. The United States on the contrary, is a country of vast and
rapidly increasing wealth, and is able to transfer substantial amounts
of resources to foreign countries, not only without sacrifice in domestic
living standards, but even with continuously rising living standards.
In addition there have been developed in the United States techniques
in administration, business enterprise, the application of technology,
education, and other fields, which are intimately bound up with the
ability to improve man's situation by his own collaborative efforts.
Many of these skills are unknown in other societies, and their adapta-
tion to local conditions in various underdeveloped countries would
contribute to the development of more positively oriented and polit-
ically stable societies.
From these considerations, it follows that a comprehensive and
sustained program of American economic assistance, aimed at helping
the underdeveloped countries of the world to create within the next
2 or 3 decades the conditions for self-sustained growth, can, in the
short run, reduce substantially the danger of conflict arising out of
attempts by countries within the Soviet orbit to penetrate into areas
where they suspect power vacuums. At the same time, it may have
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233
the result of proving to all underdeveloped countries that their devel-
opment program may be carried out without coercion and violence.
Finally, it may absorb the energies of the underdeveloped countries in
their own economic and social progress to such an extent as to minimize
the triggering off of international violence derived from a deflection
of national aspirations into the political sphere, because the solution of
their domestic economic problems appears hopeless or overwhelming.
In order for this result to ensue, the following propositions must
be accepted as true: That American assistance if it is substantial and
sustained can lead to economic growth of noticeable proportions in all
or most underdeveloped countries. That the extension of American
economic assistance and the resulting economic growth will lead to
politically more stable and mature societies. That successful eco-
nomic development, contingent upon American aid, of a substantial
number of underdeveloped countries, chiefly in Asia, is likely to lead
to a decrease in political tension in the world at large by substantially
reducing the chance of Soviet political successes in that area. That
American economic aid, supporting the self-devised development
plans of underdeveloped countries, is capable of demonstrating that
over a period of 15 to 20 years, the underdeveloped countries are able
to meet and progressively resolve their internal problems without
resort to totalitarian measures. That the end result of this process
is a likely strengthening of democratic forces in the underdeveloped
countries and that the establishment of more stable political relations
in them, coupled with their nationalistic aims directed toward the
maintenance of political independence, will leave open to the Soviet
Union only one rational option, namely a negotiated settlement with
strong built-in safeguards against international violence and aggres-
sion.
These prospects are sometimes caricatured by saying that such a
policy would mean to buy peace and democracy with dollars, which,
it is further said, is not possible. Rather than enter into a discussion
of the merits of these conflicting views, we will attempt to discuss the
ways in which a program of foreign aid should be implemented in
order to meet the objectives outlined above, or at least to come close
to meeting them.
The main questions which must be answered in dealing with the
problem of implementation of such a program are: (1) who should be
the recipients of assistance; (2) what distinction should be made be-
tween economic development aid and other aid (military aid or assist-
ance in the case of disaster relief); (3) what should be the magnitude
of an economic development aid program; and (4) what are the pre-
ferred mechanisms by which an aid program should be implemented.
B. WHO SHOULD RECEIVE ECONOMIC ASSISTANCE?
From what has been said in the preceding section, it follows that
economic assistance (as distinguished from military assistance) should
be extended to all underdeveloped countries outside the direct Soviet
sphere. This assistance should be independent of whether these
countries are or are not in a military alliance with the United States,
and even of whether at a given moment the public speeches of some of
the political leaders of an underdeveloped country are friendly or
234
FOREIGN AID
unfriendly to the United States. In other words, economic aid should
not be an instrument of either rewarding our friends or a means of
gaining political influence and approval in certain countries. There
is an open or thinly disguised suspicion in many countries that Ameri-
can aid is often used a a bribe. The more impartially economic aid is
extended the less basis will there be in the long run to such a charge.
But the main reason for the general extending of economic aid is not
the sentiment of others, or their beliefs and feelings about the United
States. It can hardly be in the national interest of the United States
to make a particular country (or its leaders) like us. The reason why
economic aid should be given to all underdeveloped countries except
those within the Soviet orbit is the similarity of overall conditions
and of potential effects of economic development in all of them.
We have already explained in chapter II that in most underde
veloped countries the emergent middle class, and especially the educa-
tors, government officials, and intellectuals, are the motivating force in
the push for economic advancement and the changing social relations.
These social groups often are inclined to see in communism, or other
forms of totalitarianism, the only alternative to the existing order,
and the only means to economic development. They are aware of the
necessity for expanded capital accumulation and investment; indeed,
they often exaggerate the need for capital by emphasizing heavy in-
dustry in their ideology of economic development. They are equally
aware that the traditional social orders which are breaking down due
to western influence, do not provide the necessary political, social, and
cultural conditions for development. They know that Soviet Russia
has been successful in accumulating enough capital and in bringing
about social changes necessary to development. Either they are
ignorant of the ruthless means by which this was achieved, or they
excuse them as steps necessary in order to break out of the age-old
vicious circle of poverty breeding poverty that is characteristic of so
many underdeveloped areas. Often, these groups gain as allies the
peasants, who seek land reform, and the emerging industrial working
class.
But though many of these persons are not frankly antagonistic to
communism, they are not committed to it and would turn from it if
a nonviolent alternative of achieving the aims of economic develop-
ment at approximately the same pace as that allegedly possible by
totalitarian means were shown to them. Hence the strategic function
of American economic aid in such a case would be to show these
middle classes a third alternative between the semifeudal status quo
and totalitarian revolution. It is meaningless to say that in giving
aid there must be no "intervention in the internal affairs" of the aid-
receiving country, for any aid necessarily affects these internal affairs.
In some countries this difficulty of intervention is less severe, since
there the power of the upper classes has already been weakened, so
that aid can be directed to helping non-Communist groups committed
to changing their social environment remain in power and to help
steer them in nontotalitarian directions.
This internal social transformation is the crucial determinant of
the future political development of the countries of Asia and Africa,
and such a development appears the best guaranty of their future.
political independence and noncommitment to the Soviet orbit. If
FOREIGN AID
235
such a middle class imbued by an ideology of economic progress by
nonviolent means could have been created in Egypt after the anti-
Farouk revolution, the intelligentsia of that country, instead of in-
dulging in pan-Arab "imperialism," might have been so deeply con-
cerned with the solution of the country's internal economic problems
that the glamor of enlargement of Egypt's sphere of influence would
have paled in comparison.
C. HOW MUCH ECONOMIC AID SHOULD BE GIVEN ?
The social development sketched earlier depends in large part
not only on the conditions under which it is offered, but also on the
total magnitude of the aid. Before entering into a discussion of this
problem, a clear distinction must be drawn between economic aid for
development and other forms of aid-for military purposes, disaster
relief, or other aims. This distinction is not aided by the general con-
fusion which exists in the United States in classifying different forms
of aid. Although a relatively clear distinction is made between eco-
nomic aid and military aid, the category of defense support contains
elements of both. In what follows we will confine ourselves to dis-
cussing economic aid in the form of technical assistance, grants, and
soft and hard loans for capital investment purposes, commodity de-
liveries which supplement the productive effort of an underdeveloped
country, and other measures which directly or indirectly contribute to
the raising of productive performance.
Given this description of economic aid, it may be said that a small
aid program, like the present technical assistance and development
assistance programs, more or less as a token of America's interest in
the development of the poorer countries, would be useless. For the
achievement of a rapid rate of growth without resort to totalitarian
methods implies a rapid rate of investment, but a slower rate of volun-
tary savings. Part of this gap between savings and investment
needed for rapid development could be met by drastic changes in the
tax laws and their administration in underdeveloped countries, espe-
cially if the taxes could be imposed so as to fall on those who invest
their savings in socially unproductive ventures. Another part of the
gap could be covered by emphasis on community projects and other
comparatively low-cost investments, aided by technical assistance.
Judging from the experience of India under the first 5-year plan, this
would result in an increase in income per head of only about 2 percent
per year better than stagnation, but not sufficient for setting in mo-
tion a genuine process of self-sustained growth in the underdeveloped
countries.
Thus, if economic aid with long-term political objectives is to be
given at all, it must be on a scale that enables the recipient countries
to use substantially more resources for development than they can save.
Probably at present not more than about 9 or 10 percent of the incomes.
of most of the underdeveloped countries could be saved without
resort to totalitarian methods of forced savings. The rate of invest-
ment needed for a more rapid rise of per capita income at a rate of
3 to 4 percent per year (assuming an average rate of increase of the
population of 1.5 percent), would be from 14 to 16 percent of incomes
as a minimum. Private foreign investment of the type most useful
236
FOREIGN AID
for aiding development probably would contribute only relatively
little. Since the total income of the "underdeveloped" countries in
Asia, the Near East, and Africa (excluding China and underdeveloped
countries in Eastern Europe) was approximately $110 billion in 1955,
the gap to be filled annually by foreign economic aid would amount to
a minimum of $3 billion, allowing possibly for private investment
of the type most useful for economic development of about $1 billion.
Some of this aid would doubtless be supplied by some of the more
highly developed countries of Europe, especially to those parts of
Africa where they have special political interests. For this reason a
smaller lower limit might be applicable for economic aid extended
by the United States. A lower limit would also apply if not all under-
developed countries outside the Iron Curtain were eligible for inclu-
sion in the program. The size of the program would also depend on
the ability of the aid-receiving countries to use capital for purposes
of development. The amount of aid needed for any such integrated
program of development would remain close to the lower limit in the
early stages of the program, since the absorptive capacity of many
underdeveloped countries for genuinely productive development pro-
jects must first be improved. But gradually, as technical assistance
speeded up the training of increased numbers of skilled workers,
managers, technicians, and others, an expansion in the rate of devel-
opment could take place. This training program would soon provide
also fairly full employment for the potentially discontented ele-
ments of the middle class. It would reach a peak level of perhaps $5
billion per year in about 10 or 15 years, and then decline, since as the
people in the aid-receiving countries might save voluntarily from
one-fifth to one-fourth of any increase in their incomes, their savings
would eventually increase faster than their ability to absorb capital
for development. Also, as the strength of the capitalist sector of
the new middle class grew, the climate for private foreign investment
would improve, a fact illustrated by Latin American events in recent
years.
But all estimates of the amount of foreign aid necessary for a long-
term economic development program which would be in the American
national interest are extremely uncertain, owing to the many factors
impinging upon the relationship between foreign aid and economic
growth. The estimates provided in this section were intended not
as hard and fast amounts, but only as illustrations of the rough order
of magnitude of the amount of aid which might be required to achieve
the objectives stated in this report. On the one hand, expenditures
on foreign aid of a few hundred dollars per year would fall far short
of the need, but, on the other hand, spending of tens of billions of dol-
lars would be wasteful and unnecessary from the viewpoint of national
security of the United States.
D. WHAT KIND OF ECONOMIC AID SHOULD BE GRANTED ?
In considering the kind of economic aid that should be granted, two
general considerations have to be borne in mind. In the first place,
we must not forget that the overall pattern of development of pres-
ently underdeveloped countries differs from that experienced in the
past by the advanced countries, and especially by the United States,
FOREIGN AID
237
and, above all, that the role of government planning for economic
growth is much more widely accepted today than was the case in the
19th century. Hence economic aid should not be made contingent
upon its being applied primarily for the fostering of privately owned
capital. It would be a serious mistake to assume that some form of
democratic, labor-party style socialism is merely a watered-down
brand of communism. In fact, as was already discussed in earlier
chapters of this report, the intervention on a rather wide front by
governments in underdeveloped countries appears to be necessary due
to the existing low educational and social level of the mass of the popu-
lation. This provides the emerging middle-class intellectuals with
great importance in these countries, and enhances the overall role the
government is destined to play, at least in the initial phase of economic
development.
Thus economic aid programs may have to be adjusted to the govern-
ment-sponsored and often socialistic or quasi-socialistic development
plans of underdeveloped countries; and, although some features of
these plans may be very different from those of a private enterprise
economy, foreign aid programs may have to be developed so as to
fall roughly in line with development plans of the governments of
underdeveloped countries. This does not mean that economic aid may
not be given also to strengthen private enterprise in underdeveloped
countries; in fact, it may be expected that even fairly socialistically
inclined governments in underdeveloped countries will not object
to private capital formation and the exercise of private entrepre-
neurial initiative, provided that this initiative is not centered on proj-
ects with little or no expectation of social (as against private) benefit.
The second problem toward which an economic aid program should
be directed is the promotion of economic development as its central
focus. Since, as we have explained in previous chapters, the main
problems of economic advancement in underdeveloped countries con-
sist in the development of more highly qualified personnel, more and
better suited resources, and a greater quantity of productive capital,
economic aid programs should feature prominently the creation of
these three factors for development. This will require that in the ad-
ministration of economic aid programs constant attention is paid to
the long-run potentialities of economic growth of the aid-receiving
countries. It also means that an economic aid program must be con-
ceived as a long-run enterprise and that some guaranty of its dura-
tion is as important as is the total magnitude of the program. For,
as was pointed out repeatedly in this report, the process of economic
development takes time, and the execution of an effective development
plan requires a fairly high degree of assurance that sufficient funds
will become available as the program unfolds in coming years. With-
out such an assurance, some of the most basic programs of creating
various forms of overhead capital cannot be undertaken, because the
probability as to whether the supporting investments can ever be made
is too low. Thus, an important aspect of an effective economic aid
program is its being conceived as a long-range program; i. e., a pro-
gram which will continue on a sustained magnitude over a period of
10 to 20 years, as a minimum.
238
FOREIGN AID
One further point should be mentioned which affects the nature of
the administration of an economic aid program. As is well known, the
receipt of economic aid is regarded by many underdeveloped countries
as a sign that they are not fully mature or equal; and in the face of
old resentments against those who in the past have treated them as
inferior, because they lacked political independence, the need to
receive grants-in-aid is considered as a continuation of their status
of political immaturity and deficiency. An aid program must be
administered so as to minimize these sentiments of inferiority. We do
not claim that Americans have shown an overbearing attitude in their
behavior toward people in underdeveloped countries. On the con-
trary, we believe that the American matter-of-fact, let's-get-down-to-
business attitude has compared favorably with the stiffer and more
formal behavior patterns displayed by many Europeans or even Asians
and Africans. The point we wish to stress is that in many under-
developed countries, economic aid includes not merely the transfer of
funds, technical assistance, and the like, but also the actual cooperation
and advice in the working out of plans and programs of develop-
ment. Not every underdeveloped country is in the position of India,
which has technically competent people to work out a development
plan, and whatever developmental planning is executed in some
underdeveloped countries is sorely in need of improvement. It is in
this field in which American expert advice and a proper administra-
tion of an economic aid program can bear considerable fruit. Yet, it
should be recognized that it is a delicate matter to insist on improved
plans for development without offending the sensitivities of officials
and others in underdeveloped countries.
E. CONCLUSIONS
If a program of economic aid incorporating the principles outlined
in this chapter can be adopted, it is fair to expect that it may result
in a successful instrument of American foreign policy. Of course,
there is no guaranty that matters will go as they have been sketched
above, and the implementation of a sizable program of economic aid
for development always will contain a noticeable factor of risk. How-
ever, in this it will not differ from any action taken in the field of
foreign relations. Moreover, we have discussed here only a program
of economic aid and this may and will be supplemented by a program
of military assistance going to some of the same countries which are
eligible for economic development aid. In the case of political de-
velopments which may endanger the success of the economic aid pro-
gram, other measures, from military aid to actual forms of armed
resistance to aggression, may have to be taken, if the situation de-
mands. Thus a program of economic aid is neither a cure-all, nor will
it create necessarily close friends among the underdeveloped coun-
tries. But if it can be successfully implemented, it is likely to lead to a
stabilization in world political relations which should do much to re-
duce international tension and to improve the overall objectives of
American foreign policy.
APPENDIXES
APPENDIX I
ESTIMATES OF NATIONAL PRODUCT
TABLE 1.—Estimates of total gross national product and national product per
head, 1954 and 1955

1955
1954
Country
Total
(millions
of dollars)
Per capita
(dollars)
Total
(millions
Per capita
(dollars)
of dollars)
United States..
Canada
New Zealand.
387, 200
2,343
360, 474
26,000
1, 667
24, 081
2,220
1, 585
2,673
Switzerland_
Australia..
Sweden...
1, 249
2,595
1,242
6, 116
1,229
5,881
1, 195
10,920
1,215
10, 400
1, 182
Iceland.
8,460
1, 165
8,090
1, 121
180
France
1, 146
172
1, 117
45, 195
Belgium
1,046
42, 730
994
9, 311
United Kingdom.
1, 015
9, 040
991
51, 100
998
Norway.
49, 745
974
3, 320
969
Finland.
3,247
957
3, 984
941
Denmark.
3,868
923
Germany
4, 051
913
3, 972
902
Venezuela.
38, 100
762
34, 633
699
4,400
762
Netherlands.
4, 020
717
7,604
708
Soviet Union.
7,014
661
150,000
682
Uruguay.
140, 000
651
1,500
569
Israel.
1, 470
567
944
540
902
Austria
534
3, 711
532
Eire...
3,376
484
1,481
509
Italy
1,436
490
21, 220
442
Union of South Africa..
19, 740
413
5, 208
381
Argentina
4,864
362
7,150
374
Cuba
6,990
373
2, 180
361
Panama.
2,050
347
320
350
Colombia
305
345
4, 180
330
Costa Rica.
3, 960
320
292
Malaya.
307
276
302
British North Borneo...
2, 170
298
1,900
269
310
298
Yugoslavia...-
274
269
5, 207
297
Turkey.
4, 691
272
6, 463
276
Lebanon...
5, 915
267
380
269
400
Brazil...
289
15,315
262
Spain.
14, 952
262
Nicaragua.
7,369
254
7, 154
249
315
El Salvador.
254
300
250
530
244
Japan..
510
240
Greece.
21, 300
240
20, 300
231
1,996
Dominican Republic...
239
1,845
222
494
205
Ecuador....
471
201
746
204
Portugal.
678
190
1,765
201
Philippines.
1,720
198
4,400
201
Iraq.
4,230
197
960
Mexico.
195
900
183
5, 548
187
Chile.
Algeria..
Morocco....
5,315
184
1,220
Guatemala.
Saudi Arabia...
Peru...
Honduras.
Gold Coast.
Central African Federation……..
180
1,200
182
580
179
569
181
1,680
176
1,730
185
1, 160
166
1, 145
164
1, 512
159
1,515
162
1,315
140
1,270
138
228
137
230
143
624
135
614
135
945
134
900
131
239
240
FOREIGN AID
TABLE 1.-Estimates of total gross national product and national product per
head, 1954 and 1955—Continued

1955
1954
Country
Total
(millions
of dollars)
Per capita
(dollars)
Total
(millions
Per capita
(dollars)
of dollars)
South Vietnam.
Egypt.-
Tunisia
1,600
3,065
490
131
Indonesia
10, 500
127
Ceylon...
1,050
122
Syria..
445
111
Paraguay.
168
Liberia.
155
103
Taiwan
1, 640
102
Thailand...
2,050
100
Iran....
2, 110
100
Sudan
885
100
Belgian Congo------
Jordan..
Libya.
South Korea.
Haiti.
India
1,639
135
99
1,780
260
27,400
Nigeria
Portuguese Africa...
Bolivia
Kenya-Uganda-Tanganyika.
French West Africa.
French Equatorial Africa.
Pakistan.
China (mainland)
Afghanistan..
Ethiopia...
Burma.
Nepal..
1, 012
340
NOTE.-Precise comparisons of the levels of gross national product between the United States and other
countries are not possible. The conversion into dollars has been made on the basis of the latest official
exchange rates, and the purchasing power of the dollar equivalent is appreciably higher in most foreign
countries than that of the dollar in the United States. Comparisons of the converted dollar figures be
tween other countries are subject to similar limitations.
Source: Office of Statistics and Reports, International Cooperation Administration.
2,250
776
211
209
1, 214
1,020
1, 182
972
270
4, 560
35,000
650
255
4, 510
33,000
650
860
830
964
337
BBIEDERRY=======~~R8J88881ING
133
1, €75
146
133
3,035
135
540
140
10, 400
128
1,030
123
495
127
165
108
150
100
1,575
100
1,750
88
1,920
885
100
1, 549
160
115
90
1,730
320
26, 410
2, 165
735
BIGIHIRIRIS8788888889
93
94
FOREIGN AID
241
TABLE 2.—Estimate of world gross national product at market prices by regions,
1954 and 1955 (converted into United States dollars by latest exchange rates) ¹

Region
Gross national product, 1954
Gross national product, 1955 (in
1954 prices)
Total
Total
Percent of-
Billions
of
dollars Total Free
Per
capita
dollars 2 Billions
Per
Percent of-
capita
dollars'
of
dollars Total Free
world world
world world
World gross national product, total..
$993
100.0
$373
$1,055 100.0
$390
Free world, total..
772
77.7 100.0
443
820
77.7 100.0
464
Western Hemisphere, total..
432
43.5 56.0
1,216
463
43.9
56.5
1,276
United States.
361
36.4 46.8
2,220
387
36.7
47.2
2,343
Canada
24
2.4
3.1
1,585
26
2.5
3.2
1,667
Latin America, total_
46
4.6
6.0
264
48
4. 5
5.9
268
Central America_
(11)
(1.1)
(1.4)
(207)
(12)
(1.1)
(1.5)
(209)
South America.
(35)
(3.5)
(4.6)
(291)
(36)
(3.4)
(4.4)
(296)
Other__
1
.1
.1
499
2
.2
.2
617
Western Europe, total.
217
21.8
28.1
648
230
21.8
28.1
680
ΝΑΤΟ (excluding
Greece and Turkey).
172
17.3
22.3
755
182
17.3
22.2
794
Greece and Turkey.
8
.8
1.0
249
8
.7
1.0
265
Other OEEC...
20
2.0
2.6
853
21
2.0
2.6
895
Other__
17
1.7
2.2
332
19
1.8
2.3
348
Asia, total...
85
8.6
11.0
104
88
8.3
10.7
106
Arc of free Asia…….
78
7.9
10.1
101
81
7.6
9.8
103
South Asia…….
(33)
(3.3)
(4.3)
(68)
(34)
(3.2)
(4.1)
(69)
Far East..
(45)
(4.5)
(5.8)
(157)
(47)
(4.4)
(5.7)
(161)
Near East..
6
.6
.8
136
6
.6
.8
139
Other__
1
.1
.1
150
1
.1
.1
150
Africa, total.
23
2.3
3.0
109
24
2.3
2.9
110
(NEA, total) ³
(51)
(5.1) (6.6)
(85)
(53)
(5.0)
(6.5)
(87)
Oceania, total.
15
1.5
1.9
1,041
15
1.4
1.8
1,069
Soviet bloc, total…….
221
22.3
240
235
22.3
251
Soviet Union.
140
14.1
651
150
14.2
682
European satellites.
48
4.9
516
50
4.8
538
China mainland and other.
33
3.3
54
35
3.3
56
Source: Office of Statistics and Reports, International Cooperation Administration.
NOTE.-Precise comparisons of the levels of gross national product between the United States and other
countries are not possible. The conversion into dollars has been made on the basis of official exchange
rates, and the purchasing power of the dollar equivalent is appreciably higher in most foreign countries
than that of the dollar in the United States. Comparisons of the converted dollar figures between other
countries are subject to similar limitations.
1 Except for the Soviet Union and European satellites.
• Computed on basis of unrounded total figures.
Near East Asian countries, Greece, Turkey, Egypt, Ethiopia, Liberia, Libya, Afghanistan, Ceylon,
India, Nepal, and Pakistan.
242
FOREIGN AID
APPENDIX II
SELECTED STATISTICAL DATA ON NONMONETARY MEASURES OF MATERIAL
WELFARE
TABLE 3.-Nonmonetary measures of material welfare, selected countries, 1955
Country
or closest year

Caloric in-
take per
person per
day (num-
bers)
Protein
consumption
per day
(grams)
Infant
mortality
(number of
deaths per
1000 live
births)
Literacy
(percent of
population
10 years and
over)
Inhabitants
per physician
(number)
I. COUNTRIES WITH PER CAPITA
INCOME ABOVE $750
United States.
3,090
92
Canada..
France.
United Kingdom.
Denmark..
Germany
3, 120
2,785
3,230
3,300
2, 945
218885
98
96
42
86
26
89
27
77
******
27
32
(1)
8898
770
950
97
1,100
98+
1,200
99+
950
43
(1)
750
II. COUNTRIES WITH PER CAPITA
INCOMES BETWEEN $750 AND $300
Uruguay.
2,940
Israel...
2, 711
81
Austria.
2,790
Italy.
2,595
Argentina.
2,800
Cuba..
2,730
4 67
218885
99
39
83
48
80
96
62
499
*****8
43
85
(1)
275
380
97
650
53
(1)
800
386
888
1,300
76
(1)
III. COUNTRIES WITH PER CAPITA
INCOMES BETWEEN $300 AND $150
Turkey.
2,678
Brazil.
2,355
Japan....
2,180
Greece....
2, 540
8588
Philippines...-.
Iraq..
Mexico.....
2,280
2, 338
2,210
(1)
35
3,100
107
48
3,000
49
* 95+
1,000
44
76
1,000
109
62
12,000
44
212
6, 400
81
55
2,400
IV. COUNTRIES WITH PER CAPITA
INCOMES BELOW $150
Egypt...
Indonesia..-
Ceylon.
Syria..
Thailand
India..
Burma
Pakistan..
1 Not available.
* Estimate.
* 1947.
2,338
69
127
2,040
(1)
2200+
25
255
3,600
71,000
2, 052
2, 131
2,080
ee
47
72
58
5, 300
83
102
$ 50
5,000
65
54
6,800
2,004
50
119
18
5,700
1,612
(1)
102
31
4,700
2, 124
53
125
14
13,000
4 1948-49.
Source: Statistical Office of the United Nations, and Office of Statistics and Reports, International Co-
operation Administration.
FOREIGN AID
243
APPENDIX III
SOME STATISTICAL RELATIONS BETWEEN GROSS NATIONAL PRODUCT,
GROSS CAPITAL FORMATION, AND THE DISTRIBUTION OF THE LABOR
FORCE
TABLE 4.—Investment, population growth, and proportion of the labor force in
agriculture in selected countries

Country
Per capita
gross national
product in
1955 (in
Percentage
growth of
population
per year
(1955)
Percentage
of labor
force in
agriculture
(1955)
Percentage
of gross
investment
of GNP
dollars)
(1954)
United States.
New Zealand.
France..
Belgium-Luxembourg.
United Kingdom...
Denmark.
Germany (Western)
Netherlands.
Israel
Austria
$2,343
18.7
1.6
12
1,249
19.8
1.6
18
1, 046
15. 5
.7
36
1, 015
15.5
.6
13
998
15.9
.5
5
913
18. 1
1.0
24
762
26.0
(1)
23
708
14.2
1.5
19
540
25.3
4.0
15
532
23.8
4
33
Italy.
Argentina
Cuba
Yugoslavia...
Turkey.
442
21.6
.9
40
374
19.0
2.0
23
361
14.0
2.1
42
297
32. 1
1.8
66
276
12.6
3.0
75
Lebanon.
Brazil.
Spain.
269
11.5
2.4
50
262
17.7
2.4
68
254
15.9
1.1
49
Japan
240
24. 1
1.2
45
Greece.
239
15. 4
1.0
60
Portugal..
201
15.1
1.2
48
Philippines.
201
8.4
1.9
71
Mexico..
187
10.9
2.8
58
Chile.
180
15.3
1.8
35
Guatemala.
179
10.3
3.2
71
Peru.
140
23.4
2.0
42
Egypt.
135
5.0
2.5
75
Central African Federation….
131
27.2
(1)
(1)
Indonesia.
128
6.0
1.6
71
Ceylon...
122
10.2
2.8
75
Thailand.
101
10.3
1.7
80
South Korea….
India..
Nigeria
Bolivia..
Pakistan....
Burma..
1 Means data are not available.
828682
80
8.6
1.7
70
72
10.0
1.3
70
12.0
(1)
(1)
66
12.0
1.2
71
5.1
1.1
80
52
22
1.0
70
Sources: Office of Statistics and Reports, International Cooperation Administration; and Statistical
Office of the United Nations.
94413—57—————17
244
FOREIGN AID
APPENDIX IV
MAJOR DIVISIONS IN APPROPRIATIONS AND EXPENDITURES IN CURRENT
UNITED STATES FOREIGN AID PROGRAMS
TABLE 5.—Appropriation for foreign aid programs for fiscal years 1956 and 1957
[In millions of dollars]

Appropriation for
fiscal year 1956
Appropriation for
fiscal year 1957
Class of aid
Amount
Percent
Amount
Percent
Military assistance.
1,022
38
2,018
333
53
Economic assistance:
Defense support.
999
37
1, 162
31
Development assistance..
162
6
250
7
Technical cooperation.
153
5
152
4
Asian development fund.
100
4
0
0
Middle East and Africa fund.
0
0
0
0
President's contingency fund
100
4
100
3
Other..
167
6
85
2
Total....
1,681
62
1,749
47
Total aid....
2,703
100
3,767
100
Source: 1956 data from the mutual security program, fiscal year 1957, A Summary Presentation, April
1956; 1957 data from addendum to this same document.
TABLE 6.—Project-type versus non-project-type assistance expenditures in fiscal
Project type assistance ¹....
Nonproject country programs
Miscellaneous economic aid.
year 1956

Type of assistance
Amount
Percentage
$252, 697,000
15
1,380,097, 000
85
100
Total economic aid..
1, 632, 794, 000
1 Project-type assistance is an activity designed to attain a specific, limited, defined objective. It is
mutually developed or agreed upon by the ICA and the cooperating country. It requires ICA technical
participation through advice or supervision in the planning and implementation of the project. It is a
project in which the sequence of actions and the requirements can be projected in reasonable detail at the
time of development of the project plan. The implementation of the project must be initiated not later than
6 months after an agreement is signed by the ICA and the cooperating country.
• Non-project-type assistance consists of the grant of any form of commodity financing where the com-
modities, whether imported through governmental or commercial channels, are intended for general dis-
tribution or resale within the civilian economy of the cooperating country. ICA assistance and participa-
tion in the transaction is limited to financing and to subsequent end-use checking. The commodities are
not in themselves required for the physical accomplishmen⚫ of a specific project. The primary purpose of
ICA financing is one or more of the following: Budgetary support, counterinflationary action, or the genera-
tion of local currency sales proceeds.
Source: International Cooperation Administration.
FOREIGN AID
245
APPENDIX V
(This outline was prepared by the staff of the special committee to
serve as a guide for the Research Center in Economic Development
and Cultural Change of the University of Chicago in preparation of
its report to cover subjects of interest to the committee.)
THE ROLE OF FOREIGN AID IN THE DEVELOPMENT OF OTHER COUNTRIES
Purpose. This project will examine the process of economic devel-
opment in nations and its interrelationship with social and political
change. It will set forth the potentialities, limits, and dangers, if any,
of foreign aid as an inducer of change with due regard for its varying
influence at different stages of development. It is designed to assist
the committee in determining what kind of aid, in what set of circum-
stances, if any, will stimulate an economic development in other coun-
tries in accord with the national interest of the United States.
Scope. The study will seek to answer the following questions:
I. What is the state of economic development in the world? A brief
survey and classification of nations by stages of economic development
and in the framework of the different political and social settings in
which development occurs.
II. What brings about the economic development of nations? An
analysis of the principal factors which create a potential for develop-
ment and the catalysts which may set the process in motion. The sec-
tion will consider the influence of factors such as the following:
A. The factor of resources.
B. The factor of wants, incentives, and human capacities.
C. The factor of population growth and pressures (in terms of
resources).
D. The relation of mining, agriculture, transportation, power
development to industrial development.
E. The economic processes of savings and capital formation.
F. The economic prerequisites to sustained economic develop-
ment.
G. The relation of public health, education, and training to sus-
tained economic growth.
H. The nature of cultural changes prerequisite to (and accom-
panying) sustained economic growth (including changes accom-
panying industrialization and urbanization).
I. The relation of ideologies, governmental structures, and
political orientation to the process of economic development.
J. The factor of external social, political, and economic in-
fluences.
III. Why do nations undergoing economic development evolve dif-
ferently? A survey of the principal differences and similarities char-
acterizing the economic evolution of the United States, the Scandi-
navian countries, Soviet Russia, or other selected countries. An anal-
ysis of the reasons for the differences and common elements in terms
of factors considered under II above.
IV. What are the potentials of development of the present under-
developed countries? An analysis of the factors enumerated under III
as they apply to the principal underdeveloped countries or regions.
246
FOREIGN AID
V. What effect can foreign aid have in the pattern of development
of the underdeveloped areas? An analysis of the role, if any, played
by foreign aid in setting the pattern of development in the countries
mentioned in III above. A discussion of the similarities and differ-
ences, if any, in the role of external assistance in the development of
the United States (and other developed countries) as compared with
the development of the present underdeveloped areas. An analysis of
the effects of different types of assistance at different stages of de-
velopment.
A. The role of external assistance in the development of the
United States and other developed countries.
B. The effects of different types of economic assistance at dif-
ferent stages of development, including—
1. Direct cash grants;
2. Direct commodity grants;
3. Technical assistance;
4. Loans;
5. Other direct forms of development assistance;
6. Indirect forms of assistance.
C. A discussion of the interrelation of the pattern of foreign
assistance and effective development (i. e., the order and ratio of
application of such measures as health, education, and agricul-
tural assistance and aid in transportation and industrialization,
etc., which will encourage effective development in other nations
at different stages).
VI. Can United States aid act to produce a pattern of total devel-
opment in other countries that is likely to be in accord with our
national interest? The extent to which the findings in part V are and
ought to be applied in order to serve the objectives of the United States
aid program (coordinate with project II on objectives).
STUDY NO. 4
THE USE OF PRIVATE CONTRACTORS IN
FOREIGN AID PROGRAMS
BY
JEROME JACOBSON ASSOCIATES
MARCH 1957
247
CONTENTS
Letter of transmittal..
Introductory comments.
Summary
Chapter I. Introduction and perspective-
I. General__
II. Who is a private contractor? ---
1
1
I
1
III. How the need for contractor services arises_
IV. Types of contracts and parties to them...
I
·
V. Who recruits the contractor and is responsible for negotiations?_
VI. Contractual responsibility in the International Cooperation
Administration_
Chapter II. The extent to which contractors have been used in foreign
aid programs.-
I. Regions and fields of activity.
II. Who are the contractors?
1
III. The scope and trend in the use of private contractors_
Chapter III. Contractors versus Government employees-
I. Introduction.
1
1
1
1
1
1
Page
251
253
255
258
258
258
259
260
261
262
263
263
265
267
VII. Summary and evaluation…….
Chapter IV. Description and evaluation of contracting policies and pro-
cedures-Implications for contract performance_
I. Introduction_.
271
271
II. When and where is the decision made to use a private con-
tractor?
271
III. What criteria are involved in the determination to use or not to
use private contractors?_
272
IV. Mission views...
274
V. Lack of consistency among views on the proper role for Govern-
ment employees and private contractors is evident.
275
VI. When alternatives exist..
275
279
281
1
281
281
289
301
1
305
1
308
308
I
1
1
|
309
312
315
318
319
319
321
II. Project conception to contractor selection__
III. Negotiations, contracts and contract terms.
IV. Relationships and responsibilities.-
V. Special note on universities___
Chapter V. Relative advantages and disadvantages in the use of private
contractors__
I. Types of services needed..
II. Administrative considerations_ _
III. Relations with foreign countries-
· IV. Cost considerations_.
V. Advantages and disadvantages: A conclusion_
Chapter VI. Findings and recommendations….
I. Principal factors adversely affecting the contractor program..
II. Recommendations_
A. Statistical tables__.
I. Notes on tables_
APPENDIXES
Table A-1. All private contracts, by activity and by year..
Table A-2. All private contracts, by area of performance
325
325
327
327
328
329
Table A-3. University contracts, by activity and by year__
Table A-4. University contracts, by area of performance
and by year-
and by year--
249
250
CONTENTS
;
A. Statistical tables-Continued
Table A-5. Types of contracts, by areas of performance__
Table A-6. Types of contracts, by year..
Table A-7. United States and foreign nonprofit contrac-
Page
330
330
tors___
330
Table A-8. Foreign contractors..
331
Table A-9. Private contractors with four or more con-
tracts..
332
Table A-10. Contractors with contracts exceeding $1 mil-
lion_..
333
B. Organization of the Office of Contract Relations and description of the
contract process. (See Ch. IV.)…--
C. Correspondence between the American Council on Education and the
International Cooperation Administration; and discussion of 17
problems in university contracting--
Resolution of November 12, 1956, adopted by American Association of
Land-Grant Colleges and State Universities__
D. Overhead rates in 23 selected International Cooperation Admin-
istration contracts_
E. Outline by the Special Committee To Study the Foreign Aid
Program for the study entitled "The Use of Private Contractors in
Foreign Aid Programs"; and, questionnaire to International Coop-
eration Administration missions sent by Jerome Jacobson Asso-
ciates
334
336
349
350
352
LETTER OF TRANSMITTAL
JEROME JACOBSON ASSOCIATES,
Washington, D. C., December 31,1956.
The CHAIRMAN,
Special Committee To Study the Foreign Aid Program,
United States Senate, Washington, D. C.
DEAR MR. CHAIRMAN: Pursuant to the terms of our contract dated
October 16, 1956, with the Senate special committee, we take pleasure
in submitting herewith 50 copies of a study entitled "The Use of
Private Contractors in Foreign Aid Programs."
We were most pleased to have been entrusted with a portion of the
broader study on foreign aid which the special committee has under-
taken. We recognize the responsibilities which such an assignment
entails and have endeavored to live up to them.
We trust that some of our recommendations will prove useful in
pointing the way to a more effective use of private contractors in our
aid programs.
Sincerely yours,
MAURICE LEVY-HAWES,
Associate Director.
251
THE USE OF PRIVATE CONTRACTORS IN FOREIGN
AID PROGRAMS
INTRODUCTORY COMMENTS
ACKNOWLEDGMENTS
On October 16, 1956, this study was commissioned by the Special
Committee To Study ethe Foreign Aid Program. An outline of the
subject matter to be covered by the study was provided by the com-
mittee and will be found appended as appendix E.
Preparation of the study has been made possible only by the splen-
did cooperation we have received from numerous quarters. We par-
ticularly wish to express our appreciation to:
The staff of the Special Committee To Study the Foreign
Aid Program for their assistance and cooperation, particularly in
preparing a most useful outline of the study desired by the committee;
Officials of the International Cooperation Administration and the
Department of State for their frank, courteous, timely and helpful as-
sistance and cooperation. The efforts they made to provide informa-
tion and the candor with which they spoke are particularly to be com-
mended;
The International Cooperation Administration Missions overseas
for most helpful replies to the questionnaires we sent out. Several
very thoughtful memoranda were received from the missions reflecting
the high level of competence of some of our personnel abroad and the
high devotion and sense of purpose they bring to our programs; and to
Numerous private contractors and associations representing such
contractors for the helpful replies given to our questionnaires and for
the many constructive comments made in the course of interviews.
SOURCES OF INFORMATION
Information for this study has been gathered through interviews
with officials of the International Cooperation Administration and
the State Department and with private contractors drawn from uni-
versities and private industry.
We have also sent letters of inquiry to many contractors with whom
personal interviews were not possible and were privileged to receive
replies from many of them. Excerpts will be found in the text of
the study quoting from their replies.
We dispatched questionnaires to chiefs of 14 International Coop-
eration Administration overseas missions (United States Operations
Missions), a copy of which will be found at appendix E. The ques-
tionnaires sent out November 8 were preceded by an airgram from the
International Cooperation Administration asking that replies be for-
warded to us within 6 days of receipt. As of December 19, 11 mis-
sions had replied. Excerpts from replies will be found liberally
sprinkled throughout the text.
253
254
INTRODUCTORY COMMENTS
We have, of course, referred to available material on technical
assistance activities abroad including reports of various congressional
committees. However, with the exception of reports on the role of
universities in technical assistance work abroad, there is virtually no
information specifically addressed to the problem of the overseas use
of private contractors under foreign aid programs.
One final note is in order. We have quoted liberally from letters
and conversations with contractors and from missions abroad. Every
effort has been made to use these quotations within the context in
which they were made.
SUMMARY
A. THE USE OF CONTRACTORS
Private contractors received nearly $250 million of contracts for
technical assistance and services rendered under foreign economic aid
programs from 1951 to 1956. Contracts have been widely distributed,
but the lion's share of the dollars has gone to a handful of organiza-
tions. Among contractors have been engineering firms, management
consultants, universities, nonprofit foundations, labor federations, and
voluntary service organizations. Individuals, large and small firms,
both domestic and foreign have also been employed as contractors. In
the last 3 years private contracts have become important and are now
running at about $50 million a year. The program is small in Latin
America, larger in Europe and the Near East and quite sizable in Asia
($35 million in 1956).

B. THE CHOICE BETWEEN PRIVATE CONTRACTORS AND GOVERNMENT
PERSONNEL
Contractors will usually be employed when the need is for a complex
of skills, specialized facilities, and a team in depth with support
not available in Government agencies; to attempt to duplicate such re-
sources within the Government would be too costly and time consum-
ing for occasional use under the aid program. But where the Govern-
ment can provide such team services, or where the need is more for the
skills of individual technicians than for the services of an entire
organization, many considerations will influence the choice between
contractors and Government personnel: the speed with which one or
the other can be recruited and put on the job; costs; relationships that
develop with foreign governments; control and supervision that can
be exercised by our overseas economic missions. In our judgment,
contractors generally rate well on most counts and wider use could be
made of their services. Yet, the decision to use them cannot be auto-
matic. The nature of the project and the situation in which it is to
be undertaken will determine where the balance of advantage lies
between contractors and Government employees.
C. HOW THE PROGRAM HAS WORKED
1. Contractors have made an effective contribution to the aid pro-
gram. They have contributed valuable skills and have carried out im-
portant projects; they have left favorable and lasting impressions
abroad; many have been good ambassadors; they have undertaken ac-
255
256
FOREIGN AID
tivities that would otherwise have been foregone or inordinately
delayed.
There have been occasional failures by contractors or their person-
nel, but they have been neither numerous nor flagrant. As with Gov-
ernment employees, occasional failures must be expected.
2. It is not clear that the International Cooperation Administration
has used contractors most effectively. They may have been used where
Government employees could have served better; Government em-
ployees may have served where contractors would have served better.
No systematic policy or guidance has been developed by the Inter-
national Cooperation Administration on the appropriate role for
contractors.
3. Contracting procedures are slow, inordinately complex, and im-
pose too many burdens on the Government and contractors alike.
Preoccupation with contractual minutiae and petty haggling reflect a
proper and zealous regard for the taxpayer but certainly too little re-
gard for the need to keep the programs moving if they are to have
timely and maximum impact. More flexibility in contract negotia-
tions is desirable. Too little attention is given the need for uniform
contract provisions. Reasonable distinctions in contract terms be-
tween profit and nonprofit institutions have not been developed.
4. Projects are often not adequately described, causing delays in con-
tract negotiations and difficulties in the field. Much attention is
focused on writing a hard contract; too little attention is given the
contractor's performance. Better staffing may be the answer to proper
development of projects and adequate appraisal of contractor per-
formance.
5. With no apparent reason, contractual arrangements vary sig-
nificantly from country to country and from project to project. Dif-
ferent signatory, supervisory, and other arrangements exist. More
uniformity of practice is possible and desirable.
6. The contractor program has received too little top level interest
and continuing direction in the agency. Until this situation is rem-
edied, contractors will not be most effectively used.
7. Clarification of the role for contractors requires prior definition
of the role of technical assistance and services in foreign aid. Such
a definition appears lacking.
8. The International Cooperation Administration is increasingly
aware of deficiencies in the contractor program. There is in the
agency a remarkable candor and willingness to expose what is wrong
and to consider how improvements can be made. A start has been
made but much remains to be done.
RECOMMENDATIONS
1. The role of technical assistance and services in foreign aid needs
to be clarified. Adequate definition of the role of private contractors
in aid programs cannot be made without such clarification.
2. Policies and procedures for the use of contractors need to be
developed. They should include guidelines to formulating contracts,
selecting contractors, determining the provisions of contracts, and
stablishing responsibilities of missions and foreign governments.
A basic manual should be compiled which sets forth such policies
and procedures.
FOREIGN AID
257
3. The International Cooperation Administration should seek clear-
er endorsement of the contractor program from the Congress. Uncer-
tainty on Congress' view presently inhibits the International Coopera-
tion Administration's conduct of the program.
4. Better organization and direction of the program is necessary.
Top-level direction is not now given the contractor program and
authority is diffuse; some office with adequate authority should be
created to plan, appraise, and expedite the program. Operating offices
may require better staffing to assure adequate project planning and to
permit whittling at backlogs of work on contract matters.
5. Clearer policies are required on who shall be signators to con-
tracts. Signatory arrangements now vary from country to country
and project to project without clear reason why this is so.
6. The International Cooperation Administration should simplify
the contracting process. Interminable delays occur and needless bur-
dens fall on contractors and the International Cooperation Adminis-
tration alike partially because of bargaining and supervision over too
many contractual details. The practices of nonprofit institutions re-
garding salaries, allowances, etc., should be accepted wherever they
are not too far out of line with Government practices. For profit
institutions, a greater standardization of contract provisions is de-
sirable so that detailed negotiations for each contract can be minimized.
The International Cooperation Administration should make broader
use of its discretionary authority in the selection of contractors and
for adjustment of minor contractual matters.
7. Greater attention should be given the selection of contractor
personnel. More of them should be drawn from permanent staff.
8. Better evaluation of contractor performance is needed. It should
be obtained through more systematic and thorough reporting by con-
tractors and missions and through use of survey teams where necessary.
9. The International Cooperation Administration records must be
improved. Basic data on contracting costs, number, and value-
do not exist. The International Cooperation Administration cannot
properly control, assess, or measure the costs of the program without
such data.
CHAPTER I
INTRODUCTION AND PERSPECTIVE
I. GENERAL
This study is concerned with appraising the use of private con-
tractors in Ünited States foreign economic aid programs from 1951
through 1956.
Limitations of available data have made it impossible in all cases
to obtain comparable information covering all years. Since, however,
the paucity of information applies primarily to earlier years when the
use of private contractors was less extensive than today, we believe
that this deficiency does not seriously affect the conclusions drawn
and the recommendations submitted in this study.
In accordance with our terms of reference we have excluded from
consideration the use of private contractors in military aid programs.
Our report therefore is concerned essentially with the uses of private
contractors in aid programs administered by the International Co-
operation Administration and predecessor agencies.
II. WHO IS A PRIVATE CONTRACTOR?
At the outset it is useful to clarify what we mean by private con-
tractors for purposes of this study.
We mean primarily organizations which undertake on a contractual
basis to provide various technical and advisory services needed in
connection with foreign economic aid programs. Their purchase,
supply, or use of commodities is, for our purposes, incidental to the
provision of such technical services. They may be profit or nonprofit
organizations; they may be large firms or small; frequently the con-
tractor is an individual. They may provide limited technical services
such as instruction in the use and operation of lathes or they may
provide the broadest counsel touching on issues of national policy
such as, for instance, guidance and advice on the organization and
administration of a national tax or monetary system.
The services provided by contractors are usually rendered overseas;
but they may also be provided in the United States as when foreign
nationals receive training in American schools or factories.
We have excluded from consideration contractors who supply house-
keeping services for United States aid missions overseas. We have
also excluded from our definition contractors who only sell, process,
or handle commodities purchased by the International Cooperation
Administration or whose services are purely incidental to a commodity
or equipment purchase.
Our objective has been to identify as contractors for purposes of
this report only those who, as indicated above, are engaged principally
in providing substantive services needed in economic aid programs.
258
FOREIGN AID
259
In most cases there is little difficulty in singling out such service
contractors. While an American university under contract to help
organize an engineering school abroad may well purchase within the
terms of its contract materials such as microscopes and various teach-
ing aids, there is no problem in recognizing that its primary function
is to provide advisory services in establishing such school.
It is equally clear for many other contracts that services are the
principal requirement. Thus, a contract may call for an engineering
survey to establish the need, cost, practicability, and best location for
building a powerplant in a certain country. It may or may not involve
technical training of foreign technicians in the process of carrying
out the survey-but in either case only technical services are to be
provided.
We reach a gray zone, however, where the contract involves, for in-
stance, the construction of a plant or some other capital project. We
are still primarily interested in the service to be provided by the con-
tractor in supervising the construction. But he frequently contracts
to purchase on behalf of the International Cooperation Administra-
tion some of the equipment and materials required for the project.
Furthermore, his responsibility, in a sense, covers the value of the
entire project, since errors or failure on his part may mean the loss
or waste of funds expended on the whole project. However, for our
purpose, the measure of his service is the fee he receives and the costs
allocable to such services. Costs of materials and equipment are, to
the extent they are identifiable, excluded from our statistics.
Broadly speaking, we have focused attention on the provision under
contract of services of a kind usually provided under technical assist-
ance programs. Indeed, by far the largest number (as distinct from
value) of private contracts under economic aid programs have been
for technical assistance projects. Where capital projects are con-
cerned we have tried to concentrate on the service element provided by
contractors.
III. HOW THE NEED FOR CONTRACTOR SERVICES ARISES
Unfortunately there is no single indicator pointing clearly to when
or under what conditions contractors' services are needed. This is, in
fact, one of the difficulties with which we shall grapple later on and to
which only passing reference is made here. It is important to under-
line, however, that the use of contractors is necessarily a byproduct
of prior programing decisions. Thus given a certain level of appro-
priations, the International Cooperation Administration will generally
allocate by region or by country a certain portion of appropriated
funds for commodities and equipment. These give rise to no require-
ments for contractors. It is only that portion of appropriated funds
which is allocated to project-type assistance that may give rise to their
use. Project-type assistance includes a wide range of activities-all
the way from small technical assistance projects to large capital
projects under development programs.
The nature of certain projects clearly suggests the need for a con-
tractor. But often the service can be provided either by recruiting
additional International Cooperation Administration personnel or by
farming out the project to another agency. For many projects some
deliberate decision must be taken whether to seek the services of a
private contractor or to use Government personnel.
94413-57-18
260
FOREIGN AID
There are, of course, broader considerations involved in such a de-
cision than the mere technical requirements of a project. If the proj-
ect involves advice and guidance to an agency of the host government,
will such advice and guidance be better received from a private con-
sultant or from a representative of the United States Government?
Or should the United States Government retain direct control and
influence over the advice and guidance so given? If so, would it not be
preferable to assign such responsibility to career personnel rather
than to private contractors?
The relative costs of using private contractors versus direct hire on
Government payrolls must also be considered. The urgency of get-
ting on with the project will also be a factor.
The above questions clearly do not exhaust those which may be rele-
vant to the decision which must be made regarding the advisability of
using private contractors on given projects. They are mentioned
briefly at this point to emphasize the fact that a wide variety of con-
siderations influences the choice between private contractors and Gov-
ernment personnel.
IV. TYPES OF CONTRACTS AND PARTIES TO THEM
Contractual arrangements with private contractors have varied.
We are not concerned here with contract terms, discussed later, but
with the parties to contracts. In practice such arrangements have
taken the following forms:
A. DIRECT CONTRACTS
The International Cooperation Administration and contractor.—
The International Cooperation Administration (or one of its mis-
sions) negotiates a contract with a private contractor for the provision
of services at home or abroad.
B. THIRD-PARTY CONTRACTS
1. Host government and contractor. Here the International Coop-
eration Administration would not be a party to the contract. Its role
in this case would involve approving the purpose and terms of the
contract and paying the bill, although the host government will often
cover local costs.
2. Nongovernmental entity and contractor.-Same as 1 above except
that a foreign nongovernmental organization (a firm, a university,
trade organization, etc.) would substitute for a foreign government as
contractee.
3. Joint fund (or servicio) and contractor. This is also a third-
party contract except that in this case the contractee would be an or-
ganization jointly financed by a foreign government (or foreign gov-
ernments) and the United States. The servicios in many Latin Amer-
ican countries are the best known examples. The Organization of
European Economic Cooperation in Europe is another instance.
FOREIGN AID
261
C. THREE-PARTY CONTRACTS
Host government, the International Cooperation Administration,
and contractor.-All three are parties to this contract. Both United
States and host government foot part of its bill.
D. "COROLLARY" OR "BIFURCATED" CONTRACTS
The International Cooperation Administration with contractor
and host government (or other foreign entity) with contractor.-
Essentially a variation of C above. In this type there are two con-
tracts, related and parallel, which determine the contractor's relations
to the International Cooperation Administration and the host gov-
ernment.
E. GLOBAL CONTRACTS
Contracts between the International Cooperation Administration
and the contractor.-Services are to be provided anywhere, for any
country, at the International Cooperation Administration's direction.
The contractor is usually required to maintain a minimum staff at
the International Cooperation Administration's disposition and to
recruit additionally as the International Cooperation Administration
directs.
The categories of signatory arrangements listed above and the global
contract cover, to the best of our knowledge, all principal service con-
tracts let under economic aid programs and financed directly out of
mutual security program appropriations.
V. WHO RECRUITS THE CONTRACTOR AND IS RESPONSIBLE FOR
NEGOTIATIONS?
Where the International Cooperation Administration (or one of
its overseas missions) lets a contract it is responsible for the selection
of the contractor and for contract negotiations. The host government
will, however, usually be consulted and its concurrence in the selection
will usually be obtained.
When either the host government, joint agency, or foreign nongov-
ernmental entity lets the contract, it will usually be responsible for
the selection of the contractor and for carrying out contract negotia-
tions. Usually the International Cooperation Administration will
be active in recruiting potential contractors and in influencing the
selection. The degree of the International Cooperation Adminis-
tration's participation in such decisions and negotiations will nor-
mally depend on the ability and experience of the other government
or entity concerned. In any event, assisted by the International
Cooperation Administration or not, the contracting authority must
adhere to prescribed International Cooperation Administration
regulations regarding costs, salaries, bidding procedures, etc.
The International Cooperation Administration overseas missions
may let contracts in value not exceeding $25,000 each. Even these
may be referred to Washington for approval. Thus nearly all United
States-let contracts are subject to prior Washington approval, with
the largest number and value being actually let in Washington. Fur-
thermore, most contracts let by non-United States agencies come un-
der close scrutiny of the International Cooperation Administration.
262
FOREIGN AID
VI. CONTRACTUAL RESPONSIBILITY IN THE INTERNATIONAL
COOPERATION ADMINISTRATION
The Contract Relations Office within the International Coopera-
tion Administration has today the responsibility for negotiating con-
tracts and formulating terms and conditions for contracts financed
out of United States funds even where negotiating responsibility is
assigned elsewhere. The Contract Relations Office was recently or-
ganized to replace the previously decentralized responsibility for con-
tract negotiations and policies. It has the responsibility for coordinat-
ing contract terms and conditions with other offices within the Inter-
national Cooperation Administration and with other agencies having
an interest in a given contract or project.
We shall return to most of the points summarized in the previous
paragraphs in the course of subsequent, more detailed description,
analysis, and evaluation of the policies and procedures followed in
letting private contracts. The above summary has been provided in
an attempt to give a bird's-eye view of the nature of that segment of
the aid program we are to discuss and to identify the major agencies
or groups who have a part to play in its execution.
CHAPTER II
THE EXTENT TO WHICH CONTRACTORS HAVE BEEN
USED IN FOREIGN AID PROGRAMS
I. REGIONS AND FIELDS OF ACTIVITY
A. FIELDS OF ACTIVITY
Private contractors have been retained under United States eco-
nomic aid programs to provide services covering a wide range of
activities. The following table indicates the distribution by field
of activity of 1,177 contracts having a total value of $223,998,000.
TABLE I.—Private contracts by fields of activity (1951-56)

Field of activity
Number
of con-
tracts
Value (in
thou-
sands)
Field of activity
Number
of con-
tracts
Value (in
thou-
sands)
Agriculture and natural re-
sources..
Industry and mining.
Transportation….
Labor
Health and sanitation….
Information and education.
238
$40, 470
Public administration...
Community development
66
$9,654
458
97, 451
and housing...
58
61
24, 985
General and miscellaneous___
59
88
5, 407
2,440
93
1, 464
18
2, 677
Total...
1, 177
223, 998
126
39, 450
1 Figures in this and subsequent tables, where not otherwise indicated, refer to various distributions of these
1,177 contracts. So far as possible the value of each contract excludes costs in excess of $50,000 for materials
and equipment. In many cases, however, we believe that the data as given to us included some unidentified
value considerably in excess of $50,000 representing material or equipment costs.
The contracts include all those for which records have been made available to us. They purport to
cover all contracts let since inception of the aid program. Less than 50 were concluded prior to 1951. How-
ever, records of earlier periods may not be complete. We nevertheless believe that these 1,177 contracts
cover more than 95 percent of all private contracts let by the International Cooperation Administration and
predecessor agencies.
The work performed by contractors has been of three general types:
(1) Training and education of foreign technicians on the job,
or at schools in the United States or overseas.
(2) Technical guidance and advice on how to accomplish or
how to organize to accomplish a given job.
(3) Actual performance by a contractor of a technical service
or function other than guidance and training.
Types (1) and (2) above are clearly "technical assistance" 1 in na-
ture. They account for the bulk of the work performed under private
contracts.
Even where the primary service performed by a contractor is not
essentially of a technical assistance nature, it will frequently also
involve some training or technical guidance. Thus a contractor may
be retained to do an aerial mapping or geological survey of a region
but to provide at the same time training for local technicians in the
1 Variously identified at different times or for different areas as technical assistance,
technical cooperation or technical exchange.
263
264
FOREIGN AID
}
latest methods and techniques. We have been unable to obtain a
quantitative estimate of contracts falling into this latter category.2
It is evident, however, based on comments by contractors and discus-
sions with personnel experienced in the contracting field, that they
are numerous.
The number and value of contracts shown in table I for industry
and mining have exceeded those in any other field. The second and
third most important categories have been agriculture and natural
resources and information and education.
The large value of contracts in industry and mining is accounted
for by a relatively small number of "big" contracts for engineering
surveys and construction projects under development programs. Nev-
ertheless, the majority of contracts in industry and mining have been
for technical assistance projects. Nearly all contracts in the remain-
ing fields of activity fall under the heading of technical assistance,
with the exception of a few in transportation and in the natural re-
sources sector of agriculture and natural resources.
B. REGIONS
Table II below indicates the regional distribution of contracts by
number and value. Contracts performed in respect of 2 or more
regions are entered under the global category.
TABLE II.—Regional distribution of contracts by number and value
Far East..
South and Southeast Asia.
Near East and Africa.
Europe-...
Latin American………
Global.
Total..
(1951 through 1956)

Number of
contracts
Value
(thousands)
Percent by
area 1
123
$49, 886
172
70, 766
31
161
51,034
23
379
34, 314
15
123
12, 442
219
5,556
222202
6
1, 177
223, 998
100
¹ Percentages are rounded and do not add up exactly to 100 percent.
Private contracts have been distributed in a surprisingly even
manner among the major geographical regions. The higher relative
value of contracts in the Far East, in south and southeast Asia and in
the Near East reflects the concentration of major developmental proj-
ects in these areas. The relatively large number of contracts in Europe
with, however, a total value less than that for any of the areas just
mentioned, reflects numerous small technical assistance projects in
industry. Just under 25 percent of the International Cooperation
Administration European contracts were let by the Organization of
European Economic Cooperation. Actually the average dollar value
of contracts in Europe is less than the average for those in Latin
America. The small value of the global contracts reflects in part the
fact that many are for performance in the United States (less costly)
and almost exclusively for training projects. The major reason, how-
"We have not had access to contracts themselves but only to certain data extracted
by the International Cooperation Administration and tabulated on data sheets.
FOREIGN AID
265
ever, is that a very large number are "open" contracts with no total
cost assigned.
II. WHO ARE THE CONTRACTORS?
We have divided contracts into those with profit organizations, uni-
versities, and other nonprofit organizations. The results are as
follows:
TABLE III.—Distribution of contracts by type of contractor (1951–56)

Profit organizations.
Universities ¹
Other nonprofit.
Total
Number of Percent
contracts
Value (in
thousands)
Percent
596
51
$138, 932
63
346
30
68, 447
30
38
235
19
16, 619
7
1, 177
100
223, 998
100
1 Included in universities are 1 or nonprofit foundations whose services are generally similar to those
undertaken by universities.
A. PROFIT ORGANIZATIONS
Profit organizations have received slightly more than one-half of all
contracts let. The value of their contracts, however, amounted to
nearly two-thirds of the total value of all contracts. Of 596 contracts
let with profit organizations 35 exceed $1 million in value for a total
of nearly $100 million. In other words about 6 percent of the number
of contracts let with profit organizations accounted for about two-
thirds of the value of all contracts in the profit group. These high-
value contracts are related to developmental projects. (See Ap-
pendix A, table A-10 for a list of firms holding contracts of $1 million
or more.)
Of the total of 596 contracts received by profit organizations only 15
firms received 4 or more contracts each, totaling 69 contracts with an
aggregate value of $33 million. (See Appendix A, table A-9 for a
list of firms holding four or more contracts.)
Thus in contrast with the marked concentration of values in about
6 percent of the contracts, contracts have been distributed among a
large number of firms.
B. NONPROFIT ORGANIZATIONS
About one-half of all contracts have been let with nonprofit organi-
zations. The value of such contracts, however, has been only about
one-third of all contract values. Universities received just over 60
percent of the number and about 80 percent of the value of contracts
with nonprofit organizations. They constitute the most important
element in the nonprofit group.
1. Universities
There have been 346 university contracts with a value of about $68
million. Twenty-eight institutions, with 4 or more contracts each,
accounted for 205 contracts with a total value of $35 million. Fifteen
universities each had a contract in excess of $1 million with a total
value of nearly $32 million. (Appendix A, table A-10 lists all uni-
versity contracts exceeding $1 million in value.)
The following table shows the distribution of university contracts
by activity and by region.
266
FOREIGN AID
TABLE IV.—University contracts by activity and by region (1951–56)

Activity
Num-
ber
Value (in
thousands)
Num-
Region
ber of
Value (in
con-
thousands)
tracts
Agriculture..
Industry..
Education
124
30
Public administration.
Information.
Labor...
Community development.
SAPROTO
$20,002
1, 565
Far East..
Southeast Asia.
34, 618
Middle East and Africa.
5, 280
Europe..
637
Latin America.
911
Global..
1 136
CO LA A CUIA CO
$11, 381
20, 381
23, 792
45
2, 027
45
8, 953
1, 913
Public health..
LO 00
283
8
1, 794
Multipurpose and miscellane-
ous.
14
3, 357
Total...
346
68, 447
Total..
346
68,447
1 Includes 49 open contracts for which no values are stipulated.
The table indicates that of the $68 million of services contracted
for with universities, just under $60 million went to 3 activities: agri-
culture, education, and public administration. The first 2 account for
$54.4 million of this $60 million. By region, the number of contracts
was fairly evenly divided; but in value terms $55 million or over
80 percent went to the Far East, southeast Asia, and the Middle East
and Africa.
The largest number of contracts falls under the "global" heading.
These represent, for the most part, training projects in the United
States servicing more than one country or region. The small value
figure is misleading since nearly half the global contracts are "open"
with no value provided. A comparison of the figure of 136 global
university contracts with the global figure for all contracts shown in
table II indicates that university "globals" accounted for 60 percent
of all "globals.
""
2. Other nonprofit organizations
Other nonprofit organizations include voluntary service agencies,
foundations, labor federations and unions, scientific and professional
groups.
Of the 235 contracts with a value of $16.6 million let with these non-
profit organizations, contracts with a value of just over $6 million
were with so-called voluntary-service organizations better than one-
third the value of all contracts in this group.
Thirteen nonprofit agencies with 4 or more contracts each received
a total of 148 contracts having a value of $11 million. Only 1 organ-
ization had a contract in excess of $1 million.
C. FOREIGN CONTRACTORS
Table V below indicates the distribution of contracts between United
States and foreign contractors and between profit and nonprofit groups.
FOREIGN AID
267
TABLE V.—United States and foreign contractors (through November 1946)
A. Profit organizations
United States__
Foreign.....
Total..
B. Nonprofit organizations
United States.
Foreign.
Total.
O. All contractors
United States..
Foreign..
Grand total…….
Number of
contracts
Value
Thousands
516
$128, 961
80
9, 971
596
138, 932
556
83, 853
25
1,213
581
85,066
1, 072
212, 814
105
11, 184
1, 177
223,998
About 10 percent of the contracts let have gone to non-United States
contractors but their value represents only about 5 percent of the total
value.
Foreign profit organizations have received about 13 percent of the
number but only about 7 percent of the value of all "profit" con-
tracts. The ratios are even smaller in the case of contracts with for-
eign nonprofit organizations.
By far the largest number of foreign contractors in the profit group
are European firms-French, Belgian, and German-many of whom
received contracts in connection with development projects in the
Middle East and south Asia. More surprising is the fact that all
foreign nonprofit contractors have been European. The most nu-
merous of these have been European labor organizations working on
labor projects under the International Cooperation Administration
auspices.
☺
In terms of number and value of contracts it is evident that, how-
ever important individual contracts let with foreign groups may have
been for particular projects, they represent on the whole a relatively
insignificant element in the contracting picture.
III. THE SCOPE AND TREND IN THE USE OF PRIVATE CONTRACTORS
A. THE SCOPE OF THE PROGRAM
There is no meaningful standard by which to assess the adequacy
or inadequacy of the size of the private contractor program.
The fact that the value (about $223 million) of private contracts
which have been concluded represents between 1 percent and 2 per-
cent of the $21.4 billion obligated for economic aid since the incep-
tion of aid programs is not particularly relevant. Whether private
contractors should have been used more frequently or less frequently
than they have can only be judged by an examination of each project
where the question of their use arises.
Total obligations for project assistance-from 1948 to June 1956-
have amounted to about $1.4 billion or $1.5 billion if the European
technical exchange program is included. We do not know, unfor-
3
Source: International Cooperation Administration's Operations Report, Issue No. 4
of fiscal year 1956.
268
FOREIGN AID
tunately, what the commodity and material element of these programs
has been over this period. For fiscal years 1955 and 1956 the com-
modity element amounted to about two-thirds of the estimated costs
of approved "project assistance." If that proportion held true for
the entire period since 1948 one might say that about $500 million
represented the nonmaterial or service value of all development and
technical assistance projects. One might, therefore, draw the conclu-
sion that the $223 million in private contracts (just short of 50 per-
cent of the nonmaterial value of such projects) indicates that con-
tractors' services have represented nearly 50 percent of all technical
services provided under aid programs. We would not wish to press
this comparison. It is offered here only as a very rough benchmark.*
A comparison of the number of Government-employed technicians
and contractor personnel assigned overseas is another way of assess-
ing the relative use of the two. The following table provides such a
comparison for the last 3 years. No figures are available covering
contractor personnel for prior years.
TABLE VI.-Number of United States technical personnel overseas: Total United
States Government personnel, and employees under contract (1952–56)

U. S. Government personnel
(as of June 30)
1956_
1955----
1954-
1953...
1952
Total, all
personnel
International
Cooperation
Administra-
tion and
Contract
Other
Federal
agencies
personnel
predecessor
agency
3,957
2, 189
424
3,217
1,780
479
1, 344
958
2,583
1,450
510
623
956
871
515
82
Sources: (1) Personnel Strength, 1954, and operations reports for fiscal year 1955 and 1956. (2) Estimate
provided by the International Cooperation Administration for contract personnel in 1954; none for earlier
periods.
Between June 1954 and June 1956 the number of contractor person-
nel in the field had about doubled. Between the two dates contractor
personnel as a percentage of total United States technical overseas.
personnel had risen from about one-quarter to over one-third.
These figures do not represent all personnel providing technical as-
sistance. Technicians in the field are supported by others at home.
The numbers of such persons are not indicated in our figures.
A more useful comparison is perhaps provided by the value of ap-
proved projects covering the use of technicians and contract services.
Figures for the fiscal years 1955 and 1956 are provided below. No
figures are available for prior years.
* The figures on so-called project assistance are not reliable. In the first place they have
been retroactively "estimated" by the International Cooperation Administration for years
prior to 1954 when this type of breakdown was not used. They also cover certain defense
support projects not too relevant for our purposes. Nevertheless, theoretically, exclusion
of commodity costs if they were accurate should yield a rough estimate of "service" costs.
The lack of these for all but the last few years and the “estimated” element of the so-called
value of project assistance suggests that the comparison used in the text should be viewed
only as an interesting exercise from which no conclusion should be drawn.
FOREIGN AID
269
1
TABLE VII.—Project-type aid: value of project proposals (PPA's) issued during
fiscal years 1955 and 1956
[In thousands of dollars]

For United
States em-
ployed
technicians
For contract
services
Fiscal year 1955……….
Fiscal year 1956……
Total...
30, 137
54, 940
42, 146
73, 652
72, 283
128, 592
The above data for contract services, while theoretically excluding
the value of equipment and commodities procured in connection with
projects for which contractors' services are obtained, probably includes
a considerable element of such costs and is correspondingly inflated.
Nevertheless, the table provides a general order of magnitude of the
relative value of United States employed technicians and contract
services for approved projects in those 2 years. It indicates that the
value of contract services was almost twice that of services performed
by government personnel.
B. THE TREND IN THE USE OF PRIVATE CONTRACTS
There has been a marked increase in the use of private contracts
since 1951 with a peak in the number concluded occurring in 1954 as
shown in the following table:
TABLE VIII.-Number and value of contracts concluded by year

1951 1
1952.
1953.
1954.
1955
1956
Number of
contracts
Value
(thousands)
27
$35, 467
28
17,253
146
25, 213
372
52, 867
304
48, 247
300
2 44, 951
1 Contracts concluded in years prior to 1951 are included in the 1951 data.
* Includes only 9 months for 1956.
The large values for the relatively small number of contracts shown
for 1951 are accounted for by a few large contracts which probably
include a substantial element of material costs.
Much of the increase in the number of contracts is accounted for by
the growth in university contracts concluded in the last few years as
shown below:
TABLE IX.-University contracts concluded by year
1951 1
1952.
1953_
1954.
1955..
1956.
1 Contracts concluded in years prior to 1951 are included in the 1951 data.
• Includes only 9 months for 1956.
Number of
contracts
Value
(thousands)
4
$1,842
6
60
105
6, 466
4, 654
35, 246
76
10, 754
95
* 9,845
270
FOREIGN AID
*
There is no noticeable trend over the period indicating increased
emphasis on one or another field of activity, except insofar as the
larger use of universities in the later years is reflected in a larger
value of contracts in "Information and Education," "Agriculture,'
and in "Public Administration."
""
Beginning in 1953 the value of private contracts for performance
in South and South East Asia increased not only absolutely but also
relatively to those for other areas. There was a decrease over the
years in private contracts for Europe. Those for Latin America, the
Far East and the Near East and Africa seem to show no definite trend.
The number of global contracts concluded shows a rising trend reflect-
ing "global" university contracts. As previously mentioned their
values in the following table are understated due to the inclusion of a
large number of "open" contracts.
TABLE X.-Value of contracts by region (1951–56)
Far East.
South and southeast Asia.
Near East and Africa….
Europe
Latin America.
Global...
Total_
[In millions of dollars] 1

1951
1952
1953
1954
1955
1956 *
10. 2
1.5
9.5
7.8
14.4
6.4
2.5
.5
8.6
14.6
15.0
29.5
7.3
8.7
4.8
18.8
8.2
3.3
14.6
6.6
.6
4.6
5.5
2.5
.9
1.0
5. 1
3.9
1.5
.8
1.7
1.2
1.8
35.4
17.2
25.2
52.8
48.2
44.9
1 Figures are rounded and may not add up exactly to totals.
1956 includes only 9 months.
Less than $100,000.
CHAPTER III
CONTRACTORS VERSUS GOVERNMENT EMPLOYEES
How the Choice is Made
I. INTRODUCTION
The private contracting program has suffered under the handicap
of inadequate policy guidance and a heterogeneous, ill-assorted cof-
lection of practices and procedures. As one mission put it:
There are no criteria or policy directives for the guidance
of the mission regarding the use of United States Govern-
ment personnel or private-contractor personnel.
Private contractors have, of course, been employed for many years.
Inevitably an informal collection of practices, procedures, and poli-
cies has developed-a semblance of guidelines but not an adequate
substitute. They have been neither uniformly interpreted nor con-
sistently followed. In part this has been due to the impermanence
of the International Cooperation Administration and predecessor
agencies and the rapid turnover of personnel. These difficulties have
been magnified by the organization of the agency which, until re-
cently, failed to assign contract responsibility to any one office or
bureau with a consequent diffusion of such responsibility among a
number of offices.
Our discussion in this section must therefore deal with disparate,
frequently inconsistent practices rather than with a systematically
developed body of doctrine governing the use of contractors. Our
description reflects our understanding of present practices, and where
feasible, will indicate the direction in which they seem to be evolving.
II. WHEN AND WHERE IS THE DECISION MADE TO USE A
PRIVATE CONTRACTOR?
The technique for executing a project (Government personnel or
private contractors) is ordinarily determined very early in the out-
lining stage of a project. The primary consideration is the nature of
the proposed project. But as one mission put it-
*** the crucial one is frequently "how can the best per-
sonnel be provided in the shortest time."
Determinations are often made in the field by the mission and/or
the host country, which may have a decided preference for or against
contractor assistance. When the field has no initial recommendation,
it is determined in the International Cooperation Administration in
Washington unilaterally or in concert with the field. Occasionally,
initial determinations may be subsequently altered-where, for in-
stance, it is impossible to carry out an original decision to employ
271
272
FOREIGN AID
Government personnel because qualified personnel cannot be recruited.
In such instances, the International Cooperation Administration
might ultimately turn to private contractors.
III. WHAT CRITERIA ARE INVOLVED IN THE DETERMINATION TO USE
OR NOT TO USE PRIVATE CONTRACTORS?
The Congress has directed that—
the participation of private agencies and persons shall be
sought to the greatest extent practicable. (Mutual Security
Act, as amended, sec. 413a.)
Theoretically this could mean that almost every project should be
assigned to contractors; some competent group could certainly be
found for nearly every job. But Congress has also sometimes criti-
cized the International Cooperation Administration for too extrava-
gant a use of contractors. Apparently some independent criteria are
needed and expected.
In choosing between direct hire and contractors, the International
Cooperation Administration in Washington, the missions, and the
host government do not appear to attach the same importance to the
different criteria that can be applied. They all seem agreed, however,
that the choice should be largely determined by what best satisfies
the requirements of particular projects. Thus the nature of the func-
tion to be performed appears to be generally accepted as having major
significance nor would we disagree.
A. AID FUNCTIONS AND PROJECTS BEST PERFORMED BY GOVERNMENT
AGENCIES
Project managers, country desk officers, and missions appear to con-
sider the following criteria as the more important in decisions to use
Government agencies and personnel rather than contractors:
1. When Government agencies have traditionally rendered
either domestically or abroad the services required;
2. When classified information, materials, or policies are
involved;
3. When the kind of services called for can be expected to be
of a continuing nature and justify the recruitment of Government
staffs;
4. When the project requires individual experts or consultants
(as distinguished from groups or teams) to work for more than
1 year (sec. 530 of the Mutual Security Act, as amended, in turn
based on section 15 of the Administrative Expenses Act of 1946,
requires that such individuals be hired on Government rolls);
5. When Government agencies are uniquely equipped and pre-
pared to perform the specified functions;
6. When the cost is less.
(a) Examples of activities usually undertaken within Government
The following examples illustrate types of projects normally as-
signed to Government agencies or personnel. For projects involving
nuclear problems, the International Cooperation Administration will
usually turn to the Atomic Energy Commission, for reasons of security
FOREIGN AID
273
and/or because of unique qualifications. One mission reported that
the
United States Civil Aeronautics Authority is the natural
selection to provide personnel for the installation of the
very high frequency omniranges and training of [the host
government] air traffic controllers and aeronautical com-
munications experts.
The Department of Commerce has carried out a training aids pro-
gram for years and, therefore, is ordinarily entrusted with such pro-
grams in foreign assistance. Other Government agencies and depart-
ments have undertaken project assistance, including the Departments
of Agriculture and Labor, the Coast and Geodetic Survey, and
Bureau of Public Roads, on a wide variety of projects. In one country,
for example, Government agencies have supplied hydrologists and
have carried out projects involving meteorology training and highway
administration.
B. AID FUNCTIONS AND PROJECTS BEST PERFORMED BY PRIVATE
CONTRACTORS
Private contractors are generally regarded as best or uniquely quali-
fied to undertake such projects as―
1. Those requiring a peculiar skill or combination of skills in-
sufficiently called for to justify employment of full-time Govern-
ment personnel;
2. Economic, technical, engineering, or other projects which
require the professional backstopping that Government agencies
cannot be expected to provide;
3. Institutional-type projects, e. g., universities, where the
need is for the development and structuring of a host institution
by a comparable institution in the United States; and often where
the needs of the host country and institution are for the develop-
ment of a long-run relationship extending beyond the life of the
International Cooperation Administration financed project;
4. Those calling for professional or technical skills widely
developed by industry or professional groups in the United
States;
5. Those in areas or fields in which private agencies have de-
veloped peculiar competence and international reputation, e. g.,
voluntary agencies in community and village development, wel-
fare services of all kinds, etc.
6. Those which require or would benefit significantly from a
team operation-firms are ordinarily better able to meet this
criterion than an aggregation of Government personnel;
7. Where the project is big, definite, physical in character, and
requires a large organization, e. g., construction projects; and
8. Desperation projects where recruitment through contrac-
tors is the only means of getting people on the job quickly.
Obviously, more than one of these reasons will often apply to a
given project.
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FOREIGN AID
IV. MISSION VIEWS
A. ON GOVERNMENT PERSONNEL
Certain mission comments on the use of Government personnel are
relevant. One mission said:
In the case of professional engineering and natural re-
sources fields, the Government of*** has expressed a pref-
erence for recruitment of employees from some responsible
United States Government organization such as the Bureau
of Reclamation, the United States Geological Survey, the
United States Army Corps of Engineers, or the Department
of Agriculture * * *
*** Accordingly, engineering design advisers, ground-
water engineering and geology advisers, and flood-control
engineering advisers are normally provided through direct
recruitment on the International Cooperation Administration
rolls.
Similarly, for short-term, high caliber consultants in highly
specialized fields who are required for specific service, say
to conduct surveys and make project recommendations, it
has been found that United States Government consultant fees
and per diem rates are sufficiently flexible to attract men of
high standing and reputation. In this way, the mission has
been able to provide through direct recruitment an investment
adviser, a short-term transportation consultant, and short-
term services of leading economists * *
Another mission said:
In procuring technical or professional services, the public
administration and education division (of the mission) will
generally favor the use of United States Government person-
nel for functions primarily of a planning or advisory nature
or, where operational activities or involved, in cases involv-
ing only one or two technicians working on primarily single-
purpose activities.
B. ON CONTRACTORS
Here are typical notes from missions indicating their views on when
private contractors are best employed.
1. Contracts are deemed to be the best implementing de-
vice if the aid program provides for a specific undertaking to
be accomplished within a specified period of time.
2. In any case, the contracting device is best for work in
sensitive areas where disassociation of the technician with
any official United States viewpoint is necesary to obtain
receptivity on the part of the host government.
3. Conversely, the contract device appears more advan-
tageous in the area of public administration and education
responsibilities, for the handling of medium to large-scale
projects involving primarily operational activities, particu-
larly where the project involves a variety of separate but re-
lated operations and is one of relatively long-range duration.
FOREIGN AID
275
V. LACK OF CONSISTENCY AMONG VIEWS ON THE PROPER ROLE FOR
GOVERNMENT EMPLOYEES AND PRIVATE CONTRACTORS IS EVIDENT
One mission in Asia shows a general preference for Government em-
ployees:
Insofar as recommendations of the mission for the use [of
contactors] are involved, such recommendations are normally
made when the nature of the project itself is clearly outside
the competence either of the host government or United States
Government personnel to perform * * *.
But in Europe, another mission shows a general preference for con-
tractors:
In principle we favor the employment of private contrac-
tors rather than United States Government personnel in tech-
nical exchange projects. This preference results from our
belief that project results are better accomplished if project
technicians have a direct employer-employee relationship with
the host government.
In Washington, we found mixed views. From one country desk to
another, and from one technical officer to another, different views are
expressed as to when to use Government employees or contractors.
On the whole, the preference is for the use of Government personnel
where they can be recruited in time.
VI. WHEN ALTERNATIVES EXIST
A. POLITICAL, PSYCHOLOGICAL, OR RELATED CONSIDERATIONS
Where the requirements of the project do not clearly indicate one
technique or the other, the factors listed below may be decisive. Final
decisions will more frequently than not be made on the basis of interna-
tional, political, psychological, or related considerations. This state-
ment is not meant to suggest that such considerations are irrelevant.
On the contrary, they are frequently of major importance.
One of the United States operations missions in Asia reported, for
instance, that in the field of public administration, it believed that-
distinct advantages derived from the [private] contract
system. Advice in such a sensitive field to a foreign govern-
ment can more readily be given by a private contractor than
by United States Government personnel. Similarly, advice
of this nature is more readily acceptable to the [host] gov-
ernment.
A United States operations mission in Latin America pointed out
that, in connection with a rural development and agrarian resettle-
ment program, it was desirable from the United States point of view
to employ an "outside agency" to avoid possible political implications.
In another instance, a United States operations mission stated that—
*** it was desirable to keep United States participation in
the background in matters of basic importance related to the
running of the Government.
94413-57—19
276
FOREIGN AID
Interestingly, in Washington there seem to be preferences for the use
of Government personnel on most sensitive projects.
B. DURATION AS A CONSIDERATION
Missions have opposing views as to whether the duration of the
project should influence the use of Government personnel. One
United States operations mission believed that longer-term projects
were better implemented by private contractors since continuity was
desirable and turnover in Government personnel would be avoided.
Another United States operations mission stated that long-range
projects lend themselves better to the use of United States Govern-
ment personnel. A third mission stated that short-term activities
with private contractors appear to be excessively costly.
We find no general view on this matter in Washington.
C. COSTS
In Washington and in the missions we find, in general, an uncritical
acceptance of the view that contractors' services are more expensive
than the use of Government employees. There is therefore an appar-
ent bias in favor of the use of Government personnel on this account.¹
Certain missions' views on "cost" as a criterion in deciding on direct
hire versus contractors are interesting. One mission feels very
strongly :
Our experience will indicate that contracts always cost
more. Perhaps this is because the contractor usually will be
able to insist upon more adequate equipment, more adequate
personal service for his people, etc., than is possible through
the considerable variety of departmentalized service depart-
ments and agencies that implement direct-hire activities, so
that the contractor can actually get on the job in the field not
only the people but the equipment he needs at the same time;
he can use the money that is available for the activity.
1 Contractor personnel may receive higher salaries than Government employees; con-
tractors are also paid overhead and, in the case of profit organizations, fees as well. But
what of the overhead within the Government? What are the costs of recruiting, training,
and sustaining Government personnel? What of the day-to-day operating costs of the
International Cooperation Administration and other agencies in backstopping the em-
ployees and doing the housekeeping? It may well be that these costs are lower than the
overhead and fees paid to contractors. We do not know and neither does the Interna-
tional Cooperation Administration. As we note elsewhere in this report, the records kept
by the International Cooperation Administration are inadequate to permit any accurate
estimate of the all-inclusive costs of direct-hire employees. For that matter they do not
permit an accurate estimate of Government costs attributable to contractors, including
the costs of recruiting and sustaining them. Until such data are available, sweeping
conclusions regarding costs seem unwarranted.
FOREIGN AID
277
Our experience here, however, indicates that when it comes
to private-consultant contracts the costs are highly excessive,
and more often than not the private contractor can send a
single consultant to the field for at least twice the cost that
similar and equally effective services could be furnished
through direct hire.
Another mission believes that Government employees are cheaper
but that the International Cooperation Administration must do bet-
ter recruiting.
It is the mission's considered opinion that United States
Government personnel can be made available at lower cost
than contract technicians. It is believed that concerted ef-
forts by the International Cooperation Administration in
Washington personnel offices could result in on-roll recruit-
ment of college professors and technicians in the fields of agri-
culture, education, health, labor, social welfare, and commu-
nity development.
The mission goes on to say:
Unless, however, the present ceiling in United States pay
scales is raised or waived for highly specialized fields, and
for fields in which there is a shortage of personnel, the con-
tract device will come increasingly to be the best implement-
ing technique for personnel recruitment.
In Latin America a mission commented on several contracts and
concluded that contractor costs have generally not been out of line
Of one contract it said:
We have found that the costs of the contractor are reason-
able. It *** is a nonprofit organization. The salaries
which are paid to its employees are roughly comparable to
salaries paid United States Operations Mission direct-hire
employees. It has been able to recruit its maximum author-
ized strength and to retain that strength. At the same time
direct-hire recruitment for other International Cooperation
Administration programs *** has lagged.
Of another contract it said:
The costs of this contract have been heavy, but in our view
not out of line. Salaries have generally been similar to sal-
aries of other United States Operations Mission employees,
except in the very top jobs. For these, it seems essential to
attract persons of recognized executive quality and compe-
tence, such as a former United States Ambassador, a former
United States economic counselor of embassy in large and
important Foreign Service posts, etc.
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FOREIGN AID
Of a university contract it said:
Costs and salary considerations are in line with direct-hire
costs.
Another mission generalized:
Commercial firms.-The contracts are expensive, but for
the most part measure up to costs and expectations.
Universities.-These contracts are less costly than firms,
provide personnel within a reasonable period, and provide
substantial technical assistance of a long-term usefulness
and impact.
D. AVAILABILITY OF PERSONNEL AND SPEED
The International Cooperation Administration has considerable
difficulty in recruiting personnel. The reasons are analyzed in another
study prepared for the committee. Whatever the reasons, this diffi-
culty often leads eventually to the choice of a contractor as a substitute
for Government personnel.
Obviously, getting the man on the job is important. It is often said
that contract personnel can be sent to the field faster than Government
personnel, particularly when the latter have to be recruited. One of
the United States Operations Missions in Latin America, for example,
indicated that the speed factor was one of the reasons it favored the
use of a private contractor on one project. Most missions reported
that contractors may ultimately be employed because, for any of a
number of reasons, Government personnel prove to be unavailable.
Within Washington, it is commonly accepted that contractors are used
when the job has to move swiftly, even though on other grounds the
preference would be for Government employees. A cable from a
mission demanding action on a project submitted months previously
is likely to lead to the use of a contractor.
To avoid such situations, it would be desirable for the International
Cooperation Administration or other Government agencies to build
up a staff of standby personnel wherever possible. Several Govern-
ment agencies doing work for the International Cooperation Adminis-
tration do, in fact, normally employ a staff, part of whose regular
duties involves the performance of services required in connection with
foreign aid projects. They do not, therefore, usually need to expand
their regular staff to service an individual project. When the prospec-
tive workload justifies it, regular staff will be expanded, if possible.
However, it may happen that an agency which normally carries out
particular types of projects has no personnel currently available when
a new project of that type is developed. It is customary, apparently,
in such cases to hold up on the project until personnel becomes avail-
able. When the project is of high priority, calling for immedi-
ate action, the International Cooperation Administration may try to
use private contractors. As one mission put it, it may prove-
2
* * * expedient to employ private contractors where no other
United States Government agency personnel are available.
* Only in rare instances will an agency other than the International Cooperation Admin-
istration let a private contract to carry out project assistance in the foreign aid program.
In such cases, the International Cooperation Administration does not deal directly with
the contractor: it is judged to be more efficient and less costly to let the agency with
experience handle the matter.
FOREIGN AID
279
E. PERSONAL PREDILECTIONS
In the absence of guidelines, some missions are influenced in their
recommendations by personal predilections. Some missions are more
or less receptive to the use of the contract technique, per se, with in-
sufficient regard for the host of substantive and other criteria which
may be pertinent. It appears to be a fact that some missions "like"
the contracting technique while others are unsympathetic to the de-
vice, per se. This means that the mission in one country might re-
quest, urge, and fight for Government personnel for a project while
in another country, on an identical project, the mission would auto-
matically request or recommend the use of a private firm. Clearly,
considerations of this kind do not lead to the "best" decisions. Sys-
tematic and continuing policy guidance would help to limit the in-
fluence of these sometimes decisive but decidedly whimsical considera-
tions.
VII. SUMMARY AND EVALUATION
Many of the projects in foreign assistance programs are fairly easy
to assign either to private contractors or to Government employees
or agencies. For such projects, the absence of clear, continuing policy
guidance is probably not serious. These projects include, for example,
university-to-university projects, development of community services.
by voluntary agencies, unique services which, beyond question, only
Government agencies should or could provide. If the way is so clear,
the International Cooperation Administration should be able to codify
its practice in this area. It has not done so to our knowledge. We
are thus never precisely sure of the reasons for assigning given projects
to a Government agency or to a contractor. The International Co-
operation Administration should be able to spell out for missions and
for itself the circumstances determining such assignment.
The lack of policy guidance is felt more seriously with respect to
projects for which there is no prima facie case projects which, func-
tionally speaking, could be implemented by either private contractors
or Government agencies. Most such projects arise in the area of
public administration and industrial activity.
One further comment is appropriate. The International Coopera-
tion Administration has been frequently criticized for abusing the con-
tracting technique, particularly as a deliberate means of avoiding
Government salary ceiling.
3
The question, however, may be asked: Is it an abuse to employ con-
tractors when, as one United States Operations Mission in Southeast
Asia declared,
in the medical field, for example, the contract technique per-
mits the International Cooperation Administration to pay
salaries commensurate with those enjoyed by such specialists
in the United States?
And there is a further question, in the words of another United States
Operations Mission in Asia, whether to use contractors—
where United States Government salary scales are inadequate
to attract qualified people, and to overcome the difficulties
* See ch. VI (pt. III D4) for a further discussion.
280
FOREIGN AID
which arise when only relatively short-term employment can
be offered with no assurance of future activity?
To the best of our knowledge the International Cooperation Ad-
ministration in Washington has sought to use whichever technique ap-
peared best suited to effectively carry out United States foreign as-
sistance and related objectives. Indeed, it has probably leaned over
backward to avoid being accused of "getting around" Government
salary ceilings.
We doubt that Government salary ceilings are the best criteria for
determining in all cases the reasonableness of salaries paid to per-
sonnel under private contracts. Nor do we think that vital projects
should be abandoned if qualified Government personnel cannot be
found and private contractors can be engaged only on the basis of
higher personnel salaries.
CHAPTER IV
DESCRIPTION AND EVALUATION OF CONTRACTING
POLICIES AND PROCEDURES-IMPLICATIONS FOR
CONTRACT PERFORMANCE
I. INTRODUCTION
This chapter covers the various stages of the International Coop-
eration Administration contracting process with private organiza-
tions from the inception of a contractor type project to the letting of
the contract. It examines major issues or problems encountered in
the process including the question of contract terms and contractual
relationships. Finally it attempts to assess the adequacy of present
policies and procedures in terms of their implications for contract per-
formance and for the nature of the relationships they tend to create
between interested parties-the United States Government, contrac-
tors, and foreign governments.
A description and appraisal is provided for each of the following
aspects of the contracting process.
(1) Stages leading up to the selection of a contractor.
(2) Contract negotiations, and contract terms.
(3) Formal and informal relations between parties.
II. PROJECT CONCEPTION TO CONTRACTOR SELECTION
A. INITIAL PHASES OF THE CONTRACTING PROCESS
1. The first steps
The several steps leading up to the letting of contracts are these:
(a) Conception of, and request for a specific project;
(b) The preparation of various documents needed in describing
the project and in obligating the funds for the project;
(c) The selection of a contractor.
2. Conception of, and request for a specific project
The first formal step in the contract process is the request by the
cooperating country for United States assistance in carrying out a
project. This request, of course, may not envisage or recommend the
nature of the implementing technique. The formal request by the
cooperating country for project assistance is invariably preceded by
discussions between the country and the United States operations
missions and, often, by communication and consultation between the
United States operations missions and the International Cooperation
Administration in Washington.
281
282
FOREIGN AID
3. The “blueprint" stage-project development
(a) Required documentation. Before sending out bid invitations,
a project must be shaped up, agreed on, and funds committed. These
steps involve the following documentation:
(1) A project proposal describing the project, its scope, functions,
purposes, etc., which is sent by the missions to Washington for review
and approval;
(2) A project agreement between the cooperating country and the
United States (signed by the United States operations missions) re-
cording agreement on the project and obligating United States funds
(and those of the cooperating country where appropriate); and
(3) Project implementation orders allocating funds for specific
purposes under the project-e. g., for training of local nationals in
the United States, for the employment of a private contractor, for
the procurement of any material which might be required for the
project, etc. It is in connection with this last step that a decision
must be made whether to use direct hire or contractors. Chapter III
discussed the criteria used in making such choice.
Unreasonable delays have occurred in the past because, until re-
cently, each step had to be completed before the next was undertaken.
Thus, the formal agreement with the host government could not be
recorded until the prior step, formal shaping up of the project within
the International Cooperation Administration, had been completed.
Occasionally the sequence was broken by invoking a procedure per-
mitting the formalities with the host government to be concluded even
before the project was set. But this was the exception. In an effort
to speed up matters, the International Cooperation Administration
apparently is now permitting the exception to become the rule.
The steps sketched out above and additional steps from the issuance
of bid invitations to the signature of a contract are illustrated in the
following flow chart. A detailed description will be found in
Appendix B.
FOREIGN AID
283
COOPERATING
COUNTRY
THE ICA CONTRACT PROCESS
APPROVED CENTRALIZED OPERATIONS
Normal ICA Contract with U.S. Firm
**

USOM
COUNTRY DESK DD/S OFFICE
CONTROLLER
CENTRALIZED
CONTRACT OFFICE
CONTRACTOR
REQUESTS PROJECT
PREPARES
PPA
ISSUES
1
PPA
2.
3
PPA
4
PPA
SIGNS
PRO
AG
7
PREPARES
6 PRO
AG
SIGNS
5
PRO
8 AG
10
PREPARES
REQUESTING PIOT
CONTRACT
LEGEND
ACTION
REVIEW
26
ISSUES
COPY
PI04
PIOT
11
PIOIT
12
13
15
14
PREPARES INVITATION
LTR
LIST AND LETTER
16
17
GOES TO
SEVERAL FIRMS
REDRAFTS
LTR
AND SIGNS
LTR
LTR
LTR 18
RECEIVES
19
BID
EACH PREPARES
PROPOSAL
20
BID
23
22
SELECTION OF
21
CONTRACTOR
SECURITY CLEARANCE OF FIRM SELECTED (PS & 1) 24
32
30
31
Soe Dept of Ste
| Concurrence required)
ADVICE
( May object Mr channels)
odationɛ, sachian ONE/
January 6, 1956
36
37
CONFERENCE
25
NOTIFY BIBDERS
27
28
29
SUBMITS
FINANCIAL
DATA
CONT
DRAFTS
CONTRACTS
REDRAFTS
AND SENDS TO
CONTRACTOR
33
CHAIRMAN
34
38
PREPARES
FINAL DRAFT
SIGNS
COMES TO WASH.
FOR NEGOTIATION
35
SIGNS
39
40
**See Appendix B for further description of the process.
GPO 906 502
(b) Shortcomings in the "blueprint."-While speed is important in
the contract process, it is equally if not more important that a project
be technically sound. The development of certain projects requires a
high level of technical competence not always found in missions. We
are informed that many projects are submitted in unsatisfactory
form-inadequately described, justified, and planned. Months may
then pass in exchanges between Washington and the field seeking
clarification and better shaping of the project. Mission chiefs and
contractors alike speak of long delays on this account. Overburdened
personnel cannot give each project the attention it may deserve; hence
precious time is lost or poorly described projects are accepted.
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FOREIGN AID
Clear and valid project justification is essential. Otherwise, the
choice between direct hire and contractor use is made more difficult;
bid specifications are apt to be inadequate; and waste in field per-
formance may occur because of lack of understanding as to what
should be done by the contractor, by the foreign government, by the
mission, etc. A mission made this comment:
Experience has also shown the need for extremely careful
analysis of project requirements by the *** Government
and the United States Operations Mission and by the Ameri-
can contractor and the recipient of the aid if it is an ***
institution. Unless clear understandings exist as to the pur-
poses and objectives of a project before it is initiated, such a
project will be greatly handicapped in its execution.
The International Cooperation Administration is aware of this
problem. It is attempting to improve project submissions. It has
retained an engineering firm to advise the Office of Industrial Re-
sources in appraisals of industrial projects and to give advice on
whether, how, and when they should be carried out. We also under-
stand that a master check list is under consideration which would
list criteria the field must satisfy before submitting industrial projects.
The International Cooperation Administration might well consider
how better to staff missions with personnel competent to appraise
projects and put them in shape for prompt Washington action. This
is a difficult task. Missions generally do not have sufficient projects
in any one field to justify a full-time expert for each such field. The
International Cooperation Administration in Washington could pos-
sibly utilize more standby experts to go out to assist in shaping up
projects. It might also consider placing a corps of experts in centrally
located missions to give general assistance throughout the region.
1. The next step
B. THE SELECTION OF CONTRACTORS
When an order is issued calling for the procurement of services
under contract, the Office of Contract Relations drafts invitations,
where appropriate, to a list of prospective contractors requesting the
submission of bids or proposals. After review and approval by other
offices, the invitations are sent out. Replies are evaluated by the Office
of Contract Relations and other interested offices.
A contractor is tentatively selected; security clearance is initiated;
the contractor is notified of his tentative selection and invited to
negotiate; financial statements of the contractor are obtained and
analyzed by the Contract Relations Office; this Office prepares a draft
contract which is reviewed by other offices and by the appropriate
United States Operations Mission; negotiations with the contractor
are undertaken; and, the contract is ultimately signed by the contrac-
tor and the Director of Contract Relations. (Negotiations are
frequently carried out by a foreign government or entity if one of the
latter is to let the contract. In that case contract terms are approved
by the Office of Contract Relations prior to signature of the contract.)
FOREIGN AID
285
2. The methods of selecting private contractors
In selecting contractors, the International Cooperation Administra-
tion generally distinguishes between profit and nonprofit institutions.
(a) Nonprofit contractors.-This group includes such organizations
as universities, and so-called voluntary agencies-for example, Amer-
ican Council of Voluntary Agencies for Foreign Service, Inc., and
Goodwill Industries of America, Inc.
(1) voluntary agencies: In general, the International Cooperation
Administration negotiates with voluntary agencies rather than engag-
ing them in competitive bids. Indeed, the projects are often developed
with the cooperation of the voluntary agency which will ultimately
implement the project. Occasionally, the idea for a project is actually
initiated by one of them. In this sense they make up, so to speak, their
own packages; in such cases the International Cooperation Adminis-
tration's role is to approve the entire package and let contracts with
the agencies.
(2) Universities: Where a university is to be the contractor, direct
negotiations are usually undertaken with a selected few. The Office
of Public Services or the Office of Food and Agriculture, for example,
will select one or more universities which it considers can best service
a given project; direct communications and negotiations will there-
upon be instituted. No clear-cut policy appears to exist for selecting
among universities. Uniformity of practice should certainly not be
pursued at the expense of other important objectives-but it does
appear that systematic guidelines could be developed. (For further
comments on this point see sec. V below.)
(b) Commercial contractors.-(1) Competitive bids: Save for indi-
viduals, the typical procedure in selecting private commercial con-
tractors involves the solicitation of competitive bids or comparable
proposals. In no case, however, is this procedure truly open and com-
petitive. Sealed bids, as conventionally understood, are not employed.
The lowest bidder need not receive the contract award.
The Office of Contract Relations will draw up a list of prospective
contractors to whom invitations are to be sent. The International
Cooperation Administration has an inventory of prospective con-
tractors. Firms are listed because of competence, experience, and
past record of contract work with the International Cooperation Ad-
ministration. This inventory constitutes a sort of master list against
which the firms being considered for a particular project are checked.
Firms not on the master list are not arbitrarily excluded from contract
work. They may be added to the master list if they possess appropriate
qualifications. Organizations are excluded from the list if they are
regarded as security risks, if their professional qualifications are con-
sidered unsatisfactory, if they have questionable records which indi-
cate they would be poor United States "representatives" abroad or
if they have performed badly on previous projects.
(2) Final selection: The final selection of the contractor is made
taking into account cost, quality of personnel, the speed with which
the contractor can get to the field, the length of time the contractor
believes he will require to perform the assignment, and other relevant
factors. Other factors being equal, the contract will be awarded to
the lowest cost contractor. Responses to invitations in the form of
proposals are discussed with the contractors in order to obtain conces-
sions, either on costs or on promised performance or both, before the
286
FOREIGN AID
final award is rendered. Particularly when professional services are
involved which are difficult to define precisely or to measure quanti-
tatively, the selection of a contractor is an extremely flexible and in-
formal affair. For projects having a clear end product such as a con-
struction project, and where comparative costs can be precisely meas-
ured, the selection process is more formal and less ad hoc.
(3) Waivers: In Executive Order No. 10519, March 5, 1954, the
President has waived for the International Cooperation Administra-
tion the requirement to obtain competitive bids. This makes it pos-
sible for the International Cooperation Administration to negotiate
directly as it ordinarily does with nonprofit organizations. For com-
mercial contractors, however, the International Cooperation Admin-
istration apparently considers that it is the intent of Congress that
competitive bids or proposals be obtained whenever possible. The In-
ternational Cooperation Administration therefore, tends to use the
bid or proposal technique even in instances where direct negotiations
might be more sensible. On the other hand, occasional cases arise where
for international political or other reasons, it is essential to expedite
the selection process. For these, the International Cooperation Admin-
istration would issue a "waiver of comparable proposals" and proceed
to negotiate directly. Though waivers should eliminate the time ordi-
narily needed to draw up invitations and evaluate bids and proposals
(often several months), sometimes the waiver itself may require weeks
to process thereby reducing its value as an expediting device. Waivers
have been used sparingly. In all of fiscal year 1956 only 20 were
granted out of about 300 contracts signed in that year.
(c) Individuals as contractors.-Although individual technicians
or consultants whose services are required for the aid program are usu-
ally taken on Government rolls by direct hire, their services are oc-
casionally provided under contract. Since the individuals in such
cases are chosen, so to speak, in advance because of their special qualifi-
cations, no bid or comparable proposal procedure is followed. It is
standard policy to negotiate directly with prospective "individual”
contractors on terms and conditions of the contract.
(d) Foreign contractors. If a foreign contractor is retained the
decision will usually be based on some unique qualification or capabil-
ity which he possesses. The Organization of European Economic
Cooperation, for instance, has been contractor for a number of tech-
nical training projects in Europe. The Greek Red Cross has been
contractor for a number of community development projects in
Greece. Labor federations in Europe have been contractors for a
number of labor and information projects. The decision to use a
specific foreign contractor in such cases is inherent in the nature of the
project to be performed.
There are also a few cases where contracts have been let to foreign
firms under competitive bids. These are usually for construction proj-
ects. On the whole, relatively little use has been made of foreign con-
tractors in the technical service field. The International Cooperation
Administration officials consider, and we believe rightly, that one of
the important byproducts of technical assistance is the development
of mutual respect and understanding and of a closer and often continu-
ing association between foreign recipients and American personnel
providing the know-how. American contractors, as representatives
of the American people rather than of the United States Government,
can be the most effective missionaries for American democracy abroad.
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287
The use of foreign contractors sacrifices this opportunity. Further-
more, foreign contractors will rarely be as responsive to broad United
States policy guidance. Apart from the fact that American contrac-
tors would in most cases be selected on grounds of competence alone,
broader policy considerations will usually dictate their selection. None-
theless the growing scarcity of technical personnel may make it de-
sirable that we look more frequently abroad for talent, particularly
for strictly technical as distinct from policy jobs.
3. Difficulties and problems in the selection process
As previously noted, the International Cooperation Administration
generally takes a rather narrow view on the propriety of waivers.
This is reflected in the numerous and time-consuming clearances
through which requests for waivers must go, thus reducing their
usefulness.
Many International Cooperation Administration_officials make a
good case for wider use of the waiver procedure and for more speed
in processing waiver requests. They make these points:
(1) The International Cooperation Administration will usually
have developed information for many types of professional services
sufficient to assure itself that particular costs and fees are reasonable;
"going" rates can be determined without competitive bid.
(2) Costs properly play a minor role where qualitative factors are
of first significance, even if these factors are difficult to weigh pre-
cisely.
(3) In certain fields (engineering, for example), the fees charged
by firms of reputation, and high standing are standard or approxi-
mately so.
(4) Finally, the process of direct negotiations assures that fees and
costs will be within limits the International Cooperation Administra-
tion considers acceptable.
Failure by the International Cooperation Administration to under-
take more direct negotiations has led to the refusal of some highly
regarded firms to offer their services. As a consequence the foreign
aid program foregoes the opportunity of maximum utilization of cer-
tain private firms which are among those best suited to represent
the United States abroad.
This is the way one firm expressed the view held by many contrac-
tors and by several International Cooperation Administration officials:
Service contracts of the type we have worked on cannot
be described and bid upon any more successfully than you
would ask for bids for legal counsel to defend you in court.
Yet a laborious and costly attempt is made to do this.
One mission chief said the most desirable procedure was direct
negotiation with a reputable firm known to be able and willing to sup-
ply qualified personnel and adequate backstopping and supervision.
Low bidders under competitive bids may be fly-by-nighters or only
partially qualified firms. And low bids will frequently reflect the
lower overhead costs of a small organization, possibly ill equipped for
the job at hand. Even when this is recognized, it is difficult for the
agency to turn down the lowest bid for fear of being accused of arbi-
trary decisions.
The establishment of eligibility standards for organizations desir-
ing to work for the International Cooperation Administration might
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make it easier for that agency to choose the best firm even though it
might not be the lowest bidder. Standards would insure greater uni-
formity in the quality of firms selected.
We do not wish to imply that competitive bidding is inappropriate.
It is indeed preferable in many cases-for example, for projects sub-
ject to physical specifications or more generally where the service to
be performed is clearly definable. The problem is, in fact, to develop
a set of criteria which will list classes of projects for which competi-
tive bids or comparable proposals are to be sought and those for which
they are not. No such criteria exist. This is a problem that should
receive early attention.
C. SELECTION, SCREENING, AND INDOCTRINATION OF CONTRACTOR
PERSONNEL
1. Behavior of contractor personnel overseas
As informal ambassadors of the United States abroad, the manner
in which private contractors discharge their functions overseas will
reflect credit or discredit to American business and to the United
States in general. The effectiveness of contractors under foreign aid
programs thus depends in large part on the caliber of the personnel
they employ. This is true not so much with respect to the technical
competence of such personnel-which is, of course, an important re-
quirement as it is with respect to their broader qualities as persons
of sympathy, of understanding, and of tolerance for other views and
other ways. The success of technical assistance projects, in particular,
depends on the ability of United States personnel to persuade and
to win over other people to new ways, new techniques, and new atti-
tudes and not merely on their ability to demonstrate how a specific
job is to be done. It is relevant, therefore, to ask whether the per-
sonnel employed by private contractors have in fact measured up
to these requirements.
Has poor deportment of contractor personnel overseas been a prob-
lem of consequence? Based on the limited information available in
Washington and on mission replies, we would say that in a quanti-
tative sense it has not. The number of contractor personnel whose
behavior has been derelict represents, apparently, but a relatively
minor percentage of the total number sent overseas. Unfortunately,
these derelictions may receive disproportionate attention and the
good work of hundreds will often be forgotten and eclipsed by indig-
nation at the boorishness, parochialism, intolerance, or disreputable
behavior of a single misfit.
2. Need for screening
This, we believe, points up the need for extra care in the selection
of contractor personnel. At present the International Cooperation
Administration does not appear to have developed any policy or pro-
cedure for screening such personnel, other than for security purposes.
The International Cooperation Administration, of course, retains the
right to require the contractor to withdraw any person he has hired
who later turns out to be unacceptable. This is somewhat like closing
the barn door after the horse has escaped. By the time undesirable
personnel are recalled, much of the damage has already been done.
For personnel hired directly on the International Cooperation Ad-
FOREIGN AID
289
ministration payrolls, screening and selection for overseas assignment
goes well beyond a security check. The broader qualifications, capa-
bilities, and adaptability of candidates are assessed. Should not
the same degree of screening be applied to contractor personnel?
Elsewhere in this report we have belabored the apparently inordi-
nate time required for processing private contractors and we would
therefore be most reluctant to suggest an additional time-consuming
step in this operation. We do not, however, believe the addition of
adaptability screening, if we can call it that, need result in additional
delays. If such screening proceeds alongside the usual security checks,
no appreciable added time, if any, should be required. It might well
add to the overhead cost of processing private contractors, since the
International Cooperation Administration might have to take on addi-
tional screening personnel. But where the good name and credit of
the United States is at stake, with some 1,000 or more contractor per-
sonnel overseas at any given time, the added cost seems worth while.
3. Indoctrination
A related question is the adequacy of briefing and indoctrination
provided by the International Cooperation Administration to con-
tractor personnel going overseas.
The International Cooperation Administration personnel and their
families receive a 21/2-week indoctrination course. This involves, how-
ever, in addition to general orientation on the problems, mores and
attitudes they will encounter in the country or area to which assigned,
some briefing on the duties they will perform and problems related
thereto. In contrast, contractor personnel get possibly a 2- or 3-day
briefing or indoctrination. Some get none. Some get more. There is
apparently no policy preventing such personnel from taking most of
the 212-week course. However, the practice in a given case appears
to depend on whether the contractor is anxious that they obtain such
indoctrination. The results are inevitably less than completely satis-
factory. As one mission put it:
Frequently contract personnel lack adequate orientation
and have difficulty in adjusting to their role as representatives
of the United States.
Here again we believe that some uniform policy should be adopted
by the International Cooperation Administration and suggest that
an adequate period of indoctrination be mandatory except perhaps
in a few cases where contractors are retained for limited overseas
assignment.
III. NEGOTIATIONS, CONTRACTS, AND CONTRACT TERMS
A. THE GENERAL PROBLEM
The negotiation of mutually acceptable contract terms is, in the
nature of the problem, not a simple affair. The International Cooper-
ation Administration and the contractor must reconcile a number of
conflicting interests. Even within the International Cooperation
Administration, however, various offices and divisions tend to place
different interpretations on the interests of the Government. It is
frequently difficult to reconcile the quite proper objective of protect-
ing the Government's financial interests with important objectives of
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the foreign aid program. Thus country desk officers and program
officers are traditionally at odds with legal and fiscal officers. The
International Cooperation Administration's program interest-not
the particular concern or responsibility of controllers, auditors, and
legal personnel-are apt to be downgraded in importance by such
officers relative to the importance they would attach to protecting
public funds. For any given project or contract there is therefore
the problem not only of reconciling the sometimes conflicting inter-
ests between the Government and the contractor but of resolving dif-
ferences within the Government or between Government agencies.
There is, of course, a further complicating element in the foreign aid
field. The interests, views, and preferences of foreign governments
must be considered and accommodated. Whether formally, or in-
formally, contracts are for all practical purposes three-party agree-
ments.
The efficiency of the contracting process, and the value of the result-
ing product in the form of the contract and contractor performance
depend in large part on the nature of the organization set up for the
job within the Government, the adequacy of policies and procedures,
and the competence and caliber of personnel assigned to the job.
These are discussed below.
B. ORGANIZATIONAL PROBLEMS
1. The Office of Contract Relations
(a) Establishment.-Contracting authority and responsibility with-
in the International Cooperation Administration centers today in the
Office of Contract Relations. On September 29, 1955, as part of the
International Cooperation Administration effort to develop a more
orderly approach to contract issues and contract procedures, a Con-
tract Policy Committee was formed, consisting of top level officials
in the agency.¹ After studying various proposals, this Committee
recommended the establishment of the Office of Contract Relations.
The primary objective of the organizational change which the Com-
mittee recommended was a greater centralization of responsibility
and authority for decisions and action in the contracting process. The
Committee's recommendations were approved January 6, 1956. The
Office was formally organized on March 12, 1956.
On June 6, 1956, the International Cooperation Administration
Manual Order No. 228.9 covering the newly created Office of Contract
Relations, was made effective. An organization chart of the Office of
Contract Relations is shown at Appendix B.
(b) Functions and responsibilities.-The Office of Contract Rela-
tions is the focal point of contact within the International Cooperation
Administration on contractual arrangements; it constitutes the
agency's central contracting staff for technical service contracts.
Among the many functions and responsibilities of the Office of Con-
tract Relations, the following are of major importance:
1. Plan, direct, and control contracting activities;
2. Formulate policies, standards, and procedures for the nego-
tiation and execution or approval of contracts;
1 The organization of the Contract Policy Committee, while a step in the right direction,
is clearly not the answer to the need for continuing top-level guidance. Members of the
Committee with pressing operating problems could not be expected to give it much time.
It is today for all practical purposes moribund. It last met in June 1956, over 6 months
ago.
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291
3. Issue letters of invitation to submit proposals or bids, evalu-
ate them, and select the successful proposal or bid;
4. Draft, negotiate and execute direct contracts; draft and
negotiate, as required, and review and approve third party con-
tracts;
5. Interpret the terms and provisions of contracts; and
6. Review and approve proposed actions under contracts as
requested by contractors.
(c) Organization. Under the Director of the Office are a Negoti-
ating and Drafting Division, a legal staff and an audit staff. The
Director's office includes a policies and procedures staff and a reports,
controls, and files staff. Members of the legal and audit staffs are
detailed for duty to the Office of Contract Relations from the Office
of the General Counsel and the Office of the Controller, respectively.
These two staffs are subject to their own offices for technical direction
and policy guidance on matters in their fields.
(d) Operations. As the focal point of contact on contractual
arrangements the Office is involved in consultation with all interested
parties in the International Cooperation Administration in Washing-
ton and in the field. Inevitably, this requires clearing with many
units outside the Office of Contract Relations including overseas
missions and frequently foreign governments.
Steps have been taken to increase the staff of this Office by detail
from other offices and by new recruitment. But it is not yet clear
whether the Office is sufficiently staffed, particularly as the prospective
workload appears to be considerably larger than in the past. In any
case, the Office of Contract Relations is in transition. It is too early
to assess whether it will succeed in overcoming at least some of the
difficulties that have hitherto plagued the contracting process.
2. Planning and coordination
The organization of the Office of Contract Relations was a timely
step which should lead to a greater streamlining and standardization
of certain contracting policies and procedures.
But it does not come to grips with the difficulties created by the ab-
sence of policy guidance which has, to date, hobbled the contractor
program. These are reflected in (1) a lack of adequate overall plan-
ning and definition of objectives; and (2) an inability to resolve with
reasonable despatch differences between various offices within the
agency.
Programing, project analysis, performance analysis, the formulation
of broader legal, program, and general policies relating to the private
contractor program are all functions and responsibilities of units or
offices generally coequal in authority and outside the Office of Contract
Relations.
Short of the Director of the International Cooperation Administra-
tion or his deputy there is no officer or unit with the authority to
provide general guidance to or resolve differences between these major
units.
This organizational inadequacy could be corrected by establishing
a "Coordinating and Policy Office on Contract Matters" at a level
immediately below the Office of the Director of the International Co-
94413—57—————20
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operation Administration. As the suggested name implies, this Office
would have two functions:
(1) Coordination.-Resolving conflicts between subordinate of-
fices on policy issues as they arise.
(2) Policies and plans.-Defining basic objectives and policies;
reviewing and appraising the contractor program; providing con-
tinuous policy guidance to Washington and the field.
The office could be small, but, if it is to be more than a fifth wheel,
it should receive, by delegation, the authority of the Director of the
International Cooperation Administration on all matters affecting the
contractor program.
It is always a temptation for those who study one part of a pro-
gram to overemphasize the importance of the particular segment for
which they are responsible. What, indeed, is the justification for
singling out the contractor program as particularly in need of a new
policy and coordinating layer in the International Cooperation Admin-
istration organization?
First, the contractor program is more complex to administer than
commodity aid. It involves the organization and use of people who
expect orderly procedures, policies, and reasonable treatment. Poor
organization and administration in the use of contractor personnel
will generate far more ill-feeling than it will in programing com-
modity aid.
Second, their use abroad runs up against psychological and social
problems. Ground rules must, therefore, be carefully laid governing
their employment which gives full consideration to the special tal-
ents, sensitivities, preferences, prejudices, competence, and limitations
of foreign governments and persons with whom contractors must
work.
1. One guide
C. CONTRACTING POLICIES AND REGULATIONS
Current International Cooperation Administration instructions gov-
erning the financial provisions of private contracts are contained in
the Programs Methods Coordination Division Bulletin No. 35 (Re-
vised), entitled-
Financial Provisions of Contracts for the Procurement of
Technical Services and Technical Assistance Financed by the
Foreign Operations Administration.
The bulletin is the guide of those involved in drafting, negotiating
and approving contract terms.
The Programs Methods Coordination Division Bulletin No. 35 was
issued on November 26, 1951 as a guide primarily for contracts that
were to be let by European governments and financed out of United
States aid appropriations. Since then, the program has shifted and
altered substantively and geographically; radically different types of
contractors have entered the program; and the costs of technical serv-
ices and other important elements have substantially increased. The
problems faced in underdeveloped countries are different and contract
terms applicable elsewhere are not necessarily appropriate in these
areas. The International Cooperation Administration has recognized
the Programs Methods Coordination Division Bulletin No. 35 is ob-
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293
solete. We understand that at this writing the bulletin is being re-
vised.
The Programs Methods Coordination Division Bulletin No. 35,
which sets out "the basic rules under which contracts for technical as-
sistance and technical services will be considered for approval ***,"
has had a peculiar status within the agency. Many International
Cooperation Administration officials have for some time recognized
that it was outmoded and have regarded it as of limited value; others
have been uncertain of its status. Under the circumstances, with a
guide that was not a guide, and with nothing else to supplant it,
it can be readily understood that there has been confusion regarding
contract terms and provisions. The success of the International Co-
operation Administration's present effort to overcome the many prob-
lems involved in negotiating contracts will to a large extent depend
on the priority given to the revision of the Programs Methods Coordi-
nation Division Bulletin No. 35 and to the subsequent follow-through
which will most certainly be required.
It should be noted that the Programs Methods Coordination Di-
vision Bulletin No. 35 is not a contract manual, nor intended as a sub-
stitute therefor. None exists now, although the International Coop-
eration Administration plans to have such a manual prepared which
will set out policies, procedures, and regulations governing the con-
tracting process. It is our understanding that this task is about to get
under way.
2. Lack of systematic policy regulations
We do not wish to give the impression that there are no policies in
the International Cooperation Administration governing the contract-
ing process. There are a host of orders, instructions, regulations,
cables and airgrams, all of which to some degree set forth policies, po-
sitions and recommendations on various problems and procedures re-
lating to the letting of contracts. But none of this is codified or as-
sembled in a manner easily available to operating personnel in Wash-
ington or in the field. With a relatively rapid turnover of personnel
within the agency the problem of operating within current policies or
practices becomes a difficult one where no compendium of "do's and
don'ts" is available. No one really knows whether a "do" in one
instruction becomes a "don't" in another.
The problem of developing a consistent, serviceable body of policies
and procedures is made difficult in the case of the International Coop-
eration Administration since it has at various times inherited the
functions of prior agencies (functions of the Technical Cooperation
Administration and various programs previously administered by
the Department of State). Together with these functions it has also
inherited policies and practices of predecessor agencies which are
frequently inconsistent one with the other. While the job of develop-
ing overall policy consistently is thereby made more difficult, the
urgency of so doing appears that much greater.
D. THE NEGOTIATION OF CONTRACTS
1. Contractors and contractees
The contracting problems faced by the Office of Contract Relations
are complicated by the need to satisfy, formally or informally, three
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parties having an interest in contracts or in the jobs to be performed.
The following formal contract relationships have been developed
and used by the International Cooperation Administration or prede-
cessor agencies:
(a) Direct contracts.-The International Cooperation Administra-
tion lets a contract directly with a contractor. It is responsible for
selecting the contractor, developing the terms of the contract, negoti-
ating and signing the contract. Administration and supervision of per-
formance under the contract are the International Cooperation Ad-
ministration's or the mission's responsibilities.
(b) Third-party contracts.-The host government or other foreign
entity lets the contract. Contract terms are subject to prior approval
by the International Cooperation Administration. A letter of agree-
ment between the International Cooperation Administration and the
contractor will usually parallel the contract and set forth the payment
procedures and responsibilities which the International Cooperation
Administration undertakes and the conditions under which the Inter-
national Cooperation Administration will make payment against per-
formance. Such letters normally provide that payments will be made
against vouchers submitted by the contractor accompanied by "certifi-
cates of satisfactory performance" supplied by the host government
or other foreign contractee.
The selection of the contractor in third-party contracts is usually
made on the same basis as if the International Cooperation Adminis-
tration were to let the contract. Except where a foreign contractor is
involved or where an American contractor is already in the field or has
an established overseas office, contract negotiations are usually carried
out by the host (contractee) government in the United States-by its
Embassy, its technical mission in the United States, or occasionally by
a special negotiating team dispatched to the United States for the
purpose.
Negotiations with contractors by a foreign contractee are normally
carried out in close cooperation with the International Cooperation
Administration's Office of Contract Relations. Occasionally the host
government will undertake full negotiating responsibility, clearing
only the final results with the International Cooperation Administra-
tion. This was the normal practice when European governments fig-
ured more importantly in the program. Today, only a few govern-
ments participating in the program have personnel with adequate
qualifications to carry out the negotiations unassisted.
Where negotiations are undertaken in the field by a host govern-
ment, as contractee, the International Cooperation Administration
mission will cooperate, where necessary, in the negotiating phases.
The mission will coordinate with the International Cooperation Ad-
ministration in Washington if policy issues arise and submit the final
results for Washington's approval.
(c) "Bifurcated" contracts.-The term is really a misnomer for
"parallel" or "corollary" contracts used occasionally with universities.
A foreign university or government (usually the former) will let a
contract with an American university. The foreign contractee will
undertake to provide certain facilities and usually to pay local cur-
rency costs. Â second contract will be negotiated between the Inter-
national Cooperation Administration and the American university
covering dollar costs essentially salaries, allowances, and transporta-
FOREIGN AID
295
tion costs for personnel to be assigned by the university to the over-
seas project, plus dollar overhead and administrative costs. Both con-
tracts must be coordinated but the International Cooperation Admin-
istration assumes no responsibility with respect to the contract let by
the foreign contractee. Obviously the dual allegiance of the univer-
sity to two contractees contains the seeds of future difficulties in sat-
isfying both bosses.
(d) Three-party contracts.-These are contracts in which both the
International Cooperation Administration and a foreign government
or foreign entity are joint contractees with a contractor. Relatively
few such contracts have been concluded. The potential difficulties are
evident. Such contracts, however, are largely of historical interest.
We understand that the International Cooperation Administration is
today opposed to this form of contract because of the obviously un-
desirable ambivalent relationships which it creates between two gov-
ernments. The "bifurcated" contract creates in itself sufficient prob-
lems of this sort.
2. How many contracts of each type?
2
Of the 1,177 contracts on which we have information, 736 have been
let by the International Cooperation Administration or a mission,
423 by foreign governments or foreign entities, and 18 on a “bifur-
cated" or "three party" basis. The latter figure is open to question,
since the information provided did not always permit clear identifica-
tion of contracts in this category. A few classed as "three party" may
be, in fact, third-party contracts and vice versa. They are, in any
case, numerically insignificant.
The number of contracts signed by foreign governments or groups is
relatively large, amounting to nearly 40 percent of the total.
It is evident that the various types of contracts are significant in
determining different formal relationships between contractors and
other interested parties. They establish lines of authority and deter-
mine the administrative, supervisory, and financial responsibilities of
the parties, one to the other.
We shall return to the question of relationships and to its implica-
tions for contract performance in section IV following.
3. Contract terms and negotiations
(a) Contract terms.-The substantive provisions of the Interna-
tional Cooperation Administration service contracts are a combina-
tion of―
(1) Terms which may generally be considered as more or less
standard, deriving from past experience and from the general ad-
ministrative or other guidelines which apply to the letting of a
contract;
(2) Terms which specifically relate to the circumstances sur-
rounding the particular project.
Standard terms would include, for example, a requirement that con-
tractors submit progress reports and a final report; a listing of over-
seas allowances usually accorded contractors. Other subjects which
the International Cooperation Administration would like to consider
as standard, routine, or, in a sense, nonnegotiable, cover such items as
transportation allowances, sick benefits, cost-of-living allowances, etc.
⁹ See annex A, tables A-5 and A-6.
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Negotiations with contractors revolve essentially around agreement
on salaries, overhead, fees, and various allowances.
(b) Negotiations.-Negotiation on contract terms has been a major
problem for both the International Cooperation Administration and
private contractors. It is inordinately time consuming and seems to
have been a major source of mutual irritation between the Interna-
tional Cooperation Administration and many contractors. One of the
major university contractors, reacting to its numerous experiences
with the International Cooperation Administration, including the
switching of signals after it had moved ahead on what appeared to be
approval by the International Cooperation Administration, wrote-
we will never again embark upon a program with the Inter-
national Cooperation Administration until the interminable
negotiations have resulted in a contract fully executed and
to our satisfaction.
All types of private contractors on all varieties of project assist-
ance seem to have experienced discouraging or, at least, difficult and
extended negotiations over contract terms. The largest, virtually uni-
versal complaint by private contractors (a charge freely admitted
as valid by officials in the International Cooperation Administration
in Washington and the missions) is the extended period almost al-
ways required to complete negotiations. The process not uncommonly
extends over a year or more.
Why is this so? In part, procedural and organizational arrange-
ments are responsible. The reconciliation of different interests-
United States, foreign, and the contractors also injects a difficulty
not usually found in the case of regular Government contracts. In
part, undoubtedly, the International Cooperation Administration's
approach to contract negotiations has itself been a major factor.
These elements are discussed below.
4. Causes of negotiating difficulties
(a) Coordination.-To the extent the negotiating process is pro-
tracted by delays in obtaining concurrences of other governments, the
blame can hardly be assigned to the International Cooperation Ad-
ministration. There is no question but that the recipient government
or other entity must be brought into the picture. It is essential that
the recipient government or entity have a clear understanding on
what it can expect from the contractor and what it must provide in the
form of facilities, space, help, or other support for the contractor.
Clarifying such points over long distances cannot be a speedy opera-
tion. Much can be clarified, possibly more should be, prior to the
initiation of negotiations with contractors. Some changes and adjust-
ments are nevertheless inevitable in the course of negotiations. Fre-
quently, the recipient government is not adequately organized to take
prompt decisions and to provide prompt replies. But any attempt to
short-circuit this phase of the negotiations is dangerous and would
only mean borrowing future troubles for the International Coopera-
tion Administration and the contractors. As it is, failure to obtain a
clear understanding on such points with other governments has been
the cause of past difficulties and of numerous contractor complaints to
which we shall return in section IV below.
(b) Specifications and standardization of terms.-We have already
touched on the frequent inadequacy of specifications in commenting
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297
on deficiencies of the "blueprint" stage. Inadequate specifications are
obviously a factor in extending and complicating the negotiating
process. The specifications must be clarified in the negotiating phase.
For labor costs, overhead, and fees cannot be arrived at until all
parties are clear on the requirements of the project. Such clarifi-
cation inevitably entails further communication with the field and
the host government and additional loss of time.
Standardization of contract terms would also contribute to a short-
ening of the negotiating process. As it is, allowances, privileges, and
facilities supplied contractors may vary for any one country depend-
ing on whether the contract is a direct or third-party contract. This
obviously introduces in the negotiating phase elements which might
easily be standardized and therefore not subject to extended discus-
sion. It seems reasonable to expect standardization of this sort with
respect, at least, to any given country. Terms might vary as between
countries in response to different conditions and requirements, but
within any one country contractors under all classes of the Interna-
tional Cooperation Administration-financed contracts would receive
uniform treatment.
Missions have recognized this need:
*** it is a matter of record that contracts take from 3
months to a year to be negotiated, and perhaps this process
could be expedited if there were more uniformity and stand-
ard provisions applicable to particular countries.
Many contractors have made a similar recommendation. One firm
proposed:
*** that a study be made to develop a standard form con-
tract for companies who are rendering technical assistance,
such as ourselves. *** Such a form contract would serve
the purpose of calling everybody's attention, including the
contractors, to the various items of expense and operating
problems involved in the program. *** We have found
that a poorly written contract has caused more problems both
in Washington and in the field than any other one thing.
(c) Organization.-Some missions have proposed a wider dele-
gation of negotiating authority to the field as a means of hastening
the contracting process. This would be practical only in cases where
contractors had personnel with negotiating authority in the field or
where foreign contractors were concerned. Such cases are not too
numerous. There is, however, a more basic objection to such pro-
posals. The advantages that can be expected to result from the recent
steps taken by the International Cooperation Administration to cen-
tralize contracting authority within one office would tend to be jeop-
ardized by any extensive delegation of authority to the field. If the
previously decentralized authority within the International Coopera-
tion Administration in Washington could lead to the jungle of dispa-
rate policies and procedures which developed over the past few years,
one can imagine the disorder that could be generated by an even
greater diffusion of authority. This might not be true if contract
terms, practices and policies could be sufficiently standardized in Wash-
ington to permit more or less mechanical implementation in the field.
Yet, however desirable such standardization would be, we doubt it
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could be carried to the point where contracting could become a me-
chanical process.
In this connection there is a distinction to be made between the ini-
tial negotiation of contracts and subsequent amendment or extension.
For the latter it would seem reasonable to delegate greater authority
to the field thereby relieving the overburdened International Coop-
eration Administration staff in Washington of such responsibility.
(d) Security clearances.-Security clearances of private contractors
are obviously essential. While we are not competent to judge what
constitutes a proper clearance, we have found the process of clearing
contract personnel contributes, often to an unseemly extent, to delays
in getting the contractor into the field. Security clearances have taken
as much as 6 months to a year, whether or not a security question
actually existed. Representative comments on missions and con-
tractors on security clearances follow:
A university:
I would say that our principle and most aggravating diffi-
culty relates to the matter of security clearances. We can
well understand that the International Cooperation Admin-
istration is most vulnerable to attack if the wrong person
should be sent overseas because it is aware of continual con-
gressional investigation of such things. On the other hand,
if it is impossible to secure speedier clearances (less than 3
or 4 months), perhaps some modification could be made for
university contract personnel who already have been under
observation for some time at their home institution.
From an engineering firm:
Policies and procedures of the International Cooperation
Administration are sometimes a hindrance to the successful
and efficient performance and completion of the consultant's
work in the following respects: 1. Long delays incurred in re-
ceiving security clearances for sending of personnel overseas.
Almost every contractor protested time lost in security clearances
and some protested the need for a further International Cooperation
Administration certification of security for personnel already cleared
by other agencies. The legislation requires an independent security
certification by the International Cooperation Administration. We
wonder whether this additional check is any longer necessary. In
any event, we have been told that security clearances are today moving
more swiftly.
(e) Penny wise and pound foolish? Most contractors would prob-
ably consider it a gentle euphemism to use the word "negotiations” in
referring to the process during which they and the International Co-
operation Administration seek to come to agreement on contract terms.
Most contractors we have spoken to or with whom we have been in
communication would concur in describing this process as an "inter-
minable hassle," an "impossible haggle" or in terms less elevated.
The majority of contractors feel-and we recognize that they are
not completely disinterested parties that in its approach to contract
negotiations the International Cooperation Administration is exces-
sively preoccupied with safeguarding the expenditure of public funds.
These criticisms take on considerable weight since they are made
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299
by contractors with experience in doing business with other Govern-
ment agencies.
The attitude of most is aptly summarized by the words of one:
In the effort to save nickels and dimes, the International
Cooperation Administration is spending hundreds and
thousands!
We recognize the potential conflict of interest between the Govern-
ment and contractors and that complaints must be viewed with this
in mind. Nevertheless we have the impression that the International
Cooperation Administration's approach to contractor negotiations has
been overly influenced by a preoccupation with what it has considered
a need to protect itself from all possible accusations of wasting public
funds.
One university has stated that—
The International Cooperation Administration, in its educa-
tional projects abroad, seems motivated principally by the
need to protect itself from governmental inquiry rather than
to develop a real contribution to the welfare of nations.
(f) Salaries.—(1) Background:
The International Cooperation Administration has, according to
all reports, been particularly rigid in the matter of salaries for con-
tract personnel. There is some justification for this attitude.
In May 1956 the Subcommittee on Technical Assistance Programs
of the Senate Committee on Foreign Relations concluded (p. 17 of
its Rept. No. 1956) that-
***
* **
There is evidence that *** private business contracts
have been resorted to in many instances
as a means of
avoiding Government salary ceilings.
This conclusion was reaffirmed in the report of the Senate Committee
on Foreign Relations on the mutual Security Act of 1956 (p. 23, Rept.
No. 2273, June 19, 1956).
Many Government officials, especially overseas personnel, believe
that salaries, allowances and various privileges accorded contractor
personnel should be reasonably in line with those available to Govern-
ment personnel-failing which a "morale" problem will be created.
Some allege this view underlies the International Cooperation Admin-
istration's past rigidity in the matter of salaries.
It is our impression that "morale" problems of this sort arise rela-
tively infrequently and generally only where contractor technicians
are assigned to work in overseas missions or very closely with overseas
Government personnel. A number of mission chiefs have indicated
their agreement with our view and have stated that they attach little
importance to salary differences as a cause of "morale" problems.
Whatever the reasons, negotiations regarding salary levels have been
one of the sore points between the International Cooperation Adminis-
tration and contractors, both profit and nonprofit. The International
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Cooperation Administration policies appear, indeed, to have been
highly restrictive.
In many cases, salary ceilings have had to be negotiated for each
class of position under given contracts. Within the ceilings salaries
could not exceed the highest earnings of employees during any one
of the preceding 3 years by more than a certain percent. If contrac-
tors found it necessary to pay more, the matter would be referred to
the International Cooperation Administration for approval and would
go through a so-called exceptions procedure.
We have not been able to determine whether the "exceptions pro-
cedure" has been widely used. Study of a limited sample of contracts
suggests that it has not; on the other hand, many officers in the Inter-
national Cooperation Administration believe that it has been used
extensively. If a large number of salary cases have, in fact, had to go
through the "exceptions procedure" the International Cooperation
Administration would be well advised to review its salary standards.
A too frequent breach of standards suggests a need for adjustment.
Attempts to limit salaries below the going rate or to force them
to sometimes lower Government scales may be self-defeating. Either
projects are abandoned or the attempts may prove to be fruitless and
serve only to add irritating delays in the negotiating process. It is
our understanding that the Office of Contract Relations is at present
attempting to develop policies and procedures for establishing salary
levels which will free the International Cooperation Administration
negotiators from the straitjackets by which they have hitherto been
constrained.
(g) Attitude toward nonprofit_institutions.—Negotiations with
profit and nonprofit organizations have been equally plagued by dis-
putes on salaries and other cost elements. The International Co-
operation Administration has to date made no distinction between
profit and nonprofit groups. Failure to have done so probably re-
flects the agency's hitherto supercautious attitude toward contract
negotiations. This failure has been shortsighted and has deprived
the agency of an opportunity to make wider and certainly happier
use of nonprofit organizations-particularly universities. The bit-
ter taste left with one of our leading universities led to this summary
of its experience with the International Cooperation Administration:
The school of business administration was treated, in effect,
as though it were a producer of rivets which had a question-
able credit rating and reputation for quality standards.
The rather special problem of universities is treated more fully in
section V below.
(h) Contract amendments.-The amendment of contract terms has
been a further bone of contention between the International Coopera-
tion Administration and contractors.
The International Cooperation Administration will not usually
agree to reimburse cost increases not provided for in the terms of
the contract. Frequently, however, a change in cost and a request
for contract amendment arises from circumstances not foreseen in
the contract. In such cases, it is only by redrafting (and renegoti-
ating) the entire contract that the International Cooperation Admin-
istration will give effect to a contractor's request for an amendment of
the terms. Several contractors, including a number of universities,
FOREIGN AID
301
point out that it is impossible to foresee all situations that can de-
velop in connection with overseas projects and that some flexibility on
the part of the International Cooperation Administration is, there-
fore, necessary. In some cases the request for amendment arises out
of the omission of some cost element which might have been foreseen
but which the contractor in good faith had not considered required
specification in the contract. Cases in point would be salary increases
relating to promotion of university personnel under contract in ac-
cordance with the established policy of such universities or reflecting a
general increase in the universities' salary rate. Unless such a con-
tingency had been specifically provided for in a contract, the Inter-
national Cooperation Administration would not reimburse the uni-
versity for such increases.
The International Cooperation Administration's position has been,
hitherto, that it could not agree to a contract amendment without
"compensating benefit or consideration" to the United States Govern-
ment. This principle has been laid down by the General Accounting
Office and the International Cooperation Administration has felt.
compelled (although apparently not required by law) to accept the
General Accounting Office guidelines. It seems unreasonable, how-
ever, to interpret the General Accounting Office ruling so narrowly as
to insist on a complete redraft and renegotiation of contracts in cases
where requests for amendments are considered valid.
No one would allege that it is the International Cooperation Ad-
ministration's intent to "stick" contractors. Frequently, however, the
unreasonably narrow interpretation which it has placed on its own
discretion in the matter of contract amendments has had exactly that
result. We understand that the International Cooperation Adminis-
tration is currently exploring the possibility of a more liberal inter-
pretation of General Accounting Office guidelines.
If a more
practical-reasonable position is developed, it will remove what has
apparently been a most vexing problem.
IV. RELATIONSHIPS AND RESPONSIBILITIES
A. TYPES OF RELATIONSHIPS
The mutual relationships between contractors, the International
Cooperation Administration (or its overseas missions) and foreign
governments can be viewed from two angles: formal and informal.
1. Formal relationships
The nature of the contract largely determines the formal relation-
ships. Where the International Cooperation Administration or its
mission is the contractee (direct contract), the contractor's responsi-
bility to the International Cooperation Administration or the mission
is evident he is answerable to one or both for performance and for
obtaining whatever guidance he may require. Where a foreign gov-
ernment or other foreign entity (third-party contract) is the con-
tractee, the contractor's formal responsibility is to one of them and
not to a United States agency.
In the case of three-party contracts and so-called bifurcated or
parallel contracts in which the International Cooperation Administra-
tion and a host government or other foreign agency are both parties
to one contract or to related contracts with the contractor, the lines
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of authority are not as clearly established and so far as formal rela-
tionships are concerned the contractor must serve two masters. Clear
contracts would presumably delineate better the area of authority
within which each master is entitled to give orders.
(a) How is the decision made?-What determines the decision to
have a direct, a third-party or a three-party contract in a given
case? We have found no formal policy guidance in this mat-
ter. In some cases the existence of a joint agency or an established
foreign entity or cooperative organization (servicios in Latin Amer-
ica, the Organization of European Economic Cooperation in Europe)
whose function is to supervise or undertake projects in a field which
the International Cooperation Administration is interested in sup-
porting appears, so to speak, to be the "chosen instrument” and a
third-party contract the obvious and natural type of contract.
Generally speaking, the view in the International Cooperation Ad-
ministration, Washington, is that a foreign government or a foreign
entity should let the contract, thereby assuming most or much of the
administrative and supervisory responsibility in carrying out a proj-
ect. Apparently personnel ceilings, if nothing else, make it next
to impossible for the International Cooperation Administration to
build up the staff that would be required to accept such responsibili-
ties across the board given the growing size of the contractor pro-
gram. By and large, however, decisions are reached on a case-by-case
basis.
But there are dangers in playing too much by ear. These are evident
from a number of complaints. One unhappy contractor wrote as
follows:
We were asked by the mission and the host government to
open negotiations with consultants on behalf of the laboratory
of the host government. This was done. After some of the
negotiations were completed a decision was made by Washing-
ton that these consultants instead should be under contract
between ourselves and the consultants.
Precedent established in given countries tends to set the pattern
in such countries regardless of the merits of one type of contract or
other in a given case. One mission reports:
the experience of [this] mission has been, for the most part,
with the contractual relationships existing between the host
government and a contractor.
Apparently few contracts were let in that country by the International
Cooperation Administration or the mission.
Another mission stated all contracts in its country were let by the
foreign government or a foreign entity.
A third mission stated that-
the latter approach [signature by host government] is in line
with stated Washington policy guidance. However, all con-
tracts mentioned above (most major contracts for that coun-
try) have been United States Government contracts with
American contractors.
The mission did not explain why the policy was not adhered to.
If the policy is, indeed, to get the host government to let the con-
tracts, it is hard to see why in 1955 and 1956 out of 604 contracts let,
FOREIGN AID
303
381 were let by the International Cooperation Administration or a
mission. The exception seems to be the rule.
(b) Implications of United States versus foreign governments as
contractees. Where the International Cooperation Administration
or a mission is the contractee, the United States Government not only
has supervisory responsibility for the performance of a contractor,
but also it accepts certain responsibilities to the contractor-making
prompt payments, supplying certain agreed facilities, and others.
Where the foreign government lets the contract it assumes responsi-
bilities to the contractor. But foreign governments sometimes fail to
discharge such responsibilities through misunderstanding or incom-
petence. This is probably the source of much unjustified criticism of
the International Cooperation Administration by contractors who
frequently fail, in their comments, to distinguish who is the contractee,
and who probably care less. They know the International Coopera-
tion Administration is financing the contract and presumably assume
that final responsibility for shortcomings of another government's
performance rests with that agency.
Situations such as these point up, however, the dangers involved in
trying to transfer to other governments responsibilities which they may
be incompetent to assume.
Missions have different views as to the relative advantages of third
party versus direct International Cooperation Administration con-
tracts. Some recognize that the third-party contract provides the
recipient government, as one mission put it-
with indirect technical assistance in contract negotiation,
administration, and implementation.
Another mission has doubts:
Possibly the agency policy favoring third-party contracts
is more applicable to programs in more advanced countries,
but I see no tendency in our experience here for the Govern-
ment of*** to assume a greater degree of responsibility for
projects being carried out by groups under contract to it than
for those being carried out by teams under contract to the In-
ternational Cooperation Administration.
2. Informal relations
Contractors are expected to operate within policy and program
guidelines applicable to each country. If their relations with United
States overseas missions are satisfactory, no serious problem arises in
insuring that their performance conforms generally with United
States policies and objectives.
There is apparently no standard policy governing the degree of
consultation and briefing given in the field to contractor personnel by
overseas missions. When orientation has been inadequate in Wash-
ington, overseas briefing could presumably make up for the deficiency.
Whether this is done or not is a matter left to the discretion of the
mission. Certain missions apparently make it a practice to arrange
for regular staff meetings with contractor personnel. Others do not.
All parties appear to agree that mutually cordial and satisfactory
relationships in the field depend more on good will and on the per-
sonalities involved than on the form or provisions of contracts. This
is certainly the view of most missions. There is nevertheless some
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evidence that areas of potential conflict could be reduced by a more
careful delineation of lines of authority in the contracts themselves,
especially regarding the contractor's position vis-a-vis the mission and
host government. One mission proposed that contracts could-
be more adequately worded to require closer liaison with the
mission, in order to clearly define responsibilities, authority,
and supervision with respect to overall contract performance
and coordination with United States policy and program
objectives.
B. PROBLEMS IN RELATIONSHIPS
Our impression is that generally missions and contractors have been
satisfied with their mutual relations. It is inevitable that occasional
difficulties and strains arise. Some universities have tended, in the
eyes of missions, or the International Cooperation Administration, to
resist "political" direction. The universities, however, allege they
have no objection to such guidance but wish to remain free of "second-
guessing" in discharging their "technical" or "professional" respon
sibilities. This reflects most probably a difference of interpretation
as to where "technical" or "professional" policies and problems end
and where political or general policies and problems begin. Such
differences can never be altogether avoided. They have not, so far
as we can judge, led to serious problems other than in isolated cases.
The most frequent difficulty complained of in the field is the in-
ability to get prompt decisions from Washington on issues arising
overseas. This is, of course, less a reflection on inadequate relation-
ships in the field than on bottlenecks and red tape in Washington
It is for this reason, in particular, that many missions and contractors
feel it desirable that more authority be delegated to missions in the
matter of contract amendments, projects amendments, and project
administration.
Other field problems can be traced to inadequate understand
ings (contract provisions) between parties or to inadequate project
planning.
The lack of standardization and uniformity in contract terms, at
least in a given country, from contract to contract and as betweer
third-party and direct contracts leads to squabbles between the con
tractor and the host government on the degree of support to which
the contractor is entitled, with the mission an unhappy intermediary
Where inadequate planning has occurred the resultant difficulties
are probably more significant. The following case, reported in the
contractor's words, is illustrative:
We experienced a [keener] disappointment on the contract
in*** It was a two-part program: (a) Geophysical ex-
ploration for ground water, (b) drilling for water. Under
each phase, our men were to train local technicians but the
local ****
government failed to supply them as specified
so the training aspect of the work was negligible, altho it
is presumably being remedied under the extended drilling
program. Since training is so vital a part of Point 4 work,
we feel let down at not having been able to train geophysi-
cists as planned and at not having had full opportunity to
train drillers.
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305
The fault may lie with the Government of * * * , yet
there was need for better assurance on the part of the Inter-
national Cooperation Administration that the trainees would
be on hand when our men got there.
V. SPECIAL NOTE ON UNIVERSITIES
A. THE UNIVERSITY'S COMPLAINT
Relationships between the International Cooperation Administra-
tion and universities have steadily deteriorated and the American
Council of Education on behalf of its university membership has had
a running feud with the International Cooperation Administration.
The council feels that the International Cooperation Administration
has unnecessarily permitted legal and financial considerations to block
effective use of universities. Informally the council notes that the
International Cooperation Administration has permitted responsibil-
ity for the university program to fall into the hands of the Comptroller
and other “technically" minded officers whereas officials with broader
responsibilities should be in command. Dr. Arthur S. Adams, direc-
tor of the council has stated the university position in a letter to Mr.
Hollister dated June 13, 1956, excerpts from which appear below.
(The full text appears in appendix C.)
Experience with the contracts, thus far, however, has been
marked by increasing tensions between Government and the
universities. Unhappily, the difficulties encountered have
tended to emphasize the less important, operational, aspects
of the program, thereby obscuring its high purposes. Most
of these difficulties center around the contracting process
itself. * * *
In the same letter Dr. Adams proposed replacing the present contract
procedure by a grant-in-aid technique. This technique is presently
employed by many Government agencies particularly in contracting
with universities for research.
B. THE UNIVERSITY'S PROPOSED SOLUTION
Universities have worked for years for Government agencies and
found it possible to live with their procedures but not with those of the
International Cooperation Administration. Great fire has thus been
directed at the agency. The universities believe their difficulties
would end if the International Cooperation Administration entrusted
them with broader discretion and responsibility. This trust would
be justified, they say, by their nonprofit status; by the scrupulous man-
ner in which they handle funds which are drawn almost exclusively
from public sources, both State and Federal; and by the fact that they
are now working with many Federal agencies with whom they have
developed satisfactory accounting and other procedures. As Dr.
Adams indicated, the universities wish to be entrusted with a respon-
sibility and to receive funds adequate to their task through a grant-
in-aid or similar technique. The universities would then follow their
rules with respect to payment of salaries, promotions, vacations, and
related matters; their rules as regards purchases of commodities; as
regards systems of accounting; as to issuance of progress reports; and
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as to the myriad of other problems encountered in operating large-
scale programs abroad.
C. THE INTERNATIONAL COOPERATION ADMINISTRATION REPLY
In a letter to Dr. Adams of October 4, 1956, the International Co-
operation Administration turned down the request for use of grants-
in-aid. It apparently believes that it is a practice not particularly
suitable for International Cooperation Administration programs. It
is not entirely clear why the agency believes this but agency personnel
have made these points: First, the grant is used domestically by Gov-
ernment agencies in assigning research and development contracts to
universities. The International Cooperation Administration projects
are not at all of this type. Second, special financial and related prob-
lems arise overseas with which universities are not familiar and there-
fore cannot apply their experience under domestic grant programs.
Third, the International Cooperation Administration must control
the administration of the contract in view of its responsibilities to
foreign governments or institutions. The International Cooperation
Administration, therefore, cannot delegate too much discretion and
responsibility to the university. Finally, some International Co-
operation Administration officers fear a morale problem will arise if.
under grant arrangements, salary rates, allowances and facilities for
university personnel are more generous than those for mission per-
sonnel.
The International Cooperation Administration apparently feels
that each university wants to play the game only if its own rules are
followed. If the universities would accept the notion that the Inter-
national Cooperation Administration cannot be expected to operate
under each university's own rules, they might come to realize that new
regulations recently proposed by the International Cooperation Ad-
ministration are reasonably flexible and in fact do convey much lati-
tude to the universities. The proposed regulations accompanied the
letter of October 4, 1956, and took the form of a discussion of 17 prin-
cipal problems and the International Cooperation Administration's
proposed solution to them. (See appendix C.)
D. LACK OF POLICY
Until recently, there was no very clear policy within the Interna-
tional Cooperation Administration on the proper use of universities.
Not only were they drawn on to establish and improve teaching insti-
tutions abroad, but they were also drawn on as a source of talent for
projects which other contractors or Government agencies could pro-
vide. Given the heavy programs that the universities have at home
in meeting our educational needs, this seems a questionable use of
their scarce talents. As mentioned earlier there has been no policy
on whether a university already operating in one country should take
4
* For a broad statement of the unhappiness of certain educational groups with genera
handling of universities by the International Cooperation Administration, see the resolu
tion of November 12, 1956, of the American Association of Land-Grant Colleges and State
Universities reproduced in appendix C.
In its study of university performance abroad under technical assistance programs
the National Planning Association noted that universities have often been miscast, being
called upon to do jobs not normal to them and beyond their normal facilities. Ct. Techni
cal cooperation in Latin America: The Role of Universities in Technical Cooperation
National Planning Association, Washington, July 1955.
FOREIGN AID
307
on new and different functions because of its general experience in
operating in such country or whether new functions should be assigned
to the most qualified university even if it means bringing in a new
institution. Until recently there has also been no position in the Inter-
national Cooperation Administration on whether a need existed to
develop a separate set of standard contract provisions for universities.
E. RESOLVING THE IMPASSE
There is sentiment in the International Cooperation Administra-
tion favoring concessions to the universities. The concessions in the
17 points mentioned above were a first start. The International Coop-
eration Administration is now apparently studying how a standard
and simplified university contract could be drawn so as to facilitate
negotiations. Moreover, it is studying with the General Accounting
Office whether this standard contract can be substituted for existing
contracts so as to ease the International Cooperation Administration
problems of administering many contracts with varying terms.
Some university contractors have also indicated a feeling that, quite
apart from the financial issues already discussed, they should have
greater autonomy in their operations. This feeling is understandable
but it should be tempered by a realization that, as one mission put it,
the role of the United States as "financier" cannot be lim-
ited to that of merely picking up the check; it must exercise
a professional and policy interest in the activities of the con-
tractor and must continue to bear responsibility for its role in
arranging such contracts in terms of the project's contribu-
tion to overall United States objectives in the country.
94413-57-21
CHAPTER V
RELATIVE ADVANTAGES AND DISADVANTAGES IN THE
USE OF PRIVATE CONTRACTORS
Are there advantages in using private contractors? The question
is meaningful only where real alternatives exist.
If time were of no consequence, the International Cooperation Ad-
ministration could assemble the variety of specialized skills, guidance,
facilities, and experience accumulated over decades by private con-
tractors. But time is precious; skills and facilities are scarce and
their duplication costly. They are often best taken where they can be
found. This often determines the choice of a contractor over Govern-
ment personnel.
I. TYPES OF SERVICES NEEDED
A. TEAMWORK AND SUPPORT IN DEPTH
The measure of the services provided by a contractor is not the
number of technicians he sends overseas. They are like the visible
parts of the iceberg; a far larger mass lies below. What we are buying
and giving under our aid programs is, in many cases, a complex of
interrelated advice, facilities, organizational skills, and accumulated
experience of organizations. Elements of the complex cannot be
extracted without impairing their value. This is true even though
a few individuals may be chosen to communicate this complex to
others.
Therefore, where the services of teams of technicians, specialized
facilities, technical and institutional support are required for the job,
the International Cooperation Administration's choice between con-
tractor and Government employees will be based on who has the re-
sources in being. As a practical matter, in most cases these resources
can be found only among private organizations.¹ Where the resources
can be found both within and outside Government, the choice will
probably turn on other considerations noted below.
B. SINGLE INDIVIDUALS AS CONTRACTORS
Where individual technicians or small parties not serving as inte-
grated teams are needed, the relative advantages of obtaining their
1 If qualified and properly supported teams cannot be readily assembled from govern-
ment, the International Cooperation Administration could, of course, try to recruit indi-
viduals to form a group. Hiring single technicians has proven difficult enough. The task
becomes extremely difficult when it comes to recruiting groups with the necessary technical
skills and competence and with the ability to work effectively overseas. Qualified persons
employed by private organizations operating in a specialized field will not frequently give
up the security, tenure, and seniority of their positions for the dubious advantage of over-
seas assignment at frequently lower salaries. Arrangements could probably be made with
private organizations for the occasional and temporary release of an individual at no loss
of tenure or seniority. They would, however, rarely, if ever, be prepared to release their
most qualified, or key personnel. In any event, solving the problem of rounding up
individuals may not be enough. Support, group experience, and facilities remain as
important considerations.
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309
services under contract or by direct recruitment, including assignment
from other agencies, are not so evident. In most cases individual
technicians are capable of providing their services as effectively
whether on the Government rolls or under contract. Not too much
backstopping will be required particularly where the job is advisory
under the general guidance of the International Cooperation
Administration Mission overseas.
If persons with the required technical competence are not found
within Government, the International Cooperation Administration
can try to recruit. If it fails, it must negotiate a contract for such
individuals or the project must be abandoned. So far as substantive
performance of the individual is concerned, direct hire or work under
contract can usually be equally effective. In the case of individual
technicians therefore the use of contract personnel or Government
personnel will be practical alternatives. The choice will be influenced
by some of the considerations noted below.
II. ADMINISTRATIVE CONSIDERATIONS
A. RECRUITING
As noted previously, recruiting of individuals to form teams
presents many practical problems for the International Cooperation
Administration.
For individual specialists, the International Cooperation Adminis-
tration also encounters recruiting difficulties. Even though the use
of Government personnel may be preferred in given circumstances,
the agency may, after long fruitless attempts at recruitment, turn to a
private organization and seek the services of their personnel under
contract-the so-called desperation policy.
Appraising qualifications is also a problem. Except where a Gov-
ernment agency is proficient in a technical field, only private organi-
zations will often have the experience and competence to determine
the qualifications required for a job and to assess the competence of
individual candidates. In this respect compared with contractors in
their specialized fields, the International Cooperation Administra-
tion is at a serious disadvantage. Recruitment through contract with
private organizations is thus not only more rapid; it tends also to
insure that the personnel recruited will be more technically qualified.
We would not wish to suggest that contractors always make the
right choice. Some contractors have apparently been irresponsible in
the selection of personnel and have occasionally taken on insufficiently
qualified pickup employees. This is true both of profit and nonprofit
organizations.
We quote two mission comments in this connection:
One stated:
Further, some firms have specialized in hiring technicians
from the outside *** who are identified with the contract-
ing firm only for the period of the contract itself. In other
words, such technicians have no durable lasting relationship
with the contractor and are not necessarily permanent em-
ployees of the firm or of the university.
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A second mission concluded that—
*** contractors able to provide personnel from their reg-
ularly employed staff at home can render superior perform-
ance, but that contractors who must depend upon miscellane-
ous recruitment and send people who are not already familiar
with the home operations, are frequently inferior to direct
hire operations; that contracts with newly created agencies
should be eyed with suspicion; that representatives of the con-
tractors should visit the country in which a contract may be-
come operative prior to any signing.
Nevertheless, it is fairly evident that, apart from mistakes and
occasional instances of irresponsibility, private organizations nor-
mally employing certain classes of specialists will have an advantage
in recruiting technical personnel and be in a better position to select
the most qualified. Where private organizations have failed in this
respect, such failures reflect less on their competence to do an effective
recruiting job than it does on their sense of responsibility. Such
failures point up rather the importance of dealing with firms of re-
sponsibility, integrity, and reputation and of avoiding fly-by-nighters.
B. ADMINISTRATIVE SUPPORT
When contractors assume certain administrative back-stopping
responsibilities, the International Cooperation Administration is re-
lieved of the corresponding workload and related costs. Contractors
will normally handle and process travel orders for overseas personnel;
pay salaries and allowances; handle personnel files and bookkeeping;
procure and handle equipment and supplies needed for a project.
Where the contractor is an individual, the International Cooperation
Administration may be responsible for most of these functions, but
in the case of team operations the relief it receives is considerable.
1. Team operations
C. CONTROL
As noted above, technical teams will normally be available only
under contract. If, therefore, difficulties of control arise in such cases
we must view them as problems to be overcome rather than as dis-
advantages which could be avoided by turning to direct hire.
The question of control over contractors, especially teams, relates
less to guidance and supervision on technical aspects of a project than
it does to the manner in which the project is handled in relation to
broader United States policies and objectives.
As pointed out in chapter IV (sec. IV) control of this sort depends
in large part on the informal relations developed in the field between
contractors and missions. Undoubtedly better control can be achieved
by more carefully spelling out in contracts the contractors' obliga-
tions toward missions for general guidance. This is certainly true
where the International Cooperation Administration rather than the
host government lets the contract; in third-party contracts it may be
more difficult but is still possible.
2. Individuals as contractors
An individual on the Government rolls is without doubt more sub-
ject to guidance by the International Cooperation Administration
FOREIGN AID
311
mission than is an individual under contract. This is true whether
we consider control in the sense of general guidance for conformity
with broader United States objectives in a given country or in the
narrower sense of guidance with respect to the technical assistance he
provides.
Other considerations aside, there is, therefore, an advantage for
purposes of control in having individual technicians on Government
rolls. The advantage is less where the International Cooperation Ad-
ministration or its mission is not competent to supervise effectively
the technical aspects of his work or provide him with technical guid-
ance. It is also less when the technician must work primarily with a
foreign government or foreign persons rather than as a part of the
United States mission.
Where the technician provides continuing advice to a mission rather
than to the host government or other foreign groups, he should be on
Government rolls wherever possible. For short-time consultants under
contract this is not too important. Fellow employees can put up with
salary differences and special privileges, if any, which his contract
may call for; discipline and control is also less important when his
stay is temporary. If, however, the assignment is for a number of
years and the technician under contract is expected to work closely
with mission personnel, morale and control problems assume greater
importance. It is clearly not a healthy situation for one individual-
for all practical purposes attached to a mission-to receive particular
privileges or benefits not available to other employees doing essentially
the same type of work.
D. APPRAISAL OF PERFORMANCE
The International Cooperation Administration requires contractors
to submit periodic reports of their activities. Similarly, missions are
expected to submit to Washington progress and evaluation reports
on contractor performance. But the International Cooperation Ad-
ministration has developed no standard requirement for the frequency
or the coverage of such reports. In many cases they are irregular and
confined to special problems rather than to an evaluation of progress.
Across-the-board appraisal of contractor performance is therefore
most difficult.
Where Government employees are responsible for project activities,
the mission chief may possibly be in a better position to appraise their
performance than he is that of contractors. If so, this will constitute
a relative advantage in the use of Government personnel so long as no
adequate means are available for appraising the work of contractors.
Missions and contractors should be required to provide regular and
full progress and performance reports. The nature and frequency
of such reports should be developed for various classes of activity.
For the more important projects, the International Cooperation Ad-
ministration could use survey teams to make on-the-spot appraisals
of contractor performance. We do not propose the creation within the
International Cooperation Administration of a roving bureaucracy
of inspectors; we nonetheless believe that the International Coopera-
tion Administration must have sufficient firsthand information on
contractor performance to know whether it is getting what it is paying
for. If missions are not adequately staffed to judge this, the use of
inspection teams may be necessary.
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FOREIGN AID
E. CONTRACT ADMINISTRATION
Cost considerations apart, the use of contractors has the obvious
disadvantage of requiring a large contract negotiation and adminis-
tration staff; it involves additional accounting and auditing problems
which do not arise with the use of Government personnel; it raises
procedural and policy issues which have been a problem for the Inter-
national Cooperation Administration and which few of its officers
would not wish to avoid.
These administrative problems constitute probably the most serious
disadvantage in the use of contractors. But, as we have already re-
marked, it is fruitless to consider such a disadvantage as anything
more than an unavoidable price which must be paid if certain impor-
tant aid projects which can only be undertaken by contractors are to
be carried out.
Administrative facilities-staff, policies, procedures to process
contracts are, therefore, not a matter of choice but a necessity. This
means that no new major contracting facilities will have to be created
where, given alternatives, contractors are chosen over Government
employees. Possibly further staffing will be required; but if Govern-
ment employees were chosen, more staff would also be required to
recruit and process them.
III. RELATIONS WITH FOREIGN COUNTRIES
A. GENERAL
Foreign governments or private groups frequently favor contract
personnel over Government personnel. Where this is so, contractors
have an advantage in getting across their skills, techniques, and
manner of doing things.
A Government employee may be regarded as a generalist; as one
who may have less interest in, or competence to advise on, the special
problems of special groups.
In the final analysis, the personal qualities of an individual, whether
he be a Government employee or working under contract, probably
count more in determining the success of his mission, and especially
in determining the rapport he succeeds in creating between himself
and his foreign colleagues.
There is a valuable byproduct in the use of private con-
tractors. By bringing American citizens not drawn from Government
circles into close contact and daily relations with foreign persons, a
broader mutual understanding and respect can be created, so to speak,
at the grassroots.
In the present tormented state of international affairs, such avenues
to better understanding are not to be counted lightly. Over the years
they may be a means for accomplishing much in this direction. One
might well regard the use of private contractors in the field of tech-
nical services as an important adjunct of our cultural exchange
programs. Provided contractors and their personnel are of high
personal caliber, their use advances the same objectives.
FOREIGN AID
313
The comments of many missions support the general view expressed
above. We quote from two missions regarding the use of universities:
The relationship between an American university and its
counterpart, being much closer than between a foreign insti-
tution and the United States Government, the people-to-
people cooperation and the professional exchange between
equals results in long-lasting bonds of cooperative work and
friendship. It is doubtful whether the same objectives can
be achieved by United States Government employees. At
the same time, the contract device is not without its disad-
vantages.
University-to-university contracts will necessarily, usually,
be of lengthy duration, with the object of achieving an endur-
ing partnership between the two, extending beyond the Inter-
national Cooperation Administration financed assistance.
B. SPECIAL CONSIDERATIONS
Foreign governments will often accept advice more readily on
sensitive matters from contractor personnel than from Government
employees. Coming from a Government employee, technical advice
on such matters may, in the words of one mission chief, carry too much
of a "United States controlled flavor." A contractor's advice will
often be considered to be more objective. On sensitive matters which
frequently have political overtones, it is also easier for foreign govern-
ments, out of considerations of self-respect, to accept advice from
contractors rather than from official representatives of the United
States Government. For these reasons foreign governments will
often not only prefer contractors but also the use of third-party con-
tracts which enable them to retain the services of the contractor
directly. On these points most missions agreed. A representative
comment follows:
In so-called sensitive areas which may vary from country to
country, a United States Government employee is often identi-
fied with United States policy objectives and programs,
whereas a contract technician is deemed to be more free from
policy control either by the mission director or by the Inter-
national Cooperation Administration in Washington. His
recommendations may, therefore, find a greater receptivity
by the recipient government. In this sense the contract
technician is often more effective than a United States
Government employee.
For other types of projects where intimate knowledge of govern-
mental operations and administrative problems are considered essen-
tial, foreign governments may prefer the assignment of United States
Government employees. Thus, one mission reported that:
The government of *** reasons that these United States
institutions (United States Army Corps of Engineers, United
States Geological Survey, Department of Agriculture) can be
expected to have highly qualified personnel as well as per-
sonnel with experience and aptitude for working with govern-
ment institutions.
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The question of sensitive positions aside, where technical work is to
be performed in close association with or under the supervision of
foreign groups or governments as opposed to occasional advice to such
groups, the use of contractors has advantages. Better receptivity on
the part of the host institution or government may result; but also, to
assign a United States Government employee to a position under
foreign supervision is to place him in a relatively embarrassing posi-
tion. In such cases, it seems preferable to use a contractor under a
third-party contract.
There is a further advantage in having technicians under contract:
one can more readily expect a foreign government to foot part of the
bill than when technicians are on the United States payroll.
Finally, the use of contractors, especially under third-party con-
tracts, tends to retain a foreign government's continuing interest in
the activities of individual projects and a sense of responsibility in
their administration. This is less possible where government employ-
ees are involved since the foreign government has no direct responsi-
bility for their performance.
C. DISADVANTAGES
Problems in relationships between contractors and host govern-
ments or institutions occasionally arise. The difficulties are of three
kinds:
1. Contractors may adopt a somewhat highhanded or cavalier atti-
tude toward the host government. This may occasionally also be true
of mission personnel but they can more readily be brought into line.
One experience led a mission to the following statement:
It also occurs that American contractors engaged in imple-
menting projects financed by the United States sometimes
take a rather highhanded attitude toward the host govern-
ment with which the contract has been signed, relying on the
fact of United States Government financing and sponsorship
to protect them from complaints which they perhaps would
not risk if the contract were an entirely private one.
The International Cooperation Administration has, of course, the
authority to recall contractor personnel for unsatisfactory behavior.
2. Disputes may arise out of misunderstandings concerning the
provisions of the contract. The host government may not understand
what facilities it is to provide or what other responsibilities it has
assumed under the contract. When it fails to perform, projects are
delayed and disputes arise with the contractor. To avoid difficulties
of this kind, the host government or entity should participate as fully
as possible in contract negotiations; projects and contracts should be
explicit in describing the responsibilities of all parties. Speaking of
a university arrangement one mission said:
*** arrangements for intercollege exchanges inevitably
lack the specificity of a construction contract and frequently
result in inadequate cooperation from local institutions, par-
ticularly at the intermediate and lower levels of government.
FOREIGN AID
315
3. Occasionally, the services provided by a contractor will be inade-
quate sometimes because of their own shortcomings, sometimes for
reasons beyond their control. Any failure is a blow to the United
States whether it is occasioned by government personnel or contrac-
tors. There is no evidence that failures have been more numerous or
serious through the use of one or the other.
Difficulties of the sort noted above could arise equally under direct
hire programs. They serve only to emphasize the need to choose good
personnel-contract or government.
The problems noted above do not seem widespread and should there-
fore not be magnified. On balance, most missions feel that good to
excellent relations exist between contractors and foreign governments.
IV. COST CONSIDERATIONS
There is an almost complete absence of collected material or data in
the International Cooperation Administration on the relative costs of
obtaining services by contract and by direct hire. The International
Cooperation Administration has never attempted a study of this type
nor does any of the information presently available lend itself to such
an analysis. Under the circumstances we had to content ourselves with
the study of a very limited sample of contracts. The results are
given below.
A. A SAMPLE STUDY
In agreement with the International Cooperation Administration,
26 contracts were selected for detailed analysis. We cannot claim
that these contracts are representative of the nearly 1,200 contracts
financed by the International Cooperation Administration since 1951.
Given the wide variety of projects for which contracts have been let,
26 out of 1,200 could hardly constitute a representative sample. How-
ever, the 26 contracts cover contractors generally representative of the
types of contractors which have been used in foreign aid: profit and
nonprofit, university, voluntary agencies, large and small contractors
for large and small contracts, including large and small commodity
elements.
In attempting to evaluate the relative costs of contractors and of
Government hire, three elements are decisive.
1. Salaries.
2. Fees.
3. Overhead.
All other items of cost-travel, allowances, per diem, etc.-are
virtually identical for Government employees and for contractor
personnel as will be seen from a report appearing in appendix D,
prepared by the International Cooperation Administration comparing
practices followed for each item of expense.
1. Salaries
A comparison was made of salaries by categories of specialists under
contract with salaries that would be paid for similar specialists on the
International Cooperation Administration payrolls. Excluded from
the following tabulation are skills not generally available in Govern-
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2
ment and for which, therefore, comparisons could not be made. De-
spite the small size of the sample, the comparison may have some
significance since it covers 241 persons, 18 percent of the total of
1,319 man-years (of contractor personnel) spent overseas in fiscal
year 1956.
Comparative salary schedule

General field and engineering construction...
Education..
Public Administration.
Medicine 1,
Welfare 1.
Total..
Annual salary
Number of
persons
Column B
as percent of
column C
(A)
Contract
(B)
Direct hire
(C)
(D)
152
28030
$1,395, 064
$1,226, 930
114.70
58
486, 265
462, 668
105. 10
10
118, 720
111, 290
106.68
13
105, 600
126, 280
83.62
9, 360
40, 035
23.38
241
2, 115, 009
1, 967, 203
107.51
1 The contracts under which these persons are serving are with (1) a foundation, and (2) an international
voluntary aid organization, and the salaries may not be representative.
This shows that-
(a) Overall, contractor salaries exceeded Government salaries
by 7.5 percent;
(b) For engineering personnel the excess was nearer 15 per-
cent;
(c) Two contracts involving medicine and welfare activities,
which were let with nonprofit institutions, entailed substantially
lower contractor salaries than the Government would have paid
for direct hire.
While these figures may have no general validity they at least sug-
gest that generalizations which are frequently made to the effect that
contractor personnel cost much more than Government personnel are
open to question.
2. Overhead
For this purpose, we have dealt with 23 contracts; for the other 3,
either overhead was not clearly identified or they were atypical in in-
cluding a very large sum for purchases of commodities.
Gross value of 23 contracts_
Overhead___.
Salaries____
Percent of overhead to gross value of contract_.
Percent of overhead to salaries__
$15, 299, 000
$1, 545, 000
$8,407,000
10.1
18.4
Assuming these figures have some general validity, overhead does
not appear excessive. For example, the International Cooperation
Administration has estimated that the annual overhead cost of main-
taining each person working on contractual matters in Washington
is $2,197. Salaries probably average $7,000 to $8,000 per annum,
meaning that overhead in Washington runs to about 30 percent of
salaries.
Professions such as railroad executive, methods engineer, tool engineer, blacksmith
advisor, molded glass specialists, asbestos cement specialist, window glass specialist; paint
and enamel specialist, light bulb specialist, diesel engine specialist, and police advisor
specialist.
FOREIGN AID
317
Still another indicator of overhead is the cost of recruiting. The
Office of Personnel estimates that it spent in salaries $526 for each
person it hired in Washington in 1956. Again, assuming average
salaries of $7,000 to $8,000, recruiting costs alone amounted to about
7 percent of salary costs.
This exercise has no particular or precise statistical validity. It
serves only to point up the danger of generalizations regarding the
relative cost of direct hire versus contract services. Contractors have
overhead; so does Government. The real cost of each has never been
evaluated by the International Cooperation Administration. The
need for so doing is evident. The calculation should endeavor to carry
back to each form of hire all costs associated with it including, in the
case of contractors, the overhead costs of running the program in the
International Cooperation Administration.
The International Cooperation Administration's best assurance that
contractor costs stay in line is sensible bargaining, and good post-
audits, with each contract being given individual attention. Existing
contracts have evidently received it, judging by the great variation in
overhead rates for the 23 contracts we have examined; these rates
appear in appendix D.
3. Fees
Sixteen of the contracts examined were with profit institutions.
Overall, fees amounted to just under 7 percent of contract values,
certainly not an excessive figure. Variations in fees were quite wide,
ranging from 3.5 percent to 20 percent reflecting the amount of
commodities purchased, the degree of support required at home,
whether groups were small or large, the different professions con-
cerned, and whether physical facilities of the contractor were used.
In concluding these comments we stress again the danger of general-
izing from the limited sample we have analyzed. If time had per-
mitted a larger and more representative sample would have been
desirable. This warning, however, emphasizes the need for the In-
ternational Cooperation Administration to develop adequate statistics
on contractor costs.
C. SUMMARY
The following quotation from a mission aptly summarizes our
tentative conclusion concerning the relative costs of using contractors
compared with Government personnel and the relevance of cost con-
siderations to choices between the two:
While cost considerations are important, with the exception
of a few private contractors whose rates are considerably
above Government salary levels, the costs of contract person-
nel are generally quite close to Government salary schedules.
As a matter of fact, when you consider the overhead charges
of United States Government personnel provided the Inter-
national Cooperation Administration from other United
States Government agencies (such as the use of the United.
States Bureau of Public Roads personnel under a reimburs-
able arrangement with the United States Department of
Interior), the relative cost of contracted personnel becomes
advantageous. However, in summary, the difference between
the costs of the various methods of providing requested tech-
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FOREIGN AID
nical assistance is generally minor and, although considered,
are usually of lesser importance than the other considera-
tions *** in arriving at a decision with respect to the use
of Government or privately contracted personnel.
We would stress further that where facilities and equipment are
supplied by contractors, there may be important savings to the Gov-
ernment. In such cases the Government pays only amortization
charges on such facilities during the period they are employed. The
savings are substantial compared with the alternative of using Gov-
ernment personnel and paying the full cost of such facilities.
V. ADVANTAGES AND DISADVANTAGES: A CONCLUSION
There can be no doubt that private contractors have made important
contributions to foreign economic aid programs. A list of their
accomplishments would be long. It is clear that had we foregone
the services of educational institutions, voluntary service agencies and
industrial firms, many projects could not have been undertaken.
Contractors have occasionally turned in a bad performance. This
may have been because the task was more appropriate for Government
personnel than for a contractor; the project may have been improperly
planned and developed; or the wrong organization may have been
chosen. None of these factors reflects an inherent disadvantage in
the use of contractors. They only underscore the need for careful
examination, to determine whether the project can best be handled
by a contractor and, if so, which is the most qualified. The choice of
the wrong tool or misuse of the best tool is bound to yield poor results.
We believe that, on balance, the contributions of private contrac-
tors to the aid program have outweighed the problems and difficulties
encountered in their use. The value of such contributions is not to
be measured solely by the costs of their services. What they provide
is the organizational know-how, technical competence and experience
accumulated over many years by American industrial, scientific, and
educational organizations-in a sense, the priceless heritage of past
efforts. Yet we have seen no evidence that, on balance, the costs of
their services have been unreasonable. In some cases they may have
been, but we do not believe that generalizations to this effect are
warranted.
Where alternatives exist and Government personnel can effectively
provide the services required, there are often obvious advantages to
the use of contractors; for certain projects, in certain countries, the
advantages and disadvantages may be almost in balance; in other
cases, the balance of advantage will be in the use of Government per-
sonnel. Seldom will one factor alone determine the decision.
Many of the problems in using contractors can be eliminated by
better organization and planning of the contractor program. If
efforts to this end succeed, there will be advantage in making greater
use of their services and possibly a more general disposition to do so.
Administration of the program would be facilitated by a clearer
statement of congressional views on the desirability of using contrac-
tors. Such guidance is especially needed in reaching decisions in
cases where the advantages in using contractors or Government per-
sonnel are approximately equal.
CHAPTER VI
FINDINGS AND RECOMMENDATIONS
The preceding sections have attempted to describe and evaluate
policies, procedures and problems relating to the use of private con-
tractors in foreign aid programs. Deficiencies have been noted and,
in connection with most, remedial steps have been suggested. Certain
factors which we feel are common to and explain many of the deficien-
cies and difficulties are noted below, following which appear our
recommendations.¹
I. PRINCIPAL FACTORS ADVERSELY AFFECTING THE CONTRACTOR
PROGRAM
A. FUZZY CONCEPTS ON TECHNICAL ASSISTANCE
The Senate Subcommittee on Technical Assistance concluded Staff
Study No. 2 in April, 1955, saying:
There is still lacking a consistent concept of the scope of
technical assistance and its role in foreign policy. Until
such a concept emerges, and gains general acceptance, admin-
istrative and organizational problems of a serious nature are
unavoidable and solutions are likely to prove temporary at
best.
It is our view that many of the administrative and organizational
problems now besetting the contractor program arise from the con-
tinuing absence of clearly formulated concepts on the long-term role
of services and of technical assistance in foreign aid which the sub-
committee staff study noted nearly 2 years ago. The year-to-year
nature of foreign aid authorizations causes problems in planning for
economic development programs. The problems should be fewer for
technical assistance and service programs-those which most give rise
to the need for contractor services-for they have become reasonably
permanent fixtures of foreign policy. Until the role of technical assist-
ance has been clarified, it will be difficult to define the proper use of
contractors in the aid program.
B. LACK OF CLEAR DIRECTION AND POLICY
The contractor program suffers because it is "played by ear." There
is no overall policy direction on the role for contractors and on contract
procedures; conflicting impressions exist within the International
Cooperation Administration on procedures, methods, and criteria for
1 We must acknowledge that certain contractors expressed general or complete satisfac-
tion with the administration of the program and their relations with the International
Cooperation Administration. They were a minority; the great majority were generally
critical.
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FOREIGN AID
carrying out the program. Symptomatic is the absence of a basic
contract manual for use in the International Cooperation Administra-
tion in Washington and the field.
C. LACK OF STATURE
The program receives too little top level attention and support;
someone is needed with authority to give direction to the program, to
break red tape, and to make things move. The office of institutional
projects abroad of the American Council on Education speaking for
universities has said in part:
the absence of a "program" or "substantive" mechanism of
stature within the International Cooperation Administration
has further ramifications in the eyes of the universities. The
contractors believe that the absence of such a mechanism
evinces lack of “high-level policy support for the program."
* * * The recent meetings ***strongly emphasized
the need to centralize program responsibility within the
International Cooperation Administration at the highest
possible level, with delegation of the Director's authority to
an officer in charge possessing broad experience in higher
education, especially in its international aspects. ***
D. ATTITUDES OF THE AGENCY AND ITS PERSONNEL
Fearing criticism, the International Cooperation Administration
employees delay and avoid making difficult yet necessary decisions.
Congress has criticized the agency, alleging that contractors have been
used in order to circumvent personnel and salary ceilings; firms passed
over in the selection of contractors have been vocal in complaints;
Government employees have over the past few years seen some of their
colleagues sacrificed, with little justification, to external criticism and
pressure. Caution has inevitably come to be regarded as the better
part of valor and initiative has been stifled. Many employees within
the agency have labored with zeal and courage. But in a general
climate of timidity their efforts can have only limited effect.
E. DIFFUSION OF AUTHORITY
Contractors uniformly speak of the diffusion of authority within the
agency. Many offices have an interest in contracting and each plugs
for its special viewpoint-legal, fiscal, and others. The backing and
filling necessary to please all interested offices and the inability of
contractors to get matters settled in one office and by one authority
undoubtedly occasions delay and stirs tempers. A typical comment
on this point came from a university:
Organizational policies that require the approval of sev-
eral offices and individuals on questions that should be simply
and directly answered by one officer with authority and re-
sponsibility * * *
*** contribute significantly to these [con-
tracting] difficulties.
FOREIGN AID
321
F. THE BUILT-IN BIAS
Generalizing, we believe that the agency has been rather uncon-
sciously biased against the use of contractors. The explanations are
several:
1. The contracting program is slow and laborious and a source of
irritation to the agency and contractors alike. Until it improves, the
use of Government employees will tend to be preferred.
2. Members of Congress have an equivocal view toward the use of
contractors. They have both advocated it and criticized the agency
for using it as a means of evading Government salary and personnel
ceilings.
3. There is a feeling that contractors are expensive. We are con-
vinced that this has not yet been clearly demonstrated. It may
not be so.
4. There is some concern that contractors may get away from the
policy line appropriate in foreign work. This may be an important
consideration for particular types of projects and for certain situa-
tions. But it should not influence decisions with respect to all other
projects.
Summing up, what is needed is a new attitude. Contracting has
to be thought of as a positive, useful tool of foreign aid. There should
be a determination to use contractors wherever there are advantages
in doing so. Biases in favor of Government employees should not
exist and the conception that contractors are "expensive" should be
put to a stern test.
II. RECOMMENDATIONS
In submitting the following recommendations, we are by no means
suggesting that the contractor program has been a failure. On the
whole, contractors have been able to make a most useful contribution
to the aid program. But administrative shortcomings-some of them
almost inevitable-have not permitted their most effective use. Some
shortcomings have been corrected but we believe further improve-
ments are possible.
We are submitting no recommendations for new legislation or for
changes in existing legislation. We believe the International Coopera-
tion Administration now has all the authority needed for effective
administration of the contractor program.
Recommendation No. 1.-The role of technical assistance and serv-
ices in foreign aid needs to be clarified. Failing this, it will be diffi-
cult to define the appropriate role and use of private contractors.
Recommendation No. 2.-Consistent policies and procedures for the
use of private contractors should be developed and set forth in a basic
manual. The circumstances in which contractors will be used rather
than Government employees should be spelled out. The twilight zone
where contractors and employees compete should be limited so far
as possible. By identifying the role of employees and contractors,
and by advance planning of the program for each, appropriate plans
for recruitment and support can be made by both Government and
contractors. Uncertainty today limits such planning. The conference
on university contracts abroad held at Michigan State in November
1955 resolved:
* * * that a clear statement of public policy by the United
States Government is required in order to provide for effec-
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tive long-range planning and full integration of the program
within contracting institutions.
Contracting policies and procedures should be developed to match
the role set for contractors. A basic operations manual should be
compiled setting forth both the role for contractors and the policies
and procedures governing the entire contract process.
Recommendation No. 3.-The International Cooperation Adminis-
tration should seek clearer endorsement of the contractor program.
The present uncertainty regarding Congressional attitudes on the
use of contractors underlies much of the hesitancy which character-
izes the International Cooperation Administration's approach to con-
tracting programs. The agency should clarify its views on the use
of contractors and seek clear Congressional endorsement of them.
Recommendation No. 4.-A "Coordination and Policy Office on Con-
tract Matters" should be created having full authority on all matters
relating to the contracting program. The office should coordinate,
supervise, and evaluate contracting matters. It should provide guid-
ance to missions and be the planning staff and the inspector general
in one.
Responsibility for performance should rest in this office.
Its powers should be broad enough to give stature to the contracting
program, to resolve differences, and to budge aside legal and account-
ing technicalities so long as their purposes are not ignored.
Recommendation No. 5.-Offices concerned with contracting and
with project appraisal and supervision may require strengthening. In
some cases, more adequate staffing seems necessary in technical offices
to assure that project descriptions are adequate. Staff must be com-
petent to choose between direct hire and contractors, select the latter,
assist in contract negotiations, and review contractor performance.
The Office of Contract Relations particularly must be examined to
determine whether its staff can whittle down the backlog of contract-
ing problems and then keep current; the present staff may be too small
for this task.
Recommendation No. 6.-The International Cooperation Adminis-
tration should define conditions for the use of direct, third-party, or
other types of contract arrangements. Should the foreign govern-
ment (or other foreign entity), the International Cooperation Ad-
ministration itself, or both be signators to contracts? Each arrange-
ment has different implications-financial, legal, and supervisory.
Signatory arrangements now vary significantly from one country to
another with no clear sense of why this should be so. Missions appear
to have no very clear idea of what Washington desires.
Recommendation No. 7.-The agency should make more extensive
use of its discretionary authority in contracting matters. Self-
imposed adherence to General Accounting Office policies and stand-
ards has led the International Cooperation Administration to
unnecessary rigidity in certain contractual matters where it has had
the necessary authority to be otherwise. Discretionary authority is
sparingly used in selecting contractors and in adjusting contractual
difficulties. Contracts better negotiated with 1 or 2 firms are instead
thrown open to competition; justified contract adjustments are
resisted. Fear of criticism motivates the agency's limited use of such
authority as it possesses. The agency would be well advised to inform
the Congress of the contracting practices it follows, difficulties caused
FOREIGN AID
323
thereby, and then seek endorsement of a broader use of its authority
where this would clearly serve the purposes of the program.
Recommendation No. 8.-The International Cooperation Adminis
tration should distinguish between profit and nonprofit institutions;
no distinction is now made. For institutions regularly accountable
to public authorities, as most universities are, and possibly for other
nonprofit institutions, more flexibility appears justified. Such insti-
tutions might well be permitted to follow their own financial practices
and procedures in disbursing the International Cooperation Adminis-
tration funds provided the International Cooperation Administration
could first satisfy itself that their procedures provide a reasonable
safeguard. If the International Cooperation Administration per-
sists in rejecting the grant-in-aid technique for universities, it should
otherwise extend its efforts to grant reasonable discretion and latitude
to them.
Recommendation No. 9.-The International Cooperation Adminis-
tration should endeavor to standardize contracts to the maximum.
Standardization would eliminate a host of presently negotiable matters
which consume enormous time, bog down negotiations, and interfere
with the start of projects. The International Cooperation Admin-
istration should either establish realistic standards which do not invite
exceptions and negotiations or it should be prepared to accept within
certain broad limits, and subject to preaudit, the practices which the
contractor now generally employs in work for other clients. Other
Government agencies have been more successful in devising standard
rules that eliminate controversy and delay over contractual details.
The International Cooperation Administration might profitably con-
sult other agencies to determine whether their standards and prac-
tices are adaptable to the International Cooperation Administration
needs.
Recommendation No. 10.-The International Cooperation Admin-
istration should endeavor to assure proper selection of personnel by
contractors. It should require that a substantial percentage of con-
tractor personnel be drawn from permanent staff. Contractor per-
sonnel are frequently hired solely for one International Cooperation
Administration job. They are not integral members of the contrac-
tor's organization and may frequently not measure up to the usual
standards of its personnel. Contractor personnel should also be
screened more thoroughly for suitability for overseas service and more
orderly indoctrination procedures should be developed.
Recommendation No. 11.-Contractors' performance should be more
carefully appraised. The International Cooperation Administration
missions should provide more thorough, regular, and, where possible,
uniform reports on contractors' performance. On more important
projects, reports in depth could be undertaken by survey teams from
Washington. The agency should take all reasonable means to obtain
adequate information on the progress contractors are making and on
the quality of their performance; it will then know if it receives what
it pays for.
Recommendation No. 12.-The International Cooperation Adminis-
tration records on the cost and use of contractors must be developed
and improved. There now exists a woeful lack of data on routine
matters, such as total value and number of contracts outstanding,
94413-57- -22
324
FOREIGN AID
principal contractors, personnel concerned, fields of activity, average
fees, and overhead factors. Few of these data have been compiled
on any systematic basis. Bits and pieces are scattered throughout the
agency. Records should permit a ready comparison of all costs of
contractors, including general overhead compared with all costs,
including Government overhead, of activities undertaken by direct-
hire employees.

APPENDIXES
APPENDIX A
STATISTICAL TABLES
I. NOTES ON TABLES
The following tables summarize data on the number, types, value,
and forms of private contracts under the aid program. These tables
are based on raw data provided us by the International Cooperation
Administration covering nearly 1,200 contracts.
1. Period covered
Calendar years have been used throughout the tables. They relate
to the year in which contracts became effective. Contracts listed in
1951 include those concluded in prior years. Data for 1956 covers
only 9 months but includes contracts proposed and under negotiation
with the approximate values where available.
2. Values
Contract values represent cost to the United States Government of
contractor services. They include all service costs-personnel costs
(salaries, allowance, leave, transportation), costs not in excess of
$50,000 for equipment and supplies related to the service to be per-
formed, overhead costs, and, in the case of profit organizations, an
agreed fee.
These values represent either an agreed total cost under the con-
tract or, more usually, a maximum figure for costs reimbursable under
the contract.
"Open" contracts, where footnoted, indicate that no value was stipu-
lated in the contract information given us. Most open contracts are
in the global category for worldwide services. Work orders are
issued from time to time under open contracts as projects are firmed
up. We have included in contract values the value of work orders
issued, where known.
3. Errors and omissions
As indicated in the body of this study, we have endeavored to ex-
clude from contract values the cost of equipment and commodities
financed by the International Cooperation Administration under
service contracts in order to reflect as nearly as possible the value of
services performed. The information supplied us by the International
Cooperation Administration was supposed to exclude amounts in ex-
cess of $50,000 for equipment or commodities in connection with con-
struction and large projects. It was evident, however, that where the
alleged service values of contracts amounted to many millions, some
error had been made in recording the information. In the more
325
326
FOREIGN AID
obvious cases we were able to obtain corrected figures. We could not,
however, ask for a recheck of some 1,200 contract-summary sheets
which were supplied by the International Cooperation Administra-
tion.
We are certain therefore that our figures on contract values con-
tain a considerable element of nonservice cost. However, errors in
this direction are partly offset by the fact that "open" contracts con-
tain no value figures, but clearly represent a commitment with an
implied, if indefinite, value which we have not attempted to estimate.
Secondly, from spot checking from known contracts in given coun-
tries we have established that the contract-summary sheets failed to
cover a considerable number of them. We do not know how great the
gap is overall, but it is probably sizable.
In view of the inaccuracy and incompleteness of the information
which we were able to obtain, the following tables can only be viewed
as providing general orders of magnitude for the material covered.
4. Areas
In distributing contracts by area we have used the following
pattern:
(a) Latin America: All countries in the Caribbean area and in
Central and South America;
(b) Europe: All Europe-includes Iceland and Greece;
88
Near East and Africa: All Africa and Near East from Turkey
to Iran;
(d) South and southeast Asia: From Afghanistan and Pakistan to
Indochinese States and Malaya:
(e) Far East: Korea, Japan, Taiwan, Philippines, Indonesia, and
Oceania.
FOREIGN AID
327


LABLE A-T
-au private conuiucis (vy uɩɩwy w by your
[Values in thousands of dollars]
1951
1952
1953
1954
1955
1956
Total
Num-
Num-
Num-
Num-
Num-
Num.
ber of
Value
ber of
Value
ber of
Value
ber of
Value
ber of Value
ber of Value
Num- Value
con-
tracts
con.
tracts
con-
tracts
con-
tracts
con-
tracts
con-
tracts
ber
Agriculture and natural resources.
Industry and mining.
22
32
1, 482
10
33, 285
Transportation..
000=
6, 815
62
8
7,970
46
6353
5, 877
12, 696
143
1
754
1
124
99999
46
14, 768
39
7, 196
78
4,332
238
40.470
6, 500
137
20, 746
102
16, 254
458
97, 451
6
233
18
9, 150
35
14, 724
61
24, 985
Labor__
3
92
71
1, 125
17
228
2
19
93
1, 464
Health and sanitation.
1
170
8
2,079
7
422
2
6
18
2, 677
Information and education.
1
325
2
116
15
3,979
44
Public administration.
1
62
7
1, 656
13
Community development and housing.
1
375
1
1, 222
3
481
23
General and miscellaneous
4
144
9
308
18
*RR8
24, 485
30
5, 448
34
5, 097
126
39, 450
1, 761
24
3,791
21
2,384
66
9, 654
1, 003
19
899
11
1, 427
58
5, 407
913
13
367
15
708
59
2,440
Total..
27
27
35, 467
28
1 17, 253
146
25, 213
372
52, 867
304
3 48, 247
300
4 44, 951
1, 177
223,998
1 Includes 3 contracts for which no value given.
• Includes 1 open contract.
* Includes 3 contracts, for which no dollar value given.
• Includes 68 contracts, mostly global, for worldwide services.
TABLE A-2.-All private contracts (by area of performance and by year)
[Value in thousands of dollars]
1951
1952
1953
1954
1955
1956
Total years
Num-
ber of
Value
con-
tracts
Num-
Num.
Num-
Num-
Num-
ber of
con-
tracts
Value
ber of
con-
tracts
Value
ber of
Value
con-
tracts
ber of Value
con-
ber of Value
Num-
Value
con-
ber
tracts
tracts
Far East..
South and southeast Asia.
Near East and Africa.
135
10, 237
2,500
10
7,254
Europe.
16
14, 608
0377
1,477
14
9, 502
28
7,884
27
14, 410
43
6, 376
123
49, 886
514
24
8, 608
42
14, 635
43
15, 019
57
29, 490
172
70, 766
8, 669
30
4, 768
40
18, 845
50
8, 207
29
3,291
161
51,034
6, 582
20
551
175
4, 588
103
5, 479
58
Latin America.
2, 506
379
34, 314
2
868
9
1,024
37
5, 141
36
3, 904
39
Global..
1, 505
123
12, 442
1
11
49
760
50
1, 774
45
1, 228
74
1, 783
219
5, 556
Total.
27
35, 467
28
1 17, 253
146
25, 213
372
2 52,867
304
3 48, 247
300
* 44, 951
1, 177
223, 998
1 Includes 3 contracts for which no value given.
* Includes 1 open contract.
3 Includes 3 contracts, for which no dollar value given.
4 Includes 68 open contracts, mostly global, for worldwide service.
328
FOREIGN AID

Agriculture and natural resources.
TABLE A-3.—University contracts (by activity and by year)
[Value in thousands of dollars]
1951
1952
1953
1954
1955
1956
Total years
Num-
Num-
Num-
Num-
Num.
ber of
Value
ber of
Value
ber of
Value
ber of
Value
ber of
Value
Num-
ber of
Value
con.
con-
tracts
tracts
con-
tracts
con-
tracts
con-
tracts
con-
tracts
Num-
ber
Value
14
1,482
4
6, 299
42
10
1
62
1
105
90 224
927
3,088
25
220
11
2241
7,301
21, 728
6
1,724
4 185
296
3
78
B2021
8
1, 360
2 54
2, 653
124
20,002
4,841
$ 19
4,961
76
34, 618
2,539
8
955
25
5, 280
720
$5
440
30
1, 565
32
3
126
10
637
123
41
622
9
166
54
911
1
225
2
48
3
1, 537
251
1
7
1,816
3
541
2
30
4
256
4
1, 482
6
6, 466
60
4, 654
105
35, 246
76
10, 754
95
2122 5
10
5
283
6
8
1, 794
305
6
2, 662
409
8
695
9, 845
346
68, 447
Education.
Public administration.
Industry and mining.
Information….
Labor.
Community development and housing.
Health and sanitation..
Multipurpose *
Miscellaneous..
Total.
1 Includes 1 open contract.
* Includes 45 open contracts for worldwide service.
• Includes 2 open contracts.
• Includes 1 open contract.
• Includes 2 open contracts.
Contracts specifying more than 1 field of activity.
" Includes 1 open contract.
FOREIGN AID
7229

TABLE A-4.—University contracts by area of performance and by year
[Thousands of dollars]
1951
1952
1953
1954
1955
1956
Total years
Num-
Num-
Num-
Num-
Num-
Num-
ber of
Value
ber of
Value
ber of
Value
ber of Value
ber of
ber of
Value
Value
Num-
Value
con-
tracts
con-
tracts
con-
tracts
con-
con-
con-
ber
tracts
tracts
tracts
Far East...
South and southeast Asia….
Near East and Africa.
1
614
213
355
1,620
14
6, 061
219
849
14
9, 484
16
6, 892
794
14
14, 177
12
Europe.
106
Latin America.
2
868
3
706
Global
Total
1 An open contract.
1
(1)
45
579
Hi
1, 482
6
6, 466
60
4, 654
105
29
25
686
14
4,394
16
24
$ 444
14
35, 246
76
2 F-53.a
177
5, 873
11
1,959
12
348
1, 836
10
561
$ 52
10, 754
95
2IDON 8
12
3, 168
3,956
3
356
7
887
1, 149
329
136
COALA COA CO
11, 381
45
20, 381
23, 792
2,027
45
8, 953
1, 913
9, 845
346
68, 447
* Includes 2 open contracts.
* Includes 49 open contracts.
330
FOREIGN AID
TABLE A−5.—Types of contracts by areas of performance

Area (1951-56)
Direct 1
Percent Third
of total
Percent
Three
Percent
party'
of total
party 4
Far East..
68
South and southeast Asia..
105
Near East and Africa….
76
Europe....
165
Latin America.
103
Global.
• 219
100
Total__
736
នង្គ | 8
56
49
40
62
62
46
80
44
5 213
83
19
23389
5
36
49
8
425
LO 3 00
of total
Total
contracts
123
172
161
56
379
15
2
2
123
219
62
423
36
18
2
1, 177
1 Direct contracts let by the International Cooperation Administration or an International Cooperation
Administration mission.
• Percentages are rounded.
Third-party contracts let by foreign government or other foreign entity.
43-party contracts: International Cooperation Administration and foreign-government let contracts,
jointly. (Includes so-called bifurcated contracts.) Figures on 3-party contracts are questionable; they
may be as much as 20 percent off one way or another.
• Includes 73 contracts let by Organization of European Economic Cooperation.
• All global contracts let by the International Cooperation Administration in Washington or the Inter-
national Cooperation Administration regional office in Paris.
TABLE A-6.—Types of contracts by year

1956..
1955...
1954
1953...
1952
1951.
Total..
Year
Direct 1
Percent
of total
Third
party :
Percent
of total
Three
party :
Percent
Total
of total contracts
201
181
250
87
11
6
585892
67
96
32
60
116
38
67
117
31
60
57
39
40
16
57
3762-
5
1
122100
300
2
304
372
146
3
28
22
21
78
27
736
62
423
36
18
2
1, 177
1 Direct contracts let by the International Cooperation Administration or an International Cooperation
Administration mission.
Third-party contracts let by foreign government or other foreign entity.
3-party contracts: International Cooperation Administration and foreign government let contract,
jointly. (Includes so-called bifurcated contracts.) Figures on 3-party contracts are questionable; they
may be as much as 20 percent off one way or other.
TABLE A-7.—United States and foreign nonprofit contractors (other than uni-
versities), by activity, 1951-56

Agriculture and natural resources.
Industry and mining...
Education.
Public administration...
Health..
Labor..
Transportation..
Community development and housing……
Miscellaneous..
Total….
1 Includes 4 open contracts.
* Includes 1 open contract.
United States organi.
zations
Foreign organizations
Number of Value
contracts
Number of Value
contracts
11
Thousands
$1.926
4
Thousands
$706
72
1 1.099
36
38
wow does covão
6
2,581
23
1,671
7
2 608
3
29
9
168
14
59
5. 233
3
22
2,200
9
$ 317
210
15, 406
25
1, 213
• Includes 8 contracts with foreign governments or government agencies.
FOREIGN AID
331

TABLE A-8.-Foreign contractors (1951–56)
B-By area of performance
A-By activity
Activity
Number of
contracts
Value
Area
C-By year
Number of
contracts
Value
Year
Number of
contracts
Value
Agriculture and natural resources.
22
Thousands
$1,972
Thousands
Thousands
Far East.
13
$3,195
1956.
10
$378
Industry and mining.
12 33
7, 419
South and South East Asia..
27
5, 324
1955
1 18
2, 933
Labor.
21
396
Near East and Africa...
17
834
1954
12 55
3,005
Education and information.
18
1,020❘ Europe.
1349
1, 782
1953.
17
4, 508
Community development and housing-
4
45
Latin America.
9
49
1952
4
35
Miscellaneous.
17
332
Global.
1951..
1
325
Total.
105
11, 184
Total_
105
11, 184
Total.
105
11, 184
1 Denotes open contract. Number following indicates number of open contracts if more than one.
332
FOREIGN AID
TABLE A-9.-Private contractors with 4 or more contracts (1951-56)
I. NONPROFIT ORGANIZATIONS

Contractor
Council for International Progress in Management.
St. Johns University.
Syracuse University
World Council of Churches.
International Road Federation Methods..
University of California.
University of Illinois..
Engineering Council.
Training Within Industry Foundation.
Near East Foundation...
University of Tennessee.
Michigan University
Cornell University.
International Confederation of Free Trade Union.
Public Administration Clearing House….
Armour Research Foundation of Illinois Institute of Technology--
University of Chicago.
University of Florida.
Michigan State University.
National Foreman's Institute.
North Carolina State University………….
Northwestern University.
Ohio State University...
Texas A. and M.
Columbia University.
Harvard University.
University of Indiana.
International Development Services.
Pennsylvania State University.
Purdue University.
Stanford Research Institute.
Utah State Agriculture College……….
American University.
University of Buffalo.
Greek Red Cross..
Minnesota University..
Missouri University.
Montana State University...
Nebraska University.
Vanderbilt University.
Wisconsin University.
Number of
contracts
Value
Thousands
47
$732
30
473
17
735
17
830
15
63
13
12
12
12
3222
9
9
8
7
7
7
6
6
6
6
2, 604
3, 287*-2
165
113*-3
5, 801
1,789
786
1, 157
82
1,871
403*-2
423
434*-1
2, 531*-1
6
41
6
6
850*-1
199
6
998*-1
6
2, 895
5
1, 907
5
86
5
1, 704
5
919
5
5
890
614*-1
5
350
5
2, 669*-1
4
115*-1
4
62
23
4
3, 018*-1
4
390
4
3, 110
4
373*-1
4
247
4
238
352
45, 997
204
34, 604
148
11, 393
Total nonprofit.
Universities.
Other nonprofit..
II. PROFIT ORGANIZATIONS

International Policy Services, Inc.
World Mining Consultants.
Hoff, Conny & Knight..
International Police Equipment Corp.
Ralph M. Parsons..
Raymond Concrete Pile Co..
COCO LO LO LO LO
6
$47*-1
6
313
5
8
5
20
5
2,056
5
13, 230
Woolf Management Engineering Co.---
5
42*-2
Ateliers de Construction L. Leemans & Fils (Machelen, Belgium)………..
4
1,234
Combustion Engineering Superheater, Inc..
4
5,237
Ebasco Services, Inc....
4
761
International Engineering.
4
1, 212
Pan American Airways, Inc.
4
6, 112-1
Pierce Management, Inc.
4
1,481
Sverdrup & Parcel, Inc.
4
1,416
Warden, Beryl...
Total profit...
4
51
69
33, 220
Grand total..
421
79,217
*Indicates open or proposed contracts for which no dollar values available. Number following asterisk
indicates the number of such contracts in each case.
FOREIGN AID
333
1
TABLE A-10.—-Contractors with contracts exceeding $1 million ¹ (1951-56)
University
Oklahoma A and M_
I. UNIVERSITY CONTRACTS
1
American University of Beirut.
Minnesota University-
Montana State College.
Michigan State University.
New York State University.
Utah State Agricultural College-
Texas A and M..
Prairie View A and M 2
Washington State College-
Colorado A and M.
Kentucky University
Columbia University.
Wyoming University.
Stanford University--
4
I
1
1
Country
Ethiopia...
Lebanon_
Korea__
Jordan_
Vietnam..
Israel..
Iran.
Pakistan
Liberia....
Pakistan
-
do_.__
India___
1
1
1
Subject
Agriculture.
Education.
Do.
Agriculture.
Public administration.
Multiple-purpose.
Agriculture.
Education.
Do.
Do.
Do.
Do.
Afghanistan
Do.
_do_____
Do.
Philippines. -
Do.
II. VOLUNTARY SERVICE AGENCIES
Thousands
Near East Foundation_.
Do------
Total, voluntary service agencies---.
Number of contracts___
$2,000
1,222
3,222
2
Pacific Bechtel Corp.
McGraw Hydrocarbon_
Utah Construction Co--.
III. PROFIT ORGANIZATIONS
7,910
6, 204
6, 090
5, 428
5, 273
3, 900
3,580
Continental Foundry & Machine Co‒‒‒‒
Morris Knutsen International..
J. G. White Co____
Do____
Charles T. Main__.
Burns & Roe, Inc---
Brown and Root, Inc.--.
A. L. Dougherty Oversear, Inc.
Raymond Concrete Pile Co‒‒‒‒
Hycon-Page Co----
Pan American Airways, Inc____
Combustion Engineering Co‒‒‒‒‒
Raymond Byrne Organization_.
Pan American Airways, Inc‒‒‒‒‒
Raymond Concrete Pile Co..
Knappen, Tinpets & Abbett Engineering Co-
Thompson Stavette Co-----
Pan American Airways, Inc.
Foster Wheeler Corp-----
Wean Engineering Co----
Capital Engineering Co‒‒‒‒
Tudor Engineering Co-‒‒‒‒‒
Havald Smith, Inc---
Pierce Management, Inc_‒‒‒
Michael Baker Engineering Co., Inc----
Gilbert & Associates.
Gibbs & Hill, Inc--
Kloechner-Humboldt & Dietz, A. G
Ralph Parsons Co-----
3, 480
3, 338
3, 334
2,810
$ 2,776
8
2,622
2,470
2,456
³ 2, 252
2, 184
2,066
2,000
1,800
1,758
1, 580
1,534
1, 508
1, 462
1, 335
1,300
1,251
1,250
1,083
1, 058
1, 014
1, 010
1 Many contracts include an unidentified commodity of equipment element and elimination of this ele-
ment has been made where known.
Appears in table A-8.
Probably includes equipment element accounting for a substantial portion of the total
amount.
334
FOREIGN AID
POLICIES & PROCEDURES
STAFF
DIRECTOR
OF CONTRACT RELATIONS
ASSISTANT DIRECTOR
REPORTS, CONTROL & FILES
STAFF
LEGAL STAFF*
NEGOTIATING & DRAFTING
DIVISION
AUDIT STAFF*
COMMERCIAL
CONTRACT
BRANCH
CAPITAL
PROJECT
BRANCH
NON-PROFIT
CONTRACT
BRANCH
PERSONNEL
SERVICES
BRANCH
* Staffs detailed to the Office of Contract Relations by the General Counsel and the Controller and subject to their policy guidance and
technical direction.
TRANS. NO.
ATTACHMENT TO MO
APPROVED
GENERAL-304
228.9
JUNE 6, 1956
OFFICE OF CONTRACT RELATIONS
APPENDIX B
AND DESCRIPTION OF THE CONTRACT PROCESS
ORGANIZATION OF THE OFFICE OF CONTRACT RELATIONS

S/CO

FOREIGN AID
335
EXPLANATION OF THE CHART [APPEARING ON P. 29]
"NORMAL INTERNATIONAL COOPERATION ADMINISTRATION CONTRACT
WITH UNITED STATES FIRMS"-APPROVED CENTRALIZED OPERATIONS
1. Request by a cooperating country for United States assistance in
carrying out a project.
2. Consultation between a cooperating country and the United
States operations mission to develop the plan of the project and to
draft a project proposal to be submitted to the International Coopera-
tion Administration in Washington for review and approval.
3. Review by the regional office of the project proposal to deter-
mine its conformity with United States policy and the International
Cooperation Administration objectives, its economic soundness and its
desirability in the light of program priorities and fund availabilities.
4. Review by the technical services office of the project proposal to
determine its technical feasibility, effectiveness, and acceptability.
5. Issuance of a project approval by the controller, following evalu-
ation and approval of the project proposal by the regional and tech-
nical services offices.
6. Drafting of a project agreement by the United States operations
mission to record the agreement of the cooperating country and the
United States to carry out the project, and to specify their respective
contributions to finance its various component elements.
7-8. Signature of the project agreement by the cooperating country
and by the United States operations mission.
9. Drafting of a project implementation order by the United States
operations mission to procure the technical services required for the
project.
10. Review by the regional office of the project implementation
order to determine its general conformity with the International Co-
operation Administration policies and practices.
11. Review by the technical service office of the project implementa-
tion order to assure its conformity with the project approval, to
determine that the scope of the work to be done or services to be pre-
cured has been adequately defined, and to evaluate the recommenda-
tions of the United States operations mission on the source of the
technical services.
12. Issuance of a project implementation order by the controller,
following approval by the technical services office.
13. Receipt by the Office of Contract Relations of an approved proj-
ect implementation order for technical services, to be procured under
contract.
14. Drafting by the Office of Contract Relations of a letter of invi-
tation to submit proposals or bids and of a list of prospective con-
tractors to receive the letter.
15-16. Review of the invitation letter and list by the technical serv-
ice and regional offices.
17. Mailing by the Office of Contract Relations of the letter of
invitation to the prospective contractors on the list, following a con-
sideration of the views of the technical service and regional offices.
18. Submission of proposals or bids by the prospective contractors
in response to the letter of invitation.
19. Anaysis by the Office of Contract Relations of the proposals or
bids.
336
FOREIGN AID
20. Review by the technical service office of the proposals or bids.
21-23. Selection by the Office of Contract Relations in concert with
the technical service and regional offices, of the acceptable, qualified,
and responsive proposal or bid.
24. Clearance of the tentative contractor by the Security Division.
25-26. Notification by the Office of Contract Relations to the pros-
pective contractor and to the United States operations mission of
the award of the contract and rejection of unsuccessful proposals or
bids.
27. Submission of financial statements by the proposed contractors.
28. Analysis by the Office of Contract Relations of the financial
statements submitted.
29. Preparation by the Office of Contract Relations of a draft
contract.
30-32. Review by the technical service office, by the regional office,
and by the United States operations mission of the draft contract.
33. Mailing by the Office of Contract Relations of the draft contract
to the proposed contractor, following consideration of the views of
the technical service and regional offices and of the United States
operations mission.
34-37. Negotiation by the Office of Contract Relations, in concert
with the technical service and regional offices, of the contract terms
and provisions with the proposed contractor.
38. Preparation by the Office of Contract Relations of a final-draft
contract on the basis of the negotiations.
39-40. Signature of the contract by the contractor and the director
of contract relations.
APPENDIX C
CORRESPONDENCE BETWEEN THE AMERICAN COUNCIL ON EDUCATION
AND THE INTERNATIONAL COOPERATION ADMINISTRATION; And Dis-
CUSSION OF 17 PROBLEMS IN UNIVERSITY CONTRACTING
Mr. JOHN B. HOLLISTER,
International Cooperation Administration,
JUNE 13, 1956.
Washington 25, D. C.
DEAR MR. HOLLISTER: The Council's vital interest in the university
contract program prompts me to stress to you the mounting reserva-
tions of many university contractors regarding its future. I believe
that these reservations, while based to a notable degree upon proce-
dural difficulties, warrant the International Cooperation Administra-
tion review of basic policy and procedural assumptions.
There seems to be virtually unanimous agreement concerning the
importance and promise of the interuniversity relationships which
the International Cooperation Administration has cultivated. Uni-
versities taking part in the program, as well as many others, see it as
a challenge which should be gladly accepted and enthusiastically
carried forward. The idea is sound.
Experience with the contracts, thus far, however, has been marked
by increasing tensions between government and the universities. Un-
happily, the difficulties encountered have tended to emphasize the less
important, operational aspects of the program, thereby obscuring its
high purposes. Most of these difficulties center around the contracting
process itself.
FOREIGN AID
337
Since nearly everyone agrees that the interuniversity relationships
in technical cooperation are an important adjunct to foreign policy,
and an educational challenge as well, and since the contract technique
appears seriously to compromise the effectiveness of the program,
I should like at this time to propose for your serious consideration
that a more flexible grant technique be substituted for the present
contract procedure in underwriting specific programs conducted by
American universities on the International Cooperation Administra-
tion's behalf. In advancing this proposal, I speak for the Council's
Committee on Institutional Projects Abroad which, as you know, has
maintained the closest contact with the contract program for nearly
2 years.
I believe that the justification for this proposal lies only in part in
the relatively unsatisfactory history of the contract technique to date.
It also stems from principle, reflecting both the nature of the higher
educational process and the purposes of government in engaging
institutions in preference to individuals for projecting American
technical knowledge abroad.
Government can achieve the mere transmission of technical know-
how by simpler means than contracts with institutions. It can, and
does, directly employ skilled scientists and professionals. I assume
that government has turned to institutions as such because it recog-
nized unique advantages in engaging their prestige as institutions.
Universities anywhere are leadership groups. The establishment of
lasting relationships between such groups in varied national settings
promises surely if not spectacularly to promote mutual understand-
ing among nations as well as generally to advance the boundaries of
human knowledge. I was gratified to observe recognition of these
principles in President Eisenhower's Baylor University speech of
May 25, 1956, as well as in the latest report of the Senate Subcom-
mittee on Technical Assistance, issued May 7, 1956 (Rept. No. 1956,
84th Cong., 2d sess.).
Central to the thinking of the academic institution, however, and
imbedded deeply in its conception of its social and intellectual respon-
sibility, is the principle of freedom of operation, as well as of research,
experimentation, and teaching. Close control of operations, much less
of scientific results, is anathema to the university conscience. It
should be said at once that, to my knowledge, the International Co-
operation Administration has scrupulously avoided direct interfer-
ence in the academic aspects of the university contracts. However, the
effect of the contract controls now imposed upon the institutions, has
been to circumscribe (unjustifiably, in the eyes of the contractors)
the very professional function they are called upon to fulfill.
Accordingly, it is the proposal of the Committee on Institutional
Projects Abroad so to liberalize the legal and financial relationship
between the agency and the institutions as to leave the universities
free to fulfill the academic function for which they are engaged, in
their terms as well as those of the International Cooperation Adminis-
tration. Universities are competent agents, with a strong sense of
public responsibility. Many of them are land-grant institutions
which by way of example, for upward of 90 years have conducted
agricultural research on the Government's behalf funded through the
grant technique. I know of no instance under this grant aid program
wherein any such institution has behaved irresponsibly, judged by

338
FOREIGN AID
strictest governmental standards. Other agencies of the Federal Gov-
ernment authorized, as I believe the International Cooperation Ad-
ministration is authorized, to grant funds to private entities for spe-
cific purposes, have long employed this technique effectively. Hence,
I am confident that precedent and experience, in addition to principle,
buttress the case for granting rather than contracting funds to sup-
port the International Cooperation Administration interuniversity
program.
The elements of such a grant can be simple and direct, yet the public
interest as well as the task to be accomplished can be safeguarded.
An educational task is agreed upon by International Cooperation Ad-
ministration and a given university, based presumably upon the same
type of preoperational survey as now utilized. The agency and the
university agree upon the level of funding, and the fixed-cost grant
is made. (Sufficient experience in these operations has now been ac-
cumulated by our universities to make realistic cost estimates feasible).
Both parties likewise agree to the terminal date and reporting on the
fulfillment of the grant conditions. Each such grant could carry a
provision for reversion to the International Cooperation Administra-
tion of any funds unspent at the termination of the grant. Responsi-
bility then delegated to the university would carry with it, as the
universities believe is not the case under the present contracts, the
requisite authority to fulfill the function undertaken.
If the International Cooperation Administration agrees that the
present contract procedure is a serious obstacle to achieving the pur-
poses of the institutional program abroad, and is willing to consider
the alternative procedure I have suggested, the Committee on Insti-
tutional Projects Abroad would be pleased to assist the agency in
any appropriate way in perfecting the details of the proposed
procedure.
Sincerely yours,
ARTHUR S. ADAMS.
INTERNATIONAL COOPERATION ADMINISTRATION,
Washington 25, D. C., October 4, 1956.
Dr. ARTHUR S. ADAMS,
President, American Council on Education,
Washington 6, D. C.
DEAR DR. ADAMS: In my letter of June 18, I advised you that the
problems to which you referred in your letter of June 13 to Mr. Holli-
ster were currently under review and that I would inform you of our
findings as soon as possible. I am pleased to report that we have now
completed consideration of those problems and to advise you of our
conclusions.
During the course of our review, we assembled data on and con-
sidered some thirty-odd problem areas which have been brought to
our attention by the American universities and colleges which have
participated in the International Cooperation Administration pro-
gram. We also gave the most extended consideration to your pro-
posal that we substitute a grant technique for the existing contract
procedures, but finally concluded that we could not see our way clear
to adopting it. We are however, prepared to put into effect a con-
siderable number of changes in existing policies and procedures which
FOREIGN AID
339
should lead to simplified operations and greater flexibility under
the contract technique. I sincerely believe that these changes will
go far toward eliminating most of the difficulties which may have
interfered with a fuller attainment of program objectives and have
been a source of some irritation in our relationships. I am hopeful
that you will find the modified contractual relationship, which appli-
cation of the new policies and procedures will make possible, an
acceptable alternative to your proposal.
There are enclosed statements covering 17 problem areas, on which
we have shown the previous International Cooperation Administra-
tion position, a brief statement of the major trouble points which have
been experienced in the past and the new International Cooperation
Administration position approved by Mr. Hollister which we are
prepared to put into effect for all future contracts. We would, of
course, be pleased to meet with your committee, or such other repre-
sentation as you may consider appropriate, to review the bases on
which we arrived at our conclusions and to explain why we have found
it impossible to modify some International Cooperation Administra-
tion policies to satisfy objections which have been registered by a few
participating institutions. We would also be happy to consider any
other problem areas which we may have overlooked in our review
and you may wish to bring to our attention.
Should you decide that a meeting with your committee or some
other representative group would be desirable, I would appreciate
your early advice so that we can arrange it. I would also be pleased
to provide you with additional sets of the enclosed statements if you
should need them.
Sincerely yours,
JOSEPH M. STOKES,
Acting Deputy Director for Technical Services.
UNIVERSITY CONTRACT PROBLEM
I
1. Problem area.-Salary formulas for regular overseas staff
members.
2. Previous International Cooperation Administration policy or
practice. The illustrative university contract provides for separate
salary formulas for academic and nonacademic personnel assigned
under a contract based upon the prior earnings of the appointee
during the preceding 3 years. Specifically, the illustrative contract
provides:
(a) For academic personnel salaries at a rate of not to exceed
110 percent of the highest annualized salary of the university
from which the appointee comes for any one of the 3 academic
years immediately preceding the contract;
(b) For nonacademic personnel salaries at a rate not to ex-
ceed 110 percent of the highest salary of the appointee in any one
of the 3 years immediately preceding the contract;
(c) Salaries not in accord with either (a) or (b) above with
prior approval of the International Cooperation Administration;
(d) A salary ceiling of any of the foregoing of not to exceed
$15,000 per annum.
94413-57—23
340
FOREIGN AID
3. Problem-Various universities at different times have raised the
following objections:
(a) Necessity for, and delay in obtaining International Coopera
tion Administration salary approvals;
(6) Lack of flexibility resulting from test of prior earnings;
(c) Distinction between academic and nonacademic appointees.
4. Present International Cooperation Administration policy or
practice. (a) Each contract will specify the type and number of posi
tions to be filled, e. g., 1 professor, 3 associate professors, and 2 in-
structors. Personnel assigned to fill positions under the contract will
be given regular appointments by the university to its faculty at the
academic rank specified for the position.
(b) Normal university salary for the academic grade filled will
be paid. Annualization of the university's salary will be permitted
University will file with the International Cooperation Administra
tion in Washington a statement of the university policy or practice
(and any supplemental changes thereto) with respect to its salary
scales and the number of months' service in the academic year for
which annual salaries are paid.
(c) Where necessary to effect recruitment for overseas service, an
incentive increase of not to exceed an average of 10 percent in the base
pay of all personnel serving under each contract will be permitted
(d) No salary exceeding $15,000 per annum (excluding overseas
differentials and allowances) will be paid without prior International
Cooperation Administration in Washington approval.
(e) The university will determine the salary levels to be paid each
individual assigned to a position under the contract in accordance with
the foregoing formulas without reference to, or approval by the In-
ternational Cooperation Administration, except for cases where the
annual base salary will exceed $15,000.

II
1. Problem area.-Salary increments for regular overseas staf
members.
2. Previous International Cooperation Administration policy or
practice.-(a) Longevity and merit increments authorized in accord-
ance with customary practice of the university only for permanent
members of the university staff;
8
(b) No clear-cut policy exists with reference to grade promotions;
(c) No clear-cut policy exists with reference to overall increases in
university salary levels, e. g., increases in salary levels resulting from
Ford Foundation type grants, or increases resulting from action by
State legislatures.
3. Problem.-Various universities at different times have objected
to the distinction between permanent academic staff members, aca-
demic staff members from other institutions, and nonacademic staf
members. In addition, there has been some confusion concerning
grade promotions in view of the fact that there is no explicit provision
in the illustrative contract with reference to this point. There has
also been some objection to lack of provision to accommodate overall
general increases in university salary levels.
4. Present International Cooperation Administration policy on
practice.—(a) Longevity and merit increments will be permitted in
FOREIGN AID
341
accordance with the normal practices of the university for all person-
nel appointed to the faculty of the university under the contract;
(b) Permission to grant promotions prior to appointment under
the contract is implicit in the salary formula outlined in University
Contract Problem Paper I. Promotions during the life of the contract
will be permitted only when an individual appointed to one position
under the contract succeeds to another position with a higher grade
under the contract;
(c) If overall general increases in salary levels for various aca-
demic grades are adopted by the university during the course of the
contract, these increases will be permitted under the contract to coin-
cide with the effective date of the university adoption of the new
salary levels;
(d) All of the foregoing increments and promotions may be made
by the university without prior International Cooperation Adminis-
tration approval; however, the university will be required to file with
the International Cooperation Administration a statement of the ap-
plicable university policy or practice and any subsequent change with
respect thereto.
III
1. Problem area.-Payment of salaries to staff members upon con-
tract termination at the initiative of the International Cooperation
Administration or host country.
2. Previous International Cooperation Administration policy or
practice. In the event of termination the International Cooperation
Administration reimburses for approved overseas salary payments
to the extent the university is liable to make such payments under its
arrangements with staff members provided that such staff members
are not otherwise gainfully employed during the compensation period
following the termination, or, if gainfully employed but at a lesser
salary, compensation payments will be made to equalize the difference,
provided further, that such payments shall not extend beyond the
academic year or the expiration date of the contract at the time of
termination, whichever is sooner.
3. Problem.-Although there has been little experience with the
termination of university contracts, the theoretical objection has been
raised that termination payments until the end of an academic year
might not fully compensate a staff member who is separated as a result
of a termination too late in an academic year to make employment
arrangements for the next academic year.
4. Present International Cooperation Administration policy or
practice. In those cases where contracts are terminated at the initia-
tive of the International Cooperation Administration or the host gov-
ernment, it is expected that the individuals employed under the con-
tract would be immediately returned to the States, at which time they
would actively seek other employment. The university may continue
salary payments to such individuals at the base salary rates provided
in paragraph 4 (a) of problem I until the earliest of the following
dates:
(a) Twelve months from the date of arrival in the States (assum-
ing direct travel based on prompt departure from the post of duty).
(b) The termination of the university's employment obligation to
the individual concerned.
(c) The terminal date of the contract.
342
FOREIGN AID
All such payments will be considered a proper charge under the
contract, less any amounts earned by the individual from other em-
ployment during the period involved. The individual will be required
to file an appropriate statement with the university as to the amount
of such earnings. The university in turn would make an appropriate
statement to the International Cooperation Administration covering
such outside earnings when claiming reimbursement.
IV
1. Problem area.-Overseas differential and quarters and post
allowances.
2. Previous International Cooperation Administration policy or
practice.-Permit same overseas differential and quarters and post
allowances as paid comparable International Cooperation Adminis-
tration employees (short-term staff members excluded) based on For-
eign Service rates.
3. Problem.—(a) Several universities have requested approval of
overseas differential payments for short-term staff members (less
than 1 year).
(b) Some university projects call for stationing contractor per-
sonnel at locations where quarters and cost of living allowances have
not been established because no International Cooperation Adminis-
tration or Foreign Service personnel are stationed there. Under For-
eign Service regulations such posts take allowances at the lowest rate
existing for any post in that country, which in some cases could be
zero.
4. Present International Cooperation Administration policy or
practice. (a) Same overseas differential and quarters and post allow-
ances as paid to the International Cooperation Administration em-
ployees will be permitted. Such payments to short-term staff mem-
bers will not be permitted in view of the general policy of the Inter-
national Cooperation Administration not to make such payments to
International Cooperation Administration employees. Should the
allowance rates be revised during the life of a contract, the new rate
will take effect as of the effective date prescribed by the State Depart-
ment.
(b) In the case of ungraded posts, the International Cooperation
Administration will promptly undertake on behalf of the contractor to
obtain the establishment of quarters and cost of living allowances as
justified by conditions at the post involved. Responsibility for obtain-
ing the necessary data and for periodically revising such data as
required by Foreign Service regulations will be the responsibility of
the university. Allowances will be those established by the Allowance
Division of the Department of State. Changes in allowance rates will
become effective as of the effective date established by the Department
of State.
▼
1. Problem area.-Vacation and sick leave.
2. Previous International Cooperation Administration policy or
practice.-Vacations or sick leaves in accordance with the established
practice of the university provided that such vacations and sick leaves
do not exceed 26 working days and 13 working days per annum,
respectively.
FOREIGN AID
343
3. Problem.-Few universities have objected to the annual leave
provision. Some have objected to the sick-leave provision and have
requested that university practice apply. Such practice ranges from
approximately 1 month to 1 year, as authorized by the appropriate
university authority.
4. Present International Cooperation Administration policy or
practice. (a) Previous policy with reference to vacations will be
maintained;
(6) Maximum rate of 13 working days of sick leave per annum,
which may be accumulated over the period the individual serves on
the contract, will be permitted;
(c) Vacations will be taken within the period established as the
tour of duty and should normally be taken during regular vacation
periods of the host institution. Lump-sum payments in lieu of vaca-
tions at the end of the tour of duty will be permitted only when attain-
ment of the objectives of the program has made it impossible to take
vacations during the tour of duty and the university, the host institu-
tion and the United States operations mission director so certify to
the International Cooperation Administration in Washington.
VI
1. Problem area.-Tour of duty.
2. Previous International Cooperation Administration policy or
practice.-Tour of duty for 2 years unless otherwise stipulated in
writing by the contracting parties. General policy is to include
minimum traveltime required to get to the post and vacations within
a tour of duty.
3. Problem.—Universities generally agree that the normal tour of
duty should be 2 years. Some have recommended that they be author-
ized to use their judgment to make any exceptions, whereas, others
have indicated they would be satisfied if they could authorize limited
exceptions for tours of duty between 1 and 2 years.
4. Present International Cooperation Administration policy or
practice. The normal tour of duty will be 2 years except-
(a) When the remaining period of contract is less than 2 years and
in the judgment of the university it is deemed desirable to fill the
vacancy. Then appointment may be made for a tour of duty equal
in duration to the remaining period of the contract provided the con-
tract has 1 year or more to run, and further provided that if it is con-
templated that the contract is to be extended, then the tour of duty
will be 2 years subject to the actual extension being made.
(b) When a position to be filled does not require a 2-year tour of
duty, then an appointment may be made for a tour of duty of less than
2 years but in no event less than 1 year (if services are required for
less than a year then a short-term staff appointment may be made in
accordance with the applicable provisions of the contract).
(c) When the university is unable to fill a position requiring a
2-year tour of duty with a qualified individual and so certifies to the
International Cooperation Administration, an appointment may be
made for a tour of duty of less than 2 years but in no event less
than 1 year.
(d) When the normal tour of duty established for International
Cooperation Administration personnel at a post is less than 2 years,
344
FOREIGN AID
then a normal tour of duty under the contract may be of the same
duration.
(e) Appointments in accordance with the foregoing principles may
be made by the university without reference to, or approval by, the
International Cooperation Administration, provided that any certifi-
cation made pursuant to paragraph (c) above be made prior to or
simultaneously with any appointment under said paragraph.
VII
1. Problem area.-Transportation of personal property including
automobiles.
2. Previous International Cooperation Administration policy or
practice. Staff members (2-year tour of duty or as stipulated in writ-
ing between the parties) are authorized to ship certain quantities of
personal and household effects including transportation of an auto-
mobile at International Cooperation Administration expense.
3. Problem.-Some universities have expressed a desire to be
allowed to grant all personnel serving under the contract, irrespective
of time, the same transportation privileges.
4. Present International Cooperation Administration policy or
practice. (a) Individuals serving a 2-year tour of duty under a con-
tract will be granted the same transportation privileges as now
provided;
(b) Individuals serving a tour of duty of less than 2 years but in
no event less than 1 year, in accordance with University Contract
Problem Paper VI, will be allowed the same transportation privileges
as the 2-year tour of duty appointees if in the discretion of the uni-
versity it is reasonable and in the best interest of the contract to grant
such an exception and allow the full transportation privileges after
taking into consideration such factors as the expense and time required
for transportation, the period the individual would have use of the
personal effects and automobile overseas and other relevant circum-
stances. Universities may make such decisions without reference to,
or approval by the International Cooperation Administration, but
will furnish to the International Cooperation Administration
promptly a statement for each exception granted, setting forth the
basis for the exception.
VIII
1. Problem area.-Health and accident insurance.
2. Previous International Cooperation Administration policy or
practice.—(a) Reimburse for premiums covering group insurance for
personnel serving under the university contract if the payments for
such group insurance are made by the university under its normal
practice.
(b) Reimburse for health and accident insurance premiums not in
excess of $100 per year for each field staff member.
3. Problem. The universities have argued that the $100 premium
limitation on health and accident insurance was inadequate and have
requested that they be authorized to follow their own practice without
any dollar premium limitation.
4. Present International Cooperation Administration policy or
practice.—(a) Premiums for group insurance for personnel serving
FOREIGN AID
345
under the contract will be reimbursed when payments for such insur-
ance are made by the university under its normal practice.
(b) In cases where university personnel are excluded from coverage
under the university's group insurance policy by reason of service
under an International Cooperation Administration contract, pre-
miums customarily paid by the universities for insurance giving the
same coverage as that to which the individual would be entitled as a
university employee will be reimbursed.
(c) Health services will be provided to the extent available under
Department of State Foreign Service medical services.
IX
1. Problem area. Precontract expenses.
2. Previous International Cooperation Administration policy or
practice.-Cover cost of certain precontract expenses through issuance
of letter of intent or execution of survey contract.
3. Problem.-Considerable part of difficulty in the past has been
that precontract expenses have been authorized informally instead of
through the issuance of letters of intent and the execution of survey
contracts.
4. Present International Cooperation Administration policy or
practice.-Precontract expenses such as medical examinations, pass-
ports, visas, long-distance telephone and telegrams will be authorized
by issuance of a letter of intent. The letter of intent will become
a part of the contract when signed, or if no contract ultimately results
will authorize payment up to a specified dollar limitation. Survey
contracts will continue to be used in appropriate cases.
X
1. Problem area.-Budget control limitations.
2. Previous International Cooperation Administration Policy or
Practice.-Substantive provisions of the contract are generally very
broad and flexible. Budgetary limitations, however, are often quite
specific and require the International Cooperation Administration's
approval for exceptions thereto even though the total dollar amount
of the contract is not affected.
3. Problem. Many contracts now contain budgetary limitations
with respect to categories of expenditures, e. g., travel, salaries, and
equipment. Since these limitations are based on estimates that very
often turn out to be inaccurate, this generates additional work on the
part of both the university and the International Cooperation Admin-
istration to adjust prescribed limitations.
4. Present International Cooperation Administration policy or
practice.-Budget will be incorporated in the contract by reference
and permit the university to increase or decrease any line item in the
budget up to 15 percent by transfer among line items without Inter-
national Cooperation Administration approval.
XI
1. Problem area.-Approval of equipment purchases.
2. Previous International Cooperation Administration policy or
practice. Generally single items costing in excess of $500 are subject
to the prior written approval of the International Cooperation Ad-
ministration in Washington.
346
FOREIGN AID
3. Problem.-Some universities have objected to the $500 ceiling,
and have requested greater latitude.
4. Present International Cooperation Administration policy or
practice.-Approval by the International Cooperation Administra-
tion will be required only for purchase of single items costing in excess
of $1,000.
XII
1. Problem area.-Formula for overhead rates.
2. Previous International Cooperation Administration policy or
practice.-Require acceptance of the "bluebook" formula including
separate overhead rates for oncampus and offcampus activities.
3. Problem. The universities have from time to time objected to
specific elements of the "bluebook" formula during the course of nego-
tiations. A few have been critical of the policy of excluding deans and
heads of departments as an overhead charge.
4. Present International Cooperation Administration policy or
practice. (a) Overhead costs developed in accordance with the
principles established by the Armed Services Procurement Regula-
tions, commonly referred to as the "bluebook" will continue to be used
as the basis for reimbursement. In specific instances where deans and
department heads do work with respect to an International Coopera-
tion Administration financed contract, the university will be per-
mitted to estimate and certify to the International Cooperation Ad-
ministration the time so devoted to such contract and charge such
amount as a direct cost to the contract.
(b) The International Cooperation Administration will shortly
issue a standard contract overhead provision based on the "bluebook"
principles tailored to meet the peculiar needs of overseas operations
under International Cooperation Administration contracts.
XIII
1. Problem area.-Voucher documentation requirements.
2. Previous International Cooperation Administration policy or
practice. Two types of vouchers are required at the present time-
one voucher to cover advances of funds and another voucher to cover
"no pay" documentation against outstanding advances. For the
former there is required a standard Government voucher form in an
original and three copies supported by a condensed report of the status
of the advance plus the estimated needs for the next quarter. For the
latter the following is a summary of our requirements:
(a) Standard Government voucher form in original and three
copies;
(b) Supplier's certificate in duplicate from the supplier of the
equipment for each individual equipment purchase in excess
of $1,000. The university will also submit a form 280 supplier's
certificate covering the entire amount of the voucher.
(c) Certificate of performance to be executed by the host gov-
ernment on third party contracts or by International Cooperation
Administration on agency contracts (i. e., the mission chief on
overseas activities or the project manager on stateside activities).
(d) A summary report of expenditures made, listed by budget
category, for which credit is claimed on the "no-pay" voucher.
FOREIGN AID
347
3. Problem.-From time to time the universities have raised the
general objection that too much documentation is required and that
the university is at the mercy of the United States operations mission
and host government for certificates of performance.
4. Present International Cooperation Association policy or prac-
tice. The documentation currently required represents the minimum
which will satisfy the General Accounting Office and, therefore, which
can be accepted to support reimbursement. International Cooperation
Administration is continuing to explore with the General Accounting
Office possible modifications in the certificate of performance require-
ment in an effort to meet the objections of the universities and still
satisfy International Cooperation Administration and General
Accounting Office requirements.
XIV
1. Problem area. Relationship between university and United
States operations missions.
2. Previous International Cooperation Administration policy or
practice. University will perform in close liaison with United
States operations missions and will keep United States operations
missions informed of progress. Projects will be carried out by the
university under general policies established by the United States
operations missions.
3. Problem.-One university has objected to operating under the
general policies established by the United States operations missions.
and has suggested that they merely be required to keep the United
States operations missions informed. There have been some instances
of difficulties between universities and United States operations mis-
sions concerning operations under contracts.
4. Present International Cooperation Administration policy or
practice.-International Cooperation Administration will continue to
require universities to perform under International Cooperation Ad-
ministration contracts in close liaison with United States operations
missions; keep United States operations missions informed of prog-
ress and carry out projects under general policies established by
United States operations missions.
XV
1. Problem area. Standards for renewal of existing contracts.
2. Previous International Cooperation Administration policy or
practice.-International Cooperation Administration endeavors to ne-
gotiate renewals of existing contracts along the lines of current policy
determinations. (This refers solely to the time of renewal of a con-
tract and not to the time of providing additional funding to an out-
standing contract.)
3. Problem.-In negotiating renewals of existing contracts, the
problem arises of whether the provisions of the old contract, which
may be either more restrictive or more liberal than current Interna-
tional Cooperation Administration policies would permit, should be
continued or modified to reflect the current policies. Some uni-
versities have, understandably, tried to retain those provisions of the
old contract which were more liberal and also to substitute the new
348
FOREIGN AID
more liberal provisions permitted under current policies. The ques
tion of the applicability of the new policies now being established t
existing contracts is bound to arise as soon as they are made knowi
4. Present International Cooperation Administration policy o
practice. (a) International Cooperation Administration will con
tinue to negotiate renewal of existing contracts with the objectiv
of bringing all provisions into line with current policies.
(b) New policies now being established for university contract
will be applicable to new contracts negotiated hereafter and to exist
ing contracts, normally, only when renewed. When existing con
tracts are amended by a substantial change in the scope of work, and
it appears reasonable to do so, negotiations will be undertaken to mak
the new policies applicable.
XVI
1. Problem area.-Percentage of university regular staff required
2. Previous International Cooperation Administration policy o
practice.-"Basic International Cooperation Administration Polic
on University Contracts" expresses policy that at least 50 percent o
contract staff should be from the home campus. No provision requir
ing such participation is contained in contracts.
ing
3. Problem.-Experience has shown that in very few cases is 50
percent of contract staff from home campus practicable.
4. Present International Cooperation Administration policy o
practice.—(a) Field teams under International Cooperation Admin
istration contracts will be required to originate to the maximum ex
tent possible from the contracting universities' own staff with a mini
mum of 50 percent participation as a desideratum. The team leade
will always be required to come from the contractor's campus.
(b) The ability of the university to comply with this policy will b
determined during initial discussion with the institution and will b
an important element in determining whether to continue negotiation
with that university or to seek alternative institutions. The per
centage of participation to be supplied from the contractor's own
campus will be agreed during the initial stages of the negotiation
and will be included in the contract as a fixed requirement.
XVII
1. Problem area.-Reporting requirement.
2. Previous International Cooperation Administration policy o
practice.-Requires semiannual progress reports and final report
(with accomplishments and recommendations) and special reports of
request.
3. Problem. Some universities consider preparation of semi
annual reports burdensome and state that they interfere with thei
performance in the field. They question the necessity of the pre
scribed frequency and suggest only regular annual and final report
with special reports held to a minimum.
4. Present International Cooperation Administration policy or
practice. The International Cooperation Administration wil
require―
(a) An annual report and a final report including accomplish
ments and recommendations;
FOREIGN AID
349
(b) Special reports as may be requested by the host institu-
tion, the United States operations missions or the International
Cooperation Administration in Washington, but only when certi-
fied to be essential by the United States operations mission direc-
tor in the case of reports requested by the host institution and the
United States operations missions and by the director of the Inter-
national Cooperation Administration in Washington technical
office concerned for requests originating in the International
Cooperation Administration in Washington.
RESOLUTION OF THE COMMITTEE ON FOREIGN TECHNICAL COOPERATION,
AMERICAN ASSOCIATION OF LAND-GRANT COLLEGES AND STATE
UNIVERSITIES ADOPTED BY THE ASSOCIATION, NOVEMBER 12, 1956
The committee wishes to reaffirm its belief in the general philosophy
of the foreign assistance program and to express the interest and
willingness of the land-grant colleges and universities to continue
to participate effectively in the program provided they are permitted
to operate effectively.
The committee has repeatedly called attention to the difficulties
encountered in attempting to operate the university contract program
effectively. Last year it issued a special note of warning and expressed
a growing concern among participating institutions over difficulties
incurred in the administration and operation of these contracts. In
the interim, certain steps were taken by the International Cooperation
Administration to counter these difficulties, among them the estab-
lishment of a centralized contracting office. The committee is obliged
to note that, far from ameliorating the problem existing a year ago,
the agency's interim measures have appeared to increase them.
The committee is convinced that with present administrative organ-
ization and lack of major concern for the support of institutional
contracts abroad at top International Cooperation Administration
administrative levels, the program will continue to deteriorate and
fall far short of its intended contribution to the fulfillment of the
intent of Congress to improve the well-being of free peoples through
international cooperation and technical assistance. The committee
is constrained to agree that, unless the administrative problems are
speedily resolved, the agency must be prepared for withdrawal of
many institutions from the program.
The committee recommends that the association invite the attention
of the President of the United States and the Congress to the in-
evitable breakdown which is imminent unless drastic action is taken
by the Government at a very early date. As a constructive first step,
we urge consideration of the proposal to centralize responsibility for
the university contract program at the highest possible governmental
level, either within or outside of the International Cooperation Ad-
ministration, and that this office be clothed with sufficient authority,
not only to resolve existing problems, but also to plan and execute a
positive and effective program in the future.
It is further recommended that the Senate Committee on Foreign
Technical Cooperation be authorized to represent the association in
following up on these matters in cooperation with the committee on
institutional projects abroad of the American Council on Education,
with the International Cooperation Administration and the Depart-
ment of State.
350
FOREIGN AID
APPENDIX D
OVERHEAD RATES IN 23 SELECTED INTERNATIONAL COOPERATION Ad-
MINISTRATION CONTRACTS PROFIT AND NONPROFIT INSTITUTIONS
1. Provisional: 15 percent of salaries.
2. Provisional: 18 percent of off-campus salaries; 40 percent of on-
campus salaries.
3. Provisional: 10 percent of base salaries.
4. Fixed until June 1956 and then provisional: 25 percent of off-
campus salaries; 56 percent of on-campus salaries.
5. Fixed: $12,000 per month.
6. Fixed: 30 percent overseas salaries; 38 percent home-staff salaries.
7. Fixed: 60 percent direct payroll cost.
8. Fixed for 1 year, then provisional: 15 percent overseas salaries;
36 percent United States salaries.
9. Provisional: 41 percent of salaries.
10. Fixed: 15 percent of all engineering salaries.
11. Fixed: 40 percent field salaries; 65 percent home-office salaries.
12. Fixed: 25 percent salary less overseas differential.
13. Provisional: 82 percent of salaries.
14. Fixed: 39 percent of salaries.
15. Provisional: 56 percent of technical salaries.
16. Provisional: 100 percent of technical salaries.
17. Provisional: 80 percent of salaries.
18. Provisional: 25 percent of off-campus salaries; 35 percent of
on-campus salaries.
19. Provisional: 7 percent of base salaries.
20. Provisional: 10 percent of base salaries.
21. Provisional: 50 percent of direct salary cost.
22. Fixed: 64.7 percent of base salaries.
23. Provisional: 30 percent of field-staff salaries; 66.5 percent of
home-staff salaries.
24. No overhead.
25. No overhead.
26. No overhead.
ALLOWANCES FOR DIRECT HIRE AND CONTRACTOR PERSONNEL
Post allowance.-This type of allowance is provided for in the
majority of International Cooperation Administration contracts.
The amounts paid are the same as those paid to direct hire employees.
Temporary lodging allowance. This allowance is not generally
provided for contract employees and would be used in very exceptional
cases only.
Quarters allowance.-Most International Cooperation Administra-
tion contracts provide that quarters will be furnished by the host
government or United States Operations Mission. In those cases
where quarters are not so furnished, this allowance is provided for on
the same basis as that which accrues to direct hire employees.
Separation allowance.-This allowance is not generally provided
for contract employees and would be used in very exceptional cases
only.
Education allowance.-Present International Cooperation Admin-
istration policy is to not provide for education allowances.
FOREIGN AID
351
Educational travel.-Present International Cooperation Adminis-
tration policy is to not provide for educational travel.
Transfer allowance. This allowance is not provided for.
Post differentials.-International Cooperation Administration
policy is to provide for post differentials in accordance with con-
tractor's normal policy but not to exceed 25 percent in the case of
commercial contracts. In the case of university contracts where it
would be unusual for a university to have a policy with respect to
overseas post differentials, it is International Cooperation Adminis-
tration practice to provide for post differentials on the same basis as
that provided to direct hire employees.
Leave.-Normal practice is to provide for annual and sick leave
in accordance with the contractor's normal policy but not to exceed 26
and 13 days respectively. Normally home leave, as distinct from
annual leave, is not provided for contractor's personnel. There have,
however, been a few exceptions to the general practice.
Transit time.-In those exceptional cases where home leave is
authorized, the same benefits of transit time which accrue to direct
hire employees is permitted.
Periodic step (salary) increases.-Current International Coopera-
tion Administration policy is to provide for periodic step (salary)
increases in accordance with contractor's normal practice. There are
many contracts in effect however which are silent with respect to such
increases and these are administered within the terms of the contract
on an ad hoc basis.
Credit union.-This benefit is not provided for contract personnel.
Life insurance.-Life insurance is not authorized as a direct reim-
bursement under any International Cooperation Administration con-
tract. If, however, contractor has a group life insurance plan in
which the contractor is not the beneficiary, premiums thereon would
be eligible as a charge to overhead.
Medical and hospital services for overseas employees and depend-
ents.-Physical examinations for employees and dependents going
overseas are usually a condition of employment under the contract.
Fees therefor are permitted as a direct charge to the contract. Con-
tracts do not provide for payments for costs of illness or injury for
contract employees overseas. However, they do normally provide for
health and accident insurance policies, the premium cost of which
is normally limited to $100 per technician or as an alternative thereto
an accidental death and dismemberment policy with a face value of
$25,000.
Retirement.-International Cooperation Administration contracts
provide for reimbursement to the contractor of his contributions to
established retirement systems through charges to overhead. Con-
tracts also provide for reimbursement for contributions made by him
to the social security fund.
Travel of employee; travel of dependents; transportation and stor-
age of personal and household effects; transportation of automobile.-
It is a normal International Cooperation Administration practice to
permit the same benefits as those which are afforded direct hire
employees.
352
FOREIGN AID
APPENDIX E
(This outline was prepared by the staff of the special committee to
serve as a guide for Jerome Jacobson Associates in preparation of
their report to cover subjects of interest to the committee.)
THE USE OF PRIVATE CONTRACTORS IN FOREIGN AID PROGRAMS
Purpose. This project will examine the current and potential uses
of private business firms, universities, and organizations as agents
under contract in carrying out foreign assistance programs, other
than those administered by the Department of Defense. It will sur-
vey present contracting procedures of executive agencies in this con-
nection. It will discuss the advantages and disadvantages to the
United States incident to the use of private contractors in the aid
programs and the potentialities and limits of contracting as an instru-
mentality for carrying out the purposes of those programs. The
study is designed to assist the committee in evaluating present con-
tracting practices with a view to suggesting legislation and other
changes which might improve this aspect of the administration of
the aid programs.
Scope. The study will seek to throw light on the following
questions:
I. To what extent are private contractors presently used by the
United States Government in carrying out assistance programs? A
survey of the principal foreign aid functions performed by private
contractors, the monetary cost of contracts as part of the total cost of
foreign aid programs over the past 5 years, the principal contractors
(broken down as between domestic and foreign contractors) and the
geographic areas in which contracts were performed.
(a) Nature of functions performed by private contractors over the
past 5 years.
(b) Where performed.
8
Principal private contractors, domestic and foreign, and reim-
bursement received either directly or indirectly in connection with
aid programs over the past 5 years.
(d) Trends in the use of private contractors.
II. How is the determination made as to when to use or when not
to use private contractors in the performance of foreign aid functions?
An evaluation of present criteria and practices in determining what
aid functions to contract and what functions to administer directly by
Government agencies.
(a) As related to the needs of countries receiving assistance or the
nature of the function performed.
(b) As related to competency of Government agencies to perform
the function, including personnel recruitment and training aspects.
(c) As related to cost factors.
(d) As related to the duration of the program or project.
III. What procedures are followed in letting contracts for the per-
formance of various functions under the foreign aid program? ´An
evaluation of the adequacy of contracting methods and the terms of
contracts with private organizations in the light of the operational
experience of Government agencies and contractors.
(a) The methods of selecting firms, universities, organizations, or
individuals.
(b) The terms of the contracts.
FOREIGN AID
353
(c) Relations between the United States Government agency and the
agency under contract (including the degree of autonomy in opera-
ions).
(d) Relations between private contractors and local governments
where contracts are performed.
(e) Relations between the United States Government and the gov-
ernment receiving assistance resulting from the activities of the firm
or university under contract, either directly or indirectly as a result
of aid programs.
IV. What are the advantages and disadvantages to the United
States of the use of private contractors, domestic and foreign, in the
aid program? An examination of the relative merits of the United
States Government using private organizations under contract for
carrying out assistance programs as compared with a direct United
States Government operation.
(a) in terms of administrative considerations;
(b) in terms of relations with the recipient country;
(c) cost;
d) competency; or
in terms of the effective attainment of United States ob-
jectives.
V. What changes, if any, in present contracting practices are likely
to make the use of private contractors more effective in carrying out the
aid programs? A summary analysis of changes in present practices
indicated by the study.
JEROME JACOBSON ASSOCIATES
QUESTIONNAIRE TO UNITED STATES MISSIONS
I. Use of United States Government personnel or private contrac-
tors?—This set of questions is aimed at examining the missions' views
as to the factors taken into account when the choice is made between
using private contractors as a program implementing technique on
the one hand, or the other hand, using United States Government
personnel (whether from International Cooperation Administration,
Washington, or other United States agencies, either existing personnel
or people to be hired on to the Federal payroll).
Using the fatcors mentioned below as a suggested list of considera-
tions, and illustrating wherever possible with specific contracts, how
does the mission decide whether to recommend use of private con-
tractors or the use of United States Government personnel to imple-
ment United States program objectives?
1. Kind of project or nature of the function to be performed.
2. Program needs of the country;
3. Extent and kind of local government participation and
support;
4. Preference or attitude of the host government;
5. Duration of the program or project;
6. Need or lack of need for-
Higher or specially qualified personnel;
(b) Immediate program implementation;
(c) Backstopping or professional support for people in
the field;
(d) American institutions to foreign institutions relation-
ship.
354
FOREIGN AID
7. Past results of the two alternative implementing techniques
in terms of obtaining local official or private cooperation on a
program and overall basis;
8. Costs and salary considerations; and
9. Availability of qualified personnel.
II. Contract administration under different contractual relation-
ships.-There are a variety of combinations of signatories to private
contracts: e. g., United States Government with American or foreign
(local or third country) contractor; host government with American,
other foreign, or local contractor; and American contractor with
foreign firm or institution. Various problems and advantages
naturally emerge in connection with these and other contractual rela-
tionships. Would the missions describe for each of the signatory
combinations mentioned, illustrating with specific contracts where
feasible, the major problems and advantages involved. The descrip-
tions should emphasize but not be limited to such factors as super-
vision, direction, responsibility and control designed to assure efficient.
and effective performance by the contractor, coordinated with United
States policy objectives and programs. It would be helpful if the
missions discussed these problems in the framework of—
1. Mission relationships with:
(a) Host government
(b) American contractor
(c) Local or third country contractor
(d) International Cooperation Administration, Wash-
ington
2. Host government relationships with:
(a) American contractor
b) Local or third country contractor
(c) United States Government
III. Problems and advantages associated with different types of
contractors.-1. What problems or advantages does the mission find
which seem generally to be associated with specific types of contrac-
tors, e. g., universities, single individuals, commercial firms, private
foundations, volunteer organizations, etc.?
2. What forms of signatory combinations (contractual relation-
ships) as described in II, above, increase or reduce the problems or
advantages discussed in III. 1 just above?
IV. Participation of the host government.—1. What are the criteria
for determining the extent to which the host government is asked or
required to participate in financing a contract with a private
contractor?
2. Among the various kinds of contractual relationships as described
in II, above, which ones seem generally to be more successful in-
(a) Óbtaining financial support from the host government;
(b) Obtaining other forms of cooperation from the host gov-
ernment, local authorities, firms or institutions, and individuals;
and
8
(c) Generating goodwill, appreciation for and realization of
the role of the United States in the program.
V. Recommendations by the mission.-In terms of its experience,
what improvements or modifications, if any, would the mission suggest
in-
1. The criteria for selecting private contractors versus United
States Government personnel;
FOREIGN AID
355
2. The methods of selecting firms, universities, individuals, or
other contractors (American and foreign);
3. The type of signatory combinations (contractual relation-
ships) referred to in II, above;
4. Working out the responsibility, authority, and supervision
with respect to overall contract performance and coordination
with United States policy and program objectives;
5. Speeding up the entire contract process;
6. The mission's authority and functions in carrying out the
private contracting program; and
7. In any other substantive matters, procedures, or techniques
employed in the contracting process in the International Coopera-
tion Administration, Washington, or in the field.
VI. Private contractors and services or other joint fund arrange-
ments.-When United States aid is matched by host country funds,
the total sum to be employed by servicios or parallel institutions out-
side of Latin America, a different situation arises from those examined
in I through IV, above. For those missions in countries where
servicios or parallel institutions, e. g., joint funds, are operating, the
following questions should also be answered with respect to contracts
financed under such arrangements.
1. For each of the fiscal years 1954 through 1956 and for any data
available in fiscal year 1957:
(a) What is the magnitude in dollar equivalent of the private
contracts let by the servicio?
(b) What is the magnitude of United States dollar aid which
was used by the servicio in employing private contractors?
(c) What is the number of such contracts?
(d) What is the nationality of the contractor for each such
contract?
(e) What service was performed by the private contractor in
each such contract?
2. What are the relative advantages and disadvantages of the use
of private contractors employed through the servicios compared to
the private contracting process as discussed in questions I to IV?
3. Comment on any significant aspects or problems arising from the
use of private contractors by the servicio.
4. What recommendations would you make for improving the
results obtained in the employment of private contractors by the
servicio?
94413-57-24
STUDY NO. 5
AGRICULTURAL SURPLUS DISPOSAL
AND FOREIGN AID
BY
THE NATIONAL PLANNING ASSOCIATION
MARCH 1957
357
CONTENTS
Letter of transmittal.
I. Current surplus situation..
A. Volume of surplus disposals abroad.
1
B. Countries receiving surplus commodities...
1
C. Volume of surplus stocks and prospects of reducing them_
II. How surpluses are disposed of abroad_
A. Sales for foreign currencies.
B. Grants for emergency relief.
C. Donations to voluntary relief organizations-
D. Barter of surplus commodities.
III. Effects and potentialities of surplus disposal programs.
A. Effects on other exporting countries-
B. Effects on receiving countries_
C. Building national and regional reserves.
D. Potentialities and limitations_
IV. Proposals for international cooperation..
A. The World Food Board.
B. International Commodity Clearinghouse.-.
C. World Food Reserve..
D. International Food and Raw Materials Reserve..
E. Intergovernmental consultation on surplus disposal-
V. Summary and conclusions__.
A. Conclusions__.
B. Suggested changes.
Appendix I
Appendix II.
t
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Page
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365
366
367
368
372
372
1
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380
381
384
385
1
387
390
391
393
393
394
394
1
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395
396
397
397
398
399
404
359
LETTER OF TRANSMITTAL
The CHAIRMAN,
NATIONAL PLANNING ASSOCIATION,
Washington, D. C., December 21, 1956
Special Committee To Study the Foreign Aid Program,
Washington, D. C.
DEAR MR. CHAIRMAN: In response to your request of October 22,
1956, I am submitting a staff report of the National Planning Associa-
tion on Agricultural Surplus Disposal and Foreign Aid.
The report presents and appraises the Government programs for
disposing of agricultural surpluses abroad; their relationships to
foreign aid; the ways in which they are administered; and their effects
on the United States, on countries receiving the surpluses, and on
other exporting countries. Based on the analysis of the programs
and discussions with informed individuals in both Government and
private circles, a number of suggestions for improving the programs
and making them a more effective instrument of foreign aid are
brought together here. All of the topics listed in the general outline
which was prepared by the staff of your committee are covered.
The Agriculture Committee on National Policy of the National
Planning Association, for some time, has been considering how our
abundant agricultural supplies can be used in ways that will be
mutually beneficial to the United States and to friendly peoples
abroad, and thus become an asset rather than a liability. The effects
of the foreign aid programs on United States agriculture are also
treated briefly in our staff report prepared for your committee on
the effects of the foreign aid program on the United States
economy.
A preliminary draft of this report on agricultural surplus disposal
was reviewed by our Agriculture Committee on National Policy at a
meeting on December 8 and 9. The members of the committee made
a number of suggestions which have been incorporated in the report.
They also expressed their general agreement with the conclusions and
the changes suggested for improving the programs which are sum-
marized in the final chapter of the report.
The general conclusion is that our disposal programs have proved
useful, and should be continued with certain changes of emphasis and
some administrative modifications.
Agricultural surpluses have been a troublesome domestic problem
for so long that their great value in aiding the development of friendly
countries is not generally appreciated. They are an asset of unique
value. The United States is one of the few countries that has a surplus
in a world where agricultural production is barely keeping pace with
rapidly growing populations. This asset can be used with increasing
effectiveness in the achievement of our general foreign policies if only
361
362
LETTER OF TRANSMITTAL
we recognize more fully the real contribution which our agricultural
surpluses can make.
The disposal programs are admittedly a step away from our tradi-
tional view of world trade with a minimum of Government restrictions.
They do contain elements of "state trading" and bilaterialism. But
the major agricultural countries of the world have brought their
governments into the pricing and marketing of farm products on a
decisive scale. Bilateral trading has become the rule, not the excep-
tion. If all this is painful to us, what are the alternatives? We could
return to the policy in effect before adoption of the present disposal
programs, which means holding our surpluses off the world market
until the output of other exporting countries has been disposed of.
Another alternative would be to abolish all Government price support
and storage operations, and let prices be made entirely in the market
place.
Assuming that neither of these alternatives would be acceptable to
the United States, the report reaches specific conclusions concerning
the disposal programs and foreign aid, and presents suggestions for
changes in them.
CONCLUSIONS
1. Despite substantial disposals and efforts to reduce output,
surpluses of some commodities must be expected to continue for
some time.
2. Existing disposal programs are effective, considering the many
United States agencies and foreign governments involved, but changes
are needed to bring better coordination and expedite operations.
3. The effect on other exporting countries has not been demon-
strably harmful despite their fears in this respect; at the same time,
care is needed to avoid harmful effects in the future.
4. The effect on countries receiving surpluses has been beneficial.
5. Alternative methods of handling excess stocks through inter-
national cooperation have not been accepted by the nations of the
world; creation of national and regional reserves is receiving inter-
national attention at present, and United States leadership might yield
useful results.
SUGGESTED CHANGES
1. Continuation of the disposal programs should be authorized for
an additional 5 years beyond the present expiration date of June 30,
1957.
2. The administrators of the programs should be free to make dis-
posal agreements with Iron Curtain countries when and if there is an
opportunity thereby to advance the aims and aspirations of freedom-
loving peoples.
3. More of the proceeds from the sale of surplus commodities for
local currencies should be used for economic development and less for
paying United States obligations abroad.
4. The emphasis in economic development programs should con-
tinue to be on loans, but it should be recognized that grants also can
play a useful role in particular circumstances and should be used where
warranted.
5. In a few years, the problem will arise of what to do with the
foreign currency funds which will be accumulated abroad by the
LETTER OF TRANSMITTAL
363
United States in the form of loan repayments; a policy regarding them
should be worked out now.
6. There are two programs for the sale of surpluses in exchange for
foreign currency; these should be consolidated.
7. In the authorization of grants for disaster relief, more exact
legislative guidance as to what qualifies as a "disaster" would be useful.
8. Programs of a nondisaster relief nature now being conducted
under title II of Public Law 480 should be transferred to title I and
linked directly to economic development.
9. The barter provision of Public Law 480 must be administered
carefully to avoid retaliatory steps by other countries; as surpluses
are worked down, barter should have a lower priority than economic
development and relief programs.
10. Donations to private voluntary relief agencies should be con-
tinued, but in the light of their rapid growth, closer coordination
with other phases of the program is needed.
11. Earlier consultation with other exporting countries on pending
agreements should be arranged.
12. The food-deficit countries should be encouraged to establish
adequate food reserves.
13. The United States should work with receiving countries-
always with their full cooperation- to develop methods of domestic
distribution in those countries, which will result in increased con-
sumption, minimizing the possibility of unfavorable repercussions on
their domestic prices and other imports.
14. The United States should take the lead in promoting consulta-
tions and negotiations on the possibilities of international cooperation
in the handling of surpluses.
This report has been prepared by Howard R. Tolley and Arthur
Moore, who are members of the National Planning Association
Agriculture Committee on National Policy, with the assistance of
Susan Hammond, Virginia D. Parker, and other members of the
National Planning Association staff.
It is a pleasure to recommend these suggestions for the considera-
tion of your committee. We hope that they will be of value in the
important task of assessing the future of foreign aid and developing
more effective programs.
Respectfully submitted.
H. CHRISTIAN SONNE,
Chairman, Board of Trustees.
AGRICULTURAL SURPLUS DISPOSAL AND
FOREIGN AID
I. CURRENT SURPLUS SITUATION
Use of agricultural surpluses abroad in a manner that would
strengthen our foreign relations, particularly our foreign aid programs,
has long been a goal of Congress, the executive branch, and of agri-
cultural leaders in private life.
Piecemeal efforts to achieve the goal were written into legislation
for years, some going back to the period immediately before World
War II. However, it was not until adoption of section 550 of the
Mutual Security Act of 1953, authorizing sales for local currencies,
that substantial progress began. This authorization was continued
in section 402 of the Mutual Security Act of 1954. Also, in 1954,
Congress adopted a broader and more varied attack on the surplus
problem in Public Law 480, which expires on June 30, 1957.
Four underlying considerations led to the adoption of Public Law
480 and section 402, and to the vigorous manner in which they have
been administered:
1. Our surplus stocks, most of them acquired by the Commodity
Credit Corporation as part of price support activities, were mounting
rapidly, and were causing uncertainty in the minds of farmers in this
country and in foreign countries. An orderly and gradual liquidation
of these surpluses seemed advisable to stabilize the world supply and
demand picture. This was the central purpose of Public Law 480
and section 402.
2. The United States could not remain indefinitely in a position of
holding its own surplus stocks off the world market while other coun-
tries disposed of their entire production-particularly since our domes-
tic agricultural policy held up world prices and thus formed a protective
umbrella over producers in foreign countries.
3. With the interests in mind of friendly foreign countries who also
are exporters, the United States was seeking to dispose of surpluses
in a way that would not disrupt world prices.
4. Furthermore, there was particular stress on expanding consump-
tion in areas where there is demonstrable underconsumption, and
where there was an opportunity to use our surplus stocks to stimulate
general economic development. Thus the short-run goal of reducing
our surpluses was joined with the long-run goal of increasing world
consumption of agricultural products and promoting development of
friendly countries.
Congress approved four methods of using agricultural surpluses
abroad in its 1954 actions:
1. Sale of stocks for foreign currencies (covered in title I of Public
Law 480 and sec. 402, Mutual Security Act).
365
366
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
2. Grants of surplus stocks to friendly people for famine and other
disaster relief (title II of Public Law 480).
3. Donations of surplus stocks to nonprofit, voluntary agencies for
distribution to needy persons abroad (title III, sec. 302 of Public
Law 480).
4. Barter of surplus commodities for stockpile materials and for
goods required in our economic and military aid programs in foreign
countries (title III, sec. 303 of Public Law 480).
In addition, the Commodity Credit Corporation at times sells com-
modities from its stocks to private traders at competitive prices, thus
reducing surpluses. From time to time in this report, mention is
made of the effects of such sales, but they are not examined in detail
because they are not a part of the special foreign disposal programs
as laid out in the congressional actions of 1954.
Material in this report is organized along the following lines: This
section discusses the current disposal situation, including prospects
of reducing surpluses. Section II describes the role of the many de-
partments and agencies in administering the four disposal programs
approved by Congress in 1954. Section III takes up the economic
effects of the disposal programs on other exporting countries and on
receiving countries. Section IV deals with efforts at international
collaboration in the disposal of surpluses. The final section V presents
a summary and conclusions.
A. VOLUME OF SURPLUS DISPOSALS ABROAD 1
All United States agricultural exports in fiscal year 1954-55 had a
value of approximately $3.1 billion. In the fiscal year 1955-56,
exports rose to $3.5 billion. This 11 percent increase in value re-
flected a 17 percent rise in volume, as prices were somewhat lower in
1955-56.
The value of commercial agricultural exports for dollars was $2.1
billion in 1955-56, slightly lower than in the previous year; and the
value of exports under the special programs authorized in Public Law
480 and section 402 of the Mutual Security Act rose to nearly $1.4
billion, an increase of about $500 million. Exports under the Govern-
ment's special programs accounted for approximately 70 percent of
the exports of wheat and dairy products and approximately 60 percent
of the exports of coarse grains, cotton, and rice.
The outlook for total exports in the current 1956-57 fiscal year, as
estimated by the Department of Agriculture, is for a 15 to 20 percent
rise in value above last year. It seems likely that about half of all
agricultural exports will move through the special Government pro-
grams, which would mean a further rise in such exports.
During the first 2 fiscal years in which these special programs were
in effect, 1954-55 and 1955-56, some $3 billion worth of surplus com-
modities were included in Government agreements for either local
currency sales, grants, donations, or barters. Much of this total,
however, had not been shipped during that period. The value of the
commodities in agreements made in 1955-56 was appreciably higher
than in 1954–55, and in the first half of the current fiscal year, 1956–57,
may amount to something like $1 billion.
1 For detailed figures on the volume and value of the principal agricultural commodities in the surplus
disposal programs, see appendix tables I, II, and III.
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID 367
After an agreement is signed by the United States and a receiving
country, varying lengths of time are required to assemble the com-
modities, transport them to ports, and place them aboard vessels.
For example, the value of title I shipments, from the beginning of the
program to June 30, 1956, was only a little over $500 million, while
the value of commodities under title I agreements signed to that
date was more than $1 billion.
Total values in the agreements under the different authorizations
are given in the following table.
Approximate values of all commodities in agricultural surplus disposal agreements
[In millions of dollars]

Sales for foreign currency (sec. 402, Mutual Security Act) ¹.
Sales for foreign currency (title I, Public Law 480).
Famine relief and other assistance (title II, Public Law 480).
Donations to voluntary agencies (title III, sec. 302, Public Law 480)
Barter (title III, sec. 303, Public Law 480)
Fiscal
1954-55
Fiscal
1955-56
446
354
360
682
# 108
110
2 197
• 308
282
316
1 In the fiscal year 1953-54, sales for foreign currency totaling $236 million were made under sec. 550 of
the Mutual Security Act for that year.
• Commodity Credit Corporation costs. All other figures are export market values. Commodity Credit
Corporation costs per unit are considerably higher than export market values.
Sales for foreign currencies under title I of Public Law 480 and
section 402 make up well over one-half the total for both years. The
total of sales, grants, donations, and barter under Public Law 480
was approximately 50 percent higher in 1955-56 than in the previous
year, but sales under section 402 declined.
The principal commodities and the approximate volume of each
scheduled for disposal abroad under all authorizations and agreements
in the 2 fiscal years 1954-55 and 1955–56 are:²
Wheat
Rice__.
Feed grains.
Cotton.
Tobacco__
Fats and oils..
Dairy products….
1
1
1
._million bushels__
million hundredweights_
_million bushels_.
1
450
15
270
3. 4
125
million bales.
million pounds__
._do____ 1, 575
..do...
_do___
B. COUNTRIES RECEIVING SURPLUS COMMODITIES
1, 400
Countries in all parts of the world have received agricultural
surpluses under the authorizations in Public Law 480 and in section
402 of the Mutual Security Act approved in 1954.
Sales for foreign currency under section 402 of the Mutual Security
Act have been made in 28 countries where we have mutual security
programs. In Asia, South Korea and Taiwan have been important
buyers; in Europe, Yugoslavia, Spain, France, and the United
Kingdom have participated.
Under Public Law 480, title I sales for local currencies have operated
in some 30 countries. By far the largest title I agreement is that with
India, signed in August 1956. The value of various commodities in
the agreement is more than $300 million, covering a period extending
for 3 years. The second largest is with Japan. Other Asian countries
Presumably, information on disposals under Public Law 480, from July 1 to December 31, 1956, will
be included in the President's semiannual report to Congress in January.
368
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
with substantial title I programs are Indonesia, Pakistan, South Korea,
and Burma. In Africa and the Near East, title I agreements have
been made with Israel, Turkey, Greece, Egypt, and Iran. Two of the
largest title I agreements are with European countries-Spain and
Yugoslavia; smaller programs are in effect in Austria, the United
Kingdom, Italy, Finland, France, West Germany, the Netherlands,
and Portugal. In Latin America, substantial agreements have been
made with Brazil, Chile, and Argentina; and smaller ones with
Colombia, Peru, Paraguay, and Ecuador.
Grants, mostly for emergency relief, under title II, have been made
in Asia and Africa to India, Pakistan, Nepal, Vietnam, Cambodia,
Laos, and Libya; in Europe to Yugoslavia, Italy, Austria, Czecho-
slovakia, West Germany, and Hungary; in Latin America to Bolivia,
Guatemala, Haiti, Honduras, Peru, and Costa Rica.
Donations abroad, under title III, constitute the most widespread
of the surplus programs. Commodities are being distributed in 84
countries and dependent territories through such voluntary relief
organizations as the Catholic Relief Service, National Catholic
Welfare Conference, Church World Service, Lutheran World Relief,
CARE, American Friends Service Committee, Hadassah, and others.
Under the barter provisions of title III, private firms trade strategic
and other materials from friendly countries for our agricultural
surpluses. These firms then sell surpluses abroad through normal
trade channels. Thus, barter has no direct connection with foreign
aid or the relief of poverty. Indeed, there is a tendency for the sale
of surpluses acquired through barter to be concentrated in already
developed countries. In Asia, Japan has received a large amount;
India, Korea, and Taiwan smaller amounts. Turkey, Israel, Egypt,
Greece, and Iran have received bartered commodities, as have prac-
tically all West European countries-led by the Netherlands, West
Germany, Belgium, and the United Kingdom. A representative
number of Latin American countries have also received bartered
goods. Altogether, bartered surpluses have been sent to 36 countries.
C. VOLUME OF SURPLUS STOCKS AND PROSPECTS OF REDUCING THEM
Agriculture surpluses available for disposal under existing legislation
are defined as "stocks in excess of domestic requirements, adequate
carryover, and anticipated exports for dollars" (Public Law 480, sec.
106). Precise computation under this provision is impossible, as there
is no way to foretell accurately what any of the three factors will
amouot to. "Adequate carryover," for example, should include ample
reserves for use in case of emergency such as war or crop failure.
Reserves of this nature can be maintained only by Government action,
and their size would depend on the international situation.
For purposes of this study, we have accepted the estimates of sur-
pluses for the 1955-56 crop years made by the Interagency Committee
on Surplus Disposal, which were published in May 1956. These are:
• Prospects of Foreign Disposal of Domestic Agricultural Surpluses, a staff study, directed by the Inter-
agency Committee on Agricultural Surplus Disposal, Washington, May 1956.

AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
369
Wheat
Cotton.
Tobacco
Rice.
million bushels..
million bales__
-million pounds__ 1, 122
million hundredweight..
797
9.7
20
24.8
million pounds_-
273
_do___
365
_do__.
603
1
do_-_-
520
Feed grains (corn, oats, barley, and grain sorghums)_____million tons..
Butter
Cheese
Dry milk..
Soybeans and oil (oil equivalent)
Disposal agreements had been stepped up markedly during 1955–56.
But, partly caused by the lag in shipping, the actual stocks of most sur-
plus commodities were not reduced. This is shown by comparing the
supply (carryover plus production) at the beginning of the present
fiscal year, 1956-57, with that of a year earlier, as in the following
table.
Supply of selected commodities ¹

1955-56
1956-57
Commodity
Carry-
over
Produc- Supply Carry-
tion
Produc- Supply
over
tion
Wheat (million bushels)
1,026
937
1,963
1,034
976
2,010
Cotton (million bales).
11.2
14.7
25.9
14.5
13.2
27.7
Tobacco (million pounds).
4,037
2,226
6, 263
4,173
2,067
6, 240
Rice (million hundredweight)
26.7
53.6
80.3
34.6
46.3
80.9
Feed grains (million tons)..
39.1
131.1
170.2
43.2
127.7
170.9
Food fats and oils (million pounds).
962
10,802
11, 764
761
11, 010
11, 771
1 Based on data from the U. S. Department of Agriculture. Feed grains include corn, oats, barley, and
grain sorghums. The principal food fats and oils are soybean oil, cottonseed oil, lard, and butter. Lin-
seed oil is not included. Relatively small amounts of imports of all commodities are not included in these
figures.
1. Surplus trends by commodities
This year's supply of each of the commodities shown in the above
table is as large as it was last year. The surplus outlook for major
commodities is assessed below.
Wheat. The surplus is not being reduced despite the fact that
wheat is the most widely used commodity in the special disposal
programs. Out of the total supply of 2,010 million bushels at the
beginning of the 1956-57 crop year, close to 800 million bushels was
surplus according to the Interagency Committee's estimates.
Disposals under the special programs have been large, amounting
for fiscal years 1954-55 and 1955-56 to about 450 million bushels.
In addition, over 38 million bushels were disposed of in 1953–54 under
section 550. Sales of wheat continue to play a leading role in this
year's agreements. Yet the carryover at the end of the present crop
year is expected to be almost as large as the 1,034 million bushels at
the beginning of the year, and the surplus will remain not far from
800 million bushels.
Rice. The surplus is being reduced. Out of the total supply of
80.9 million hundredweight at the beginning of the current crop year,
some 20 million hundredweight was estimated as surplus. Shipments
under the disposal programs this year are running far ahead of last
year, and total exports may double.
The quantity of rice to be disposed of under all agreements signed
in the last 2 fiscal years totaled about 15 million hundredweight. As
with the other surplus commodities, much of this had not been shipped
370
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
by the end of fiscal 1955-56. Several million hundredweight from
disposal agreements already consummated will be exported this crop
year. Under the title I agreement with India, signed in August 1956,
4.4 million hundredweight are programed for shipment during a 3-year
period.
The effect of rising shipments and a drop in production will be to
reduce the expected carryover from 34.6 million hundredweight at the
beginning of this crop year to something like 17 million at the end
of the year. The surplus will also show a sharp drop from the 20
million hundredweight at the beginning of the year.
4
Cotton. The surplus of cotton is being reduced, as a result mainly of
this year's greatly expanded sales by the Commodity Credit Corpora-
tion at competitive prices. When the 1956-57 crop year began, there
was a carryover of 14.5 million bales and an indicated total supply
of 27.7 million bales, of which about 10 million bales could be con-
sidered as surplus.
In the 2 fiscal years, 1954-55 and 1955-56, about 1.7 million bales.
were sold under title I; and about 1.6 million bales under section 402.
Cotton for emergency relief under title II totaled only 34,000 bales,
and barter contracts were made for 52,000 bales. Thus, during the
2 years, disposals under the special programs were 3.4 million bales,
but a large quantity had not yet been shipped at the beginning of
the 1956-57 year. Total United States exports in 1955-56 came to
only 2.3 million bales.
Tobacco.-Exports in 1955-56 were the largest since 1946-47, but
the total supply of tobacco for 1956-57 is about as large as it was last
year. Total exports this year probably will be less by some 10 percent
than last year. Thus, the surplus at the end of this year probably
will be practically as large as the 1,122 million pounds in surplus at
the beginning of the 1955-56 year.
Feed grains. Supplies are high, exports are running considerably
behind last year, and a big carryover of feed grains is in prospect.
The carryover of corn into the present crop year was nearly 1.2 billion
bushels and production in 1956 was somewhat greater than in 1955.
The total supply is adequate to meet all prospective requirements for
domestic use and exports, and leave a larger carryover at the end of the
present crop year. On the other hand, the 1956-57 supplies of oats,
barley, and grain sorghums are smaller than in 1955–56.
year
Food fats and oils.-The total supply of food fats and oils for the
beginning October 1, 1956, is approximately 11.8 billion pounds, about
the same as the preceding year. Exports in 1955-56 were at a record
high, resulting in considerable measure from shipments under the
surplus-disposal programs. Stocks have been reduced well below
the burdensome levels of 1953 and 1954, but continued heavy exports,
including sales and donations under the special programs, will be
needed to prevent a recurrence of excess stocks.
Dairy products. Surpluses of dairy products have been reduced.
The Commodity Credit Corporation stocks of butter had disappeared
entirely by October 1956, as a result of donations for foreign and do-
4 Sales by the Commodity Credit Corporation at competitive prices are now moving larger quantities.
In 1955-56, 1 million bales were sold to private exporters at the world price. When the current crop year
began August 1, the Commodity Credit Corporation began selling additional stocks. By mid-November,
5.7 million bales had been sold. These sales to exporters by the Commodity Credit Corporation, together
with shipments under the other programs, promise some reduction in the cotton carryover at the end of
the current crop year-possibly a decline of about 2.5 million bales. It seems likely that the surplus will
show about the same drop.
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
371
mestic use and sales at competitive prices. In the 2 fiscal years 1954-
55 and 1955-56, about 325 million pounds were donated for foreign
use and 230 million for domestic use. Also, donations of about 400
million pounds of cheese and 850 million pounds of dry milk in the 2
years reduced stocks markedly. About 80 percent of the dry milk
and over half the cheese were for foreign use.
In summary, surpluses are no longer mounting rapidly. Excess
stocks of some commodities are being reduced, but the special dis-
posal programs have not succeeded in reducing some of the most
burdensome surpluses. The surplus problem is still a major one after
2½ years of vigorous disposal programs abroad.
2. Other factors affecting surpluses
There are other factors, in addition to the disposal programs, that
might reduce surpluses which should be considered in weighing future
policy.
Will ordinary commercial exports expand?-Not greatly, for most
commodities. World trade in all agricultural products has increased
only slightly in recent years, despite vigorous efforts by other exporting
countries to increase their sales. In most underdeveloped countries,
where chronic food shortages exist, dollars are scarce and usually these
countries prefer to use their limited dollars to acquire capital goods.5
Will consumption in the United States rise enough to solve the surplus
problem? In a National Planning Association study of A Balanced
Agriculture in 1965,6 the authors project an overall increase in domestic
food consumption of about 17 percent from 1955 to 1965. This
will result mainly from an increase in population. On the other hand,
they predict that the increase in overall production will be even
greater caused primarily by improved technology on the farm-
unless prices fall considerably below present levels or effective produc-
tion controls are imposed. Some increases in domestic consumption
could be achieved through the school lunch and other disposal pro-
grams, but it is not to be expected that they can be expanded suffici-
ently to absorb any large portion of present surpluses in the immediate
future.
Will production be reduced sufficiently to eliminate surpluses? The
soil bank and other programs will no doubt result in decreases. But
keeping in mind the large quantities of wheat, cotton, rice, tobacco,
fats and oils, and other commodities now on hand, and the substantial
excess production of recent years, it does not seem likely that the pro-
duction declines now foreseen could by themselves solve the surplus
problem except over a considerable number of years.
Considering the size of present stocks and the difficulty of reducing
surpluses, there is a useful role to be played by the disposal programs.
The problem of working off current surpluses and bringing agricultural
output into balance with demand will be solved only by a many-sided
approach, of which surplus disposal can be one. As will be developed
later, there are limitations to surplus disposal abroad; it can never
solve the surplus problem alone. Carefully administered, it can con-
tinue, however, to make a useful contribution.
For a full discussion of world agricultural exports, see The State of Food and Agriculture, 1956, Food
and Agriculture Organization of the United Nations, Rome, 1956.
• Special Report No. 42, National Planning Association, Washington, April 1956.
94413-57-25
372
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
II. HOW SURPLUSES ARE DISPOSED OF ABROAD
The programs developed under Public Law 480 and section 402 have
been remarkably successful, despite inherent difficulties. In theory,
there would seem to be many reasons to expect failure: divided respon-
sibility, crisscrossing authority, clashing points of view among agen-
cies. In practice, substantial quantities of surplus commodities are
being moved the essential purpose of the legislative authorizations-
and in a way that is contributing to the economic development of
friendly countries.
In the early months of Public Law 480's existence, the feeling was
expressed in Congress that the executive departments and agencies
were not proceeding vigorously enough with its administration. In
light of the grave questions involved, however, a cautious start was
desirable and paid off in the rapid increase of disposals during the past
year.
The administration of Public Law 480 has been worked out within
the framework of Presidential Executive Order No. 10,560. Special
credit for successful administration of the programs must be granted
to the Foreign Agricultural Service of the Department of Agriculture.
Other officials familiar with the programs agree that the prudence
and restraint shown by the Foreign Agricultural Service, in appraising
requests of foreign governments and in drawing up the original pro-
posals for disposal agreements, have played a key role in Public Law
480's administration.
A. SALES FOR FOREIGN CURRENCIES
Congress has long been interested in providing a means by which
agricultural surpluses could be exported to countries that either will
not or cannot pay in dollars. Immediately after World War II, the
Economic Cooperation Administration was directed to obtain com-
modities in the United States for distribution through foreign-
assistance programs, and exports of this nature were important in the
agricultural picture for years. A steady decline occurred, however,
as United States relief programs abroad tapered off with the general
economic recovery of the free world.
In the Mutual Security Act of 1953 the specific device of sales for
foreign currencies was approved, and its approval has been continued
in subsequent years. By the end of fiscal 1955-56, sales with a total
value of more than $1 billion had been made under this act. In
practice, more than 95 percent of the proceeds of these sales has
been earmarked for economic aid and the remainder for military aid.
Administration of section 402 is the sole responsibility of the Inter-
national Cooperation Administration in the State Department.
Officials consult with other agencies and departments administering
sales for local currencies under title I, Public Law 480, and endeavor
to make the two programs complement and supplement each other.
Certain difficulties in this respect are pointed out later.
1. Uses of funds received under title I
Ten purposes for which foreign currency, obtained from the sales of
surplus commodities, may be used in the country purchasing the
commodities are listed in Public Law 480, title I. The President is
authorized to enter into agreements with recipient countries specifying
the amount to be used for each purpose.
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID 373
These purposes, and the amounts earmarked for each through
September 30, 1956, follow, arranged in the order of amounts involved.
Loans for multilateral trade and economic development.-This is the
largest category and a growing one. Agreements with 22 countries
for the use of local currencies for such loans amount to $781.7 mil-
lion, slightly under 52 percent of the total available for all uses. The
largest loan agreements are with India for $234.1 million, Japan for
$108.9 million, Indonesia for $77.4 million, and Spain for $73.1 mil-
lion. Under an administrative ruling, the specific projects for which
loans will be approved are passed on by the International Coopera-
tion Administration. Considerable difficulty has been encountered
in reaching agreements on projects in some countries. As a result,
there is a marked difference between the amounts earmarked for use
as loans and the amounts which have been approved for actual lend-
ing. Electric power projects have been approved in Japan and Israel;
reforestation and watershed control in Spain; highways in Chile; an
agricultural credit system in Ecuador; irrigation projects in Spain,
Israel, Peru, and Japan.
Payment of United States obligations abroad.-Foreign currencies
have been earmarked for this purpose in each of the 30 countries
with which we have title I agreements, ranging from a low of $100,000
in France and Western Germany to $50 million in Spain and $72
million in India. Planned uses for this purpose total $401.5 million,
slightly more than a fourth of all the foreign currencies available
under title I.
Procurement of military equipment, materials, and facilities.-Agree-
ments with 7 countries for this purpose amount to $202.7 million,
about 13 percent of the total. This includes such substantial sums
as $88.8 million to be spent in Yugoslavia, $57.7 million in Pakistan,
and $45.4 million in Korea.
Grants for promotion of multilateral trade and economic development.-
Only 2 grants have been agreed to: $7.5 million to Greece and $54
million to India as part of the 3-year agreement. Grants have not
figured in most of the agreements, presumably in the belief that loans
are more in keeping with the intent of Congress.
Purchase of goods and services for other friendly countries.-Agree-
ments with 5 countries for specified amounts for this purpose total $22
million, and there are 5 additional agreements with amounts still to
be specified. Considerable difficulty has been experienced in working
out successful agreements under this authorization.
Development of new markets for United States agricultural products.-
Among the 30 countries with which title I agreements had been nego-
tiated through September 30, 1956, only those for Burma, Taiwan, the
United Kingdom, and India do not contain at least small allocations.
for this purpose. Projects are carried out in close cooperation with
United States and foreign trade groups, with the trade groups meeting
part of the expense. Market surveys, consumer education, advertis-
ing and promotion techniques, and participation in trade fairs, are
among the projects. Thus far, $20.7 million have been earmarked for
development of new markets. This use of funds has been particularly
criticized by foreign producers, processors, and traders, as would be
expected. They view it as a direct effort to displace their own prod-
ucts.
International educational exchange.-Agreements have been con-
cluded with 18 countries for this purpose, totaling $10.8 million.
374
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
Acquisition of strategic and critical materials.-Four agreements
include this authorization. Under it, the United States has obtained
materials from Brazil, Indonesia, Italy, and Spain worth $6.8 million.
Other uses. In addition to the above, two additional minor uses
have been authorized but no funds have been earmarked for them.
These purposes are the publication and distribution of books and
periodicals, and assistance to the United States Information Agency's
activities.
Of the 10 purposes listed in title I, the 3 heading the list given
here-loans for multilateral trade and economic development; pay-
ment of United States obligations abroad; and procurement of military
equipment, materials, and facilities-account for about 92 percent of
the available funds.
2. Administrative procedures
Public Law 480 lays down certain broad restrictions within which
the administrators must act. Sales for foreign currency are limited
to "friendly nations," thereby barring negotiations with Iron Curtain
countries. With increasing signs of unrest in Soviet-dominated
countries, it may prove useful to give the administrators of the pro-
grams additional freedom of action in this respect.
The law also states that reasonable precautions must be taken to
"safeguard usual marketings of the United States" and to assure that
sales "will not unduly disrupt world prices." Countries receiving
the commodities must agree not to resell or transship to other countries
without specific approval.
Private trade channels are to be used to the maximum extent
practicable. In this connection, private traders play a larger role
in the special disposal programs than is generally understood. Later,
their role in barter will be examined in some detail. In title I deals,
the first step is the signing of the sales agreement by the two govern-
ments. The country receiving the surpluses may have a purchasing
mission in this country which becomes the legal purchaser. Other
countries designate importers as the receiving agents. But in either
case, private United States firms are the suppliers. The purchasing
country pays for the commodities in its local currency which is
deposited to the credit of the United States Government abroad;
the United States Treasury in turn pays the private United States
firms in dollars.
The President's Executive order covering Public Law 480 activities
assigns initial responsibility for sales for foreign currencies to the
Secretary of Agriculture, but makes it clear that the preeminence of
the Department of State in matters pertaining to foreign policy must
always be recognized. The President emphasized this point in a
letter addressed to the heads of all departments and agencies partici-
pating in Public Law 480 activities. The whole program, he states,
"must be carried out in accordance with and in furtherance of our
foreign policy objectives. I wish to reemphasize that the Secretary
of State is the officer responsible for advising and assisting me in the
formulation and control of foreign policy. He assigned to the
State Department the task of negotiating sales agreements with
foreign countries in order to "give recognition to the State Depart-
ment's central responsibility in this area.' [Italics added.] Thus the
State Department has-in effect-the power of veto over proposals
which originate in the Department of Agriculture.
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID 375
In issuing his Executive Order, the President recognized that the
programs set forth in Public Law 480 were already being carried out
by many agencies of the Government; he therefore placed adminis-
tration of the new act in these same agencies. In addition to the
role of the Department of Agriculture in initiating sales proposals,
and that of the Department of State in approving them from the
viewpoint of overall foreign policy, the Executive Order assigned to
these and other agencies the following title I functions in connection
with sales for foreign currencies:
Bureau of the Budget fixes from time to time the amounts of foreign
currency which have accrued to each of the purposes approved in
the law.
Treasury Department supervises the deposits of foreign currencies
received under the act.
Department of Agriculture supervises the development of new
markets abroad for United States agricultural products.
Office of Defense Mobilization selects materials for the supple-
mental stockpile which the act creates, to be paid for in foreign
currencies.
General Services Administration, as agent of the Office of Defense
Mobilization, purchases and handles material for both the supple-
mental stockpile and the strategic materials stockpile.
Defense Department carries out procurement of military equip-
ment, materials, and facilities with the foreign currencies.
International Cooperation Administration supervises purchases of
goods and services on behalf of other friendly countries from foreign
currency_accounts and approves grants and loans for promotion of
trade and economic development.
State Department carries out provisions for financing international
educational exchange.
In this crisscrossing of responsibility among agencies, a strong effort
at coordination is plainly needed. To achieve it, the President created
the Interagency Committee on Agricultural Surplus Disposal.
Clarence Francis, the White House adviser on surplus disposal, is
chairman, and committee members are representatives of the agencies
with responsibilities under the act. In the day-to-day operations,
however, the key coordinating group is the Interagency Staff Com-
mittee on Surplus Disposal. This working-level group receives and
examines proposed agreements and, if there is unanimous approval,
passes them along to the State Department for negotiation with the
foreign country involved.
The complicated process by which a title I agreement is proposed,
recommended, negotiated, and finally made effective, can best be
understood by examining the role of the three most important agencies
involved: the Agriculture Department, the State Department, and
the International Cooperation Administration.
Role of the Agriculture Department.-The Interagency Staff Commit-
tee is chaired by an official of the Department of Agriculture, and that
Department is the driving force behind the preparation of proposed
agreements.
A sale of surplus commodities for foreign currency is typically
initiated by officials of the foreign country involved. Sometimes the
original suggestion is made to foreign officials by the head of the
International Cooperation Administration mission or other United
States representative in the country.
376
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
The suggestion is passed along to the Foreign Agricultural Service of
the Department of Agriculture, where it is assigned to a program
officer. This official begins with a study of the foreign country's food
and agriculture situation, and the United States position with regard
to usable surpluses. In the course of the preliminary study, the pro-
gram officer is directed to check with the International Cooperation
Administration and the State Department in regard to the country
involved. In cases where a sale seems to be in the interest of both
countries, the program officer prepares two reports. One is the draft
of a proposed sales agreement. The other is an advisory paper for the
conduct of negotiations with the foreign country, prepared for the
guidance of our Ambassadors.
These drafts go before the Interagency Staff Committee, which con-
siders them in the light of such factors as the general situation in the
country seeking to purchase the commodities, whether the Inter-
national Cooperation Administration is doing anything in the country
under section 402 or providing emergency relief under title II of
Public Law 480, and what the supply situation is regarding the com-
modities in question.
Role of the State Department.-An important consideration in the
preparation of each proposed agreement and in subsequent staff com-
mittee discussions is the effect of the proposal on friendly countries
that also produce surpluses of the commodities in question. The
program officer of the Foreign Agricultural Service is specifically
instructed to take the exports of friendly countries into consideration
in drawing up the proposal. In addition, one of the functions of the
State Department's representative on the Interagency Staff Com-
mittee is to stress the broad foreign policy considerations involved,
with particular reference to the views of friendly-though competi-
tive countries which produce agricultural surpluses. Consultation
with representatives of other surplus-producing countries at times.
occurs informally in the early stages of preparing an agreement.
Usually, however, State Department officials assume this duty after
the staff committee has approved the terms. Now that both the
United States and other exporting countries have gained experience
with title I agreements and their effects on trade, earlier consultation
is advisable and would contribute to international goodwill.
The reaction of other surplus-producing countries is consistently
one of criticism. They argue that agreements made under title I
actually amount to unfair trading practices. They maintain-for
example that an offer to lend important parts of the proceeds of
the sale to the purchasing country for economic development is a
special inducement, which makes it all but impossible for the pur-
chasing country to refuse. If it is pointed out that their countries
could make similar proposals, they reply that their treasuries are not
rich enough to underwrite this type of foreign aid.
Other exporting countries express particular resentment over the
provision in the law that title I sales must "safeguard usual market-
ings"—that is, be an addition to normal United States exports to the
purchasing country (sec. 101a). They feel that if the United States
makes a title I deal, it should be willing to take its chance in compe-
tition with other surplus-producing countries for whatever additional
market exists.
It is generally acknowledged that the State Department, if it feels
an agreement is contrary to broad foreign goals, can effectively block
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID 377
a proposal at the level of the Interagency Staff Committee. In theory,
it would be possible for the Department of Agriculture officials to
appeal first to the top-level interagency committee, and from there to
the Cabinet, and eventually to the President, if they felt the State
Department's opposition to a sales proposal was not justified. In
practice, it is recognized that it is better to achieve unanimous agree-
ment in the staff committee.
Once an agreement and the accompanying advisory paper on nego-
tiations are approved by the staff committee, the proposal is turned
over to State. Proposals involving less than $10 million are processed
by the State Department and sent directly to the appropriate Am-
bassador for negotiation. Proposals involving more than $10 million
are sent to the Under Secretary for review and final approval. Thus
far, no proposal approved by the Interagency Staff Committee has
been blocked by higher levels in the State Department.
Role of the International Cooperation Administration.-Even after
successful negotiation and the signing of the agreement, difficult
problems remain. The agreement, for example, merely states how
much of the foreign currency shall be assigned for economic develop-
ment loans. It does not specify how the loans shall be used. Under
terms of the President's Executive order, projects for which loans will
be used must be approved by the International Cooperation Adminis-
tration before the loans are actually made. In some underdeveloped
countries, such as India, which have a large number of desirable proj-
ects, agreement between the International Cooperation Administration
and the foreign country is not particularly difficult. But in other more
economically advanced countries, such as Japan or Italy, negotiations
may require months.
In some instances, the International Cooperation Administration
is willing to approve projects to which other agencies raise objections.
Spain, for instance, suggested several projects that would increase the
production of wheat enough to meet 14 percent of the increased
requirements foreseen from population growth. Approval by the
Department of Agriculture was delayed for months because of the
policy against using foreign currency loans to expand output of any
commodity which would compete with United States crops. Objec-
tions were finally withdrawn on the ground that the small increase
would be more than offset by growing demand, and that United States
exports would therefore not be affected adversely.
Officials of the International Cooperation Administration believe
there is a tendency to rush the general agreements through so rapidly
that the foreign country involved is not always aware of the limitations
inherent in the promise of loans. They would prefer to see these
matters cleared up early in the negotiations.
A similar responsibility falls on the International Cooperation
Administration in the selection of goods to be purchased with foreign
currency for shipment to another friendly country. Local currencies
valued at $22 million had been earmarked for this purpose to Sep-
tember 30, 1956. Among the definite arrangements that have been
concluded are $5 million worth of lire to purchase Italian industrial
goods for Israel and $1.8 million worth of Japanese yen for textiles
for Vietnam.
Extensive purchase of goods for third countries, the International
Cooperation Administration has found, is hampered by the difficulty
378
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
of finding suitable products. As a rule, underdeveloped countries-
where most of the foreign currencies are available-do not produce
the type of goods needed for mutual security programs in third
countries. It is relatively easy to make suitable purchases in econom-
ically advanced countries such as Japan or Italy; relatively difficult
in a country that is just beginning to industrialize.
The problem of coordinating title I activities and economic aid
offered under the Mutual Security Act and administered by the Inter-
national Cooperation Administration is a difficult one. When Public
Law 480 was adopted, it seemed to be the intent of Congress that
economic aid offered through title I agreements should be in addition
to aid offered through the Mutual Security Act. But it became evi-
dent to some Members of Congress and to the Bureau of the Budget
that aid generated through title I might in some cases take the place
of aid through mutual security programs. In preparation of the Inter-
national Cooperation Administration's budget requests for fiscal 1958,
for example, efforts were made to estimate the amount of economic
aid that would be forthcoming through title I.
There are, however, certain limits on the amount of dollar appro-
priations that can be saved in this way. First are the fundamentally
different purposes of the two programs. The purpose of mutual secu-
rity is to give highly selected and especially tailored types of aid to
certain priority countries in order to advance our foreign policy. The
purpose of Public Law 480 is primarily to dispose of agricultural sur-
pluses. Thus, the two programs often do not operate even in the
same countries. The use of local currencies for economic development
loans has been approved in a number of countries where we have no
economic aid program under mutual security or where we have only
small technical aid programs, as in Latin America. Furthermore, in
some countries local currency loans may not be what is required for
economic development. Turkey is such a country; the need there is
for foreign exchange with which to import capital goods.
The continued existence of 2 programs for sales of surpluses for
foreign currency, 1 under title I and 1 under section 402, seems un-
necessary. As more and more of the proceeds from title I sales are
used for economic aid-the same purpose as section 402 proceeds-
the way is paved for merging the programs both legislatively and
administratively.
B. GRANTS FOR EMERGENCY RELIEF
This country has a long tradition of coming to the aid of other
countries stricken by natural disaster. Title II of Public Law 480
establishes a means of offering aid rapidly, without specific approval
in each instance by Congress. Title II authorizes the President to
grant surplus agricultural stocks to countries suffering from such dis-
asters as drought, flood, earthquake, and hurricanes. In the Presi-
dent's Executive order regarding Public Law 480, he assigned this
authority to the International Cooperation Administration.
The central purpose of title II is to provide a means of offering
assistance, in the form of surplus commodities, in times of urgent and
extraordinary need. But, in practice, title II grants have been made
for other purposes of a broadly humanitarian nature. A limit of $500
million was put on title II grants, and the authority expires June 30,
1957.
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
379
Shipments made or authorized under title II, from the act's inception
through June 30, 1956, totaled $218 million at the Commodity Credit
Corporation cost. This was divided almost equally between the 2
fiscal years. Bread grains, rice, and coarse grains have comprised
nearly 70 percent of title II authorizations-$150 million worth at the
Commodity Credit Corporation cost in fiscal years 1955 and 1956;
fats and oils totaled $31 million; milk and milk products, $27 million.
Small quantities of cotton, dry beans, and other commodities have also
been contributed. Because catastrophe cannot be anticipated, it is
impossible to say what authorizations will be in fiscal 1957.
Grants must be made within certain broad limits. Precautions are
required to see that grants will not displace or interfere with sales which
otherwise would have been made. Packages or containers must be
labeled as gifts of the United States. As a general policy, the recip-
ient government must agree to distribute the commodities without
charge but, in several cases, commodities have been sold under con-
ditions approved by the United States. Grants may be made to
friendly governments or to "friendly but needy populations without
regard to the friendliness of their government." Under this provision,
the United States extended $10.6 million worth of aid to peoples of the
Danube basin, when countries of that area alined with the Soviet bloc
were swept by floods in the winter of 1954.
The interpretations placed on the language of title II by the execu-
tive departments are quite broad and embrace a number of programs
that cannot be classified as "emergency relief" in the narrow sense.
Pakistan, for example, received title II grants of $9.8 million in fiscal
1955, and $35.8 million in fiscal 1956. Most of this was in wheat and
rice to "avert threatened famine as a result of floods and insect damage
to crops." "Threatened famine" is almost a chronic condition in
Pakistan. Under terms of the agreement, the government of Pakistan
was allowed to sell the commodities on the grounds that it did not
have, and did not wish to establish, a system of direct relief. Sums
received from the sales were used by the Government of Pakistan for
other relief purposes.
Libya also received grants which were not linked to specific disasters,
but to almost permanent drought conditions. Libya received $4.2 mil-
lion worth of commodities in fiscal 1955, and $3.9 million worth in
fiscal 1956, most in wheat.
Yugoslavia received $44 million worth of title II commodities in
another type of special case. During fiscal 1955-a period of intense
drought in Yugoslavia-that country received some commodities under
a title I program and some under section 402 of the Mutual Security
Act. But a gap still existed in food needs. This was filled under
title II, with an agreement that the Government of Yugoslavia could
sell the title II commodities to its citizens.
Another type of nondisaster ICA relief program is $17.7 million
worth of grants through title II for school lunches in Italy.
In all of these cases, the humanitarian purpose of title II is evident.
In addition, there are obvious reasons associated with our foreign
policy for making grants beyond the narrow context of disaster relief.
However, as a matter of policy, the International Cooperation Admin-
istration administrators do not welcome programs lying outside the
context of disaster relief. They disapprove of them in principle, and
enter into them only when there are extenuating circumstances.
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AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
Officials concerned with administration of title II feel that it has
been extremely useful as a means of offering swift aid to friendly
governments in distress. They feel that in some instances, our aid
has kept friendly governments in power, and has thus contributed to a
desirable political stability and continuity in the aided nations.
Some key officials, however, also express fear that disaster relief
operations might snowball into unmanageable proportions. Pressures
are exerted by U. S. ambassadors abroad, groups of foreign origin
within the United States, and at times within the administration itself,
to relax our definition of what constitutes a genuine disaster. If a
river floods 1 year, there is a tendency to apply for more aid if a creek
overflows the next-and to be outraged if it is not forthcoming.
There is also pressure to add programs of the nondisaster type as in
Pakistan and Libya. The present law leaves wide administrative
discretion in these difficult areas and more exact legislative guidance
would be desirable.
Administration would be simplified, and the true nature of Public
Law 480 programs would more clearly emerge, if nondisaster relief
grants-where warranted-were made as economic aid grants under
title I.
C. DONATIONS TO VOLUNTARY RELIEF ORGANIZATIONS
For many years, American voluntary agencies have been carrying
on relief programs in foreign countries. The value of these programs
as a supplement to official aid has been recognized by Congress,
beginning with the Economic Cooperation Act of 1948. In that year,
Congress appropriated funds to pay the ocean freight on relief ship-
ments to some countries. In section 416 of the Agricultural Act of
1949, Congress authorized the Secretary of Agriculture to make dona-
tions of surplus food to approved voluntary agencies for use abroad,
and this authority was greatly liberalized in Public Law 480, title III,
section 302.
In contrast to title II, there is no emphasis in section 302 on emer-
gency relief in time of disaster. Rather the purpose is to help persons
"who by virtue of their personal economic status are in need of food
assistance." Also in contrast to title II, there is no dollar limitation
on the value of shipments.
Section 302 also authorizes donation of Commodity Credit Corpora-
tion stocks "for use in the United States in nonprofit school lunch
programs, in the assistance of needy persons, and in charitable insti-
tutions *** " Donations for foreign use under section 302 are,
in fact, residual to all other surplus disposal programs. They may
be made only after the requirements of title I sales, disaster relief
under title II, and barter deals, have been met, in addition to domestic
relief needs. Another requirement is that the Secretary of Agri-
culture obtain assurance that recipients will not, as a result of the
donation, diminish their normal expenditures for food.
Movement of surpluses abroad, through voluntary agencies, has
greatly increased since adoption of Public Law 480. In fiscal 1953-54,
the last year under the old authorization, 104,000 short tons of food
were donated from Commodity Credit Corporation stocks through
the voluntary relief organizations. In fiscal 1954-55, under Public
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
381
Law 480, donations increased to 271,000 tons; in fiscal 1955-56, to
610,000 tons; and in the first quarter of fiscal 1956-57, donations
were made at a considerably higher rate. In fiscal 1954-55, only
butter, butter oil, cheese, nonfat dry milk, and shortening were
donated for foreign use. In fiscal 1955-56, wheat, rice, beans, and
corn were added to the list. However, by the end of the fiscal year
cottonseed oil, shortening, butter, and dry beans were no longer
available in sufficient quantities for foreign distribution.
At the end of fiscal year 1955-56, donations were being made to 24
private United States welfare agencies and to the United Nations.
Children's Fund for distribution to an estimated 40 million needy
persons in 84 foreign countries and dependent territories. The
Commodity Credit Corporation pays for processing, packaging, and
transportation of the donated foods to the port of export, and at
the beginning of fiscal year 1956-57, Congress authorized the payment
of ocean freight by the Government. As shown in appendix table
III, this program has provided by far the most important outlet
for the disposal of surplus dairy products abroad.
Included in the nonfat dry milk donations were more than 83
million pounds in fiscal 1954-55 and 126 millions in fiscal 1955-56
for the United Nations Children's Fund, for its programs of improving
the nutrition of children in member countries where food supplies are
inadequate. No other commodities have been made available to the
Children's Fund.
Most of the private agencies conduct or help support schools,
hospitals, child-care centers, and other institutions in the receiving
countries, and much of the food donated to them is used in these
institutions or distributed through them. However, in some instances,
distribution to needy persons is made by a governmental agency of the
receiving country. Representatives of the United States voluntary
agencies in the receiving countries guide or supervise such distribution.
The first step in assuring proper distribution is taken by the Advisory
Committee on Voluntary Foreign Aid under the chairmanship of
Charles P. Taft. This committee makes certain that only bona fide
voluntary relief organizations are certified to receive donations. If
an agency qualifies, it is eligible to develop individual country pro-
grams and to apply to the Department of Agriculture for surplus
commodities. Programs are submitted for approval to the Inter-
national Cooperation Administration and to the Department of
Agriculture.
Title III donations are welcomed by the individuals and groups
served and by their governments. This program has not aroused the
fears of other exporting countries, and it has widespread popular
support in the United States. In the light of this program's growth,
it should be more closely coordinated with other surplus disposal
activities.
D. BARTER OF SURPLUS COMMODITIES
Barter of surplus agricultural commodities owned by the Com-
modity Credit Corporation was authorized in the Corporation's
Charter Act of 1948 as amended and in the Agricultural Act of 1949.
But barter transactions under these authorizations averaged only $22
382
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
million a year. Adoption of Public Law 480 greatly expanded
barter activities. In fiscal 1954-55, barter contracts entered into
totaled $282 million. In fiscal 1955-56, contracts rose to $316 million.
Under the previous barter provisions, the Secretary of Agriculture
was authorized to enter into barter agreements. Section 303, title
III, of Public Law 480 directs him to do so, employing "every
practicable means."
The purpose of Congress in strengthening the language of the old
authorization is made plain in the following excerpt from House
Report 1766, 83d Congress, 2d session, which accompanied the bill
that became Public Law 480:
Although barter of surplus agricultural commodities for
critical and strategic materials is specifically contemplated
and authorized by the Agricultural Act of 1949 and the
Commodity Credit Corporation Charter Act, the Department
of Agriculture has participated in relatively few such trans-
actions and apparently has taken an attitude discouraging,
rather than encouraging, the making of such exchanges.
Section 303 is a forceful restatement of legislative intent, designed to
bring about a positive and aggressive attitude toward barter on the
part of the executive departments. This purpose has been achieved.
Both section 303 and the preceding legislation provide for barter
of commodities owned by the Commodity Credit Corporation for
five purposes:
1. To obtain strategic materials for stockpiles.
2. To obtain materials or equipment for economic and military
aid to foreign countries.
3. To obtain materials and equipment for offshore construction
programs.
4. To obtain materials from abroad for use by Government
agencies in the United States.
5. To obtain storable and nondeteriorating materials for the
Commodity Credit Corporation account which are less costly to
store than the agricultural commodities for which they are
bartered.
Of these purposes, acquisition for stockpiles is by far the most
important. In fiscal 1955-56, the other 4 purposes totaled only
$11.3 million, mostly for economic aid to foreign countries, while
stockpile acquisitions totaled $304 million.
The Secretary of Agriculture is directed to arrange for barter
transactions through private trade channels. As conducted under
section 303 and Commodity Credit Corporation directives, barter is
not a government-to-government program. It depends entirely on
the initiative of private firms, seeking to extend their business and
to make profits as in any commercial transaction. Participation in
barter as a contractor is limited to United States firms. The materials
received by the United States must have their origin in friendly
countries, and the agricultural commodities received in exchange
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID 383
must be exported to friendly countries, though not necessarily to the
country in which the strategic material was produced."
There are certain advantages for private firms. Some of these are:
1. The typical barter contract calls for payment to the supplier
immediately in commodities owned by the Commodity Credit Cor-
poration, with delivery of the goods received in exchange due in
2 years.
This lag between the time the contractor is paid and the
time he must deliver on his end of the bargain gives rise to several
advantages. For example, he guarantees delivery either by de-
positing cash or with an irrevocable letter of credit from a bank.
The latter can be obtained at a very low interest rate. Thus, he
obtains financing for 2 years at a lower cost than he could borrow
for at regular commercial banking rates. This is a substantial
inducement to private firms, as the sums involved are usually
large. A typical barter contract calls for the exchange of some
$5 million worth of goods.
2. With a market assured for a given amount of output 2 years
hence, the producer can enter into a long-range program of his
own, such as expanding output or modernizing an old operation.
3. An assured market and more efficient production often
allows the producer to lower his price and thus better his position
competitively.
The barter program is also seen by participating businessmen as a
means of getting around the trade restrictions raised by other coun-
tries. Government-to-government trading, preferential trade agree-
ments, import and export quotas, and similar obstacles to trade can
often be surmounted through the kind of barter provided for in section
303 of title III.
From the Government side, the chief advantage is that barter has
successfully moved large quantities of agricultural surpluses in accord-
'The process starts with publication by the United States of its requirements under the five approved
purposes of barter. Strategic materials needs-which are by far the most important in the barter program-
are listed in releases of the Office of Defense Mobilization. These releases group strategic materials in three
stockpile categories: minimum, long-term, and supplemental. Materials on this list which are eligible
for procurement through barter within the quantitative goals of the Office of Defense Mobilization are
specified in press releases of the Barter and Stockpiling Division of the Commodity Credit Corporation.
These releases are available to interested businessmen.
Agricultural commodities which the Commodity Credit Corporation will release from its stocks in barter
transactions, and the basis for pricing such commodities, are specified in monthly Commodity Credit Corpo-
ration sales lists.
In a typical transaction, the initital step is taken by a producer or trader of strategic materials. The
would-be barter contractor's offer must conform to regulations laid down by the Commodity Credit Corpo-
ration; it must be unconditional, must state the origin of the materials he offers, give proposed delivery dates,
and price. Offers are considered in the light of price and quality of the materials, stockpile needs, effect of
barter procurement on the market, and similar factors. A liaison officer of the General Services Administra-
tion reviews offers, at the same time that they are being studied by the Commodity Credit Corporation.
The General Services Administration is the agency designated by the Office of Defense Mobilization to make
cash purchases of strategic materials; its participation is designed to assure satisfactory performance by barter
contractors compared to firms selling for cash. If the offer is accepted, the exact terms in the contract are
still subject to negotiations, which may take weeks. If the offer is rejected because the price is too high, the
would-be contractor is informed and is free to submit a lower figure.
Once the producer or trader in the strategic material is awarded a barter contract, he takes steps to dispose
of the agricultural commodities he received.
The contractor often disposes of his new holdings in a single deal with a specialist in agricultural com-
modity trading. The agricultural commodity trader then introduces the products into world trade through
regular commercial channels. Sometimes agricultural commodity traders initiate the contract, in which
case they must first ascertain where they can obtain materials wanted for the stockpile, or for the other auth-
orized purposes.
This is a complex process. As one analyst of the barter program puts it, "The contractor soon learns
that the execution and implementation of the barter contract with its double aspect of financing and moving
commodities in two directions is twice as complicated and risky as the normal cash contract with the Ameri-
can Government." (Barter-A New Approach to Government Procurement, by Edmund Pendleton, Jr.,
in the Journal of the Bar Association of the District of Columbia, vol. XXII, No. 1, Washington, January
1955.).
384
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
ance with the wishes of Congress. In addition, Government purchas-
ing officials report they are satisfied that through barter the United
States can obtain desired materials at a low cost. The total effect
of Public Law 480 has been to hold up the price of strategic materials
obtained for the stockpile. But in a given price situation, barter may
result in closer buying than could be achieved in spot markets for cash.
Agricultural surpluses acquired through barter contracts have been
sold in 36 friendly countries. Something like three-fourths of the
total has gone to European countries. Since they usually must be
paid for in dollars, they probably reduce other dollar exports from the
United States.
Even with the emphasis on private initiative and the key role of
businessmen, barter as practiced under section 303 contains a large
element of Government-directed trade. The selection of commodities
for barter is a Government action in the first place and each subse-
quent step in the process must follow Government regulations. It is
not a process that falls wholly within our traditional concept of world
trade, free of Government restrictions. Some of its critics, indeed, see
it as a massive swing away from that tradition, and an encouragement
to other countries ultimately to increase their own trade restrictions.
Certainly it is a program that must be handled with caution unless
we care to face the prospect of retaliatory steps by other countries.
Administrators of the barter program feel that it has about reached
a ceiling so far as the acquisition of strategic materials is concerned.
However, they feel that barter can still be expanded somewhat under
the terms of section 303. The Department of Defense and the Inter-
national Cooperation Administration, for example, may be able to
obtain more materials through barter than they have up to now. To
accomplish this, a specific statement of legislative intent may be
necessary.
There are certain advantages in the barter program for both private
firms and the United States Government. However, since bartered
surpluses are sold abroad at competitive prices through commercial
channels, there is some danger that they will reduce other exports
from the United States and other countries.
III. EFFECTS AND POTENTIALITIES OF SURPLUS DISPOSAL PROGRAMS
In assessing the effects of the surplus disposal programs on foreign
countries, it is well to keep in mind that large surpluses-even when
withheld from trade-are an important economic factor, affecting trade
in many ways.
For one thing, during the period prior to adoption of the dis-
posal programs in 1954, rapidly mounting surpluses held by the
Commodity Credit Corporation had an unsettling effect on foreign
governments. It was feared we might someday find the surpluses
intolerable, and launch an all-out dumping program to get rid of them.
This sense of uneasiness was shared by agricultural producers in the
United States and abroad, who had no way of knowing what the
ultimate solution would be or how their operations would be affected.
In addition, the existence of large stocks in this country encouraged
other countries to let their own reserves sink, in the knowledge that
in an emergency they could always look to the United States. A
particular case in point is cotton. This country accumulated stocks
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID 385
rapidly up to this year, while cotton stocks normally held by foreign
governments and private traders dropped an estimated 1.5 million
bales. Thus, in effect we became the operators of a free-world agri-
cultural commodity reserve upon which others could draw when in
need, while reserves abroad dropped below the point of prudence.
One of the healthy effects of our disposal programs to date has been
a renewed interest on the part of other countries in maintaining reason-
able reserves of their own.
The effects of the disposal programs vary widely depending on
whether the countries involved are exporters of agricultural com-
modities themselves, or whether they are countries receiving the
commodities.
A. EFFECTS ON OTHER EXPORTING COUNTRIES
When the disposal programs were adopted, other exporting countries
had two overriding worries: that we would drive world prices down to
ruinous levels and that their own exports would decline. On neither
count have these worries been borne out. Since our disposal programs
went into effect, world prices have been relatively stable and the
evidence seems conclusive that, on the whole, the exports of other
countries have not declined.
World trade in wheat, for example, rose from 879 million bushels in
1953-54 to an estimated 1,012 million bushels in 1955-56. Of this
indicated rise of 133 million bushels, the United States accounted for
124 million and other exporting countries for the balance. During
this period, Canadian wheat exports apparently held just about even.
World trade in rice has risen each year since 1953. Exports from
the United States were lower in 1954 and 1955 than they were in 1953,
but rose in 1956. Burma's exports are up, and Thailand has sold all
it had available for export. Indochina showed a decline but this is
probably accounted for by political unrest and the division into
separate political entities.
In cotton, even with 5.7 million bales moving into world trade as a
result of the competitive price policy of the Commodity Credit Corpo-
ration, world prices are not being disrupted and other exporting
countries are sharing in a generally strong demand.
Foreign agricultural experts recently asked what United States
officials consider a fair share of the world cotton market to be. An
official of the Department of Agriculture replied that the United
States "is not getting more than its share as long as prices remain
firm (which they have) and as long as other countries are selling all of
their crop (which they are)." This same reply might well be applied
to the disposal programs under Public Law 480 and section 402.
At the same time, it should be recognized that the United States.
share of world exports is rising for some commodities. In these cases,
it is reasonable to assume that our exports under the disposal pro-
grams have either taken the place of exports from other countries to
some extent, or have tended to keep prices from rising in response to
strong demand. In the past 3 years, our share of world wheat exports
increased from 25 percent (1953-54) to 34 percent (1955-56). There
was a similar rise in our share of world trade in food fats and oils.
Large gains were made in our share of trade in cheese and nonfat dry
milk. Our share of feed grain exports also rose. On the other hand,
our proportion of world trade in rice and cotton declined during this
386 AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
period. As a result of expanded sales by the Commodity Credit
Corporation, however, our share of cotton exports is likely to rise in
the current crop year. (See appendix tables IV to XII.)
The degree to which it is possible for United States surpluses to dis-
place exports from other countries varies according to the program.
Donations made through title II and section 302 of title III can have
little effect on commercial exports so long as they are used only for
disaster relief and to supplement the diets of poverty-ridden peoples.
There is probably some displacement under sales for local curren-
cies. In title I agreements, but not in section 402 sales, the receiving
countries undertake to maintain other imports from the United States
at normal levels, but there is no such undertaking regarding imports
from other countries. Despite the policy regarding normal purchases
from the United States, there may be some reduction of commercial
imports from this country in the wake of large shipments, and im-
ports from other countries could be materially lessened. In the case
of section 402 sales, which in effect take the place of dollar grants,
other exporting countries may suffer additional displacements. If
aid were extended in dollars with no strings attached, some of the
dollars might be spent for agricultural commodity imports from other
countries. In general, these sums would not be large, however, as
underdeveloped countries of the type receiving aid from the United
States normally rank agricultural imports low on their priority lists,
preferring imports of a capital goods nature.
Surpluses moving out of the United States under barter may be
expected to replace to a considerable degree like goods from the United
States or other exporting countries. The commodities disposed of by
barter enter ordinary channels of private trade immediately, and most
of them are going to the economically advanced countries of Western
Europe. Thus, they help meet ordinary commercial demand, and
are consumed in countries where diets are already comparatively good.
It cannot be said of these commodities that they are an addition to
normal exports.
Looking at the disposal programs as a whole, it would seem that they
are interfering to some unmeasurable extent with other exports, but
without harmful effect to ordinary commercial exports either from
this country or from foreign countries because of generally strong
world demand.
In this connection, the judgment of two international bodies on the
conduct of our disposal programs is illuminating. In February 1956,
at its 12th session, the United Nations Economic Commission for
Asia and the Far East declared "that the concern expressed by some
countries earlier regarding the possible adverse effect of agricultural
disposal policies had been happily alleviated by the cooperative man-
ner in which these policies were being executed." The Food and
Agriculture Organization of the United Nations pointed out that
"cautious policies of surplus disposal have so far avoided any major
disorganization of world markets." 8 The Food and Agricultural
Organization recommended to its member governments a set of prin-
ciples aimed at maximizing the beneficial effects and minimizing the
harmful effects of surplus disposal programs. These principles have
been accepted by 36 member governments including the United
Monthly Bulletin of Agricultural Economics and Statistics, Food and Agriculture Organization, Rome,
December 1955.
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID 387
9
States. The administering agencies of both Public Law 480 and sec-
tion 402 endeavor to conform to these principles.
A word of warning is necessary despite the favorable record to date.
Other exporting countries report rising stocks in their own countries,
and we may be entering a period of greater market sensitivity. Great
harm can be done to the economies of friendly and neutral countries
if we deprive them of important export markets or if, through mis-
calculations, we should materially reduce world commodity prices.
These dangers should not be discounted because they have been
avoided thus far. Continued caution will be required in the future.
B. EFFECTS ON RECEIVING COUNTRIES
The effect on countries receiving surplus commodities through the
disposal programs varies according to the nature of each program.
1. Local currency loans for economic aid
Dollar loans for economic development have been an accepted part
of our foreign aid programs for years and do not require any detailed
comment here. However, there is a significant difference between
loans in dollars and the loans now being made in local currencies under
title I and section 402. The procedure under the disposal programs is
first to sell surplus commodities to the receiving country for its local
currency, then from these proceeds to make a loan to the country for
economic development projects jointly approved by the United
States and the receiving country. If the sum were provided through a
dollar loan, then it would have to be repaid in dollars.
Under existing regulations the loan is repayable in dollars, at an
interest rate of 3 percent, only if the borrowing country so chooses,
or it can be repaid in the borrower's own currency at 4 percent. If
local currency is chosen, payments must total the dollar equivalent
of the loan at the time it was made. Thus, if during the life of the
loan, inflation occurs in the borrowing country, the value of its cur-
rency will decline in relation to the dollar, and the sum of repayments
will increase accordingly. Repayment does not begin until 3 years
after the loan is made, and may continue for as long as 40 years there-
after. Despite this increased burden if prices rise and the lower
interest rate offered to attract repayment in dollars, it seems certain
that most repayments will be in local currency. Thus for years to
come, the United States will be faced with the problem of how to use
these funds. The total value of the foreign currencies which have
been or will be paid to the United States for surplus commodities is
already close to $2.5 billion, of which about $1.5 billion worth is being
loaned to the receiving countries, and thus will figure in the repay.
ment situation.
When repayments begin to reach substantial sums, care must be
exercised to avoid putting an undue strain on the economies of the
borrowing countries. If the payments are held by the United States
and not reloaned or otherwise utilized in the borrowing country, that
country's money supply will be reduced and there will be a defla-
tionary effect. This might be harmful at times, helpful at other
times.
There is a possibility that a substantial portion of repayments in
local currency could form the basis of further economic development
• Functions of a World Food Reserve, Food and Agriculture Organization, Rome, 1956,
94413-57-26
388 AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
loans. A policy of this kind, administered with care, would encourage
borrowing countries to keep up their payments and to press on with
worthwhile development programs. For this course, an expression
of legislative intent would be needed. Specific action could perhaps
wait until we have had more experience, but consideration of the
problem of how eventually to use these local currency accounts should
begin at once.
2. Local currency uses other than economic aid
Payment of United States obligations in foreign countries, including
military procurement, accounts for about 40 percent of the local
currency we are receiving from the sale of surpluses under Public Law
480 compared to something over 50 percent which has been used for
loans. Approved uses are specified in the language of Public Law
480; in section 402 sales, the uses must conform to the purposes
approved in dollar appropriations for mutual security programs.
There is an absolute limit-set by how great our obligations are on
how much we can spend abroad this way.
There is also an economic effect that requires attention. Under
ordinary circumstances, for example, we pay for the upkeep of a
diplomatic mission or pay troops stationed abroad in dollars. These
dollars are paid into the economy of the receiving country, and may
be used to purchase any article moving in world trade. The chances.
are that some of the dollars would be spent for United States goods.
When, instead, we pay foreign expenses in local currencies, we
lessen our chances of making sales through normal export channels,
because no dollar exchange is created. The United Kingdom, to cite
a specific example, took $27.2 million worth of surplus commodities
in a title I deal, for which it paid us in pounds. Under terms of the
agreement, we used the pounds for housing for the families of United
States military personnel stationed in the United Kingdom. This
saved us a Federal budget outlay of $27.2 million. If we had paid
out that many dollars in the United Kingdom, the people of that
country might have spent a good part of them for the purchase of
imports from this country. Critics of the title I programs make
much of this point, stressing it as a detriment to normal trade and
to United States firms with an interest in foreign markets.
It should be kept in mind that Congress declared economic develop-
ment to be one of the fundamental goals of the disposal program.
Administrators of the disposal programs are urged frequently by some
Members of Congress, and by officials in some of the executive agencies,
to increase the proportion of local currencies used for meeting other
obligations. The stated purpose of the programs would be met better
if more local currencies were assigned for economic development.
The earmarking of local currencies is now a matter of administrative
judgment; if Congress wishes further emphasis on economic develop-
ment, an expression of legislative intent will probably be necessary.
3. Grants and donations
Grants are among the approved uses of foreign currencies obtained
through surplus disposals but, under title I, only the two to India and
Greece have been made. Grants made under title II, when they are
for the relief of suffering caused by natural disasters, are made for
humanitarian purposes and have only incidental economic effects.
They do serve such purposes as steadying a shaky economy, hastening
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID 389
recovery, and perhaps strengthening a friendly government, but these
are byproducts of the main purpose.
When, however, title II grants are made on a continuing basis to
supplement a permanently inadequate diet-as they are in Pakistan
and Libya-their effect is the same as any continuing dole. The
receiving nation may come to depend on the commodities; we
may make friends as long as the grants continue, and may risk enmity
should they have to be discontinued. Thus, important consequences
to foreign relations are involved.
The same can be said regarding donations through section 302 of
title III to voluntary agencies. Here again, the humanitarian pur-
pose is supreme. But as gifts continue year after year, they quickly
become imbedded in the economy of the receiving country, and their
discontinuance for any reason-may raise grave international
problems.
A recent example is found in Egypt, where a big program existed
under section 302 which was discontinued when fighting broke out
over the Suez Canal. Reports reaching this country indicated deep
resentment on the part of Egyptians, at a time when we were using
every effort to keep that country from turning toward the Soviets.
This is not pointed out with any idea that section 302 donations
are detrimental. On the contrary, they are increasing the friendliness.
of many people toward the United States. But such programs should
never be entered into without due regard to how long they can be
kept up, and under what circumstances they can be discontinued
without harmful effects to our standing among nations. These con-
siderations will increase in importance should section 302 programs
continue to expand at anything like their present rapid pace.
There is now no dollar limit on section 302 grants as there is on
title II grants. In light of their rapid growth, it seems wise to con-
sider such a limit for the future.
There are useful economic purposes to which grants of food may be
put, such as those approved in title I. The danger of inflation is
always great when an underdeveloped country undertakes large im-
provements such as irrigation, power projects, roads, and the like.
We make loans for such projects in the hope that living standards
of the country eventually will be raised-as they should be, if inflation
does not destroy the potential increase in purchasing power. Grants
of food continuing over a specific number of years to cover the period
when the inflationary danger is the greatest can be a useful supple-
ment to a loan program. The same effect is achieved through the
provision that repayments on loans do not begin until 3 years after
the commodities are received.
We are using a series of grants to Bolivia for a somewhat different
but equally useful purpose. They are being used to tide that country
over a period of food shortage, during which efforts are being made to
expand domestic production. We started with a $9 million grant of
wheat and wheat flour. The Government of Bolivia sold these com-
modities and used the proceeds for irrigation, land clearing, vocational
education, and other projects approved by the United States. Since
these projects take several years to reach fruition, the original grants
were followed by others. In this and other ways, grants can be made
to contribute to long-range economic development.10
10 Using American Agricultural Surpluses Abroad, by Howard R. Tolley, National Planning Association,
Planning Pamphlet No. 91, Washington, May 1955.
390
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
An additional point regarding grants in lieu of loans should be kept
in mind. A country which has received a loan may not be able to
make repayments on schedule, and may request postponement or
reduction of the amount owed. This could lead to lengthy negotia-
tions and even to ill feeling between the United States and the debtor
country.
In economic development projects, the stress should continue to be
on loans rather than on grants. However, the use of grants in special
situations as part of an economic development plan should not be
overlooked.
4. Barter
Barter contracts under section 303 of title III may be described as
"matched sales," "1 and their economic effect on countries receiving
the surplus commodities is usually no different from that of any sale
made through ordinary commercial channels. However, a special
feature of the barter contracts may at times exert a stimulating effect
on economic development. During the 2-year lapse between the
receipt of payment and delivery of the bartered goods, there is an
opportunity for the foreign producer to use his proceeds from the
contract to modernize his plant or expand production. Whether this
occurs or not depends entirely on the private judgment of business-
men, but it is likely that the practice is rather extensive.
The barter program is too new and it is growing too rapidly for any
final judgments. It is related only indirectly to foreign aid, but
on the whole, it is worth retaining in the disposal program with the
proviso that, as surpluses are reduced, priority will be given to
economic aid, disaster relief, and donations to improve the diets of the
needy.
C. BUILDING NATIONAL AND REGIONAL RESERVES
Reserve stocks that can be drawn on in case of emergency are
widely recognized as useful for many countries, particularly those
with meager per capita food supplies. They can be established
through either loans or grants under title I, and deserve active con-
sideration in future disposal programs.
The Food and Agriculture Organization has been investigating the
functions which national reserves could perform. Its Subcommittee
on Surplus Disposal has been discussing the subject and exploring the
attitude of the member governments. And the recent United States.
agreement for the sale of surpluses for local currency to India stipu-
lates that some wheat and rice be placed in a national reserve in India.
National reserves can be used for purposes in addition to the speedy
relief from famine or other disaster. A reserve can have a stabilizing
influence on internal prices and can discourage hoarding in times of
prospective shortage. Some supplies from the reserve might be
released to the internal market in time of temporary shortage and
rising prices, to be replaced by additional acquisitions from the
surplus countries or possibly from domestic producers. In a country
where a large-scale economic development program is underway,
consumer demand for food might temporarily increase more rapidly
than production plus planned imports. The reserve can be drawn
upon to close the temporary gap. In most countries the bulk of the
reserve would be food grains-wheat and rice.
11 United States Exports of Surplus Commodities, by Frederick C. Dirks, International Monetary Fund
Staff Papers, vol. V, No. 2, Washington, August 1956.
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
391
Other exporting countries might join in supplying part of the
reserves. India, concurrently with its purchases for local currency
from the United States, purchased a substantial quantity of rice from
Burma.
Numerous problems for both the supplying and receiving govern-
ments would arise in the establishment and administration of a
national reserve. Presumably, it would be the property of the
receiving country, but that country would need to make firm com-
mitments concerning purposes for which withdrawals would be made,
and the ways in which replacements would be made. If the sole use
of the reserve were to be for disaster relief, presumably the stocks
could be supplied as a gift under title II of Public Law 480. But in
such a case the United States would probably be justified in retaining
veto power over any proposed release. On the other hand, if the
stocks were purchased for local currency, and were to be used for other
purposes in addition to disaster relief, final decisions as to releases for
all purposes might properly rest with the government of the receiving
country. If stocks were used in the name of disaster relief, the United
States would decide whether the disaster was great enough to warrant a
gift to replenish them.
In some countries, storage facilities for part or all of the reserve
would have to be constructed. The stocks would have to be managed
carefully to prevent storage losses. Measures would be needed to
prevent adverse effects on trade and black marketing when stocks
were released. Technical assistance in administering the reserve
would enhance its effectiveness in many cases, and in some countries
economic aid in constructing storage facilities might be justified.
But none of the problems would be insurmountable, if the governments
of the United States and other contributing countries, if any, and the
receiving country cooperated wholeheartedly in seeking solutions.
Regional reserves might be feasible to serve more than one country.
A reserve for the Asian members of the Southeast Asia Treaty Organi-
zation has been proposed. Supplies might come solely from the
United States, or jointly from exporting countries which are members
of the Organization. The reserve should be in an easily accessible
location in southeast Asia. Stocks might be loaned or sold to non-
member governments in south and southeast Asia in times of emer-
gency. The objectives and administrative procedures could be
similar to those suggested above for national reserves, and it could
be managed and administered by a special unit in SEATO Head-
quarters.
A regional reserve for south and southeast Asia might be created
by the Colombo Plan countries. A proposal for the creation of a
wartime food reserve for the European countries of the North Atlantic
Treaty Organization has been considered by member governments.
The financial and administrative problems involved in the creation
and management of both national and regional reserves would be
difficult to resolve, but should not be insurmountable. Such reserves
would have special value in food-deficit areas.
D. POTENTIALITIES AND LIMITATIONS
Use of surpluses to aid the economic growth of underdeveloped
countries has greater potentialities than have been realized to date.
At the same time, the use of surpluses has limitations as a direct aid
392
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
to development and in advancing the political and economic objectives
of United States foreign policy.
The potential is great, because in most countries receiving economic
aid, food supplies are inadequate. Grants or sales for local currency
can serve the dual purpose of increasing the supply of food and other
commodities and increasing the funds for use in financing development
projects.
Economic aid is a continuing process, and use of surpluses should
be continued on a regular basis over periods of 3 to 5 years if they are
to be effective. They will be needed by the receiving country until
development programs bring increases in production of the scarce.
commodities, or until development in other sectors of the economy
results in a volume of exports sufficient to provide foreign exchange
to pay for imports through commercial channels. Because of the
great added value of agreements extending over a period of years and
the prospect for continuing surpluses, the legislative authorizations for
surplus disposal might usefully be extended for a 5-year period.
One limitation on the use of surpluses is the fact that economic
development usually requires large amounts of equipment, machin-
ery, and other items obtainable only from advanced countries. Such
items must be imported by the underdeveloped country and cannot
be financed by local currencies generated by surplus disposal programs.
Loans or grants of dollar aid are needed unless the receiving country
uses some of its meager foreign exchange for this purpose. In a pilot
study of the use of surpluses for economic aid to India, the Food and
Agriculture Organization has estimated that, even in projects where
the cost of labor is highest in relation to other expenditures, only
rarely could more than half of the total costs of a project be covered
by local currencies generated by agricultural surpluses.
Another limitation is the difficulty which receiving countries have
in absorbing large importations of United States surpluses without
sharply reducing the consumption of other imports or lowering prices
to their own producers. Carefully planned programs in the receiving
countries, which take account of the rate at which surpluses are to be
released into market channels and the manner of distribution, can
ease this problem. Workers on development projects might receive
part of their wages in the form of wheat, rice, and other commodities.
Thus far, the United States has not participated in planning how the
surplus commodities could best be distributed by the receiving country,
and government personnel in many of the receiving countries do not
have the knowledge and experience necessary to do so. The United
States could render a valuable service by providing specialists in this
field. This would help get maximum economic development from the
use of surpluses, and would also increase the amount of surpluses that
could be used advantageously.
There are special limitations regarding cotton and tobacco. Some
countries are not equipped to manufacture additional quantities of
cotton goods. In such cases, the cotton can be made into cloth in
third countries, the manufacturers retaining part of the cotton as
payment therefor. Tobacco consumption is low in many under-
developed countries, and greater use would not have the same effect
as more food and cotton would.
The use of surpluses as military aid also is restricted. In some
countries, surplus food can be used effectively in the rations of the
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID 393
armed forces, and cotton can be used to provide clothing for them.
In addition, local currencies can be used in military construction to
pay for labor and domestic materials. But potentialities appear
more limited than for economic aid, unless the surpluses are used to
pay the more advanced countries to manufacture military equipment
for their own use or for transfer to the less-developed countries which
do not have facilities for producing it domestically.
Some of the limitations in the use of surpluses can be overcome in
the planning and administration of the program. In general, the
need for economic development is so apparent and the deficits of food
and other agricultural commodities so great in many of the under-
developed countries, that opportunity for the creative use of surpluses
may well increase with experience. Our abundant supplies are a real
national asset for promoting economic and social development in
friendly countries.
IV. PROPOSALS FOR INTERNATIONAL COOPERATION
The creation of an intergovernmental agency to acquire excess
stocks of agricultural commodities, and to handle and distribute them
in ways which would be mutually beneficial to both exporting and
importing countries has been under consideration by the member
countries of the Food and Agriculture Organization and the United
Nations for a number of years. Several proposals have been made.
There is general agreement as to the purposes and objectives to be
served. But no agreement has been reached on definite methods of
acquiring, financing, and distributing the surpluses, nor on how to
resolve the many intricate international financial and administrative
problems which would confront the agency.
A. THE WORLD FOOD BOARD
In 1946, at a special meeting of the newly formed Food and Agri-
culture Organization, it was recognized that the wartime food short-
ages which still existed might soon disappear, and that some countries
then would be confronted by surpluses of some commodities, while
serious hunger and malnutrition persisted in many areas. The Direc-
tor General of the Food and Agriculture Organization was directed to
present proposals for dealing with these longer term problems. He
proposed a World Food Board, with these functions:
1. To establish a world food reserve to relieve emergencies
created by crop failures in any part of the world.
2. To stabilize prices of agricultural commodities in world
markets.
3. To finance disposal of agricultural surpluses on special terms
to countries in urgent need.
4. To cooperate with other intergovernmental agencies con-
cerned with industrial and agricultural development and with
international trade policy.
These general objectives were accepted by the Food and Agriculture
Organization Conference; and a Preparatory Commission, composed
of representatives of the 18 member countries, was appointed to bring
forward specific proposals. The Commission, after lengthy study,
did not recommend a World Food Board, empowered to pursue the
394
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
objectives set forth by the Director General; instead it recommended
that-
1. Famine reserves be set up by individual countries, both
importing and exporting, for use nationally and internationally
under agreed conditions.
2. Price stabilization reserves, or buffer stocks, of specific
commodities be accumulated by individual countries, but adminis-
tered under internationally agreed rules.
The Commission also made a series of recommendations for sales
of food at special prices to relieve hunger and improve nutrition.
However, the member governments of the Food and Agriculture Or-
ganization took no action to implement any of the recommendations.
B. INTERNATIONAL COMMODITY CLEARING HOUSE
By 1949, surpluses of some commodities were appearing, especially
in the United States and other dollar-area countries, although supplies
in other parts of the world were still low. The Director General of
the Food and Agriculture Organization was asked to present to the
member governments at a forthcoming annual conference proposals
for "promoting the balanced expansion of world trade in agricultural
products." He convened an international group of experts in agri-
culture and world trade, and a plan for an International Commodity
Clearing House was developed.
The Clearing House was to have capital of $5 billion, and authority
to sell debentures and negotiate loans secured by stocks in its posses-
sion. Its principal functions were to:
1. Purchase stocks of commodities in surplus supply.
2. Make sales to be paid for in the currencies of the receiving
countries.
3. Make sales at special prices to countries in need.
4. Hold surplus stocks as reserves against periods of shortage.
5. Negotiate exchange of commodities on a barter basis.
The proposal was presented to the Food and Agriculture Organiza-
tion Conference in 1949, but it was not accepted.
The objectives of the World Food Board and the International Com-
modity Clearing House were generally accepted by the member gov-
ernments of the Food and Agriculture Organization. Unwillingness
to establish either the Board or the Clearing House apparently was
caused by the fact that each had a rather wide range of objectives,
without specific recommendations concerning financial and other obli-
gations to be assumed by member governments. Nor were the
methods of administration and operation specific, and it became
obvious that in pursuing the different objectives, different methods of
operation and varying obligations of individual governments would
be necessary. Some governments, including the United States, ap-
parently believed that bilateral programs of individual governments
would be more effective and would serve their national interests
better.
C. WORLD FOOD RESERVE
Study and debate nevertheless continued in the Food and Agricul-
ture Organization, the Economic and Social Council, and other organs
of the United Nations. And in 1954, the United Nations General
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
395
Assembly debated the feasibility of establishing a World Food Re-
serve within the framework of the United Nations. The main
objectives of the reserve would be to-
1. Raise levels of production and consumption in areas of
chronic malnutrition.
2. Relieve famine and other emergency situations.
3. Counteract excessive price fluctuations.
4. Promote the rational disposal of intermittent surpluses.
The Food and Agriculture Organization prepared a comprehensive
report on what was being done, nationally and internationally, to
meet these objectives, and submitted it to the Economic and Social
Council in late 1955. It was discussed at length at the Council meet-
ing in the summer of 1956. Most of the participants in the discussion
endorsed the idea of a World Food Reserve, but the representatives of
the United States and the United Kingdom were opposed. The
Council is continuing its study, but has not yet reported its conclusions
to the General Assembly.
D. INTERNATIONAL FOOD AND RAW MATERIALS RESERVE
Many individuals and groups in the United States believe that the
creation of an international agency to handle the disposal of all or part
of the surpluses of the United States, and of other countries, would be
in the national interest. They believe that the United States should
take the lead in the United Nations and its agencies in efforts to estab-
lish such an agency and develop workable programs.
A Senate resolution (S. Res. 86, 84th Cong., 1st sess.), sponsored by
22 Senators, was introduced in the 84th Congress, which authorized
and directed the President and his representatives at the United
Nations, the Food and Agriculture Organization, and other appro-
priate international bodies to enter into international negotiations for
the purpose of preparing a specific plan for an international agreement
or agreements on the creation of an International Food and Raw
Materials Reserve. A somewhat similar resolution (S. Res. 85, 84th
Cong., 1st sess.), looking toward the creation of a World Food Bank,
was introduced. The Senate Foreign Relations Committee held
hearings on both these resolutions. They were supported by many
private individuals and groups, but the executive branch of the
Government opposed them. The proposed International Food and
Raw Materials Reserve would-
(a) Provide for the acquisition and storage *** of farm
products and other raw materials *** when overall surpluses
would otherwise cause undesirable price movements;
(b) Be used to prevent famine and starvation;
(c) Help absorb temporary market surpluses. ***
* * *
(d) Provide for the use of currencies paid by purchasers [from
the Reserve] * **to assist in financing approved economic and
social development programs
These objectives are similar to those of the United States surplus
disposal program. However, many problems-not present in the
United States program-would arise in negotiating the intergovern-
mental agreement, in setting up the new international institution,
providing finances, and establishing effective administrative pro-
cedures. Apparently the departments and agencies of the executive
396
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
branch feel as they have felt concerning all earlier proposals for
international action in this field-that these problems would be
unmanageable, and that an international agency could not be an
effective instrument for surplus disposal.
On the other hand, if the United States would take the lead in such
international negotiations, many of the fears and uncertainties of
other governments concerning the aims and objectives of the United
States in its surplus disposal and related programs would be allayed,
and workable and acceptable agreements for United States participa-
tion in international programs covering some phases of our wide-
spread operations might be reached. Lengthy negotiations might
be necessary to reach agreement on the scope of the international
programs and to establish workable and expeditious administrative
machinery and procedures. The agreements would not necessarily
cover the whole range of objectives set forth in the resolutions nor
preclude the United States from continuing bilateral programs in the
fields covered by the agreements. For example, the United States
participates in, and is the principal contributor to, the technical-
assistance programs of the United Nations and its specialized agencies,
and of the Organization of American States, but at the same time.
conducts bilateral programs with many countries.
E. INTERGOVERNMENTAL CONSULTATION ON SURPLUS DISPOSAL
In 1949, the Food and Agriculture Organization established an Ad-
visory Committee on Commodity Problems, and representatives of
24 member governments now serve on the Committee. It makes
periodic reports on the world situation and outlook for different com-
modities, and makes special studies of critical supply and price situa-
tions. Recently, the Committee has been giving particular attention
to the utilization of surpluses. It has promulgated a set of principles.
designed to provide a maximum of beneficial effects and to minimize
the harmful effects of surplus disposal problems. These principles
have been accepted by 36 member nations of the Food and Agriculture
Organization, including the United States.
In 1954, a Consultative Subcommittee on Surplus Disposal was
established. Represented on this subcommittee are 21 member
governments of the Food and Agriculture Organization, including the
United States. The meetings provide a forum for consultation among
the United States and other countries concerning the United States
programs. Free discussions in this subcommittee by the United States
representatives concerning programs being considered and negotiated,
problems encountered, and results being achieved, would be helpful
and useful in allaying the fears of other exporting countries. The
advice and counsel of both exporting and importing countries might
point the way toward changes and improvements which would
increase the effectiveness of the programs in both the United States
and the receiving countries. When a new program is being negotiated,
the representatives of the United States and of the receiving country
might present the proposed scope of the program to the subcommittee,
and obtain the reactions and suggestions of the members, before the
program becomes final.
Full and frank discussion and consultation on specific programs and
policies among representatives authorized to present the viewpoints
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID 397
and positions of their respective governments might reveal how inter-
national programs, as contemplated in the Senate resolutions men-
tioned above, could be organized and administered for the benefit of
both exporting and receiving countries.
V. SUMMARY AND CONCLUSIONS
The purpose of this report has been to examine the existing agri-
cultural surplus disposal programs as they relate to foreign aid and to
determine what changes are indicated in the national interest.
The general conclusion is that our disposal programs have proved
useful, and should be continued with certain changes of emphasis and
some administrative modifications.
Agricultural surpluses have been a troublesome domestic problem
for so long that their great value in aiding the development of friendly
countries is not generally appreciated. They are an asset of unique
value. The United States is one of the few countries that has a sur-
plus in a world where agricultural production is barely keeping pace
with rapidly growing populations. This asset can be used with in-
creasing effectiveness in the achievement of our general foreign policies
if only we recognize more fully the real contribution which our agri-
cultural surpluses can make.
The disposal programs are admittedly a step away from our tradi-
tional view of world trade with a minimum of government restrictions.
They do contain elements of "state trading" and bilateralism. But
the major agricultural countries of the world have brought their
governments into the pricing and marketing of farm products on a
decisive scale. Bilateral trading has become the rule, not the exception.
If all this is painful to us, what are the alternatives? We could return
to the policy in effect before adoption of the present disposal programs,
which means holding our surpluses off the world market until the out-
put of other exporting countries has been disposed of. Another
alternative would be to abolish all Government price support and
storage operations, and let prices be made entirely in the market
place.
Assuming that neither of these alternatives would be acceptable to
the United States, the report reaches specific conclusions concerning
the disposal programs and foreign aid, and presents suggestions for
changes in them.
A. CONCLUSIONS
1. Despite substantial disposals and efforts to reduce output, sur-
pluses of some commodities must be expected to continue for some
time.
2. Existing disposal programs are effective, considering the many
United States agencies and foreign governments involved, but changes
are needed to bring better coordination and to expedite operations.
3. The effect on other exporting countries has not been demon-
strably harmful despite their fears in this respect; at the same time,
care is needed to avoid harmful effects in the future.
4. The effect on countries receiving surpluses has been beneficial.
5. Alternative methods of handling excess stocks through interna-
tional cooperation have not been accepted by the nations of the world;
creation of national and regional reserves is receiving international
398
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
attention at present, and United States leadership might yield useful
results.
B. SUGGESTED CHANGES
1. Continuation of the disposal programs should be authorized for
an additional 5 years beyond the present expiration date of June 30,
1957.
2. The administrators of the programs should be free to make dis-
posal agreements with Iron Curtain countries when and if there is an
opportunity thereby to advance the aims and aspirations of freedom-
loving peoples.
3. More of the proceeds from the sale of surplus commodities for
local currencies should be used for economic development and less
for paying United States obligations abroad.
4. The emphasis in economic development programs should con-
tinue to be on loans, but it should be recognized that grants also can
play a useful role in particular circumstances and should be used
where warranted.
5. In a few years, the problem will arise of what to do with the
foreign currency funds which will be accumulated abroad by the
United States in the form of loan repayments; a policy regarding them
should be worked out now.
6. There are two programs for the sale of surpluses in exchange for
foreign currency; these should be consolidated.
7. In the authorization of grants for disaster relief, more exact
legislative guidance as to what qualifies as a "disaster" would be
useful.
8. Programs of a nondisaster relief nature now being conducted
under title II of Public Law 480 should be transferred to title I and
linked directly to economic development.
9. The barter provision of Public Law 480 must be administered
carefully to avoid retaliatory steps by other countries; as surpluses
are worked down, barter should have a lower priority than economic
development and relief programs.
10. Donations to private voluntary relief agencies should be con-
tinued, but in the light of their rapid growth, closer coordination with
other phases of the program is needed.
11. Earlier consultation with other exporting countries on pending
agreements should be arranged.
12. The food-deficit countries should be encouraged to establish
adequate food reserves.
13. The United States should work with receiving countries-
always with their full cooperation-to develop methods of domestic
distribution in those countries, which will result in increased con-
sumption, minimizing the possibility of unfavorable repercussions on
their domestic prices and other imports.
14. The United States should take the lead in promoting consulta-
tions and negotiations on the possibilities of international cooperation
in the handling of surpluses.
APPENDIXES
APPENDIX I
TABLE I.—Value of United States agricultural exports by type of financing, fiscal
years 1954-55 and 1955–56

Disposal programs
Total exports
Total
Com-
under
mercial
Grants
Foreign
disposal
(dollar)
Disposal
and do-
currency Barter
programs
exports Value
pro-
nations 1
sales
grams:
Million
Million
Million
Million
Million
Million
Coarse grains:
Bread grains:
1954-55...
1955-56-
1954-55....
dollars
dollars
dollars
dollars
dollars
dollars
Percent
70
156
98
324
174
498
65
42
267
120
429
170
599
72
24
19
1955-56-
4
60
168
82895
23
232
888998
179
245
27
158
390
60
Rice, milled:
1954-55
4
4
60
64
1955-56----
27
Cotton:
1954-55...
95
127
1955-56-
7
1954-55...
Tobacco, leaf:
1955–56------
Fats, oils, and oilseeds:
1954-55----
(3)
1955-56...
55
16
15
52
26
121
Dairy products:
1954-55
128
1955-56.
179
Total, including other:
1954-55.--
383
354
1955-56-----
282
2 22 22 22 22 29
47
34
81
222
463
685
32
LO
5
214
157
371
58
15
290
305
52
326
378
CO LO
3
84
414
498
5
142
480
622
(8)
130
82
212
200
91
291
125
862
2,281
3, 143
776
298
1,356
2, 137
3, 493
22 NO 008 200 2 12 28 Ng
6
58
5
14
17
23
62
69
27
39
1 Totals for commodity groups include estimated value of donations under sec. 302 of Public Law 480
which are not identified by name in official United States export statistics.
• Because of differences in reporting periods, exports under Government programs are not strictly com-
parable with official export statistics.
• Less than 0.5.
Source: Based on data from The Demand and Price Situation, 1957 Outlook Issue, U. S. Department of
Agriculture, November 1956.
399
400
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
TABLE II.—Approximate quantities of principal commodities in agricultural
surplus disposal agreements, fiscal years 1954-55 and 1955–56¹

Feed
Wheat grains
To- Fats Dairy
Rice Cotton bacco and prod-
oils ucts
1954-55
Title I, Public Law 480 (sales for foreign
currency)
Sec. 402, Mutual Security Act (sales for
foreign currency).
Million Million dred-
bushels bushels weight
| |
49.5 25.6
Million
hun-
Thousand Million Million Million
bales pounds pounds pounds
2. 1
750.2
57.3
183.6
31.9
68.8
13. 4
1.0
979.5
3.6
249.5
Title II, Public Law 480 (grants for relief)
Title III (donations to voluntary agencies).
20.0
4. 4
· 5
27.9
45. 5
18.0
54. 4
487.5
Title III (barter) *.
45.0
21. 4
(8)
1.0
19.7
1.0
Total for 1954-55.
183. 3
64.8
3.6
1, 758. 6
60.9
552,7
538, 4
1955-56
Title I, Public Law 480 (sales for foreign
currency).
110.0
4 28.9
8.4
957. 1
63.9
841.5
44.3
Sec. 402, Mutual Security Act (sales for
foreign currency).
71. 4
17.7
1
$ 629. 1
1.9
126.6
Title II, Public Law 480 (grants for relief)
11.3
2.2
1.9
5.8
20.5
62, 9
Title III (donations to voluntary agencies).
3.7
1. 4
1.0
17.0
747.1
Title III (barter) ²
68.6
153. 6
(3)
51.0
15.0
Total for 1955–56..
265.0
203.8
11. 4
1, 643. 0
65.8 1,020. 6
854. 3
Total for 1954-55 and 1955–56..
448.3
268.6
15.0
3, 401. 6
126.7 1, 573. 3
1, 392. 7
1 Varying amounts of some commodities not listed in the table are included in agricultural surplus dis-
posal programs.
* Exports during the fiscal year.
• Small quantity.
• Includes 2.2 million bushels of feed wheat.
Includes 167,000 bales cotton linters for Spain.
NOTE.-In fiscal year 1953-54, approximate quantities of the following principal commodities were dis-
posed of under sec. 550 of the Mutual Security Act: Wheat-38.5 million bushels; feed grains-8.6 million
bushels; cotton-284,400 bales; tobacco-61.6 million pounds; fats and oils-247 million pounds.
Source: Based on data furnished by U. S. Department of Agriculture and International Cooperation
Administration.
TABLE III.-Quantities actually shipped under Public Law 480, fiscal year 1955–56

Wheat..
Cotton....
Feed grains.
Rice, milled..
Tobacco...-
Butter.
Cheese-
Nonfat dry milk.
Commodity
Foreign
currency,
Title I
Grants,
Title II
Dona-
tions, sec.
tions, sec.
Barter,
sec. 303,
Total
302
million bushels..
93.0
12.0
3.5
68.6
177.1
1,000 bales..
_million bushels.
467.4
28
51
546. 4
23.2
1.2
1.3
153. 6
179.3
million hundredweight..
2.6
1.9
.1
2
4.8
..million pounds..
71.3
71.3
..do…..
4.7
3.7
191. 4
199.8
2.5
20.8
120.9
144.2
..do.
11.0
21.5
369.5
402.0
Source: Based on data furnished by the U. S. Department of Agriculture.
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID 401
TABLE IV.—Wheat-World and United States production and exports

Productio
Exports
United States exports
as percent of-
Year beginning July-
World
United
States
World
United
States
World
exports
United
States
production
1925-29_
1935-39 1
1948-49
1949-50.
1950-51.
1951-52_.
1952-53
1953-54.
1954-55....
1955-56...
Million
bushels
5,310
6, 100
6,375
Million
bushels
Million
bushels
823
803
1,098
1,019
825
938
988
7,560
1,306
1,066
987
7,465
7,025
1, 173
879
984
7,380
937
1,012
6.200
759
1,295
652
986
117777
6,760
6, 495
Million
bushels
Percent
Percent
21
21
61
9
504
51
299
36
366
39
8
39
27
36
475
45
48
318
32
25
24
18
274
28
28
341
34
36
1 United States exports small (not representative)-drought years.
• Estimated in September.
Source: Based on data from the U. S. Department of Agriculture.
TABLE V.-Cotton-World and United States production and exports

Production
Exports
United States exports
as percent of-

Year beginning August-
World
United
States
World
United
States
World
exports
United
States
produc-
tion
Thousand
bales 1
1924-28___
26, 818
Thousand
bales ¹
15,029
Thousand
bales 1
Thousand
bales 1
Percent
Percent
14, 592
1935-39
8,817
60
59
31, 689
2 13, 149
13, 247
1948-49-
5, 589
42
43
29, 160
14,877
10,987
1949-50-
1950-51-...
1951-52
1952-53.....
1953-54----.
1954-55 ...
1955-56
4,961
45
33
31,310
$ 16, 128
12, 552
6, 004
48
37
28, 107
* 10,014
11,878
4 4, 280
36
43
35, 680
15, 149
12, 185
5,711
47
38
36, 820
15, 139
11, 754
3, 181
27
21
39, 120
16, 465
13, 059
3,914
30
38, 630
24
* 13, 692
12, 158
3.585
29
26
39, 520
* 14, 721
12, 700
2,320
18
16
1 Bales of 478 pounds net prior to 1946 and 480 pounds thereafter.
* United States production controls in effect.
• Production controls anticipated.
• United States export quotas in effect.
• Preliminary.
Source: Based on data from the U. S. Department of Agriculture.
402
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
TABLE VI.-Feed grains 1 (corn, oats, barley)-World and United States production
and exports

Production
Exports
United States exports
as percent of—

Year beginning July-
United
World
United
States
World
United
World
States
States
exports
produc-
tion
1925-29.
1935-39 *
1948-49.
1949-50....
1950-51....
1951-52.
1952-53.
1953-54..
1954-55 ..
1955-56-...
Thousand
Thousand
Thousand
Thousand
short tons
short tons
short tons
short tons
Percent
259, 692
Percent
98,864
14, 634
1,699
259, 808
12
12
87,288
14, 459
1,425
10
290, 080
131, 718
10,498
3,684
269, 440
35
116, 450
11,054
4,010
36
271, 120
115, 296
10, 112
4,399
43
276, 740
108, 536
12,407
3, 179
26
293, 140
117,150
14,312
4, 485
31
297, 140
114, 249
15,323
3, 611
24
292, 900
3
117, 277
14, 101
3, 578
25
320, 720
124, 359
3
12,899
6, 368
49
5
2233434 M MO LO
¹ Does not include grain sorghums as data on world production not available. United States production
and exports of grain sorghums at high level in recent years.
• United States exports small (not representative)-drought years.
Source: Based on data from U. S. Department of Agriculture.
TABLE VII.-Rice-World and United States exports

Calendar year
Exports
United States exports
as percent of-
World
United
World
States
export
United States
production
Million
Million
hundredweight| hundredweight
Percent
Percent
1925-29_
1936-40-
141
3
2
21
176
2
1
13
1948
78
9
12
36
1949
83
12
14
44
1950__
88
11
13
44
1951
106
11
10
37
1952
110
18
16
58
1953...
97
18
19
53
1954
102
12
12
29
1955_
109
11
10
31
Source: Based on data from the U. S. Department of Agriculture.
TABLE VIII.-Tobacco-World and United States exports
1935-39
1948
1949.
1950
1951.
1952
1953
1954.
1955...
Exports
United States exports as
percent of-


Calendar year
World
United
States
World United States
exports
production 1
Million
Million
pounds
pounds
declared
declared
weight
weight
1. 154
421
963
427
26
1, 241
498
40
27
1, 200
478
40
26
1, 178
522
41
25
1., 155
396
34
22
1,302
519
40
25
1,290
454
35
23
1,393
540
39
28
Percent
36
44
h
Percent
"Percentage that exports (farm sales weight basis) in marketing year shown comprise of production.
Source: Based on data from the U. S. Department of Agriculture.
31
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
403
1934-38...
1948
1949....
1950...
1951...
1952
1953.
1954 2
1955 2
TABLE IX.-Cheese-World and United States exports

Exports 1
United States exports as
percent of―
Calendar year
World
United States World exports United States
production
Thousand
Thousand
pounds
pounds
Percent
Percent
617, 288
1,281
529, 104
95, 592
0.2
18. 1
0.2
8.7
771, 610
98, 021
12.7
8.2
800, 810
54, 644
6.8
4.6
817, 022
80, 960
9.9
7.0
749, 564
3, 811
.5
.3
818, 836
20, 069
2.4
1.5
834,000
34, 388
4.1
2.5
917, 000
147, 510
16. 1
10.9
1 Includes United States donations to private relief agencies.
• Preliminary.
Source: Based on data from U. S. Department of Agriculture.
1934-38
1948_.
1949_
1950...
1951----
1952...
1953.
1954
1955
TABLE X.-Nonfat dry milk solids-World and United States exports

Exports 1
United States exports as
percent of-
Calendar year
World
United
States
World United States
exports production
Thousand
pounds
Thousand
pounds
Percent
Percent
66, 138
5, 851
396, 828
360, 223
9
91
1
38
529, 104
214, 498
41
23
630, 762
331, 108
542, 471
224, 094
485, 810
59, 526
585, 784
182, 510
31
617,000
257, 234
42
730,000
561, 371
2=2727
52
38
41
32
12
7
15
18
38
1 Includes United States donations to private relief agencies.
Source: Based on data from U. S. Department of Agriculture.
TABLE XI.-Butter-World and United States exports

Exports 1
United States exports as
percent of-
Calendar year
World
United
States
World
exports
United
States
production
1935-39
1948_..
1949_..
1950__
1951__
1952__
1953_
1954 8
1955 2
Thousand
pounds
1,344, 806
837, 748
947, 978
1, 103, 356
936, 886
947, 978
994, 216
1, 000, 000
1, 230, 000
Thousand
pounds
1,370
5,768
4, 174
26, 317
21, 943
111
1 Includes United States donations to private relief agencies.
• Preliminary.
Source: Based on data from the U. S. Department of Agriculture.
914
24, 554
54, 487
225, 977
Percent
Percent
0.01
0.01
.07
.04
.4
.2
2.4
2.3
1.6
1.5
.1
.1
2.5
1.5
5.4
3.3
18.3
14.6
94413-57-27
404
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
TABLE XII.-Edible fats, oils, and oilseeds-World and United States production
and exports

1935-39
1948
1949
1950
1951.
1952..
1953.
1954.
1955 4
Production ?
Exports
United States exports
as percentage of—
Year 1
United
United
World
United
World
States
World
States
exports
States
production
Million
pounds
Million
pounds *
5, 926
8, 439
Million
pounds
4,790
2,816
Million
pounds
(3)
663
Percent
3.7
7.9
18.0
171117
30, 760
27, 230
30, 020
31, 830
34, 300
33, 680
35, 100
35, 900
8, 693
8, 585
9, 004
9, 014
9,045
36, 360
9, 100
10,000
1,567
1,168
Percent
4.6
23.5
40.8
27.1
1, 601
1,217
994
4,936
5,880
1, 690
36.6
31.8
23.6
34.2
13.6
17.8
13.5
11.0
18.6
2, 202
37.4
22.0
3,840
4,310
4,378
3, 830
4, 204
1 United States production on basis of marketing year beginning Oct. 1; other data on basis of calendar
year.
• World data include oil and oil equivalent of oilseeds, of cottonseed, peanuts, soybeans, sunflower seed,
olive oil and sesame, and lard and butter. United States data include foregoing except for sunflower seed,
olive oil, and sesame.
Less than 500 million pounds.
• Forecast.
Source: Based on data from U. S. Department of Agriculture.
APPENDIX II
(This outline was prepared by the staff of the special committee to
serve as a guide for the National Planning Association in preparation
of its report to cover subjects of interest to the committee.)
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
Purpose. This project will survey the extent to which surplus agri-
cultural products are a factor in foreign aid. It will examine the
types and amount of commodities that are involved and present
techniques for their disposal abroad. The study will discuss the
advantages and disadvantages of agricultural surplus disposal abroad
with respect to the overall objectives of foreign aid. It will consider,
finally, the extent and manner in which disposal abroad of agricultural
surpluses can be more effectively integrated with foreign aid programs.
The study is aimed at assisting members of the committee to determine
what changes, if any, in existing legislation pertaining to foreign aid and
agricultural surplus disposal are indicated in the national interest.
I. How much agricultural surplus is now being moved abroad under
Government disposal programs? A survey of the amount and types of
commodities which have entered into special disposal programs during
the past 3 years. This section should cover the following points.
(a) Types of commodities and value.
(b) Volume as a percentage of total United States production, total
United States surplus and total world trade.
(c) Countries to which surplus commodities have been supplied.
II. How are agricultural surpluses presently disposed of abroad? A
summary of Public Law 480 and any other pertinent legislation and a
review of the manner in which it is being administered.

(a) Summary of the legislation.
AGRICULTURAL SURPLUS DISPOSAL AND FOREIGN AID
405
(b) Role and methods of the Department of Agriculture.
(c) Role of Department of State.
(d) Role of Department of Defense.
(e) Coordination of the activities of the departments and agencies
for purposes of integrating objectives of surplus disposal programs and
foreign aid programs, in the context of total foreign policy interests
of the United States.
III. To what extent can agricultural surplus disposal abroad, as pres-
ently pursued, serve the objectives of the foreign aid program and United
States foreign policy? (Coordinate with project 2.) An examination
of the potentialities and limitations of the direct functions which agri-
cultural surplus can perform in connection with foreign aid, and the
extent to which the uses of the proceeds in foreign currencies from the
sales of surpluses can replace direct dollar assistance under the aid
programs or otherwise be used to serve the national interest. To
include the following:
(a) The effect of the program upon the countries purchasing United
States surplus agricultural products.
(b) The effects of the program upon other agriculture exporting
countries.
(c) The beneficial and detrimental effects of the program as related
to United States political and economic objectives.
(d) The effects of uses of foreign currencies received from the sale.
of surplus agricultural commodities. Include authorized uses and
actual uses. Treat specifically:
(1) Relative merits of present balance between military and
economic development uses.
(2) Relative merits of grants as compared with loans.
(3) Provisions relating to dollar returns (sec. 104 of Public
Law 480).
(e) The effects of uses of funds granted to private nonprofit volun-
tary organizations (sec. 416 of the Agricultural Act of 1949, as amended
by sec. 302 of Public Law 480).
(f) The effects of the famine relief and other assistance provisions
of the act.
(g) The effects of the barter program for strategic materials (sec.
104b and 302 of Public Law 480).
IV. What alternative methods are possible for the disposal of surplus
agricultural commodities abroad, and what are their relative advantages
and disadvantages? An examination of alternative proposals for the
disposal of United States surplus agricultural products; an analysis
of the relative merits of these proposals in terms of United States
political objectives, the economic needs of foreign countries, and
probable effects upon United States agricultural surpluses.
(a) The proposal for the United Nations Food and Agriculture
Organization for a World Food Bank.
(b) International Food and Raw Materials Reserve.
(c) Other proposals.
V. Can surplus disposal abroad be maintained at current levels or
be increased in conformity with the objectives of United States foreign aid
programs and foreign policy generally? Summary of changes in present
surplus disposal methods, if any, which may be indicated on the basis
of the analysis in paragraphs III and IV above.
STUDY NO. 6
ADMINISTRATIVE ASPECTS OF
UNITED STATES FOREIGN ASSISTANCE
PROGRAMS
BY
THE BROOKINGS INSTITUTION
MARCH 1957
407
CONTENTS
Letter of transmittal.
Chapter I. Introduction_
Purpose and scope of the study.
Framework of analysis---
Chapter II. Review of postwar administrative experience….
Postwar transition: 1945-48--
Expansion of assistance programs: 1948-51..
New coordination arrangements: 1951-55-
Expanded role for the Department of State: 1955 to date.
Summary of administrative development_ - -
Chapter III. Administrative discretion and legislative control.
Multiple policy objectives- - -
Limitations on purposes or objects of expenditure
Continuity of foreign assistance.
Availability of funds.
Accountability for funds...
Form of administrative agency-
1
1
I
Chapter IV. Allocation of administrative responsibilities
General observations on allocation“.
-
Page
411
415
415
417
1
↓
418
419
421
423
428
434
1
436
437
440
444
448
454
t
457
+
1
461
462
1
Responsibility for military assistance-
463
Relationship between appropriations for military and economic
assistance_-_
468
Relations between Department of State and agency administering
assistance_-_
474
Primary responsibility for administration of technical and related
economic assistance_
481
nomic policy---
Coordination in the field_
Responsibility for administration of loans.
Chapter V. Choice between bilateral and multilateral channels_
The present pattern_..
The general issue and the main alternatives__.
Chapter VI. Coordination of administrative responsibilities.
General concept of coordination..
Assignment of responsibility for central coordination_
Choice of interdepartmental committees___
Coordination of foreign assistance with other aspects of foreign eco-
Chapter VII. The problem in perspective_
Administrative discretion and legislative control_
Allocation of responsibilities among executive agencies.
Utilization of multilateral channels_
Coordination among executive agencies.
Appendix..
490
494
1
1
494
496
1
505
505
506
512
517
522 ✓
527
527
I
529
1
532
I
533
I
536
1
409
LETTER OF TRANSMITTAL
The CHAIRMAN,
THE BROOKINGS INSTITUTION,
Washington, D. C., December 27, 1956.
Special Committee To Study the Foreign Aid Program,
United States Senate, Washington, D. C.
This report on the Administrative Aspects of United States Foreign
Assistance Programs has been prepared at the request of the Special
Committee To Study the Foreign Aid Program. It was agreed with
the committee that, in view of the uncertainty regarding the nature of
a future foreign assistance program, this report would concentrate
primarily on the identification of the principal issues involved in the
administration of foreign assistance and the marshaling of the major
arguments for and against the most feasible alternatives.
This is the third time since the end of the Second World War that
agencies of the United States Government have asked the Brookings
Institution to study and report on the administration of American
foreign assistance. The first occasion was in January 1948 when, at
the request of the late Senator Arthur H. Vandenberg, then chairman
of the Senate Committee on Foreign Relations, the Institution pre-
pared and submitted to the committee a Report on Administration of
United States Aid for a European Recovery Program. The second
occasion was in June 1951 when, pursuant to a request from the Bureau
of the Budget, the Institution reported to the Bureau on the results
of a comprehensive study of the Administration of Foreign Affairs
and Overseas Operations, with particular reference to the administra-
tion of economic and military assistance. This report had been pre-
ceded in the previous December by a preliminary unpublished report
to the Bureau on some of the more pressing problems involved in the
administration of foreign assistance.
In addition to these studies of the administration of foreign eco-
nomic and military assistance programs, the Institution on its own
initiative has also analyzed the substantive aspects of these programs.
In May 1951, the Institution published a study on Current Issues in
Foreign Economic Assistance. This was an interim report on a com-
prehensive study of the entire American experience with foreign as-
sistance during and since the Second World War. The results of
this study were published by the Institution in August 1953 in the vol-
ume on American Foreign Assistance. More recently, in early Sep-
tember 1956, the Institution published a study of United States For-
eign Policy, 1945-55, which, in appraising the important American
policies and actions since the war, also deals with the role of foreign
assistance in the full sweep of foreign policy.
These previous studies have provided indispensable background for
the analyses in the present report. Studies other than those pre-
411
412
LETTER OF TRANSMITTAL
pared under Brookings auspices have also provided valuable back-
ground. Some of these have been prepared by committees and com-
missions of the Congress, others by various agencies of the executive
branch, and still others by private organizations and individuals. It
is not possible here to list and acknowledge specifically all of the
sources that have been consulted, but it can be said that this growing
body of studies on various administrative aspects of American foreign
assistance programs has made easier the task assigned to the Institu-
tion by the special committee.
Within the limitations imposed by time and the availability of per-
sonnel, the Brookings staff members responsible for the present study
have sought, by means of interviews with appropriate officials in the
executive branch and on the basis of materials supplied by them, to
obtain insights into the administration of present assistance programs
and to gain some sense of the kinds of improvements that might be
needed. The Institution has had the wholehearted cooperation of
the several departments, agencies and officials concerned, and it ac-
knowledges with gratitude their great assistance in providing much
of the information and data regarding current operations on which
this report is based.
A systematic effort has also been made to interview several former
officials of the Government with respect to their experience in the
administration of foreign assistance. All have been most helpful in
sharing the results of their experience and in suggesting the kinds
of changes they thought might improve the administration of current
and possible future programs. Furthermore, in order to obtain a
better grasp of the essentials of many proposals now being advanced
by organizations and individuals outside the Government, their ad-
vocates were interviewed, particularly with respect to the administra-
tive features of their proposals. To all these persons outside the
Government the Institution expresses its grateful appreciation.
This study was directed by H. Field Haviland, Jr., under the gen-
eral supervision of Robert W. Hartley, director of international
studies, and Paul T. David, director of governmental studies. Other
Brookings staff members who contributed to it are: Robert E. Asher,
Maynard B. Barnes, William Adams Brown, Jr., Laurin L. Henry,
Emil J. Sady, Walter S. Salant, and Charles A. H. Thomson, with
Messrs. Henry, Sady, and Thomson devoting a major portion of their
time to the study. Philip M. Glick was retained as a special con-
sultant.
In the preparation of this report, the staff has had the benefit of
consultation with an advisory committee, consisting of Harlan Cleve-
land, dean of the Maxwell Graduate School of Citizenship and Public
Affairs, Syracuse University; Royden J. Dangerfield, director, Insti-
tute of Government and Public Affairs, University of Illinois; Row-
land Egger, chairman, Woodrow Wilson School of Foreign Affairs,
University of Virginia; Lincoln Gordon; William Ziegler, professor
of international economic relations, Graduate School of Business Ad-
ministration, Harvard University; James L. McCamy, professor of
political science, University of Wisconsin; Walter R. Sharp, professor,
department of international relations, Yale University; and Warren
Shearer, professor of economics, Wabash College. The Institution
is heavily indebted to this group for their many helpful suggestions.
LETTER OF TRANSMITTAL
413
H. Field Haviland, Jr., as project director and principal author, is
primarily responsible for the interpretations, concluding chapter, and
final drafting of the report. Special acknowledgment is made of the
contribution of the following staff members in connection with the
preparation of particular chapters: chapter II, Charles A. H. Thom-
son and Philip M. Glick; chapter III, Laurin L. Henry; chapter IV,
Emil J. Sady, Charles A. H. Thomson, and Philip M. Glick; chapter
V, Philip M. Glick; and chapter VI, Emil J. Sady and Charles A. H.
Thomson.
Finally, it must be noted that in making a report on a study of this
kind, the Institution presents it as a competent treatment of a subject
worthy of public consideration. Interpretations, however, are those
of the authors, and do not necessarily reflect the views of the other
members of the Brookings staff, or of the administrative officers of
the Institution, or of the board of trustees. In addition to their re-
sponsibility for the general administration of the Institution, the
function of the trustees, according to the bylaws of the Institution, is-
to make possible the conduct of scientific research and publi-
cation, under the most favorable conditions, and to safeguard
the independence of the research staff in the pursuit of their
studies and in the publication of the result of such studies.
It is not a part of their function to determine, control, or
influence the conduct of particular investigations or the con-
clusions reached.
Sincerely yours,
ROBERT D. CALKINS, President.
ADMINISTRATIVE ASPECTS OF UNITED STATES
FOREIGN ASSISTANCE PROGRAMS
CHAPTER I
INTRODUCTION
For the past 15 years the United States Government has been provid-
ing economic and military assistance on an unprecedented scale to other
countries. The multiple purposes of the assistance, the changing ob-
jectives, the unusual kinds of commitments, the varying magnitudes,
and the complex nature of the program have made the administration
of such assistance extremely difficult. Administrative arrangements
and procedures have had to be shifted repeatedly as the program and
top personnel have changed. What were good arrangements and pro-
cedures for the lend-lease operations during the Second World War
were not thought to be suited to the postwar task of administering
United States assistance for the European recovery program. Simi-
larly in 1950, after the Korean hostilities began and the United States
was confronted with the necessity for undertaking a worldwide pro-
gram of military assistance, further adjustments were made in the
machinery for administering economic assistance.
Now domestic opinion and shifting world conditions have given rise
to another reexamination of foreign assistance. Several reappraisals
of the economic and military aid programs are currently underway
in the Congress and the executive branch. In the background of these
reappraisals are diverging currents in American public opinion. One
view is that in the near future the United States ought "to get out of
the business" of providing assistance. The opinion of others is not
only that the United States is "in the assistance business to stay" but
also that it will have to do a much better job of it in the future. Some
of those who hold the latter view believe that a "bold new approach"
will be required if the United States is to meet adequately the chal-
lenges of rising expectations in the underdeveloped countries and the
new tactic of the Soviet Union that is aimed particularly at the less
developed parts of the world. Obviously, future administrative ar-
rangements may vary considerably, depending on what view prevails.
PURPOSE AND SCOPE OF THE STUDY
The purpose of this study is to analyze the administrative aspects of
United States foreign assistance programs, with particular reference
to the organization and procedures that might best be suited to the
administration of future programs. The scope of the study includes
the institutions, arrangements, and procedures now being used or that
could be used by the Government of the United States to finance the
415
416
FOREIGN ASSISTANCE PROGRAMS
transfer of civilian and military goods and services abroad, regardless
of whether the financing is by means of loans, grants, or advances for
the capital stock of an institution. It does not include institutions or
arrangements for investments, loans, or gifts made abroad by private
American citizens or nongovernmental organizations.
This study covers more than the administrative aspects of the pro-
grams authorized by the Mutual Security Act of 1954, as amended.
Included are some activities of such Federal agencies as the Export-
Import Bank. Also included are certain international organizations
and arrangements to which the United States advances or contributes
funds, such as the International Bank for Reconstruction and Develop-
ment and the Expanded Programme of Technical Assistance under the
United Nations.
In other important respects, the scope of this study is limited because
of other reports in the series being prepared for the Special Committee
To Study the Foreign Aid Program. The problem of personnel
administration and of the organization in the field are covered in other
studies for the special committee. Also the objectives and general
character of future United States foreign-assistance programs are
concurrently undergoing examination.
This study is confined to the identification and analysis of broad
administratíve issues and their appraisal in terms of the alternative
courses of action that might be adopted and the relative advantages
and disadvantages of each course. Furthermore, the issues selected
for analysis are primarily those that are expected to be of concern to
the Congress; they do not include all of those that eventually might
have to be dealt with by the executive branch.
Implicit in the purpose of this study, as assigned by the special
committee, are certain assumed conditions that also determine its
scope. Without these assumptions, this particular analysis could not
be undertaken.
The first condition is that there will continue to be a United States
foreign assistance program, comprising both economic and military
aid. Whether such a program will be of relatively short or long
duration and whether there will be a major shift in the methods of
financing by loans, grants, or advances to capital funds-can be left
open for the purposes of this analysis.
The second condition is that a future United States foreign-assist-
ance program will be of such magnitude and character that it will
require special organization and staff to provide effective administra-
tion. That is to say, the program will not be of such a minor scope
that the administrative responsibilities for it can simply be grafted
on to the regular duties of personnel in executive departments and
agencies not now primarily concerned with foreign assistance.
The third condition is that the United States will not be engaged
in military operations of such character as to overshadow completely
all other considerations of the national interest. This condition ex-
cludes from the scope of this study any detailed analysis of arrange-
ments and procedures of the kind that were necessary to administer
the lend-lease operations during the Second World War. Instead,
attention is focused more on the administrative experience under the
postwar foreign-assistance programs.
FOREIGN ASSISTANCE PROGRAMS
417
FRAMEWORK OF ANALYSIS
This report begins with a brief historical review of the successive
arrangements that have been used for administering postwar-assist-
ance programs, including the arrangements for programs adminis-
tered by international organizations and agencies in which the United
States participates. Also, as a prelude to the analysis that constitutes
the main portion of the study, the present pattern of administrative
organization is described in some detail.
Four groups of major issues involving the administrative aspects
of a future United States foreign-assistance program are dealt with
next. The identification and analysis of these issues are the principal
tasks of the study.
First, there are the issues pertaining to some of the kinds of man-
dates and instructions the Congress gives the executive branch with
respect to the administration of foreign assistance. These issues gen-
erally involve the administrative discretion to be allowed and the
legislative controls deemed necessary.
Second, there are the issues that center around the question of how
the major responsibilities for the administration of foreign-assistance
programs should be allocated among the executive departments and
agencies in Washington. These grow out of the need for improving
the effectiveness of the administration of such programs.
Third, there are the issues that arise in connection with relations
between the United States Government and various multilateral or-
ganizations engaged in economic assistance efforts. This group of
issues covers what is, to many, one of the most important questions
in the administration of future foreign-assistance programs, i. e.,
whether the United States should give increasing emphasis to the
multilateral approach.
Fourth, there are the issues that grow out of the need to provide
arrangements and procedures that will insure proper direction and
coordination of the administration for future foreign-assistance pro-
grams. These issues involve the problems of both central direction
and coordination in Washington as well as coordination in the field.
To facilitate an understanding of these major issues, sufficient his-
torical background and recent experience are given for each so that
a basis is provided for the ensuing analysis. In the examination of
each issue, a range of considerations is taken into account in weighing
the alternative courses of action that are proposed. Many of these
considerations derive from the variety of opinions held on what the
purpose, size, and content of future assistance programs should be.
Others are the result of conflicting philosophies regarding the proper
roles of the legislative branch and the executive branch, the pattern
of organization that should prevail in the executive branch, and the
types of administrative procedures that are most likely to be efficient.
In all cases, an attempt is made to present in as objective a manner
as possible the advantages and disadvantages of the particular courses
of action that are discussed.
Finally, this report concludes with some general observations. It is
hoped that these reflections may place in a better perspective the
problem of deciding what arrangements and procedures should be
adopted for the organization and administration of a future United
States foreign assistance program.
CHAPTER II
REVIEW OF POSTWAR ADMINISTRATIVE EXPERIENCE
During the decade since the end of the Second World War, the
United States has provided approximately $52 billion in foreign as-
sistance of all kinds. It has done so in order to aid the recovery of
war-damaged nations, particularly in Western Europe, to deter the
threat of Soviet-Communist expansionism, and to help fulfill the
aspirations of the underdeveloped countries.
Despite its magnitude, this extraordinary foreign assistance effort,
as the following table shows, has not taken a large proportion of
the annual production of goods and services. At their peak, in 1947,
expenditures for goods and services for foreign assistance were a little
less than 3 percent of the gross national product, and as the annual
output has grown during the prosperous postwar years, the propor-
tion shipped abroad in the form of foreign assistance has gradually
decreased.
Because of the unprecedented and complicated nature of the foreign
assistance programs that have been developed, several major adminis-
trative innovations and adjustments have been necessary in the organi-
zational structure and procedures of the Government. These innova-
tions and adjustments have been reflected in the changing pattern of
administrative arrangements for foreign assistance.
Gross national product, total Federal expenditures for goods and services, and
foreign aid¹
[Money figures in billions of dollars at current prices]

1946.
1947...
1948
1949
1950-
1951.
1952.
1953.
1954...
1955...
Federal expenditures for goods and services *
Total
foreign aid
Year
Gross
national
product
Foreign aid expenditures
Total:
as per-
centage of
gross
national
Total : Military Economic &
product
(1)
(2)
(3)
(4)
(5)
(6)
209. 2
23. 6
5.04
0.07
4.97
2.4
232. 2
20.5
6.61
.04
6. 57
2.9
257.3
22.0
5. 22
.30
4.92
2.0
257.3
26. 1
5.86
.21
5.65
2.3
285. 1
22.3
4. 17
.53
3.64
1.5
328. 2
41. 2
4.66
1.47
3. 19
1.4
345. 4
54. 7
4.98
2.60
2.38
1.4
363. 2
59.7
6. 31
4. 25
2.06
1.7
360.7
48.8
4. 72
3.16
1. 56
1.3
390.9
47.0
4.30
2. 13
2. 17
1.1
1 Sources: Gross national product from table 2 of National Income and Product of the United States,
1955, published in U. S. Department of Commerce, Survey of Current Business, July 1956. Total Federal
expenditures for goods and services are the sum of those shown in same source plus foreign aid in the form
of loans. For foreign aid figures for 1946-52, see William A. Reitzel, Morton A. Kaplan, and Constance G.
Coblenz, United States Foreign Policy, 1945-55 (1956), appendix C, p. 483. Foreign aid figures for 1953-55
are revisions of those published in that book.
For some years, figures in 4th and 5th columns do not add to those in 3d column because of rounding.
2 Federal Government expenditures for goods and services exclude such expenditures as interest on the
public debt, pensions and other transfer payments to individuals, grants-in-aid to State and local govern-
ments, and other payments not for currently produced goods and services. These payments have amounted
to between 13 and 22 billion dollars a year in the postwar period.
* Figures include net outflow of U. S. Government capital, adjusted to exclude, in 1946 and 1947, the
portion of the Government's subscription to the capital stock of the International Bank for Reconstruction
and Development and the International Monetary Fund that was not disbursed by these institutions to
foreign countries. In official statistics of gross national expenditure, U. S. Government net capital move-
ments are not included in Federal Government expenditures but are included in net foreign investment.
418
FOREIGN ASSISTANCE PROGRAMS
419
The administrative arrangements have passed through four de-
finable periods. First was the period of postwar reconstruction and
interim aid, lasting from 1945 until the creation of the Economic Co-
operation Administration in 1948. The second period was dominated
by the activities of the Economic Cooperation Administration and
lasted until the enactment of the Mutual Security Act of 1951. The
third period extended from 1951 until the abolition of the Foreign
Operations Administration in 1955. The fourth, and current period,
began with the establishment in June 1955 of the semiautonomous
International Cooperation Administration in the Department of State.
POSTWAR TRANSITION: 1945-48
American foreign assistance activities underwent a transition during
the 3 years following the end of the Second World War. Assistance
programs and agencies that had been established during the war
were liquidated; various temporizing and ill-coordinated efforts were
improvised to meet continuing relief needs; and a number of loans
were negotiated with countries that had been allied with the United
States during the war. The Foreign Economic Administration, which
had been established outside the Department of State to administer
foreign economic operations during the war, was dismantled and most
of its assistance functions were transferred to the Department of
State. The War Department and the successor Department of the
Army became responsible for assistance in the occupied areas, subject
to policy direction by the Department of State. The negotiation and
administration of the postwar loans came under the influence of the
Department of the Treasury as well as the Department of State.
The need for assistance abroad to relieve suffering and to help in
the task of reconstruction was appreciated even before the end of
the Second World War, but it was thought that the United States
could make much of its contribution more appropriately through
international agencies than as an individual government.¹ The
United Nations Relief and Rehabilitation Administration was es-
tablished in 1943, and the United States contributed $2.66 billion
through this agency before operations ceased in 1947. The Interna-
tional Bank for Reconstruction and Development and the Interna-
tional Monetary Fund were planned at Bretton Woods in 1944 and
came into existence in 1945; the United States subscribed $5.9 billion
as it financial share in these agencies.
Other assistance was made available on a bilateral basis. A new
financial agreement, negotiated with the United Kingdom in Septem-
ber 1945, provided for a line of credit from the United States of $3.75
billion, under arrangements giving the Treasury Department con-
tinuing administrative responsibility for the supervision of the loan.
Other large loans were made through the Export-Import Bank to
France and four members of the British Commonwealth: Australia,
New Zealand, South Africa, and India.
The efficacy of these arrangements, however, proved less than had
been anticipated. The problems most urgently requiring attention
1 This is based largely upon an analysis in the Brookings Institution, The Administra-
tion of Foreign Affairs and Overseas Operations (June 1951), ch. II (prepared for the
Bureau of the Budget and published by the Government Printing Office); and William
Adams Brown, Jr., and Redvers Opie, American Foreign Assistance (1953), ch. IV.
94413-57-28
420
FOREIGN ASSISTANCE PROGRAMS
also proved to be somewhat different from those that had been fore-
seen when lend-lease aid was terminated in August 1945. After the
United Nations Relief and Rehabilitation Administration was liqui-
dated in 1947, United States foreign assistance had to be continued
in the form of three emergency programs. One, called post-United
Nations Relief and Rehabilitation Administration aid, was exclu-
sively an economic program developed by the Department of State
for relief in war-devastated countries. It was administered by a
special assistant to the Assistant Secretary of State for Economic
Affairs, who used the services of other executive departments and
agencies, including the Departments of Agriculture and the Treasury
and the Maritime Commission, for procurement and transportation.
In the field, special staffs carried out such tasks as the receipt and
transfer of commodities and end-use inspection, while the economic
staffs of the embassies did most of the fieldwork in developing pro-
grams. The Philippine rehabilitation program was also initiated in
1947 under arrangements by which appropriations provided to the
Department of State were disbursed through the assistance of eight
other executive agencies.
The second program was authorized by the Greek-Turkish Aid Act
of 1947. The act delegated blanket authority to the President, who
in turn assigned to the Department of State the responsibility for
administering the program. The department created a special co-
ordinator's office to direct the program with the help of an interde-
partmental committee. Because of the criticism that had been leveled
against the United Nations Relief and Rehabilitation Administration
and post-United Nations Relief and Rehabilitation Administration
experience regarding the supervision of the use of aid supplies, the
Congress provided for special assistance missions in the field. One
was established in Greece, independent of the Embassy. In Turkey,
where the military assistance element was dominant, special person-
nel for the assistance programs were assigned to the Embassy and
placed under the Ambassador's direction. The program in Athens
became the most important facet of American policy in relation to
Greece, and serious frictions developed between the special mission
and the Embassy.
The third emergency effort was the program of the War Depart-
ment for Government and Relief in Occupied Areas. This pro-
gram provided supplies for the civilian populations of occupied terri-
tories, chiefly Germany and Austria, that were deemed essential to
prevent starvation, disease, and unrest.
Post-United Nations Relief and Rehabilitation Administration aid
was replaced by the interim aid program, authorized by the Congress
to help France, Italy, and Austria during the period when the Euro-
pean recovery program was under discussion. This program was
administered by the Department of State with essentially the same
machinery that had been used for the post-United Nations Relief and
Rehabilitation Administration program.
Throughout this period, the Institute of Inter-American Affairs.
continued to cooperate with Latin American governments in admin-
istering technical assistance programs for agricultural development,
public health, and elementary and vocational education. The Insti-
tute, which had been created as a Government corporation in 1942,
was transferred to the Department of State in 1946.
FOREIGN ASSISTANCE PROGRAMS
421
EXPANSION OF ASSISTANCE PROGRAMS: 1948-51
Under the impact of increasing world tension during the years
from 1948 to 1951, economic and military assistance programs were
abruptly and significantly expanded. The immediate postwar ten-
dency to return operating functions to the Department of State and
to encourage a reassertion of its leadership role with regard to all
foreign policy matters was suddenly checked by the establishment of
new operating programs outside the department. The principal de-
velopment was the creation of the independent Economic Coopera-
tion Administration with considerable autonomy in both policy and
administration. The threat of Communist expansionism in Europe
and Korea also led to an increased program of military assistance
and a more active role for the Department of Defense in that field.
Establishment of the Economic Cooperation Administration
As early as the summer and fall of 1947, the whole piecemeal pro-
gram of foreign assistance came under discussion. Not only the exec-
utive branch, acting through the President's Committee on Foreign
Aid and the Department of State, but the Congress, acting through
the House Select Committee on Foreign Aid, commonly known as the
Herter committee, and the Senate Committee on Foreign Relations, as
well as numerous private organizations, participated in the debate.
2
There was widespread support for a new program to be adminis-
tered by a temporary agency in Washington, with its own overseas
organization and a large degree of financial and administrative flexi-
bility. On April 2, 1948, Congress passed the Economic Cooperation
Act. This act created the Economic Cooperation Administration as
an independent agency to administer a 4-year European recovery pro-
gram. The Economic Cooperation Administration was to be headed
by an administrator of Cabinet rank who, because of the impact of
his programs on the responsibilities of the Department of State for the
formulation and execution of general foreign policy, was to consult
with the Secretary of State on matters of foreign policy. The decision
of the Congress to create a separate agency reflected, in part, congres-
sional distrust of the Department of State as an operating agency,
demand for a "businesslike approach" in administering recovery funds,
and a desire for bipartisan support of the activities of the Economić
Cooperation Administration.
Confronted by the danger of divided counsels and uncoordinated
action, the Department of State created a small staff under a special
assistant to the Under Secretary to furnish foreign policy guidance to,
and to provide systematic liaison and consultation with, the Economic
Cooperation Administration. This office helped in coordinating mat-
ters at lower levels in Washington, but the relative effectiveness of the
coordination between the Economic Cooperation Administration and
the Department of State stemmed from the caliber and attitudes of
the top officials of both agencies as well as the realization that the
Economic Cooperation Administration was a temporary agency
created to accomplish a specific, widely acclaimed, and urgent task.
A number of assistance programs, primarily in the Far East-some
already in being, some newly created—were likewise administered by
262 Stat. L. 137.
422
FOREIGN ASSISTANCE PROGRAMS
the Economic Cooperation Administration, although they were never
welded into an integrated regional program. These included assist-
ance for China and Korea. With the termination of the China pro-
gram, it was decided to divert available funds to special technical and
economic assistance for other underdeveloped countries in Southeast
Asia.
Increased military assistance
3
In 1949, as the threat of Communist aggression increased and with
the establishment of the North Atlantic Treaty Organization, the
United States decided to broaden military assistance beyond that given
to Greece and Turkey. Congress passed the Mutual Defense Assist-
ance Act on October 6, 1949. The President gave the Department of
State primary authority and responsibility for direction of the mili-
tary assistance program, for formulation and coordination of political
and economic policies governing the program, and for controlling allo-
cation and most of the procurement operations. The Economic Coop-
eration Administration was to give advice on the proper balance be-
tween economic recovery and military assistance, including adjust-
ments in plans and programs required for additional military produc-
tion in Europe, intra-European transfers, and the impact of the pro-
gram on foreign nations receiving both economic and military assist-
ance.
A Foreign Military Assistance Coordinating Committee, composed
of the heads of the operating units in the Departments of State and
Defense and the Economic Cooperation Administration, was charged
with coordination of day-to-day administration of mutual-defense
assistance in these agencies. The heads of these agencies were
constituted as a Foreign Military Assistance Steering Committee,
which never met. Problems of military assistance policy that were
sufficiently difficult to be considered at a high level were normally
considered in the National Security Council or informally among the
three members of the Coordinating Committee, which was usually able
to arrive at agreement and in general acted as an effective advisory
body to the Secretary of State and more particularly to the Director
of Mutual Defense Assistance. The committee dealt with policy and
procedure involving the substantive program of military assistance
and examined and approved detailed country programs.
The relative success of the committee has been attributed to three
elements: (1) The delegation of authority from the President to the
Secretary of State largely settled jurisdictional questions; (2) the
authority of the Secretary was reinforced by his control over funds;
and (3) real efforts were exerted to relieve the committee of problems
that did not require collective consideration or decision, such as
problems of military procurement. This committee structure was
superseded by the Interdepartmental Security Affairs Committee,
mentioned below.
Growth of technical assistance
In his inaugural address of January 1949, President Truman pro-
posed a new worldwide program of technical cooperation, subse-
quently designated the "Point IV Program." In June 1950, the Act
63 Stat. L. 714.
'See The Administration of Foreign Affairs and Overseas Operations, op. cit., pp. 339-840.
FOREIGN ASSISTANCE PROGRAMS
423
for International Development was passed to authorize a global tech-
nical cooperation program, and the Technical Cooperation Adminis-
tration was established within the Department of State to administer
it.
In 1950, two multilateral technical assistance programs were also
initiated. The Expanded Programme of Technical Assistance of the
United Nations was established in July 1950. Through the specialized
agencies and a constituent unit within the United Nations itself, the
Expanded Programme gives technical assistance to the governments
of underdeveloped countries for projects related to social and economic
development. The annual budgets for this program are relatively
modest, totaling $28 million for 1956. The administrative organiza-
tion and procedure of the Expanded Programme are summarized
later in this study.*
In April 1950, the Organization of American States initiated a
program to establish regional training centers within the Latin
American countries to give intensive training to Latin American
government officers in the administration of government programs in
agriculture, housing, education, and other activities related to economic
development. By 1956, 7 training centers were in operation, distri-
buted among 6 Latin American countries. The budget for this pro-
gram for 1956 was less than $2 million.
NEW COORDINATION ARRANGEMENTS: 1951-55
During the period from 1951 to 1955, there was an effort to counter-
act the centrifugal tendencies in the administration of foreign aid pro-
grams, which had increased during the previous period. Central
direction and coordination of all forms of foreign assistance were.
placed in the hands of a Director for Mutual Security, who was lo-
cated in the Executive Office of the President and invited to participate
in meetings of the Cabinet and the National Security Council. Still
the Technical Cooperation Administration remained within the De-
partment of State, the Export-Import Bank continued to make loans,
and the Department of Defense continued to administer military
assistance. With the creation of the Foreign Operations Administra-
tion in 1953, all technical-assistance operations were transferred from
the Department of State to the Foreign Operations Administration.
The director retained the general coordinating functions of the
former Director for Mutual Security, but he was established at the
departmental rather than the Executive Office level.
Mutual Security Act of 1951
in
By 1951 the major emphasis of the foreign-assistance program
Europe and Asia had shifted from economic to defense objectives.
This shift required greater integration not only of the Economic
Cooperation Administration program with military programs, but
also better coordination of all the assistance activities then underway.
As a first step, late in 1950, the President had directed the Secretary
of State to assume the leadership and coordination of all foreign-
assistance programs. In January 1951 the Secretary established the
post of Director of International Security Affairs to provide coordina-
• See below, ch. V.
424
FOREIGN ASSISTANCE PROGRAMS
tion and direction both within the Department of State and inter-
departmentally, and there was established an International Security
Affairs Committee to assist him. The Committee included representa-
tives from the Departments of State, the Treasury, and Defense,
the Economic Cooperation Administration, and the Office of the Spe-
cial Assistant to the President, W. Averell Harriman.
Experience with this device was not satisfactory. The Congress
still did not wholly accept a key role for the Department of State in
the administration of foreign aid, and the coordinating role of the
Department became increasingly difficult. Although there were
grounds for believing that the basic framework of the International
Security Affairs Committee was sound, the consensus was that it was
ineffective in practice. The solution finally adopted was to abolish the
committee and to raise program planning and coordination to the
Presidential staff level.
This was accomplished as part of a new inclusive assistance pro-
gram, responsive to the military as well as the economic challenges
of the time. Its legal base was the Mutual Security Act of 1951, which
gathered into a single authorization all foreign-assistance activities.
except those of the Export-Import Bank. In brief, that act-
1. Authorized the appointment of a Director for Mutual Security
in the Executive Office of the President;
2. Gave the Director responsibility for continuous supervision,
general direction, and coordination of the military, economic, and
technical assistance programs;
3. Authorized the appropriation of all funds for foreign assistance
to the President, who gave to the Director for Mutual Security the
responsibility for the allocation and control of all such funds;
4. Established an independent Mutual Security Agency, located
apart from the Executive Office of the President but placed under the
Director for Mutual Security, to administer economic assistance pro-
grams;
5. Authorized the Mutual Security Agency to maintain overseas
missions;
6. Gave the Secretary of Defense primary operating responsibility
for the military-assistance program;
7. Gave the Secretary of State operating responsibility for the tech-
nical cooperation program, for support of similar programs in certain
international organizations, and for certain minor activities; and
8. Made the various chiefs of diplomatic missions responsible for
coordination of all foreign-aid activities in the countries to which
they were accredited.
These arrangements marked the high point of centralized direction
and coordination. General coordination responsibilities in Washing-
ton were clearly vested in a single official, located in the Executive
Office of the President. There was a good basis for equivalent coor-
dination of assistance activities in the recipient countries. Potential
conflicts arising from the overlapping of NATO and mutual security
policies were resolved by an interagency committee similar to the old
International Security Affairs Committee, with the Department of
State assigned the chairmanship for NATO matters and the Mutual
Security Agency for foreign assistance programing. These arrange-
ments were reinforced by the fact that the Agency heads agreed on
FOREIGN ASSISTANCE PROGRAMS
425
basic policies, and senior staff members of both agencies worked
closely together. At the same time, the coordinating official in the
Executive Office was made responsible, by the terms of the Mutual
Security Act, for heading the Mutual Security Agency. The poten-
tial difficulties here were largely circumvented by the delegation of
operating responsibilities to the Deputy Director for Mutual Security.
Under the Mutual Security Act, operations were divided among
the Department of Defense for military assistance, the Mutual Secu-
rity Agency for economic assistance, and the Technical Cooperation
Administration, in the Department of State, for technical cooperation,
but this division proved difficult. A makeshift geographical arrange-
ment was subsequently agreed upon whereby the Mutual Security
Agency took major responsibility for assistance in Europe and most
of southeast Asia, while the Technical Cooperation Administration
took responsibility for assistance in Latin America, the Middle East,
south Asia, Burma, and Indonesia. Insofar as the underdeveloped
countries were concerned,
*** there were technical- and economic-assistance pro-
grams in varying proportion, administered by two agencies
with differing personnel systems, but both drawing on the
same functional agencies for technical services, and with dif-
fering degrees of responsibility in the State Department for
general foreign-policy control.
Creation of the Foreign Operations Administration
After President Eisenhower took office, he directed an Advisory
Committee on Government Organization, under the chairmanship of
Nelson A. Rockefeller, to study the whole area of executive branch
responsibility for foreign affairs. The committee's principal recom-
mendations were threefold:
1. Delegation of full responsibility for the formulation and control
of foreign policy to the Secretary of State, under the President;
2. The removal from the Department of State, so far as possible,
of "operating" functions; and
3. The consolidation of foreign-assistance operations, exclusive of
military assistance, in a single agency."
The committee recommended the creation of a new independent
agency, the Foreign Operations Administration, to be responsible
for all foreign-assistance and economic-operating matters, under the
foreign-policy guidance of the Secretary of State, and to receive by
transfer all assistance programs and operations still in the Depart-
ment of State. To carry out these recommendations, the President,
ɔn June 1, 1953, submitted his Reorganization Plan No. 7 to the
Congress. Because this plan would not become effective for 60 days,
he also issued Executive Order 10458 and sent a memorandum to
the heads of the executive departments and agencies, putting much
of the plan into effect immediately.8
The President's memorandum of June 1, 1953, emphasized the pri-
mary position of the Secretary of State within the executive branch
• Lincoln Gordon, The Development of United States Representation Overseas, in The
Representation of the United States Abroad, The American Assembly (1956), p. 33.
7 U. S. Department of State, Post-World War II Administrative Arrangements for the
Conduct of Foreign Aid Programs (1955), p. 8.
8 Memorandum, June 1, 1953, in International Cooperation Administration, Mutual
Security Legislation and Related Documents (December 1955), pp. 97-99.
426
FOREIGN ASSISTANCE PROGRAMS
in matters of foreign policy and emphasized that the President wished
to regard the Secretary of State as the Cabinet officer primarily
responsible for advising and assisting him in the formulation and
control of foreign policy. He recognized the Secretary of State as
the principal channel of authority on foreign policy within the execu
tive branch and told other officials to work with and through the
Secretary on matters of foreign policy. The President also asserted
the primacy of the Secretary of Defense in advising on the formu-
lation and control of military policy and outlined a similar position
for the Secretary of the Treasury in the formulation and control
of monetary and financial policy. Binding up the whole, the President
ordered that:
The Secretary of State, the Secretary of Defense, and the
Secretary of the Treasury, as appropriate, shall review plans
and policies relative to military and economic-assistance pro-
grams, foreign information programs, and legislative pro-
posals of the Foreign Operations Administration and the
United States Information Agency, to assure that in their
conception and execution, such plans, policies, and proposals
are consistent with and further the attainment of foreign
policy, military policy, and financial and monetary policy
objectives. *
**
The heads of these new agencies should furnish information
to the Secretaries of State, Defense, and Treasury in such
manner and form as may be agreed between the head of the
agency and the Secretary concerned to insure that the pro-
gram of the agencies and the implementation of such pro-
grams conform with foreign policy, military policy, and
financial and monetary policy objectives.
To the maximum feasible extent consistent with efficiency
and economy, the internal organization of the new agencies
should be designed to permit ready coordination with the
subordinate levels of the Department of State.
Turning to the problems of overseas coordination and integration,
the President said further:
The Chief of the United States diplomatic mission in each
foreign country must provide effective coordination of, and
foreign-policy direction with respect to, all United States
Government activities in the country. To the maximum
practicable extent, there should be integrated supervision of
personnel performing related economic or information activi-
ties in each foreign country.
Regarding appointments, the President required that:
9
Appointments of all chief representatives abroad of the
two new agencies and of the military assistance advisory
groups abroad should be cleared with the Secretary of State.
Thus, the President set forth in detail the doctrine that there can
be an effective divorce of "policy" from "operations" and that informa-
tion furnished to the "policy agency" by "operating agencies" con-
Ibid., pp. 97-98.
FOREIGN ASSISTANCE PROGRAMS
427
cerning plans and operations, coupled with general foreign-policy
instructions issued by the policy agency to the operators, will suffice to
protect the control vested in the policy agency.
On August 1, 1953, when Reorganization Plan No. 7 went into
effect, the Mutual Security Agency was succeeded by the Foreign
Operations Administration. On the same day, Executive Order No.
10476 delegated most of the Presidential power under the Mutual
Security legislation to the Director of the Foreign Operations Ad-
ministration, including the power to allocate all assistance funds. The
President also directed the Secretary of Defense to exercise his re-
sponsibility and authority for military assistance programs subject to
the coordination, direction, and supervision of the Director of the
Foreign Operations Administration. The order further directed the
Secretary of State and the Director of the Foreign Operations Ad-
ministration to establish arrangements so as to ensure that programs
under the supervision of the Foreign Operations Administration
would be carried out in conformity with foreign policy, and later
legislation gave the Secretary of State the power to approve the
establishment of new assistance missions abroad. Reorganization
Plan No. 7 also gave the Foreign Operations Administration the re-
sponsibility for controlling strategic trade with the Communist bloc
in accordance with the Mutual Defense Assistance Control Act of
1951, commonly known as the "Battle Act".
In addition to the responsibilities for economic assistance which
it took over from the Mutual Security Agency, the Foreign Oper-
ations Administration also became responsible for administering the
technical cooperation program of the Technical Cooperation Admin-
istration. The Foreign Operations Administration organized itself
internally so as to operate through four regional offices-for Europe,
the Middle East, Asia, and Latin America-and, within each region,
it combined the administration of economic and technical assistance.
A new type of foreign-assistance activity came into existence in
1954. A revision of the Atomic Energy Act authorized the United
States to give assistance to foreign countries, both highly developed
and underdeveloped, in atomic-energy research and in the develop-
ment of industrial uses of atomic power. In June 1955, the President
offered to share fissionable material for research reactors. The United
States provides approximately half the cost of reactor construction.
By December 1956, the program was in effect with some 37 countries.
Pressure to terminate the Foreign Operations Administration
Despite the care with which questions of foreign assistance organ-
ization had been studied in connection with the establishment of the
Foreign Operations Administration, the nature of foreign assistance,
its duration, and the manner of its organization remained under
critical scrutiny, especially in the Congress. In the Mutual Security
Act of 1953, the Congress called for the termination of economic
assistance within 24 months and of military assistance within 36
months. A year later, the Congress relented somewhat, recognizing,
in the words of a Senate committee, that there might be some basis
for a continuation of economic and military assistance programs
beyond the dates previously established.10
10 S. Rept. 1799, 83d Cong., 2d sess., p. 82.
428
FOREIGN ASSISTANCE PROGRAMS
The Mutual Security Act of 1954 authorized programs of military,
economic, and technical assistance for the customary limited time
periods. The Congress was adamant, however, in insisting that any
future proposals for military and economic assistance should come
from the "permanent agencies of Government" rather than from any
special-purpose agency such as the Foreign Operations Administra-
tion." The Congress wrote a specific termination date for the For-
eign Operations Administration into the bill,12 and the President
was authorized to transfer the functions, powers, and personnel of the
Foreign Operations Administration elsewhere within the executive
branch,13 or to abolish them. The Congress decided to return the
administration of technical cooperation to the Department of State 14
and to divest the Director of the Foreign Operations Administration
of any power to exercise continuous supervision or general direction
over programs of military assistance.15
EXPANDED ROLE FOR THE DEPARTMENT OF STATE: 1955 TO DATE
The fourth period of the administration of foreign assistance pro-
grams, 1955 to the present, has been characterized by a return of gen-
eral coordinating responsibility to the Secretary of State and, at the
same time, by increased pressure to separate military assistance more
sharply from economic assistance. To maintain the separate identity
of the staff charged with administering foreign economic assistance
and assisting the Secretary of State in exercising his coordinating
functions, the President created the International Cooperation Ad-
ministration as a part of the Department of State and transferred to
it most of the powers, duties, and personnel of the Foreign Operations
Administration.
The Mutual Security Act of 1954 placed squarely on the President
the responsibility for justifying and organizing future programs of
military and economic assistance. On April 15, 1955, in a letter to
the Secretary of State, the President set forth both his intention to
create an International Cooperation Administration within the De-
partment of State and his view of the basic position of foreign assist-
ance and the mode of its administration.
The President recalled that the Foreign Operations Administration
had been established-
to centralize all governmental operations, as distinguished
from policy formulation, that had as their purpose the co-
operative development of economic and military strength
among the nations of the free world.
He reaffirmed the basic considerations urged as the basis for the re-
organization of mutual security in 1953: the primacy of the Secre-
11 The Senate version of the bill included an amendment stating that authority conferred
by Title I-Military Assistance and Title II-Economic Development Assistance of the
bill could not be exercised after June 30, 1955, except for purposes of liquidation of
programs authorized by those titles. The report of the committee added:
"The committee wishes to make it clear that it should not be inferred from this action
that the Congress is stating that there are to be no more military or economic assistance
programs in the future. It does assert, however, that if affirmative action is needed, it
must be taken by the President to establish that such programs are essential in the
future." Ibid.
12 69 Stat. L. 283, sec. 503.
18 Ibid., sec. 525.
14 Ibid., sec. 521.
15 Ibid., sec. 525.
FOREIGN ASSISTANCE PROGRAMS
429
tary of State in matters of foreign policy, the desirability of bringing
together related mutual-security operations within a single organi-
zation under a single management, and the avoidance of dispersal
of operating responsibilities. These considerations, he said, pointed
to the establishment of the International Cooperation Administration
as a semiautonomous unit within the Department of State, under a
single key official reporting directly to the Secretary.
Concerning the nature and duration of foreign assistance, the Presi-
dent admitted that some people thought the Foreign Operations Ad-
ministration was only a temporary agency. But, said the President:
It has come to be widely recognized, however, that the func-
tions and the need for cooperative development of economic
and military strength among the free nations are continuing
and integral parts of the fabric of our international re-
lations. * * *
The placing of general responsibility for economic opera-
tions as well as for policy in this field within the Department
of State offers assurance that, under a permanent government
establishment, we are providing a long-range basis for this
kind of international cooperation. It is emphatic recogni-
tion of the principle that the security and welfare of the
United States are directly related to the economic and social
advancement of all peoples who share our concern for the
freedom, dignity, and well-being of the individual.16
In his state of the Union message of January 1956, the President
reaffirmed his views on the importance and duration of foreign assist-
ance, adding the suggestion that the executive branch be authorized
to make long-term commitments subject to annual appropriations.
Secretary of State Dulles, in a press conference on January 11, 1956,
pointed out further:
The granting of economic aid, if it assumes a form which is
primarily budgetary aid for a given year, does not have the
permanent impact upon the community that long-range proj-
ects do. In some of the bigger projects we have been in-
hibited somewhat from going into them because of the fact
that these long-range projects take quite a long while. * * *
I think we can greatly improve the quality of our economic
assistance in building up these less developed countries if we
can have the opportunity to assume, subject to annual appro-
priations, commitments for future years.17
Present organizational pattern
According to the Mutual Security Act of 1954 as amended annu-
ally,18 all authority to administer foreign assistance is vested directly
in the President, but he has, by a series of Executive orders,19 delegated
most of that authority to the Secretary of State and the Secretary of
Defense. The latter was given operational responsibility for "direct
forces support" (chiefly nonmilitary materials and services utilized
16 Mutual Security Legislation and Related Documents, op. cit., p. 17.
17 U. S. Department of State. Press Release No. 15, Jan. 11, 1956, p. 3.
18 68 Stat. L. 832, as amended by 69 Stat. L. 283 and 70 Stat. L. 555.
19 Executive Order No. 10575, Nov. 6, 1954, 19 Federal Register 7249, as amended by
Executive Order No. 10625, Aug. 2, 1955, 20 Federal Register 5571. Also Executive Order
No. 10610, May 9, 1955, 20 Federal Register 3179.
430
FOREIGN ASSISTANCE PROGRAMS
directly to support military forces) in addition to "military assistance"
(military equipment, supplies, and training), which he had always
administered. The Department of State received all other functions
of the Foreign Operations Administration, including the authority
to determine the value by country of the programs of military assist-
ance administered by the Department of Defense. Most of the per-
sonnel of the Foreign Operations Administration were transferred
along with its functions.
On June 30, 1955, the Secretary of State established the Interna-
tional Cooperation Administration in the Department.20 The new
International Cooperation Administration was headed by a director
who was to report directly to the Secretary of State, but who, in
practice, has reported almost exclusively to the Under Secretary. The
Director of the International Cooperation Administration was to be
responsible, "under the direction and control of the Secretary of State,"
for all general economic assistance functions plus the following, "sub-
ject to the concurrence of the Secretary of State": primary responsi-
bility for presenting military and economic assistance programs to the
Congress, "coordination" of military and nonmilitary aspects of the
program, and "determining the value" for any country of assistance
administered by the Department of Defense. The responsibility for
coordinating the functions of the International Cooperation Admin-
istration within the Department of State was reserved to the Secretary
of State.
Categories of assistance
Economic assistance administered by the International Cooperation
Administration is classified in three broad categories: defense sup-
port, development assistance, and technical cooperation. The specific
meaning and usages of these three terms have varied considerably
since their introduction.
"Defense support" comprises broad economic assistance, covering
a wide range of activities from capital development to commodity
shipments and the transfer of technical knowledge. As such, its sub-
stance is hard to distinguish from other forms of economic assistance.
The term is commonly used to describe programs of economic assist-
ance given to countries receiving military assistance, where the level
of economic assistance is normally justified on the ground that it is
needed to enable the recipient country to support a military program
that United States policy regards as necessary and that would other-
wise be unattainable except at the expense of an undesirable compres-
sion of civilian consumption or investment.
"Development assistance" includes economic assistance furnished to
promote basic economic development-and, thereby, political stabil-
ity—primarily in countries that do not receive military assistance, plus
certain regional assistance projects. In most countries where develop-
ment assistance is proposed, it is designed to supplement technical
cooperation with supplies, equipment, or funds.
"Technical cooperation" refers to programs designed to transfer
technical skills and knowledge to underdeveloped countries, including
relatively small amounts of supplies and equipment required for dem-
20 Department of State Delegation of Authority No. 85, June 30, 1955, 20 Federal
Register 4825, as amended by Delegation of Authority 85-1, Oct. 12, 1955, 20 Federal
Register 7950.
FOREIGN ASSISTANCE PROGRAMS
431
onstration purposes, or otherwise needed to make such cooperation
effective.
In terms of funds appropriated, defense support is by far the largest
category, followed by development assistance and technical coopera-
tion.
This assistance may be of a "nonproject" or "project" nature. "Non-
project" aid, which accounts for approximately 80 percent of "defense
support" and 70 percent of "development assistance," refers mainly to
the financing of commodity shipments to meet general distribution
needs or for resale to generate local currency proceeds, much of which
in turn goes into local defense budgets. "Project" aid covers the financ-
ing and furnishing of technical services, training, and commodities
required for activities aimed at specific objectives.
The legislation provides that assistance shall emphasize loans rather
than grants, wherever possible, and requires that minimum amounts of
certain types of aid be on a loan basis (80 percent of development
assistance, exclusive of regional projects and sales of surplus agricul-
tural commodities, 75 percent of the special $15 million defense sup-
port fund for economic development in Latin America, and 50 percent
of the Asian development fund). Technical assistance, except for a
few barter arrangements, consists almost wholly of personal services
paid for by the United States.
The fourth category of foreign aid, "military assistance" (military
equipment, supplies, and training), has been administered from the
outset by the Department of Defense, subject to the overall direction
of the President and control by the Secretary of State as to foreign
policy matters, plus coordination successively by the Director for
Mutual Security, the Director of the Foreign Operations Administra-
tion, and now the Director of the International Cooperation Adminis-
tration. The category was somewhat broadened when Executive Order
10610, of May 9, 1955, transferred to the Department of Defense the
administration of what was then called direct forces support—the
furnishing of equipment, materials, and services directly to the mili-
tary forces of a recipient country.
Öther departments and agencies, such as the Departments of Agri-
culture, Interior, Commerce, and Health, Education, and Welfare, col-
laborate in furnishing technical services in accordance with individual
arrangements with the International Cooperation Administration.
Furthermore, the Atomic Energy Commission exercises operating re-
sponsibility for the foreign atoms-for-peace program, and the Depart-
ment of Agriculture has been authorized to assume major responsibili-
ties under the Agricultural Trade Development and Assistance Act
of 1954, commonly referred to as Public Law 480.21
This act and subsequent executive instructions have given the Sec-
retary of Agriculture the authority to negotiate, through the Secre-
tary of State, agreements with friendly governments to provide for
the sale of surplus United States agricultural commodities for foreign
currencies, which may then be used for certain stipulated purposes,
including agricultural trade promotion, United States Government
requirements, economic development, educational exchange, and the
purchase of goods or services for other friendly countries. The power

168 Stat. L. 454, as amended by 69 Stat. L. 44 and 69 Stat. L. 721.
432
FOREIGN ASSISTANCE PROGRAMS
to conclude such agreements was delegated to the Secretary of State.
All other functions under the act were also made subject to foreign-
policy guidance by the Secretary of State. The Director of the Bu-
reau of the Budget was instructed to fix the amounts of foreign
currencies acquired in this manner that are to be used for each of the
several purposes stipulated. Administration of currencies made
available for economic development is a function of the International
Cooperation Administration. The present magnitude of currencies
devoted to this purpose is several hundred million dollars, thus con-
stituting an important supplement to economic development funds
furnished under the Mutual Security Act itself.
Coordination of national security policy
Because all of these foreign assistance activities call upon the re-
sources and energies of a number of separate departments and agencies,
they have given rise to the development of intricate and overlapping
coordinating relationships that involve several high-level committees.
The most central and prominent of these is the National Security
Council, created by the National Security Act of 1947, which is pre-
sided over by the President and is his principal advisory group on
national security affairs. The statutory members of this Council are,
in addition to the President, the Vice President, the Secretaries of
State and Defense, and the Director of Defense Mobilization. Na-
tional Security Council proposals, when approved by the President,
form a broad framework of directives governing national-security ac-
tions both generally and with respect to particular areas and problems.
Thus, they provide much of the framework for the basic goals of
United States foreign assistance. The National Security Council also
engages in an annual review of the effectiveness of foreign assistance.
Although the Director of the International Cooperation Administra-
tion is not a member of the National Security Council, he may attend
when foreign assistance issues are being discussed.
The principal group for formulating policy recommendations to be
considered by the National Security Council is the National Security
Council Planning Board, which is composed of a Special Assistant to
the President for National Security Affairs, as Chairman, and policy
planning officials of assistant secretary rank appointed by the Presi-
dent on nomination of the department and agency heads participating
in the Council. The International Cooperation Administration is reg-
ularly represented on this Board.
Also closely related to the National Security Council and the as-
sistance program is the Operations Coordinating Board, created by
Executive order in September 1953, which is charged with the responsi-
bility of assisting in the "integrated implementation" of national-
security policies. Its regular membership consists of the Under
Secretary of State, as Chairman, the Special Assistant to the President
on National Security Affairs as Vice Chairman, the Deputy Secretary
of Defense, and the Directors of Central Intelligence and of the United
States Information Agency. The Director of the International Co-
operation Administration also participates regularly in connection
with foreign assistance matters. The central idea of the Operations
Coordinating Board structure is to bring together the officials who
hold authoritative positions with respect to operations. Thus, action
to carry out plans and programs discussed in the Operations Coordi-
FOREIGN ASSISTANCE PROGRAMS
433
ating Board does not depend on interdepartmental agreement but can
e taken by each participant acting within his established authority.
The Operations Coordinating Board does not characteristically par-
icipate in the planning of high policy; this is normally a function of
he National Security Council Planning Board and the National Se-
urity Council itself. But the Operations Coordinating Board can
nd does refer problems to the National Security Council. Since the
Department of State chairs the Board and most of its subordinate
vorking groups, the Operations Coordinating Board also provides a
onvenient mechanism for exerting the foreign policy leadership of
he Department.
Tommittees on foreign economic policy
Two major Cabinet committees deal with foreign economic policy,
but they tend to be somewhat removed from the center of assistance
›rogram problems. The older of the two is the National Advisory
Council on International Monetary and Financial Problems, which
vas created by the Congress in July 1945 to coordinate the policies.
nd operations of United States representatives to the International
Monetary Fund and the International Bank for Reconstruction and
Development, as well as of the Export-Import Bank and all other
Jnited States agencies engaging in foreign financial or monetary
ransactions. Accordingly, the National Advisory Council on Inter-
national Monetary and Financial Problems advises on general loan
policies and on certain individual loans of major significance. The
egular membership of the National Advisory Council on Interna-
ional Monetary and Financial Problems consists of the Secretary of
he Treasury, as Chairman, the Secretaries of State and Commerce,
he Chairman of the Board of Governors of the Federal Reserve
System, and the President of the Export-Import Bank. The Inter-
national Cooperation Administration and the Department of Defense
nay also be represented on this Council when foreign assistance or
>ther matters affecting them are under discussion.
The second major economic committee is the Council on Foreign
Economic Policy, which was created by Presidential letter of Decem-
Der 11, 1954, to assist the Chief Executive in coordinating the formula-
ion of foreign economic policy. This Council, which has come to be
concerned chiefly with commercial policy, has dealt with the assist-
ince program only as it has touched on such matters as the surplus
commodity disposal program. The regular membership of this body
consists of the Chairman, who is a special assistant to the President,
now Clarence B. Randall, the Secretaries of State, the Treasury, and
Agriculture, the Director of the International Cooperation Admin-
stration, the Administrative Assistant to the President for Economic
Affairs, the Special Assistant to the President for National Security
Affairs, and a member of the President's Council of Economic
Advisers.
A related committee of more specialized interests is the Interagency
Committee on Agricultural Surplus Disposal, which was established
by Executive order in September 1954 to assist in coordinating policies
concerning this program. The regular membership of the Committee
consists of the Chairman, who is a special consultant to the President,
now Clarence Francis, and assistant secretaries or directors designated
by the following agencies: the Departments of Agriculture, Com-
434
FOREIGN ASSISTANCE PROGRAMS
merce, State, and the Treasury, the International Cooperation Admin-
istration, the Bureau of the Budget, and the Council on Foreigr
Economic Policy.
The essence of this organizational pattern that has evolved for the
implementation of foreign assistance programs is a concentration of
authority and responsibility in the President who has, in turn, divided
that authority and responsibility chiefly between the Secretaries of
State and of Defense. The Secretary of State has further delegatec
most of his authority-including the authority to coordinate military
with other forms of assistance to the Director of the Internationa
Cooperation Administration. Although the International Coopera
tion Administration is officially established within the Department of
State, it is considered by many observers still to be more outside thar
inside that Department. The ultimate coordinator of the activities
of these several organizational channels is, and must be, the President
but he looks for assistance in this regard to several interdepartmental
groups, particularly the National Security Council complex, including
the National Security Council Planning Board and the Operations
Coordinating Board. The chief economic coordinating committees
the National Advisory Council, the Council on Foreign Economic
Policy, and the Interagency Committee on Agricultural Surplus Dis-
posal-play only peripheral roles with regard to foreign assistance.
SUMMARY OF ADMINISTRATIVE DEVELOPMENT
In looking back over the past decade, it is apparent that the Depart-
ment of State, because of its central role in the field of foreign rela-
tions, has always played a part in assistance programs, but that part
has varied considerably. In the immediate postwar period, the tend-
ency was to give the Department not only a position of primacy in
formulating foreign policy but considerable coordinating and oper-
ating authority as well. Within the Department, however, it has
always been thought necessary to make special organizational provi-
sions to deal with assistance problems rather than merely utilizing
existing arrangements. The office that dealt with Greek-Turkish aid
is an example of an effective organization that was largely autonomous
within the Department.
With the sudden expansion of assistance to Europe under the Mar-
shall plan, important operating functions were assigned to an inde-
pendent Economic Cooperation Administration that exercised con-
siderable autonomy in matters of policy as well as administration.
Then, as military assistance came into prominence, the Military Estab-
lishment became an increasingly important force in the assistance field,
and the process of coordination became more complex and difficult.
Next, in 1951, direction and coordination were largely centralized un-
der a Director for Mutual Security at the Executive Office level. This
was the apex of integrated control.
The next phase saw the transfer of even more operating authority
from the Department of State to the new Foreign Operations Admin-
istration. But the Director of the Foreign Operations Administra-
tion was eventually deprived of the directing functions formerly
performed by the Director for Mutual Security, and he was established
at the departmental rather than the Executive Office level. Finally,
under congressional pressure to reduce economic assistance, the func-
FOREIGN ASSISTANCE PROGRAMS
435
tions of the Foreign Operations Administration were returned to the
Secretary of State, to be assisted by a semiautonomous International
Cooperation Administration within the Department.
The responsibilities of the Department of Defense have grown
steadily, particularly with regard to direct control over operations.
With the termination of the directorship for mutual security and the
establishment of the Foreign Operations Administration, the Depart-
ment of Defense gained greater immunity from central direction of
operations. In the present situation, the Department of Defense ac-
cepts guidance by the Department of State concerning foreign policy
objectives, but there is resistance to central control of detailed opera-
tional aspects.
Postwar assistance commenced with the liquidation of lend-lease
and the demise of the Foreign Economic Administration; control of
successor programs was largely concentrated in the Department of
State. The main exceptions were the program for government and
relief in occupied areas, operated by the Defense Establishment, and
the negotiation of various loans related to the settlement of wartime
accounts. With the creation of the Economic Cooperation Adminis-
tration, the bulk of economic operations was transferred from the De-
partment of State and remained outside the Department until the
creation of the International Cooperation Administration. Moreover,
the Department of State controlled the chairmanship of all coordinat-
ing committees in this field until the establishment of the Director
for Mutual Security and did not resume this central coordinating role
until the advent of the International Cooperation Administration.
Another main thread in this history has been the relationship be-
tween the agency primarily charged with administering economic
assistance and various cooperating executive departments and agen-
cies: the Departments of Agriculture; Health, Education, and Wel-
fare; Interior; Labor; Commerce; and the Atomic Energy Commis-
sion. Here, there has often been a difference in point of view between
those responsible for specialized technical fields of activity and those
responsible for general programing and control. Functional special-
ists in the various departments, working under the direction of the
central assistance agency, have enjoyed considerable technical inde-
pendence. At the same time, the central agency has found it necessary
for some purposes to assemble its own staffs because the requisite skills
have not been available in the technical agencies. The issue of cen-
tralization versus dispersal continues to be controversial. Some assert
the need for greater diffusion, while others emphasize the necessity for
integrating programing and administration.
94413-57-29
CHAPTER III
ADMINISTRATIVE DISCRETION AND LEGISLATIVE
CONTROL
United States foreign assistance programs are now carried on within
an extremely complicated legislative framework. The current basic
law, the Mutual Security Act of 1954, as amended, is the product of
almost a decade of annual writing and rewriting, with each revision
adding to the complexity. The key sections of the act, which declare
its purposes and authorize several types of foreign assistance, are far
from simple because of the inherent complexity of the programs they
establish. In addition, the act has accumulated over the years a large
number of special instructions, limitations, stipulations, and provisos
which express congressional objectives and policies different from,
or only incidental to, the main purposes of foreign assistance.
The executive branch is responsible for compliance with these in-
structions and for achievement of these ancillary objectives at the
same time that it is carrying out its primary responsibilities under
the act. Similar special instructions and limitations are also found
in annual appropriation acts for foreign assistance and in other legis-
lation, such as the Mutual Defense Assistance Control Act of 1951,
commonly known as the Battle Act, and the Agricultural Trade
Development and Assistance Act, which place restrictions or extra
duties on the foreign assistance agencies and complicate their adminis-
trative tasks.
It thus comes about that one of the most serious and persistent prob-
lems about United States foreign assistance is the amount of admin-
istrative flexibility and discretion the executive branch should have
in putting major policies into effect. Some feel that the instructions
and restrictions established by the Congress seriously hamper the
effectiveness of American foreign assistance. Others feel that the
executive branch has already been given too much freedom and should
be more strictly limited and instructed.
Several aspects of this general problem are treated here. Although
the issues to be analyzed sometimes arise in rather narrow technical
form, they so strongly affect the results achieved by foreign assistance
that they merit as much attention by the Congress as the larger ques-
tions of policy and organization. The analysis will be in terms both
of past experience and of future contingencies.
The issues selected for treatment are the following:
1. Should the foreign assistance agencies be given greater freedom
from legislative instructions and limitations intended to promote.
objectives different from, or only incidental to, the main purposes of
foreign assistance?
1 68 Stat. L. 832, as amended by 69 Stat. L. 283 and 70 Stat. L. 555.
436
FOREIGN ASSISTANCE PROGRAMS
437
2. In what detail should authorizing and appropriating legislation
specify the purposes and objects for which foreign assistance funds
may be expended?
3. What legislative commitments should the Congress make with
respect to the continuity of foreign assistance?
4. How long should foreign assistance appropriations be available
for obligation?
5. To what extent should foreign assistance agencies be relieved
of some of the requirements of fiscal accountability normally imposed
on domestic agencies?
6. What form of Government agency should be employed to admin-
ister foreign economic assistance?
These issues are all facets of the perennial problem of reconciling
conflicting requirements of legislative control and of administrative
discretion. Each will be examined below in terms of a review of the
advantages and disadvantages of various alternative courses of action.
MULTIPLE POLICY OBJECTIVES
Classified by purpose, the special policy instructions that are set
forth in the basic foreign assistance legislation fall into two broad
groups. The first reflects the concern of the Congress that foreign
assistance make a maximum contribution to the political and security
interests of the United States. For example, section 142 of the Mutual
Security Act requires that before receiving military assistance a
country must (1) accept a formal agreement covering some eleven
points specified in the act, pledging itself in various ways to make
an appropriate contribution to the general defense, (2) utilize assist-
ance to the best advantage, (3) maintain the security of the equipment
furnished, and (4) permit continuous observation by the United
States of the use to which its assistance is being put. Section 413
of the act contains lengthy instructions, both general and specific, to
conduct foreign assistance so as to encourage private initiative and
investment, free labor, productivity, competition, and private trade
and commerce throughout the world. Other sections of the act
require receiving countries to give "full publicity" to the assistance
and provide that certain classes of commodities shipped from the
United States pursuant to the act be prominently marked to show
their origin. Another important reservation is the Mutual Defense
Assistance Control Act which requires the executive branch to take
rather elaborate precautions to avoid assisting nations that trade
in strategic materials with the Soviet bloc.
A second group of special instructions expresses the intent of the
Congress that foreign assistance be administered in a manner that
will promote or protect certain United States economic interests. For
example, there are provisions restricting the situations in which
services or commodities furnished may be procured outside the United
States; there are other provisions requiring that certain portions of
the assistance be in the form of surplus agricultural commodities,
that small business be given special opportunities to participate, and
that at least half of the shipping be in American-flag vessels.
It is beyond the scope of this report to analyze the substance and
review the merits and demerits of each of the provisions by which
the Congress has sought to achieve other policy objectives in and
438
FOREIGN ASSISTANCE PROGRAMS
through foreign assistance. Many of the considerations involved far
transcend the realm of administration. It is important, however, to
call attention to the administrative consequences of such provisions.
The issue to be examined here is: Should the foreign assistance agen-
cies be given greater freedom from legislative instructions and limi-
tations intended to promote objectives different from, or only inci-
dental to, the main purposes of foreign assistance? The following
discussion explores two alternative general courses of action:
1. To continue the present extensive use of substantive limitations,
stipulations, restrictions, and provisos in foreign assistance legisla-
tion; or
2. To minimize the use of such limitations, stipulations, restrictions,
and provisos.
Continuation of substantive limitations
Defenders of the provisions such as those described above base their
position partly on the merits of the provisions and partly on the
constitutional and historical role of the Congress. Taken indi-
vidually, any one of the provisions appears, in itself, to be quite
reasonable. Obviously, the Congress and the American public do not
want foreign assistance to benefit a potential enemy. Neither do
they want foreign assistance to damage domestic agricultural, com-
mercial, or maritime interests; and, if foreign assistance can produce
a byproduct of benefit to such interests, so much the better. And why,
it is asked, should not American assistance be granted abroad in such
a way as to express the economic philosophy in which most Americans
firmly believe?
It is further argued that it is the right, duty, and longstanding
practice of the Congress to issue such special instructions to the exec-
utive branch whenever they appear desirable. The Congress is the
arbiter of a multiplicity of policies and interests. The laws of a
complex, democratically organized society such as that of the United
States are seldom neat; there are always policies within policies and
orders of priority among those policies. The details of administra-
tion of foreign assistance involve interests and issues that are perhaps
too important to be left entirely to the judgment of the executive
branch. There is no reason the Congress should not express itself
freely on those matters coming to its attention. Although not obliv-
ious to administrative considerations, the advocates of this position
insist that administrative convenience must be subordinate to the
supremacy of the Congress in the realm of policy.
Minimizing substantive limitations
On the other hand, it is contended that the Congress has gone too
far in giving detailed instructions and that as many of these provi-
sions as possible should be removed. There is no doubt that such
provisions complicate the administration of foreign assistance. Many
feel that the present legislation incorporates so many and such a vari-
ety of policy instructions that achievement of the main purposes of
foreign assistance is seriously hampered.
Those who insist on the need for greater freedom base their posi-
tion on their fundamental concept of the purposes of foreign assist-
ance and the conditions under which it operates abroad. They insist
that the United States is not merely offering help, on its own terms, to
FOREIGN ASSISTANCE PROGRAMS
439
others who want and need assistance. American assistance is a device
for influencing attitudes, strengthening economic and military insti-
tutions, and influencing governmental decisions abroad. Each coun-
try, each foreign government, presents separate and unique problems
that must be dealt with in terms of the total situation in that country
within the framework of basic United States objectives.
It is important, therefore, to weigh carefully the costs of policies
that may restrict the choice of means open to the administrators of
the assistance program and jeopardize their relationships with the
governments with which they must deal. The cooperation of these
governments, it is argued, tends to be eroded by the friction of nego-
tiation. Adjusting plans to the detailed requirements of United
States legislation may, at best, seem incomprehensible and, at worst,
repugnant to the recipients. Just as the Congress assures the Amer-
ican public that its national interest is being guarded, so foreign gov-
ernments must assure their publics that their interests are not being
bargained away. Dealing on such complex matters as foreign assist-
ance with over 50 governments, many of them newly independent,
administratively weak, and politically unstable, requires a flexibility
and delicacy of touch that is extremely difficult when the Congress
attaches so many political and economic strings to its foreign-assist-
ance authorizations.
Present restrictions take a heavy toll of time and manpower and
reduce flexibility of action. The foreign assistance agencies must
scrutinize every move to make sure they are within the bounds of the
legislation. To enforce legislative instructions, they have had to es-
tablish special staffs to interpret the legislation and to act as monitors
to insure compliance. These staffs have developed procedures and
criteria of their own for judging the propriety of proposals; each
becomes another point of clearance and potential source of delay.
Because headquarters does not fully trust the field to understand and
comply with the fine points of the legislation, there is a tendency to
review carefully action proposals coming up from the field. This
requires time and staff in Washington, and it also reduces the flexi-
bility and discretion of those in the field. To many, the whole foreign-
assistance effort, both economic and military, appears too closely
bound in redtape to be effective.
Special legislative provisions have now accumulated to such an
extent that it is possible to question whether the principal objectives
of the program are being served. There is a danger that the basic
purpose the development of military and economic strength abroad-
may be submerged by the weight of supplementary policy objectives
that limit what can be done and the way it can be done. How strictly
are the legislative limitations and provisos to be interpreted? What
happens if a government balks at signing the standard agreement?
How hard must a government be pressed to take its aid in the form
of American agricultural surpluses? At what point has small busi-
ness had an adequate chance to bid? How long must important ship-
ments await the availability of an American vessel? Such questions
are constantly before the administrators and tend to be resolved more
in terms of the technicalities of the legislation and the regulations
pursuant thereto than in terms of the substantive merits of the case.
There are so many "musts" and "must nots" that it is not clear what
the priorities are.
440
FOREIGN ASSISTANCE PROGRAMS
As a final point, underlining the need for minimizing special legis-
lative provisions and for giving the aid administrators a clear and
simple set of priorities, there is the increasing political and economic
competition from the Soviet Union in many parts of the world and the
remarkable speed and flexibility with which, up to now, at least, the
Soviet Union has been able to operate. If this challenge is to be met
successfully, American foreign assistance may require more freedom
than it now has to move quickly and to adapt its methods to rapidly
changing situations abroad.
LIMITATIONS ON PURPOSES OR OBJECTS OF EXPENDITURE
A second general issue, closely related to the preceding one, is: In
what detail should authorizing and appropriating legislation specify
the purposes and objects for which foreign-assistance funds may be
expended?
This, of course, is a perennial issue in American legislative-executive
relationships. On the one hand, the Congress frequently insists on
quite specific instructions and limitations on the purposes of expendi-
ture. On the other hand, executive agencies often feel that the Con-
gress has been unnecessarily restrictive and that the basic objectives
of the Congress could be more readily achieved if greater freedom were
permitted. The unusual administrative requirements of foreign
assistance raise the issue sharply and justify its treatment here.
Compared to most executive departments, the agencies adminis-
tering foreign-assistance appear, at first glance, to have considerable
freedom in the use of funds. In making budgetary requests the agen-
cies present programs in substantial detail, by country, by type of
activity within countries, and sometimes by specific projects, as well
as a number of global special programs of various kinds. This pres-
entation, however, is plainly labeled an "illustrative program," show-
ing estimates of advance intentions with the frank admission that
changing situations may alter the execution of the program. Appro-
priation acts are drawn in broad terms, for the most part, designat-
ing large sums of money for the several major purposes and categories
of expenditure described in the statutes.
For fiscal year 1957, for example, the major category of military
assistance, $2,092 million, was appropriated in a lump sum without
specification by countries or regions. Defense support, $1,162 mil-
lion, was subdivided into only 4 parts for the major geographic areas
of the world, with minimum allocations stated for 2 specific countries.
For development assistance, which is described in the act in only broad
terms, there was a lump-sum appropriation of $250 million for Asia,
the Middle East, and Africa, subject to the provisos that (1) no more
than 25 percent be allocated to 1 country, and (2) at least 80 percent
be in the form of loans, except for portions that could be furnished
in the form of agricultural surpluses. For bilateral technical coop-
eration there was a global appropriation of $135 million.
The 1957 act also appropriated $100 million to a special Presidential
fund for security purposes, and the President is further authorized to
transfer up to $150 million appropriated for other purposes under the
act to the special fund. Subject to certain broad ceilings, the special
fund can be spent for almost any purpose connected with United States
security; furthermore, $50 million annually can be disbursed without
FOREIGN ASSISTANCE PROGRAMS
441
vouchers. Finally there is a general transfer provision authorizing
the President, with certain exceptions, to transfer up to 10 percent of
any category to other categories under the act, as long as no category
is increased by more than 20 percent. Section 513 of the Mutual
Security Act requires that the appropriate committees of the House
and Senate be kept currently informed of certain types of transfers
and substantial departures from the illustrative programs. Basically,
the appropriation structure of broad categories of aid, global or
regional lump sums, and transfer privileges between categories seems
to provide considerable flexibility.
A substantial portion of the freedom thus provided, however, is
taken away by various restrictions. Sums for a number of the smaller
special programs, such as United States participation in some of the
special United Nations programs, the aid-to-escapees programs, the
foreign research reactor program, and ocean freight payments for
voluntary relief agencies, are made quite specific, so that even with his
transfer privileges the President has relatively little discretion.
Other restrictions arise from congressional policy reservations de-
scribed earlier in this chapter. There is, for example, a current
requirement that no less than $250 million (for fiscal year 1956 it was
$300 million) of the assistance be in the form of surplus agricultural
commodities. Section 509 of the Mutual Security Act of 1954 requires
that half of the gross tonnage of commodities and equipment delivered
under the act, broken down by several specific categories, be carried in
United States flag vessels. Also there are requirements that certain
percentages of certain categories of aid be in the form of loans rather
than grants.
Another important restriction is the ceiling on the amounts that can
be spent for administrative expenses in connection with foreign assist-
ance; $23 million for the military programs and $34 million for the
economic programs in fiscal 1957. To make sure that the agencies do
not evade the intent of the limit on administrative expenses, the criteria
by which expenses are allocated as between program and administra-
tive costs are scrutinized by both the Bureau of the Budget and the
General Accounting Office.
There seem to be three broad alternatives for the future:
1. To specify the purposes, objects, or places of expenditure in
greater detail than at present;
2. To maintain approximately the present practice, in which the
purposes, objects, and places of expenditure are generally stated in
broad categories but with a number of highly specific limitations and
instructions; or
3. To remove the present specific limitations and continue to appro-
priate in broad categories, thus leaving the executive branch wide
discretion.
Specification in greater detail
There has always been concern, in the Congress and elsewhere, about
the discretion left to the executive branch under the system of illus-
trative program budget presentations and of appropriation acts drawn
in broad categories. The legislative requirement that the executive
branch keep certain congressional committees informed of substantial
deviations and transfers is an expression of that concern. Similarly
the limitations and instructions crosscutting the broad categories in
442
FOREIGN ASSISTANCE PROGRAMS
the current appropriation act (e. g., no less than $50 million of defense
support to Spain, no less than $250 million in the form of surplus agri-
cultural products, no more than $33 million for administration of
economic assistance, etc.) represent deviations from the general pat-
tern in order to bind the administration closely on points about which
some Congressmen have strong feelings.
There are, of course, many ways, from a technical standpoint, in
which the Congress could tighten its control further. It might fol-
low even more extensively the practice of inserting specific minimum
or maximum figures on details in which it is interested. The basic
categories of appropriation might be subdivided into smaller appro-
priation accounts. The illustrative program might be abandoned for a
more conventional type of budget presentation and appropriation act
in which firm figures are given by program, or by country, or both,
and perhaps even by specific projects. A subcommittee of the House
of Representatives specifically recommended in 1956 that the illustra-
tive program method be discontinued for technical assistance but did
not commit itself about other types of assistance.2
The argument for a more detailed control of expenditures by the
Congress is based on a set of assumptions about the role of the Con-
gress similar to the views held by those who justify detailed policy
control through substantive limitations and provisions, as noted in
the discussion of the previous issue. It can be pointed out that for-
eign assistance involves a great deal of money and many important.
interests, and that, if the Congress is to do its duty, it must be more
specific than it is at present about how much money is to be spent for
what purposes in what countries. The occasional substantial depar-
tures from the illustrative programs can be cited as evidence that the
agencies either have willfully deceived the Congress about their inten-
tions or have been unduly haphazard in the preliminary planning
on which the illustrative programs are based. Whatever the reason
for the discrepancies, the advocates of this position would like to see
the Congress instruct the executive branch in more detail, either by
insertion of more specific limits and provisos in appropriation legisla-
tion, or by a budgeting and appropriating procedure in which the
agencies are required to present specific programs and are then held
to them.
In opposition to this view it can be said that, as a general rule,
congressional control is best expressed in terms of well-considered
broad policy and that the Congress defeats its own purposes when it
attempts to legislate about a large number of details. În completely
practical terms, it is hard to see how a tighter control of funds could
fail to do serious damage to the effectiveness of foreign assistance as an
instrument of United States foreign policy. Foreign assistance is
a flexible device for the use of American strength, short of war, in a
wide variety of situations in an unstable world. An appropriation
procedure that specified in advance how most of the assistance funds
were to be used would entail high costs in terms of lost maneuver-
ability and bargaining power. How, for example, could foreign-
assistance requirements in the Near East for the spring of 1957 have
2 House Committee on Government Operations, United States Technical Assistance in
Latin America, H. Rept. 1985, 84th Cong., 2d sess. (Mar. 29, 1956).
FOREIGN ASSISTANCE PROGRAMS
443
been adequately calculated in the spring of 1956-or in December of
1956 for that matter?
Continuation of the present practice
More numerous than the advocates of tighter controls are those
who feel that a reasonable balance has been struck between the re-
quirements of freedom and the requirements of control. The agen-
cies do, after all, have most of their appropriations in lump sums for
broad categories and areas of the world and a moderate amount of
transfer privilege between categories. The necessity of reporting
substantial deviations from illustrative programs does not actually
prevent modifications but simply serves to warn the agencies that
they must be prepared to explain them. The maximum and mini-
mum figures currently being inserted are administrative manifesta-
tions of policy determinations that the Congress has a complete right
to make. Although sympathetic to the claims for flexibility, they
feel that to go farther in the direction of administrative discretion
would endanger the general control of the Congress.
Greater discretion
There are also strong arguments against the limitations and details
in present legislation. The basic procedure of an illustrative pro-
gram, with appropriation acts drawn in broad terms, can be viewed
as the only workable way of handling the financing of foreign assist-
ance by annual appropriations, contrary to the tendency of the Con-
gress to insert more and more specific maximum and minimum figures
within the broad framework. Actually, according to most persons
concerned with the administration of the program, the broad cate-
gories of appropriation are now so extensively crosscut with other
specific instructions and limitations that there is really very little
elbowroom remaining. In order to comply with legislative instruc-
tions on the use of funds, negotiators in the field are frequently in a
position of offering agricultural products that the host country does
not need and loans that it is not likely to be able to repay.
Limitations on administrative expense, which arose out of charges
that the International Cooperation Administration and its predeces-
sors were overstaffed in Washington and spent too much time re-
viewing actions proposed by the field, are particularly controversial.
The foreign assistance agencies claim that they are caught between
conflicting congressional pressures and instructions. They point out
that, since 1953, when several previous agencies were consolidated into
the Foreign Operations Administration, administrative employees
for economic aid have been reduced from 2,800 to 2,000, while ex-
perts, technicians, and other program staff have increased from 2,000
to 2,900, and the workload has continued to increase. For fiscal year
1957, the Department of Defense was limited to an administrative
expense of approximately 1 percent of the appropriation for military
assistance, and the International Cooperation Administration was
limited to approximately 2 percent of its economic programs. Even
allowing for the large aggregates in which a great deal of foreign as-
sistance is granted, these appropriations seem quite modest.
Moreover, it is pointed out that there has been a great deal of con-
cern in the Congress that the International Cooperation Administra-
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FOREIGN ASSISTANCE PROGRAMS
tion do a more careful job of programing and that the proportion of
assistance given in large grants of "nonproject" aid be reduced. Be-
cause administrative overhead results, in large part, from the number
of projects to be processed rather than from the amounts of money
involved, this would probably mean a higher ratio of administrative
to program expense rather than a lower one. To the extent that
assistance may in the future shift from military to technical coopera-
tion and development purposes, the administrative expense should
rise.
There are now occasional reports that limitations on administrative
expense are having consequences contrary to those intended. Some
International Cooperation Administration technicians and experts
abroad are not being used to full benefit in their specialties because
lack of administrative support keeps them busy with paperwork and
the other necessities of keeping a mission going. Moreover, shortage
of administrative staff limits the speed and flexibility with which the
agency can respond to emergencies and new opportunities. In order
to get the work done at all, the agency must handle everything rou-
tinely and in turn. It is commonly said that if a mission chief needs
a fast clearance on a paper his only sure course is to fly back to Wash-
ington and "walk it through." It is difficult to find personnel who
can drop what they are doing, cut red tape, and get quick action on
a proposal coming up from the field.
CONTINUITY OF FOREIGN ASSISTANCE
Foreign assistance is, at most, only tentatively established as a
continuing policy of the United States. To be sure, the basic legisla-
tion is permanent in the sense that it has no specific expiration date.
Section 2 (a) of the Mutual Security Act of 1954, as amended, declares
it "to be the policy of the United States to continue, as long as such.
danger to the peace of the world and to the security of the United
States persists, to make available to free nations and peoples" certain
kinds of assistance. The act of 1954, however, authorized appropria-
tions for only fiscal year 1955. In 1955 and again in 1956, amendments
to the act of 1954 were passed, making slight modifications in policy
and authorizing appropriations for only the succeeding fiscal year.
If another act authorizing appropriations is not passed, foreign
assistance will end on June 30, 1957, except for liquidation activity.
Thus, the Congress had made clear its limited commitment, and
there continues to be a great deal of uncertainty about the future of
the program. Assuming that some kind of foreign assistance program
will continue for several years to come, this section will consider the
issue: What legislative commitments should the Congress make with
respect to the continuity of foreign assistance?
There are four alternative courses that the Congress might consider:
1. To enact permanent legislation declaring a foreign assistance
policy and authorizing appropriations;
2. To enact legislation authorizing foreign assistance programs and
appropriations for a substantial but limited number of years;
3. To enact legislation giving permanent authorization and appro-
priation authority for some types of foreign assistance and continue
annual authorization of other types of assistance; or
4. To continue the present practice of annual reauthorization.
FOREIGN ASSISTANCE PROGRAMS
445
Permanent legislation
The first alternative would be for the Congress to enact legislation
establishing comprehensive foreign assistance as a standing policy of
the United States for an indefinite period of time. A key element of
such legislation would be a provision permitting subsequent Con-
gresses to make appropriations for foreign assistance without further
authorizing legislation. This appropriating authority could be ex-
pressed either in a specific amount that would serve as a ceiling or, as
is usually done, merely by authorizing such appropriations as might be
necessary to carry out the purposes of the act, leaving the level of
appropriations to be completely determined by the regular budgeting
and appropriating processes. The enactment of legislation of this
kind would make foreign assistance as permanent as any Government
program can be in a system in which no legislature can bind a sub-
sequent one and in which laws are subject to repeal at any time. The
evolution, from a temporary, emergency, experimental status to the
status of a regular program, which many other Federal programs went
through in their early stages, would be complete.
Aside from the worldwide political effects of such an unequivocal
commitment, there would be a great many important administrative
advantages. This commitment would provide the firm basis, which
is now lacking, for building appropriate United States administrative
institutions and for developing long-range military and economic
development plans in collaboration with other nations. A commit-
ment of this kind would also greatly change the environment in which
foreign assistance programing takes place, and it would strengthen the
position of the American administrators in their discussions and nego-
tiations with other governments. With the prospect of assistance
continuously available, the United States would be in a position to
encourage recipient governments to develop stronger machinery for
programing the use of their own resources. The lack or weaknesses
of such machinery is now a serious impediment of development, par-
ticularly in the countries that are the least developed economically.
The United States would also be able to encourage recipient coun-
tries to make longer-range commitments involving essential major
projects the benefits of which would not be immediately apparent. At
the same time, United States commitments would not be irrevocable
because the level of expenditures would be reviewed periodically in the
appropriations process. However, the heavy burden of presenting
the program to at least four congressional committees each year, which
now falls upon the foreign-assistance agencies, would be cut in half.
With permanent status, programing, fiscal, and personnel practices
could be developed that would be far more efficient than the present
ones, which are designed for a program that may be terminated at any
time.
Against the undoubted administrative advantages of a permanent
legislative status, it is necessary to consider what, if anything, might
be lost. The main difference would be the absence of the annual full-
scale review of the substantive legislation, starting in the foreign
affairs committees and ending with extended debate on the floors of
both Houses, which now takes place. The substantive committees
would, of course, be in continuous touch with the program and could
bring up new legislation at any time, but their control would perhaps
446
FOREIGN ASSISTANCE PROGRAMS
not be as detailed and regular as it is now under the compelling ne-
cessity of passing new legislation each year in order to keep the pro-
gram going. It is at least conceivable, although hardly likely, that
the legislation might get out of date or become inappropriate in the
light of changing circumstances, or that the executive branch might
have to be given broader authority to define and adjust the program
than would be desirable from the viewpoint of general congressional
control.
Permanent legislation might mean some narrowing of the present
wide sharing of congressional influence over the program that comes
from annual participation by both the substantive and the appropria-
tions committees and usually lengthy floor debate. Annual review
would center around the appropriations committees, which might have
somewhat more influence in determining the annual level of program
expenditures than they have at present. This might be particularly
true if the authorizing legislation did not specify any level of expendi-
tures. Presumably, the appropriations committees might exercise less
discretion if the basic legislation contained guide figures.
Finally, it is relevant to consider the effect upon the public inter-
ested in foreign assistance, both at home and abroad. It can be argued
that the present full-scale annual review serves a valuable educational
function by drawing public attention to the program and the issues
involved, although it is by no means certain that similar attention
would not be attracted by appropriations review or by occasional spe-
cial investigations by legislative committees. Suggestions are also
occasionally made that uncertainty about the continuation of Ameri-
can aid tends to produce a more cooperative attitude on the part of
other nations than would be the case if the program were permanent.
This argument would have merit if it is assumed that permanent legis-
lation would establish the general level of aid for each country, which
is hardly likely. There must always be room for negotiation and
maneuver. In general, however, the weight of experience seems to
be with the long-range partnership approach rather than the "keep
them guessing" approach.
Substantial but limited commitment
A second alternative, which is something of a compromise between
the advantages and disadvantages of the first, would be for the Con-
gress to enact legislation expressing its intent to continue the program
for a substantial period of time-possibly 5, 10, 15, or 20 years-and
authorizing appropriations for that period. The authorization could
be in terms of a given amount to be appropriated annually, or a total
amount to be appropriated as needed over the period, or in such
amounts as the Congress might consider necessary. In any event,
annual authorizing legislation would not be required.
Many of the considerations cited above in connection with the pre-
vious alternative are also relevant here. Such a legislative commit-
ment, if it were not for too short a period, would provide a basis for
long-range project planning and sufficient stability to develop effective
personnel and internal administrative practices. Under this alterna-
tive, some advantages of annual substantive review might be lost,
although the appropriations process and the necessity of review after
several years would retain a substantial measure of ultimate congres-
sional control. The commitment would be neither indefinite nor irrev-
FOREIGN ASSISTANCE PROGRAMS
447
ocable. Arrangements might be made to have the legislation reviewed
well before the expiration of the authorized period in order to avoid
uncertainty about the future as the period drew to a close.
Mixed permanent and yearly authorizations
A third alternative would be to put some types of aid on a perma-
nent or continuing basis with appropriate financing authorized, but
to make annual decisions about the future and magnitude of other
types. For example, it is suggested that there is widespread agree-
ment, going back to the passage of the Act for International Develop-
ment of 1950, that technical cooperation should be a long-range under-
taking and that significant results are to be expected only over a num-
ber of years. The Act for International Development was originally
in the form of permanent legislation, but world events, subsequent
administrative reorganizations, and the revision of legislation have
converted it to an annual program. The financial commitment in-
volved in making this program permanent would be quite modest.
There are, of course, many arguments in favor of permanent status for
both military and economic assistance. It is not the purpose of this
alternative to conclude that one program is more important than the
other but simply to suggest the possibility of making some distinction
among the three categories if the Congress should decide to adopt this
approach.
The chief advantage of this alternative would lie in retaining the
possibility of annual review of those parts of the assistance program
that the Congress might be most uncertain about, while giving other
portions the benefits of stability and permanence. At least part of
a major financial commitment might thus be hedged.
The principal argument against this alternative is based upon a
doubt that the categories of technical, economic, and military assist-
ance are really separable in practice. Experience seems to indicate
that technical cooperation without the availability of loans and grants
for development purposes is of limited effectiveness. Likewise, mili-
tary assistance of any considerable magnitude, particularly to under-
developed countries, often requires supplementary economic assist-
ance in some form to make it effective. Different legislative author-
izations might tend to perpetuate an already artificial distinction be-
tween the various types of aid. The aid agencies might well find them-
selves in situations in which the benefits of permanence of one type
could not be fully realized because of uncertainty about the others.
Continuation of present pattern
To complete the range of possibilities, the fourth alternative would
be to leave the situation unchanged. The general policy declaration
in the Mutual Security Act of 1954 about continuing the program
might or might not be strengthened, but in any event annual re-
views and legislation involving both the Foreign Affairs and the
Appropriations Committees would continue to be required. If the
principal uncertainty in the Congress were over the desirable level of
expenditure instead of the question of continuing the program, adjust-
ments might be made in the legislation to authorize the foreign assist-
ance agencies to develop personnel systems and other administrative
machinery appropriate for permanent rather than temporary agencies.
The advantages of this situation are those mentioned above as
growing out of a full-scale annual review of both legislation and
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FOREIGN ASSISTANCE PROGRAMS
appropriations. The Congress remains firmly in control with oppor-
tunities for continuous adjustment to the world situation.
The disadvantages of continuing the present system of annual re-
authorization have also been noted above, in connection with the
first alternative, but can be reiterated briefly: large expenditures of
administrative time on reports, presentations, and hearings; con-
tinued improvisation with regard to personnel; difficult negotiating
positions for the administrators as they deal with other countries;
and programing that must concentrate on the short run and is severely
handicapped in reaping the benefits of long-range planning and large
projects. The latter two difficulties are particularly acute when
appropriated funds are available for obligation for only 1 year,
which is the key point of the next issue to be discussed.
AVAILABILITY OF FUNDS
Foreign assistance was born into a framework of laws, customs,
and controls that prescribe how Government agencies shall manage
their personnel, obtain and account for funds, and otherwise conduct
themselves in relation to the Congress and the public. Recognizing
that this control system was largely developed for domestic programs
considerably different from foreign assistance, the Congress has
granted certain special authorities and exemptions. On the other
hand, certain unusual controls have been applied.
The conventional practice of annual appropriations, available for
obligation during 1 year, is, with limited exceptions, followed for for-
eign assistance. A good many difficulties have arisen, however, in re-
conciling this procedure with the unusual requirements of administer-
ing foreign assistance. The issue to be considered here is: How long
should foreign assistance appropriations be available for obligation
Although it is put narrowly in terms of funds, this issue is difficult
to separate from the question, discussed earlier, of whether the United
States should make a longer-term commitment to these programs.
Some of those who are basically opposed to foreign assistance appear
to strive, in lieu of winning their major point, to impose a minimum
financial commitment and to restrict the flow of funds as much as pos-
sible. Others would be unwilling to terminate foreign assistance
altogether but are still uncertain about making a permanent commit-
ment; the annual appropriation and 1-year availability hold the line
until the future can be seen more clearly.
Three broad alternatives will be discussed:
1. To continue the present general practice of annual appropria-
tions, available for 1 year;
2. To make annual appropriations, available for longer than 1 year;
3. To provide funds, through either appropriation or nonappro-
priation devices, for several years in advance; or
4. To adopt some combination of alternatives 1, 2, and 3.
Annual appropriations, available for 1 year
Funds for foreign assistance are, in general, appropriated annually
and are available for obligation for only 1 fiscal year. In recognitici,
however, of the unusual problems of the foreign assistance agencies,
the Congress has made several limited exceptions to that rule. Recog-
FOREIGN ASSISTANCE PROGRAMS
449
nizing the complexities of procurement and the long lead time required
for the production of major military items, the Mutual Security Act
of 1954, as amended, authorizes appropriations for the principal cate-
gory of military assistance, which consists primarily of actual military
equipment, to be available until expended. In appropriations par-
lance, this would be "no year" money. The appropriation acts, how-
ever, have limited the availability of the military assistance funds to
1 year, with one exception. Military assistance funds that within the
fiscal year for which appropriated are "reserved" to pay for certain
kinds of military equipment that the 3 military services order in com-
mon with their procurement for domestic use, are continued available
for 2 additional years for reimbursement to the service concerned.
The Congress has also retained close control of the funds involved
by appropriating each year only the amount that it is anticipated will
be programed. Thus agency programing is still largely on a year-by-
rear basis, even though there is a limited amount of flexibility about
when the funds will be formally obligated and disbursed.
In the past 2 years, a certain amount of flexibility has also been intro-
duced with respect to funds for economic development, although the
amounts are relatively modest in relation to the total foreign assistance
picture. For fiscal year 1956, the Congress voted, in addition to the
regular annual funds for development assistance, a fund for Asian
economic development of $100 million to be available for 3 years,
through fiscal year 1958. In fiscal year 1957, in lieu of additional ap-
propriations to the Asia fund and to an Africa fund, which the Presi-
dent requested, the Congress consolidated these special funds with the
category of development assistance and authorized $250 million to be
available through fiscal year 1960. Here again, however, the appro-
priation act made these very funds available for only 1 year.
There have been other unsuccessful attempts to make exceptions
to the general rule of 1-year availability. For example, the Mutual
Security Act now provides authority in certain cases for the agencies
to enter contracts in anticipation of later appropriations, but the
Appropriation Act for 1957 did not contain the language necessary
to make the authority effective. For defense support, technical co-
operation, atoms for peace, and several other special economic and
military programs, the appropriation is still available for only 1 year.
The Congress denied a presidential request to have the appropriation
for fiscal year 1957 available until at least September 30-availability
for 15 rather than 12 months.
The Congress has also imposed one special restriction on the foreign
assistance programs. The Mutual Security Appropriation Act for
1957 provides in section 105 that:
Except for the appropriation entitled "Special Presidential
Fund," not more than 20 per centum of any appropriation
item made available by this Act shall be obligated and/or
reserved during the last two months of the fiscal year.
Similar restrictions have appeared in previous acts.
Although the very limited exceptions to the 1-year rule could be
removed, and controls on the availability of funds conceivably
tightened, there seems to be little, if any, sentiment for that course.
It is necessary, however, to consider the arguments for continuing
approximately the present practice.
450
FOREIGN ASSISTANCE PROGRAMS
The advocates of this position have the advantages that go with
the defenders of the status quo and the conventional practice. As
long as most of the rest of the Government operates on 1-year appro-
priations, why should foreign assistance be an exception? One-year
appropriations, it is argued, tend to keep the Congress firmly in con-
trol of general policy because the annual appropriations process pro-
vides ample opportunity for the review of policy problems, adjust-
ments in the magnitudes and internal balance of the program, and
new instructions to the agencies. Annual appropriations also
strengthen the control position of the Bureau of the Budget. General
control of fiscal policy may be aided by a limited duration of appro-
priations. Funds available indefinitely, particularly large ones, may
get out of hand and commit the Government to expenditures several
years later, which at that time may be undesirable from the viewpoint
of fiscal policy. The annual return to the Congress for more funds
is a constant reminder to the agencies not to obligate for any purpose
they are not immediately willing to justify. There is also the argu-
ment that limited appropriations make for a taut programing process
because it is necessary for the agencies to move expeditiously in order
to get decisions made and funds committed without the delays that
might occur if the funds were available for a long period.
In addition to these general considerations, there have been certain
specific experiences that are cited to demonstrate the need for con-
tinuing tight control of funds. For several years during and immedi-
ately after the Korean conflict, delivery of military assistance equip-
ment was behind schedule, with consequent accumulation of large
unspent balances. Although this situation seems to be well on its way
to being corrected, there are those who feel that any relaxation of the
general rule that military assistance funds must be either reserved or
obligated in the first year would be an open invitation to serious
additional loss of control.
The restriction on obligating over 20 percent of the funds in the last
2 months of the fiscal year was applied after the Congress noted a
tendency for a large proportion of the funds to be obligated very late
in the fiscal year. These late obligations were interpreted as evidence
that the agencies had been unduly leisurely in their programing, or
that a large number of commitments of uncertain necessity had been
made simply in order to keep appropriations from lapsing. There are
many who firmly believe that the prodding of such controls is required
to make the foreign assistance agencies improve their programing
practices, and they interpret the improvements in those practices that
undoubtedly have occurred in the past year or two as evidence of the
success of the control system.
Annual appropriation, longer availability
The opponents of the present system generally stress the need for
greater flexibility. They insist that the complicated nature of foreign
assistance programing-both the internal planning and the negotiating
with foreign governments-makes futile any attempt to force the
process into rigid 1-year cycles. Some projects can be developed from
the idea to the action stage fairly quickly, but many, for various rea-
sons, have to be nurtured slowly. Foreign governments have their
own problems, and some of them, particularly in the less-developed
countries, exhibit a persistent tendency to administrative indecision
FOREIGN ASSISTANCE PROGRAMS
451
and inaction. Over the long run, American assistance may influence
such governments toward better programing, but in the meantime the
pace of foreign assistance negotiations must be adjusted to the delib-
erate tempo of administration and the irregular tempo of politics in
such countries, even if it means some disruption of the time-honored
United States appropriations cycle.
It is also argued that the limited availability period, coupled with
the 20-percent restriction in the last 2 months of the fiscal year, results
in worse, not better, project choices. It is often well after the begin-
ning of the fiscal year when the appropriation act is passed and the
agencies know how much money they will have. Several more weeks
are then required to review the program in light of changed conditions
since the appropriation request was submitted and to adjust differences
between the amounts requested and those actually appropriated. Thus
it is usually in the late fall or early winter before the individuals
responsible for committing funds know how much they have to work
with; by that time, the April 30 deadline for obligating 80 percent of
the funds seems all too near. In effect, 80 percent of the appropriation
must be obligated during approximately 7 or 8 months of the fiscal
year. Having funds available for longer periods of time would, it is
argued, spread the obligating process more evenly and avoid any waste
involved in "crash" programing.
Arguments such as these lead to the second general alternative course
of action. Advocates of this alternative fell that, if the practice of
annual appropriations is to be maintained, the minimum requirement
for a successful and flexible program is to have the funds available
for obligation for longer than a year.
There are, of course, many ways in which this could be done tech-
nically. The simplest and most sweeping change would be to make
all foreign assistance appropriations available until expended-
"no year" money, in other words. Such a change would not necessarily
involve a greater financial commitment on the part of the Congress,
because the practice of appropriating annually an amount approxi-
mately equivalent to 1 year's requirements could be maintained. It
would mean, however, that the process of making plans, negotiating
with foreign governments, and obligating funds would be freed from
the confines of the annual appropriations cycle. Funds would be com-
mitted when a project was fully planned and agreed upon. There
would be no need for hurried obligation of funds in order to prevent
their lapsing, or any danger of having to withdraw from project
negotiations because the money tentatively earmarked for the project
had lapsed.
Extended availability of funds would provide another desirable type
of flexibility. Many observers have pointed out that the whole budget-
ary process of illustrative programs preparation, justification before
committees and discussion in committee hearings and on the floors of
the houses, results in a substantial advance commitment by the United
States of the amount of aid that will be given to any country in any
given year. From the extended preliminary discussions, knowledge
of the level of aid during the previous year, and the fact that the funds
will expire in a year, foreign countries develop expectations and know
that there will be considerable pressure on the American administra-
94413-57-30
452
FOREIGN ASSISTANCE PROGRAMS
tors to commit approximately a certain amount of money during the
year. The negotiating position of these governments is strengthened
and the position of the American aid missions correspondingly weak-
ened, by this knowledge.
If funds were available for obligation for longer periods, the aid
missions would not be confronted by this dilemma; they could hold
the funds until satisfactory plans and projects had been agreed upon.
The flow of aid into each country would not necessarily be in more or
less even annual increments, but it would depend in large part upon
the rate at which the various countries submitted sound requests and
proposals. The merit of the requests, not the stage of the appropria-
tions cycle, would be the controlling factor in determining acceptance
or rejection.
If the need for more flexibility were granted but the Congress were
still unwilling to go so far as to make all foreign assistance funds
available until expended, a number of lesser but still important changes
could be made. Making effective the authorities that have been
granted by the authorizing legislation but denied by the appropriat-
ing legislation-no-year money for military assistance, 3-year money
for development assistance, and extended contracting authority-
would have a pronounced effect. Other special authorities might be
granted for specific types of categories of assistance. Another pos-
sibility would be to grant a modest extension of availability, such as
the 15 months' availability requested by the executive branch last year.
Abolition or mitigation of the 20 percent in the last 2 months' restric-
tion would be a minimal change.
Alterations of procedure such as these would do a great deal to
ease the adjustment of assistance programing to an annual appropria-
tion process. In addition to flexibility in planning, such changes
would enable the agencies to make modest commitments of funds ex-
tending over substantial periods of time without any substantial loss
of congressional control of the magnitude of aid expenditures from
year to year.
Provision of funds several years in advance
A third alternative holds that although extended availability would
be helpful, it is not enough. In one way or another, foreign assistance
funds must be provided for several years in advance, without going
through the annual appropriations process. It is also assumed that
such funds would have to be provided with great latitude as to the
purposes and places of expenditure.
The case for this alternative rests on the reasoning that building up
military forces and building up foreign economies are simply not
1-year jobs but larger enterprises that must be approached from the
broadest possible perspective. Many important tasks extend over
considerable periods of time, perhaps decades, and require far more aid
than could possibly be committed out of any annual appropriation
without extreme distortion of the program. From the viewpoint of a
receiving country, there is little point in starting such projects without
assurance that they will be finished. Without this assurance, the need
to be cautious and the pressure for visible accomplishments result in
concentration upon short-range but perhaps not very essential tasks.
The United States interest also suffers from short-run programing
because a critical problem in foreign aid administration is often to
FOREIGN ASSISTANCE PROGRAMS
453
persuade other governments to make long-range commitments that the
United States believes would be in their interest as well as in the
American interest. The United States position in such negotiations
would be much strengthened if American officials were in a position
to make longer-term commitments. For these reasons, it is argued,
the foreign assistance agencies should have substantial resources at
their disposal which could be committed flexibly over a period of years
and in amounts as large as the circumstances require. The way to give
this freedom would be to provide funds for several years in advance.
There are various ways in which this could be accomplished from a
technical standpoint. One way would be simply to make a large ap-
propriation, equivalent to anticipated expenditures for several years,
to be available for several years or perhaps until expended. Another
way would be to give the foreign assistance agencies some kind of
assured income, perhaps from the returns on existing public foreign
loans, to be freely available for relending or other expenditure. The
current experience of the International Cooperation Administration
with the use, for development purposes, of foreign currency proceeds
from agricultural product sales abroad under Public Law 480 is rele-
vant to this question. Advance financing of foreign assistance might
also be done through subscriptions to the capital stock of a Govern-
ment corporation, or through various types of nonappropriated public
debt transactions. Although such methods are unconventional, they
are by no means unknown in the American governmental system, hav-
ing previously been used for a number of programs both foreign and
domestic. The financing of the Export-Import Bank is the example
closest to the present case.
Any of these possibilities would, of course, require adjustments in
the present practice of annual authorization and appropriation. From
an administrative viewpoint, such a course would have the advantage
of permitting agencies to make reasonably firm program projections
for several years ahead and to negotiate with foreign governments on
that basis. Without making irrevocable commitments, the bargaining
power of the United States would be considerably enhanced. More-
over, the nature of the process of economic development and of insti-
tutional, including military, change strongly suggests the need for
long-range planning. Against the advantages of this change must be
weighed the disadvantages of a modest loss in year-to-year congres-
sional fiscal control and the possibility of giving specific instructions
to the foreign assistance agencies in the course of the appropriations
process. Even a major legislative and financial commitment would
not, of course, prevent continuous observation by the appropriate sub-
stantive committees and new legislation at any time.
Combination of systems
Various combinations of the above three alternative methods of
handling this issue might be adopted, but the possibilities are fairly
obvious and need not be elaborated here. Some parts of the program
might be kept on an annual appropriation basis with tight controls
on the availability of funds. Other parts might be given greater
discretion in the timing of expenditure of annually appropriated
funds. Still other parts might be given long-range financing by one
of the methods previously mentioned. If the emphasis in the overall
American assistance effort should shift toward a greater emphasis.
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FOREIGN ASSISTANCE PROGRAMS
on economic development, with a larger outflow of capital investment
funds, the case for the last method would become correspondingly
stronger.
ACCOUNTABILITY FOR FUNDS
Like other Federal agencies, the agencies administering foreign
assistance are subject to examination and control by the General
Accounting Office to insure that they have properly accounted for
their funds and that all laws concerning the handling of funds have
been complied with. Also, like other agencies, the International Co-
operation Administration and the Department of Defense have
encountered certain difficulties in their relations with the General
Accounting Office.
A certain amount of friction in such relations is inevitable. On
one side is the controller; on the other, the controlled. One is respon-
sible for enforcing compliance with complex rules in a narrow sector
of governmental activity; the other is responsible for achieving posi-
tive program results. The General Accounting Office and its account-
ants and lawyers tend to interpret the rules conservatively; the pro-
gram administrators in the Department of Defense and the Inter-
national Cooperation Administration tend to seek the maximum
latitude. The accountants and lawyers inside the operating agencies
are usually cast in the role of brokers or mediators between the two.
Unless the concept of accountability is abandoned altogether, the
process of disagreement, discussion, and adjustment will have to con-
tinue in one form or another. At best, it can only be made easier
by clearer concepts, greater efficiency, and more good will on all sides.
It is beyond the scope of this study to examine in detail the problems
that have arisen between the General Accounting Office and the for-
eign assistance programs. Many of them are based on highly technical
questions. It is important to note, however, the existence of a prob-
Tem area of major importance. Some officials think that the auditing
controls on foreign assistance, based on legislation by the Congress
as presently interpreted by the General Accounting Office and applied
within the operating agencies, are too stringent in view of the special
problems of foreign assistance programs.
The issue here is: To what extent should foreign assistance agencies
be relieved of some of the requirements of accountability normally
imposed on domestic agencies? As discussed here, this includes both
the legislatively defined standards of accountability and the manner
of their interpretation and application by the General Accounting
Office. Although the two are technically separate questions, they are
difficult to separate in practice.
This formulation of the issue eliminates extreme positions. In other
words, no one seriously contends that the foreign assistance agencies.
should have funds for which they are not accountable and thus be
outside the jurisdiction of the General Accounting Office. Neither is
there any substantial support for the idea that the foreign assistance
agencies should be made to follow to the last detail all the rules and
procedures of accountability that are applied to the old-line domestic
agencies. To some extent, the General Accounting Office auditing
procedures are already adjusted to the peculiar nature of foreign
assistance operations. The question is whether the standards and
FOREIGN ASSISTANCE PROGRAMS
455
procedures have been adjusted enough. Therefore, the analysis is
in the form of two broad alternatives:
1. To grant the foreign assistance agencies substantial exceptions
to the requirements of accountability normally imposed on domestic
agencies; or
2. To continue, as at present, to make only moderate exceptions and
adjustments for the foreign assistance agencies.
Substantial exceptions
Several arguments are commonly made by the advocates of greater
exceptions. They point out that regardless of the present minor
adjustments, the concepts and techniques of auditing now used have
been evolved primarily out of domestic experience. These concepts
and techniques need major adjustments to the peculiarly complex
overseas operations of agencies like the International Cooperation
Administration. How, it is asked, can Washington standards of ac-
countability and fund control be applied in countries where conditions
are relatively primitive, where the host government may be disorgan-
ized, or where the need for swift action seems paramount? How can
procedures that may be quite appropriate for the Department of Agri-
culture or the Patent Office be applied to a program that is not deter-
mined exclusively by the United States but is shaped in protracted and
often delicate negotiations with foreign governments whose internal
procedure and political problems may be even more difficult than those
of the United States?
The advocates of this position also point out that auditors are
traditionally conservative and restrictive in their interpretations of
law, and they claim that the General Accounting Office interprets the
law even more strictly than is warranted. To avoid trouble, the con-
trollers inside the agencies then place even tighter restrictions on the
program administrators than the General Accounting Office rulings
necessarily require. At the end of this chain of rulings, each more
restrictive than the last, it is alleged that the persons responsible for
program results have very little latitude in choosing their methods
and are forced to submit to elaborate procedures that take a heavy toll
in both time and money. These procedures are said to slow down
program accomplishments and add little, if anything, to real account-
ability or control. In effect, so it is claimed, the auditors transgress
on substantive decisions about the desirability of program expendi-
tures even though in theory they are concerned with only procedural
matters.
3
One specific source of friction seems to be the application of section
1311 of the Supplemental Appropriation Act for 1955, which sets
forth the standards for determining what is a valid obligation of
appropriated funds. Many administrators, particularly in the Inter-
national Cooperation Administration, claim that the current interpre-
tations of section 1311 simply do not fit the realities of the situations in
which the International Cooperation Administration must negotiate
with foreign governments and plan projects. Because of the firmness
of the agreements that are required with other governments to permit
a valid obligation of United States funds, American officials sometimes
must ask such governments to make commitments of a magnitude and
868 Stat. L. 801.
456
FOREIGN ASSISTANCE PROGRAMS
for a period of time greater than the officials themselves are permitted
to make to fulfill their side of the bargain.
It is impossible, furthermore, to treat a project as an entity for
obligation purposes; there are different rules under which the various
components of a typical project-commodities, United States techni-
cians, foreign trainees, etc.-can be obligated. Funds for commodities,
contractual services, and certain other types of costs can be obligated
at the beginning of a project. On the other hand, the costs of United
States technicians can be obligated on only a month-to-month basis as
the project proceeds, a direct application of the conventional domestic
rule.
Thus the United States can make a full commitment of funds for
technical services if it can find a contractor to carry out its share of a
project, but not if it relies on its own technicians. And funds for the
training of foreign technicians cannot be obligated until the names of
the trainees are known, and in no case more than 9 months before the
training starts. This creates numerous complications in trying to
reconcile the timing of the United States fiscal year with the time
when a man can be spared from his job in the foreign government and
when he can start what may be a rigidly scheduled training course at
some United States institution. The result of all this is elaborate
paperwork for hundreds of obligations, deobligations, and reobliga-
tions, which imposes a heavy burden on the agencies and tends to
splinter the unity of project planning, accounting, and control.
The application of section 1311 is only one example of the difficul-
ties created by stringent auditing controls. These controls appear to
bear heaviest on operating personnel within the International Cooper-
ation Administration and the Department of Defense, but objections
to them are frequently made by organizations doing work under con-
tract for foreign assistance and by outside observers with no direct or
prejudicial interest. There are strong arguments for greater freedom
for the operating agencies, both through legislative exceptions to the
accounting standards and through more flexible attitudes and pro-
cedures of the General Accounting Office.
Continuation of present controls
The defense of the present auditing standard rests basically on the
strongly held view that it is the duty of the Congress, the General
Accounting Office, and responsible fiscal officers to take all possible
precautions to protect public funds. The argument is that this is a
duty that makes it necessary to enforce rules that others may complain
about but, in the end, always find a way to comply with.
Advocates of the present situation also claim that the duties of audi-
tors go beyond the mere guarding of funds against fraud or misappro-
priation. It is necessary to insist that standards of accounting be
employed that will provide information about the general effectiveness
of program management and give the Congress information necessary
to discharge its obligation for governmentwide fiscal control. For
this reason, it is necessary at times to ask questions about the proce-
dures of an agency for reaching decisions about the commitment of
funds. It is pointed out that section 1311 had its origin in the conclu-
sion reached by a number of Members of the Congress that the agencies
had been making dubious obligations in order to keep appropriations
from lapsing.
FOREIGN ASSISTANCE PROGRAMS
457
In summary, many feel that there are good historical reasons for the
present controls, that the General Accounting Office is reasonable in
idjusting its auditing procedures to the unusual operating problems
of the foreign assistance agencies, and that the obligation to safeguard
United States funds and keep the executive branch under constant
surveillance requires approximately the present standards and pro-
edures of accountability.
FORM OF ADMINISTRATIVE AGENCY
The suggestion is frequently made that difficulties have arisen in the
foreign assistance field, as in other fields, because the wrong organiza-
ional form has been utilized. Would not the use of a Government
corporation, rather than a conventional administrative agency, solve
he problem of reconciling discretion and control, and enhance effi-
iency as well? The following discussion will analyze the issue of
what form of Government agency should be employed to administer
foreign economic assistance. The two basic alternatives to be consid-
ered are:
4
1. A Government corporation, or
2. A conventional Government department or agency.
4 Government corporation
The proposals that have been made for new foreign assistance cor-
porations vary a good deal with regard to the functions and powers the
corporation would have. It is not feasible here to attempt to describe
and argue the advantages and disadvantages of each possibility. Pre-
sumably, a Government corporation could perform roughly the func-
ions now being performed by the International Cooperation Admin-
stration. The development lending functions now being performed
by the Export-Import Bank might be transferred to such an institu-
ion. Such a corporation could operate as an independent agency or
within the general purview of the Department of State. None of
hese questions of allocation of function or channel of reporting are at
issue here; this issue concerns the merits and demerits of the corporate
form as such.
Establishing a corporation to handle economic assistance would not
be unprecedented. The United States now uses the corporate form
for a limited number of domestic activities in the economic field, and
one agency that is already in the field of economic assistance, the
Export-Import Bank, is a corporation. Technical cooperation in
Latin American has always been administered through a Government
corporation, the Institute of Inter-American Affairs, although in
recent years the autonomy of the Institute has been reduced by con-
gressional and administrative action to such a degree that it is now
ittle more than a regional arm of the International Cooperation Ad-
ministration, with few of the normal corporate attributes.
The most common argument for the corporate form is really an
extension of the arguments previously made on behalf of continuity
and administrative flexibility. It is pointed out that the nature of
4 For discussion of the relevant experience and merits of administering technical as-
istance through a Government corporation, see a forthcoming_book by Philip M. Glick,
The Future Can Be Built: The Administration of Technical Cooperation in the Amer-
cas, to be published by the University of Chicago Press, 1957.
458
FOREIGN ASSISTANCE PROGRAMS
the foreign assistance task-the complexity, variety, worldwide scope.
and rapidly changing pace of operations requires great flexibility in
administrative methods and short-range goals. Historically the cor-
porate form has sometimes been used when the Congress wanted to
confer upon an administrative agency substantial freedom to deter-
mine its own operating methods and internal management policies.
Thus foreign assistance should be administered by a corporation.
It should be noted that this argument assumes that, if a foreign
assistance corporation were established, it is likely that it would be
given administrative powers and freedoms that the Congress has been
reluctant to grant the existing foreign assistance agencies. It is
probably true that if foreign assistance were entrusted to a Govern-
ment corporation, such a corporation would be likely to have some-
what more freedom in administrative matters than the present foreign
assistance agencies have. It should be realized, however, that the
Government corporation is not a standardized form the characteristics
of which follow automatically after the name. The outward form
and title of a corporation do not in themselves mean much for opera-
tional purposes. Each corporation has the attributes that the Con-
gress and its administrators choose to give it, and there are great varia-
tions, ranging from the Institute of Inter-American Affairs to some
highly independent corporations in the mortgage banking field. Thus
the corporate form might be helpful, but it would not in itself solve
the problem of administrative flexibility. The corporate form might
be conferred as the result of a prior decision to grant more adminis-
trative discretion in foreign assistance, but would not in itself be the
cause of such freedom.
A second line of argument on behalf of the corporate form is
that the day-to-day operating tasks of foreign assistance are in some
ways comparable to the commercial activities of business corporations.
Although foreign assistance is not expected to operate at a profit, it
does have a certain amount of income from interest and repayments
on loans. This would be particularly true if some of the present for-
eign lending functions of the Export-Import Bank were included in a
new agency. Even some parts of the foreign assistance function that
do not bring a return, such as administering grants for economic aid
and development, are said to be more like private business than Gov-
ernment operations because they involve granting lines of credit and
supervising the procurement and use of commodities all over the
world. And basic to the whole foreign assistance program are trans-
actions with a host of entities, public and private. Therefore, the
normal corporate attributes of power to enter contracts, to sue, and
to be sued might be appropriate.
A third argument is that the corporation might emphasize the im-
portance of foreign assistance and tend to set it apart from other
United States interests. This separation is believed by some to be
desirable, both for its psychological effects abroad and for its effect
upon day-to-day decisions about foreign assistance. It should be
noted that this argument also is based not on any inherent characteris-
tics of the corporate form but on the expectation that a foreign assist-
ance corporation would be organizationally separate from the other
United States agencies with overseas interests. Those who advance.
this argument are really talking about an independent agency, and
whether it was a corporation or not would seem to make little differ-
FOREIGN ASSISTANCE PROGRAMS
459
ence. Conversely, a corporation merged with the Department of
State, as the Institute of Inter-American Affairs now is, would have
little to offer the proponents of this argument.
A fourth argument is that the corporate form might make it easier
to enlist the participation of individuals and entities outside of the
Government. A corporation might possibly have more flexibility
to enter agreements for related or cooperative projects with private
business firms, foundations, universities, and nonprofit voluntary
organizations of various kinds. The corporate form would provide a
framework within which, if it should be thought desirable, the Gov-
ernment might even share the financing and top management of
foreign assistance with nongovernmental organizations and indi-
viduals.
Conventional agency
The case for the conventional agency consists of a refutation of most
of the advantages claimed for the corporation, certain additional con-
siderations suggesting that the corporate form would not itself do
any good and might possibly do harm to foreign assistance, and a
conclusion that the conventional department or agency form ought
to be maintained.
In the first place, as noted previously, the preference of many peo-
ple for the corporate form is based on an assumption that a great
deal of administrative freedom would automatically ensue. Al-
though it is true that 20 years ago many Government corporations had
great freedom, much of this freedom has long since been taken away
by congressional or administrative action. A government corpora-
tion has only those powers that the Congress chooses to give it, and
there is little reason to believe that the Congress would give powers to
a foreign-assistance corporation that it denies to a foreign-assistance
agency. Conversely, the freedoms that many people would like to
see given to the foreign-assistance program can be given just as well
to a regular agency; many noncorporate agencies already have such
freedoms.
5
Secondly, the analogies between foreign-assistance operations and
the commercial activities of corporations are only superficial. It
may be true that some of the processes, such as purchasing, contracting,
and lending, are similar, but these are only means; the goals are dras-
tically different. It would be a mistake to force foreign assistance
into an organizational form that in any way suggests that its purposes
are commercial or that the principal concern is with the balance sheet.
The objective of foreign assistance is to produce economic and social
development in other countries. Grants and loans are only means to
those ends, even though loans may in the long run be repaid or show
a net profit.
Third, it can be argued that if the corporate form should lead to the
autonomy and separation of the assistance program from other United
States political, military, and economic interests overseas, it would
be a loss rather than a gain. Foreign assistance cannot be pursued
For discussion of the criteria for use of the Government corporation form, see U. S.
Commission on Organization of the Executive Branch of the Government, Task Force
Report on Revolving Funds and Business Enterprises of the Government (January 1949),
pp. 174-175.
460
FOREIGN ASSISTANCE PROGRAMS
as an isolated program; the goal should be administrative and sub-
stantive unity, not dispersion.
Closely related to the preceding point is the argument that the
establishment of a corporation would accentuate an already difficult
personnel situation. A corporation might have great freedom to
develop its own personnel system, but what is needed at the present
time is not so much freedom as more integration of the personnel
systems under which persons are sent abroad in the service of the
United States. Although the corporate form would not be an abso-
lute bar to such a move, it might increase the difficulties of integrating
the personnel of the International Cooperation Administration with
those of the Department of State and the Foreign Service.
Finally, there is doubt that a corporation would necessarily enhance
cooperation or participation by private individuals and nongovern-
mental agencies in the foreign-assistance effort. A great deal of non-
governmental participation, through contracts, grants, and other de-
vices, has already been achieved under present arrangements. About
the only new course that a corporation might open up is the possibility
of some sort of sharing of financing and program control, and it is
doubtful that any such advantages would compensate for the prob-
lems of accountability and ultimate control that would be raised. Un-
like some European countries, the American governmental environ-
ment has never been favorable to mixed enterprises, preferring, when
in doubt, to keep them wholly public so that there may be no question
of a conflict of interests.
CHAPTER IV
ALLOCATION OF ADMINISTRATIVE RESPONSIBILITIES
The postwar foreign-assistance programs have raised a number of
issues concerning the allocation of basic authority among the major
executive departments and agencies concerned. Because the pro-
grams propelled the Government in relatively new directions, they
could scarcely be dealt with by existing procedures and staffs. They
required innovations that inevitably gave rise to, and were affected
by, some degree of friction between the new and the old. The unusual
speed with which these programs had to be set up, particularly in
connection with the creation of the Economic Cooperation Adminis-
tration, only increased the tension.
This
The magnitude of the programs also made it more difficult to merge
them with existing activities and was thought, in some cases, to require
a substantial measure of administrative independence from existing
agencies and controls. The emphasis on the temporary nature of the
programs, moreover, reinforced the tendency to set them apart from
functions that were thought to be of a more enduring nature.
development was part of a larger and more long-range trend toward
the use of an ever-widening range of skills and resources to deal with
foreign affairs. It has had the effect of turning agencies, long preoc-
cupied with domestic matters, toward the outside world and has ac-
cordingly complicated and challenged the role of the Secretary of
State as the President's chief adviser with regard to matters of foreign
policy. This development has contributed to recurring efforts to raise
the level of foreign policy coordination from the Secretary of State
to the President.
Although a new allocational balance was achieved with the estab-
lishment of the International Cooperation Administration, many of
the tensions and frustrations of the past are still present and give rise
to the following issues to be discussed below:
1. What authority and responsibility for the military assistance
program should be vested outside the Department of Defense?
2. What should be the relationship between appropriations for
military assistance and appropriations for other forms of assistance?
3. What should be the relationship between the Department of
State and the agency primarily responsible for administering the eco-
nomic aspects of the assistance program, now the International Co-
operation Administration?
4. How should primary responsibility for the administration of
technical and related economic assistance be allocated?
5. What should be the allocation of responsibilities between the
Export-Import Bank and the International Cooperation Administra-
tion for the administration of loans?
461
462
FOREIGN ASSISTANCE PROGRAMS
GENERAL OBSERVATIONS ON ALLOCATION
Before turning to the analysis of these specific issues, it may be help-
ful to review briefly some of the fundamental considerations that have
affected the allocation of functions within the United States Govern-
ment in the past. With respect to the general basis of allocation,
there has never been a single, uniform governing principle. To under-
stand the pattern at any moment, it is necessary to take into account
not only the current balance of forces but the interaction between
those forces and the arrangements inherited from the past. Those
institutions that are first established acquire a corporate interest and
momentum of their own that shape all that follows. Considerations
of general administrative doctrine exercise an influence that may be
increasing, but there is still no generally accepted doctrine on the
most desirable number of executive agencies and the assignment of
functions among them.
The organizational pattern of the earliest Federal departments, such
as the Departments of State, War, and the Treasury, was strongly
influenced by European traditions and was oriented toward certain
functions, skills, and interests in a manner that, at the time, was
thought to be required for the viability of the Government. Later,
other units, such as the Departments of Agriculture, Commerce, and
Labor, were established, largely in response to the demands of special
interests and the call for certain skills not adequately provided by the
older departments. Whether a newly recognized need is met by creat-
ing a new agency or by adding new functions and staff to existing units
depends upon a number of considerations. These include the aims
and size of the new operation, the location of required skills, the dura-
tion of the program, the inclination of the special interests that moti-
vate it, and the reaction of existing institutions.
In terms of the requirements of the current foreign-assistance pro-
grams, one of the central areas of concern is the allocation of authority
among the principal units involved-the Departments of State and
Defense and the agency primarily charged with the administration
of economic assistance. One point on which there appears to be
substantial agreement is that all forms of foreign assistance should
be closely coordinated, preferably on the basis of integrated country
programs, but that, in view of the traditional division of functions
and skills, particularly between the Departments of State and Defense,
there is little likelihood of merging all foreign-assistance functions.
within a single department or agency.
What, then, should be the basic role of the Department of State?
The greatest degree of consensus can be mobilized in support of those
general-purpose, foreign-affairs functions that the Department has
performed for the longest period of time: the traditional activities
of diplomatic planning, advising, negotiation, reporting, representa-
tion, and the operation of consular services. The Secretary of State
is widely recognized as the chief adviser on general foreign policy.
More controversial is the question whether the Department of State
should be responsible for the detailed planning and administration of
the kind of assistance programs that have arisen in recent decades.
In more general terms, it is often asked whether the Department.
should engage in what are called operations as distinguished from pol-
icy functions. Although this issue is still subject to debate and will
FOREIGN ASSISTANCE PROGRAMS
463
be considered at greater length below, the weight of experience indi-
cates not only that the Department has frequently engaged in the de-
tailed administration of various activities, including assistance pro-
grams, but that no clear line can ever be drawn between "operations"
and "policy." Whether a particular function is assigned to the De-
partment, therefore, would seem to rest less on this particular distinc-
tion than on the several other considerations set forth above.
In the field of military assistance, experience has demonstrated that
the Department of Defense must have operational control of the pro-
gram so long as that Department remains the established center of
military skills and administration and so long as the program is of
sufficient magnitude that it cannot be handled by detailing a small
group of military personnel to some other department. At the same
time, the exact boundary between military and other forms of assist-
ance is by no means clear and poses certain difficult issues, which are
analyzed below.
Because there was no established agency that was fully equipped
to administer the kinds of foreign economic assistance programs that
have developed during the last decade, the allocation of this function
was less limited by existing institutions than in the case of military
assistance. Consequently, there was more room for experimenta-
tion-and controversy. One subject of continuing importance has
been the relationship between the Department of State and whatever
staff is charged with the general administration of foreign economic
assistance. Another controversial issue has been whether the admin-
istration of such assistance should be highly centralized within a
single agency that would specialize in this kind of activity of be
widely diffused among a number of agencies that could contribute
various types of appropriate skills. Here, the pressures for greater
efficiency and integrated programing on a country basis have com-
pelled increasing centralization, but there are still persistent cen-
trifugal forces at work. These considerations underlie the fourth and
fifth issues to be analyzed here.
RESPONSIBILITY FOR MILITARY ASSISTANCE
According to the present allocation of responsibilities, the Depart-
ment of Defense is responsible for the administration of military as-
sistance, but funds appropriated for such assistance are not made
available to the Department of Defense for expenditure until the
Secretary of State or, on his behalf, the Director of the International
Cooperation Administration has approved the programs to which the
funds may be applied. The effect of this approval process has been
to give the Secretary of State veto authority over military programs,
subject only to an appeal by the Secretary of Defense to the President.
This authority derives from section 524 (b) of the Mutual Security
Act of 1954, as amended, which provides that the determination of
the value of the military assistance program for any country shall be
made by the President. The President directed the Secretary of
State to assume this responsibility or to direct the Director of the
International Cooperation Administration to do so. In the same
order, the President directed the Secretary of State to make appro-
priate arrangements for coordinating military assistance with the
464
FOREIGN ASSISTANCE PROGRAMS
1
rest of the mutual security program. The Secretary thereupon in-
structed the Director of the International Cooperation Administra-
tion to carry out the functions of coordination and of determining
the value of military assistance country programs, and directed that
these functions should be carried out "subject to consultation with the
Secretary of Defense and the concurrence of the Secretary of State." 2
Although the official position of the Department of Defense has
been to accept the need "of coordinating military assistance programs
with political and economic considerations," there is strong opposi-
tion within that Department to the interpretation given, in practice,
to section 524 (b), i. e., to the extension of the approval or veto
authority to the content of military programs rather than only to the
pricing of the military equipment involved in the program. These
differing points of view underlie the issue to be discussed here: What
authority and responsibility for the military assistance program
should be vested outside the Department of Defense?
What is involved in this controversy is not just the legal interpreta-
tion of the clause "determination of value." That authority, as exer-
cised, is perhaps the most important element in the administrative
process for achieving the coordination of political, military, and eco-
nomic factors involved in the mutual security program. There is,
indeed, a close link between the exercise of this or greater authority
outside the Department of Defense and the basic concept of a unified
foreign assistance program. The Secretary of State and the Director
of the International Cooperation Administration are also responsible
for the unified presentation of appropriation requests for the mutual
security program and for submitting periodic reports to the Congress
on the progress of all aspects of the program, including military. But
much of the integrating effect of these responsibilities would be lost if
the authority to determine the value of military country programs
were to be withdrawn. Moreover, there is a direct relationship be-
tween the continuation of that authority and the continued consolida-
tion of funds for military and other forms of foreign assistance in a
single appropriation-on which the unified presentation of appropria-
tion requests depends.
The establishment of a separate appropriation for military assist-
ance, the next issue discussed below, would at least place in jeopardy
the authority of the Secretary of State to approve military programs.
Conversely, if the veto authority of the Secretary of State were to be
withdrawn, the case for a consolidated appropriation for both mili-
tary and economic assistance would be weakened. It therefore seems
proper, in considering what authority over the military assistance pro-
gram should be vested outside the Department of Defense, to focus
attention on the authority to veto military programs. Because the
general question of where the authority to coordinate mutual assist-
ance programs should be vested is discussed later in this report, the
alternatives to be considered here can be stated as follows:

1 Executive Order No. 10610 of May 9, 1955, sec. 104 (b), 20 Federal Register 3179.
2 U. S. Department of State Delegation of Authority No. 85, June 30, 1955, 20 Federal
Register 4825.
Statement of Hon. Gordon Gray, Assistant Secretary for International Security Af-
fairs, Department of Defense, March 21, 1956, Mutual Security Act of 1956, Hearings
before the House Committee on Foreign Affairs, 84th Cong., 2d sess., on H. R. 10082, bill to
amend further the Mutual Security Act of 1954, as amended, and for other purposes
(1956), p. 102.
* See below, ch. VI.
FOREIGN ASSISTANCE PROGRAMS
465
1. To continue the present arrangement under which the Secretary
of State, or such other official as may be charged with coordinating
be-
foreign aid programs, must approve military assistance programs
fore the funds appropriated for such programs are made available to
the Department of Defense for expenditure; or
2. To vest no special authority or responsibility relating to the mili-
tary assistance program in any official who is outside the Department
of Defense.
Continuation of the present veto authority
It should be stated at the outset that those who favor continuation
of this veto authority accept as an organizational premise that only
the Department of Defense can plan defense policy, exercise operating
responsibility for military assistance programs, provide the profes-
sional military judgments needed in planning and executing these
programs, and relate foreign military aid to the conduct of our na-
tional defense program.
The military assistance program, although largely motivated by
considerations of defense policy and essentially military in content, is
an important and integral part of the foreign policy of the United
States. It is often designed for political or economic purposes-some-
times almost to the exclusion of defense considerations-and it invari-
ably affects the political and economic life of recipient countries and
other countries as well. In certain areas, it must be planned and
executed in accordance with collective-security arrangements. There-
fore, the argument is that, although it is proper for the Department of
Defense to have initial responsibility for planning defense policy and
programing military assistance, its programs must be subject to veto
by the Secretary of State in order to insure that mistakes are not made
in selecting the countries to be given aid, in timing and phasing the
aid, and in designing the content and size of aid programs.
The point is made that military assistance programs must make
political and economic, as well as military, sense. Weapons supplied
to troops serve no useful military purpose unless the troops have the
will and capacity to fight. Planes and tanks without fuel to power
them, or without airfields and roads suitable for their use, do not
produce effective armies; soldiers well armed but with empty stomachs
and poor clothing are of doubtful value. Moreover, the success or
failure in dealing with the fundamental economic ills of a recipient
country may affect, sometimes crucially, the ability of that country
to achieve the military capacity required. The military program may,
in some instances, have to be developed simultaneously with comple-
mentary programs of an economic character, and because it competes
with other programs for the limited resources available for foreign
aid, it must be carefully designed to make the most effective contribu-
tion to United States objectives.
Another argument is that effective authority to review military
assistance programs is needed because of the possible conflicts of
interest that these programs present within the Department of
Defense. The type of military equipment to be made available by the
services and the prices to be charged against appropriations for mili-
tary assistance are cited as examples of decisions involving potential
466
FOREIGN ASSISTANCE PROGRAMS
conflicts of interest for Department of Defense personnel. Rivalry
among the services and the pressure on personnel to demonstrate
loyalty to their respective service widen the areas of potential conflict.
Situations change, moreover, and it is never possible to foresee all
of the political and economic factors that must be taken into account
in programing and executing military assistance. On the contrary,
from policy formulation through execution, the program requires the
constant interplay of political, economic, and military considerations
and close relationships in Washington and in the field among officials
of the responsible agencies.
The veto authority over military programs provides the means for
obtaining a large measure of coordination among all parts of the
mutual-security program and for fixing responsibility for such coordi-
nation. It compels exchange of information and negotiation from the
earliest stages of program formulation. It makes the process of pre-
paring a single foreign aid budget a more effective means of program
synthesis. Without it, greater responsibility would inevitably fall on
another civilian agency, the Bureau of the Budget, for meshing the
various parts of the programs. Because the veto is a means for
restraining action, it is limited in its effectiveness to achieve coordina-
tion, but, within those limits, responsibility can be reasonably well
established for obvious defects in program synthesis.
It is argued that the proper exercise by the Secretary of State of the
veto authority over military programs is consistent with sound prin-
ciples of administration. It does not permit the Secretary of State to
give orders to the Secretary of Defense or to direct operations in the
Department of Defense. It is a means of negative control that the
President has given the Secretary of State to enable him to carry out
his responsibility for coordinating military and other parts of the
mutual security program.
It is recognized that the veto authority can be abused by using it as
a means for questioning professional military judgments on matters
of little political or economic consequence. There are correctives,
however, for such abuse through appeal to the President. The point
is made that, during times of peace, decisions relating to foreign mili-
tary assistance are likely to have a greater impact on the foreign policy
of the United States than on its strictly military defense objectives.
If this is true and is accepted, the responsibility of the Secretary of
State for obtaining coordination in this field through such a negative
control device is wholly proper. The following statement on the
general point is pertinent:
Every executive department should be regarded as having
responsibility for leadership in securing coordination
throughout the executive branch of the matters for which it
has the primary concern. As the general foreign affairs
department of the Government, the Department of State
should be regarded as having the responsibility for leader-
ship in securing coordination throughout the executive
branch of the matters with respect to which the foreign af-
fairs interest is primary. Its responsibility in that regard
is not the neutral responsibility of a staff agency assisting
the President; it is a positive responsibility arising out of
the major functions of the Department as an executive de-
FOREIGN ASSISTANCE PROGRAMS
467
partment. The foreign affairs aspect will not necessarily be
primary in every foreign affairs matter; in those cases the
Department should accept a secondary place in the coordi-
nation process. Any question of jurisdiction as to which
department or agency has the primary interest, unless aris-
ing out of conflict of laws, should be settled by the President
with the assistance of appropriate staff work in the executive
office.5
No special authority for military assistance outside the Defense
Department
The fundamental objection to the veto authority rests on the view
that, because foreign military assistance is an integral part of the
national-defense program, authority and responsibility for its ad-
ministration should be vested solely in the Department of Defense,
subject only to the direction of the President and the foreign policy
guidance of the Secretary of State. There is recognition of the
necessity for coordinating the military assistance program with other
aspects of the mutual security program in order that the program
as a whole may better serve the foreign policy objectives of the United
States. This could be accomplished, however, by having those agen-
cies that are chiefly responsible for shaping United States foreign
political and economic policy provide the necessary guidance without
inquiry into the distinctly military aspects of the military assistance
program. This procedure would avoid the divided authority and
responsibility involved in the present arrangement. Some feel that
it might also contribute toward better understanding among officials
of the agencies concerned and improve the efficiency of military
assistance operations.
Another argument is that the present exercise of veto authority
over military programs extends beyond the authority provided by law.
One interpretation of the phrase "determination of value" limits
the authority solely to the fixing of monetary ceilings on military pro-
grams by countries on the basis of political and economic considera-
tions and does not comprehend the approval of the content of these
programs. Reference is made to section 524 (a), which explicitly
vests in the Secretary of Defense responsibility for "the determina-
tion of military end-item requirements" and "the movement and de-
livery of military end-items" along with other duties. According to
this view, there is a basic inconsistency between this statutory assign-
ment to the Secretary of Defense and the exercise of veto authority by
the Secretary of State over the content of military programs. The
implication is that professional military judgments regarding the size
and composition of military programs, including the types of military
equipment to be supplied to foreign countries, may be questioned
unnecessarily by the International Cooperation Administration.
Moreover, the existence of the veto authority can be used to encourage
grants of military equipment for political reasons.
Whereas problems of pricing and service rivalries may at one time
have justified placing authority outside of the Department of Defense
5 The Brookings Institution, The Administration of Foreign Affairs and Overseas Op-
erations (June 1951), p. XX. (Prepared for the Bureau of the Budget and published
by the Government Printing Office.)
94413-57———31
468
FOREIGN ASSISTANCE PROGRAMS
for determining the value of military programs, these problems now
appear to be less acute, especially with the development of the Office
of the Assistant Secretary of Defense for International Security
Affairs. Moreover, if additional economists are employed in that
Office, as planned, there may be less need for a veto authority outside
the Department of Defense in order to insure that proper regard is
given to economic factors in military assistance planning. Finally,
improvements in military programing are being made which should
permit more realistic budgetary submissions, and this could permit
fuller reliance on the budget process for synthesis of foreign aid
programs.

RELATIONSHIP BETWEEN APPROPRIATIONS FOR MILITARY AND ECONOMIC
ASSISTANCE
Since 1951, all funds for military and economic assistance have
been requested in a unified presentation to the Congress and provided
in a single appropriation made to the President. The consolidation
was influenced by the desire to mobilize maximum support, economic as
well as military, for the immediate security objectives of the United
States following the outbreak of the Korean war. It reflected a
heightened awareness of the economic strains produced by the military
buildup and the consequent necessity to provide economic reinforce-
ment for the military assistance program. Even as early as 1950, the
joint activities of the Economic Cooperation Administration and the
Mutual Defense Assistance Program, as well as the joint programing
by the Economic Cooperation Administration and the Departments
of State and Defense of funds made available for additional military
production, seemed to call for consolidation.
The consolidation of appropriations in a single act has been an in-
strument for central coordination and control of the administration
of the military and economic assistance programs. This is evident
throughout the budget process-in the preparation of estimates, their
presentation to the Congress, and the allocation of appropriated funds
for expenditure. As indicated previously, the Secretary of State, or
the Director of the International Cooperation Administration on his
behalf, must approve military aid programs before funds appropriated
for military assistance are made available to the Department of De-
fense. The Director of the International Cooperation Administration
is also responsible for preparing periodic reports to the Congress on
the entire foreign assistance program.
The Congress has adopted a unified approach to foreign assistance
from the beginning by regarding military as well as economic assist-
ance to foreign nations as falling primarily within the jurisdiction of
the committees responsible for foreign relations. For a number of
years, the Senate Committee on Foreign Relations considered the
whole foreign assistance bill, while the Armed Services Committee
considered those parts relating to military assistance either separately
or, on occasion, jointly with the Committee on Foreign Relations.
In the spring of 1956, however, only the Senate Committee on Foreign
Relations conducted hearings on foreign-assistance legislation. Simi-
larly, in the House of Representatives, only the Committee on Foreign
Affairs has performed this function. With respect to appropriations,
a separate Subcommittee on Foreign Operations of the House Com-
FOREIGN ASSISTANCE PROGRAMS
469
mittee on Appropriations and the full Senate Committee on Appropri-
ations have conducted hearings on requests for all foreign-assistance
funds.
During recent years, there have been repeated suggestions that mili-
tary assistance be financed out of appropriations made to the Depart-
ment of Defense or out of an appropriation made, as at present, to the
President but processed in the same manner as the Department of
Defense appropriations. The President, in his state of the Union
message in January 1954, expressed an intention to propose the merger
of military assistance funds with regular Department of Defense
funds. He later submitted a plan, which the Congress approved, for
the combined procurement of common items required for military
assistance and regular defense purposes. This is thought, by some,
to have lessened the need from an administrative standpoint for the
appropriation merger, and the President has not again proposed it.
The matter is, however, still under active study in the executive branch,
pursuant to a recommendation made by the House Committee on
Foreign Affairs in May 1956. The committee voted to recommend
"that, while legislative authorization should continue to be coordi-
nated and reviewed as at present, the executive branch carefully con-
sider placing the military portion of the mutual security program
in the Department of Defense budget next year."
Under the Mutual Security Appropriation Act for 1957, $2 billion
was provided for military assistance, $1.16 billion for defense sup-
port, and about $400 million for technical and development assistance.
Thus, of the total amount of more than $3.7 billion appropriated for
foreign assistance, over 80 percent is now identified as being related,
directly or indirectly, to military assistance.
The issue, broadly stated, is: What should be the relationship be-
tween appropriations for military assistance and appropriations for
other forms of assistance?
In considering means of appropriating funds for military assist-
ance, alternatives involving separate appropriations to each of the
armed services or the inclusion of funds for military assistance in the
regular appropriations to the several services have received so little
support that it seems unlikely that they will be seriously considered.
The recent development of procedures for combined procurement of
the common items used in foreign assistance and regular defense pro-
grams has removed the only administrative advantage of these alter-
natives. The disadvantages of these alternatives are overwhelming-
e. g., loss of flexibility in programing, increased difficulty of coordi-
nation of military programs internally and with other parts of the
mutual security program, aggravation of the conflicts of interest men-
tioned previously between the foreign assistance and domestic parts
of the defense program, and weakening of congressional control over
the assistance program.
On this point, the Assistant Secretary of Defense for International
Security Affairs has stated that:
If this program were merged into the 3 service budgets, the
administration of it as a program would be rather difficult, it
being in 3 parts. With all respect to the services, *** I am

• House Committee on Foreign Affairs, Mutual Security Act of 1956, H. Rept. 2213, 84tb
Cong., 2d sess. (May 25, 1956), p. 7.
470
FOREIGN ASSISTANCE PROGRAMS
afraid a merger might tend to diminish the emphasis on the
foreign aid aspect of our defense undertakings.'
Thus, it seems reasonable to assume that if funds for military and
economic assistance were to be provided in separate appropriations,
the funds for military assistance would be made available to the Pres-
ident or the Secretary of Defense in a separate appropriation to be
processed in the same manner as a Department of Defense appropri-
ation, possibly in a separate title in the regular Department of Defense
appropriation act.
It is also assumed, for purposes of this discussion, that the existing
authority of the Secretary of State to approve military programs is
not involved in this issue and would continue to be exercised. Possibly
some officials in the Department of Defense support the establishment
of a separate appropriation for military assistance in the hope that
one of its consequences would be the elimination of this authority.
However, the continuation of the veto authority has been discussed.
above as a separate issue and need not be linked with the question of a
separate military appropriation.
The alternatives to be considered here can be stated as follows:
1. To provide funds for military assistance in a separate appropria-
tion to be processed in the same manner as a Department of Defense
appropriation, perhaps in a separate title of the Department of De-
fense appropriation act;
2. To provide funds for military assistance plus that portion of de-
fense support that is directly attributable to military assistance in a
separate appropriation to be processed in the same manner as a De-
partment of Defense appropriation; or
3. To continue the present arrangement under which funds for all
types of foreign assistance, including military, are consolidated in a
single appropriation measure that is processed more like a Depart-
ment of State appropriation than a Department of Defense appro-
priation.
A separate appropriation for military assistance alone
In support of the proposal to deal with the appropriation for for-
eign military assistance as a Department of Defense appropriation,
one consideration is that the military assistance program is an essen-
tial part of the defense of the United States. The Chairman of the
Joint Chiefs of Staff, Adm. Arthur W. Radford, has said:
*** the military-aid program is part and parcel of the
United States Defense Department program. The expendi-
tures abroad in support of our alliances do not differ in pur-
pose, scope, or objective from our own military expenditures.
The fact that this part of our program is not included in the
Defense Department budget is more a matter of procedure
and administration than of substance. 8
The logical conclusion of this line of reasoning is that military
assistance funds would be more accurately identified concerning their
purpose if they were to be provided in a Department of Defense ap-
propriation whereupon they would doubtless be transferred to the
↑ Ibid.
* Mutual Security Act of 1955, hearings before the House Committee on Foreign Affairs,
84th Cong. 1st sess., p. 239.
FOREIGN ASSISTANCE PROGRAMS
471
defense category in general budgetary summaries of United States
expenditures. This would in turn lead to a better understanding of
the importance of military assistance, from the standpoint of the de-
fense of the United States, and thereby gain wider congressional and
public acceptance of the necessity for appropriating the large sums
that this type of aid involves. There is also the argument that the
identification of military assistance with the large Department of
Defense appropriation might make it seem more modest and less vul-
nerable to attack. Moreover, military officials might be somewhat
more conservative in planning military assistance if it were to be
part of the military appropriation.
Another anticipated consequence of the proposed change is that
"defense support" could be called economic assistance thereby elimi-
nating a distinction that has confused many observers. Although
nonmilitary materials and services going to countries receiving mili-
tary assistance are usually called "defense support," the same kind of
assistance to a country that does not receive military assistance is
usually called "development assistance." The present arrangement
gives a series of false impressions: (1) that "defense support" is
granted solely to enable a country to maintain bigger military forces
than would otherwise be possible without taking basic development
into consideration, (2) that it will end at the same time that military
assistance will end, and (3) that the United States is less interested
in raising the level of general economic activity in countries that re-
ceive military assistance than in countries that receive only technical
and development assistance. It should be noted that the suggested
change in terminology would increase the amounts labeled "economic
assistance," perhaps making the item more vulnerable to attack.
Another argument for a separate appropriation is that the con-
gressional subcommittees that deal with appropriations for the De-
partment of Defense are in the best position to assess the need and
value of foreign military assistance in terms of the national security
of the United States. They would also be sensitive to the difficulty
of delivering military equipment during periods of crisis and the
desirability of reducing surpluses in domestic stocks. A separate ap-
propriation for military assistance might lead to more active partici-
pation in foreign assistance legislation by the Senate and House
Armed Services Committees. This is favored on the grounds that
these committees are in the best position to justify, on the floors of
both Houses, the value of military assistance to the national security
of the United States and that they might contribute much-needed
support in the Congress to the entire foreign assistance program.
The Congress, it is contended, would be more likely to make funds
for military assistance, like some categories of regular defense funds,
available on a "no year" basis instead of, as at present, for only a
maximum of 2 years after the year for which they are appropriated.
It is recognized, of course, that the Congress could do the same under
the consolidated appropriation for military assistance.
Some persons firmly believe that the removal of all military assist-
ance from the mutual security program would improve the reception.
and therefore the effectiveness, of economic and technical assistance
programs abroad, particularly in neutral or uncommitted countries.
The contention is that people in these countries are now fearful, partly
as a result of Communist propaganda, that American aid has only
472
FOREIGN ASSISTANCE PROGRAMS
a military purpose and is not concerned with their welfare and eco-
nomic development. Even the title of the mutual-security program
conveys, it is said, an inaccurate impression.
Although no one would dispute that the primary purpose of mili-
tary assistance to other countries is to advance directly the security
of the United States, it may be erroneous and injurious to imply that
technical and development assistance is granted for the same purpose
as military assistance or is derived from the same conception of the
national interest. It should also be noted that, if the foreign military-
assistance program should be reduced to such an extent that the amount
and nature of the military aid would have little effect on the economic
stability of recipient countries, the arguments for a separate appro-
priation would be strengthened. Moreover, some of the arguments
against the change, which are presented below in the discussion of
the third alternative, would be met if the appropriation for military
assistance were to be made to the President, even though processed
as a defense appropriation, with Presidential control of military
assistance programs preserved.
A separate appropriation for military assistance plus related defense
support
The same arguments advanced for the first alternative apply as
well to the alternative of a separate appropriation for military as-
sistance that would include an appropriate portion of what is now
called "defense support." If there is to be a separate appropriation
for military assistance, it might be considered desirable to include in
that appropriation the funds for supplies, facilities, and other items
that are now provided under defense support and on which the effec-
tiveness of military assistance directly depends. This would facilitate
joint consideration throughout the budget process of military and re-
lated economic assistance. If funds for military assistance alone were
included in a separate appropriation, a complicated process would
have to be devised to permit the respective congressional committees
to hear both parts of the military-assistance program. If the same
committees did not hear both parts, there would be danger of im-
balance in appropriations and consequent impairment either of mili-
tary programs or of the economic stability of recipient countries.
It is also pointed out that the inclusion in the military-assistance
appropriation of the related economic aid requirements would further
clarify the purpose of proposed foreign-aid expenditures. It is argued
that some Congressmen would be more disposed to provide funds for
defense-related economic aid if these funds were provided in an ap-
propriation for military assistance rather than in an appropriation
for economic assistance.
A consolidated appropriation for military and other forms of
assistance
The arguments in favor of the present consolidated appropriation
stress both the important function it serves as an instrument of co-
ordination and the disadvantages of the other alternatives. Most of
the arguments presented in the previous issue for continuing the au-
thority of the Secretary of State to veto military-assistance programs
are used in support of the present consolidated mutual-security appro-
priation. Under cold war conditions, the military-assistance program
FOREIGN ASSISTANCE PROGRAMS
473
is regarded as a crucial instrument of the foreign policy of the United
States. The size, composition, and objectives of the program must be
designed on the basis of political and economic as well as purely mili-
tary considerations. The consolidated appropriation permits the Con-
gress to see the assistance program as a whole and to determine whether
the various parts are properly related to one another.
Many of the specific advantages of a consolidated appropriation are
implicit in the following disadvantages attributed to the other two
alternatives.
Either of the other alternatives would make more difficult the
planning and coordination of military assistance with other foreign-
aid programs. The present budget process is based on a unified presen-
tation of appropriation requests for all parts of the program. It is
viewed as an important means of coordination and of program review
and evaluation.
Either of the other alternatives would so change the present method
of appropriating funds that it might greatly reduce the opportunity
for flexibility in the management of available funds. The foreign-
aid program must be flexible if it is to handle changing needs and
emergency situations. Flexibility is now afforded by elaborate pro-
visions such as those permitting transfers of funds between items in
the Mutual Security Appropriation Act and suspension of certain
legal requirements in special circumstances. If military assistance
were to be separated from the rest of the mutual-security program, this
system for providing at least a modicum of flexibility might be im-
paired or destroyed, and it might be necessary to devise a wholly
new system to replace it.
Either of the other alternatives would greatly complicate the process
of presenting budgetary and legislative proposals. If the practice of
annual authorizations for all assistance programs is continued, the
process would be extremely complicated. If the military assistance
appropriation request had to be processed at the same time as the regu-
lar Department of Defense appropriation request, the problem would
be further aggravated. Despite the apparent desire of the House
Committee on Foreign Affairs to retain a single authorization act
for mutual-security activities even if funds for military assistance are
provided in a Department of Defense appropriation, relationships be-
tween Federal agencies and their respective congressional committees
are so strong that any amendments affecting the authorizing legisla-
tion that would be sought by the Department of Defense would quite
likely be referred to the Armed Services Committees for consideration.
Either of the other alternatives would probably have the effect of in-
creasing the number of legislative and appropriation hearings, which
are already regarded as burdensome on administrative officials.
Development assistance and defense support serve, in part, the same
purposes. Development assistance permits countries to devote more of
their local resources to defense purposes than would otherwise be pos-
sible. It can be argued, therefore, that it is just as misleading to imply
that all economic assistance is solely for economic development pur-
poses as it is to imply that the funds appropriated for defense support
do not foster economic development. The conclusion derived from
this reasoning is that the various elements of the mutual-security pro-
gram are so closely interrelated that the total impact of all, rather than
474
FOREIGN ASSISTANCE PROGRAMS
the individual purpose of each, should provide the basis for con-
gressional consideration.
Separate appropriations for military and economic assistance would
imply erroneously that economic assistance is less important to the
national security of the United States than military assistance, thereby
causing loss of congressional and public support for the economic
assistance program. A substantial reduction in economic aid could
have serious consequences under the first alternative because funds
for military aid might be provided without supporting economic needs.
being met. Among those who urge a separate appropriation for mili-
tary assistance, there are persons who are opposed to economic
assistance.
Under the other alternatives, the Department of Defense would pre-
sumably assume primary responsibility for the presentation of appro-
priation requests and might be less willing to request funds for military
assistance that the Department of State considers desirable for politi-
cal or economic reasons. Moreover, the Department of Defense might,
during economy drives, be disposed toward reducing foreign-military
assistance before sacrificing other parts of the defense program. The
purposes of a separate appropriation for military assistance would be
so closely identified with those of the regular Department of Defense
appropriations that the two would probably be linked together for
overall budget ceiling purposes.
Adoption of either of the other alternatives might be interpreted
abroad as reflecting an orientation of American thinking toward a
concept of defense that emphasized the protection of the continental
United States and away from the concept of mutual defense. Thus,
there is disagreement on the desirability and the probable psychologi-
cal effect abroad of linking military with economic assistance in the
same legislation. It may be, however, that proponents of a consoli-
dated appropriation are sensitive to the reactions in Europe, while
their opponents are thinking of the reactions in Asia and Africa.
The second alternative-to include defense-related economic along
with military assistance in a separate appropriation-has some
additional shortcomings. The dividing line between the types of
economic aid that should be attributable to military assistance and
those that should not would be extremely difficult to draw. Moreover,
how would the program be administered? The Department of
Defense might not be able to administer it without duplicating Inter-
national Cooperation Administration staff and being in constant con-
flict with that agency. The International Cooperation Administration
could probably not administer the program effectively unless it had
primary responsibility for preparing integrated economic programs,
for presenting the budgets to carry them out, and for administering
the funds directly.
RELATIONS BETWEEN DEPARTMENT OF STATE AND AGENCY ADMINISTERING
ASSISTANCE
The Mutual Security Act of 1954 provided that the Foreign Opera-
tions Administration should cease to exist as of June 30, 1955, and
except for the function of technical assistance to be transferred to the
Department of State, the act looked more to liquidation than to contin-
uance of economic assistance activities then lodged in the Foreign
FOREIGN ASSISTANCE PROGRAMS
475
Operations Administration. Part of the thinking underlying this
action was the view that economic assistance operations were essen-
tially temporary and had been virtually completed. There was
considerable congressional sentiment that whatever economic assist-
ance was to be given in the future should be directly related to military
assistance.
The executive branch was not fully in accord with this estimate of
the situation. There seemed to be a strong case for the continuance of
a sizable program of defense support and economic assistance, related
to levels of military forces higher than the allies of the United States
could maintain without help and to programs of economic develop-
ment, additional to technical-assistance operations, that were clearly
in the interests of the United States and of the free world. The solu-
tion was to transfer the functions and machinery of the Foreign Opera-
tions Administration to the Secretary of State, who delegated most
of these responsibilities to the semiautonomous International Coopera-
tion Administration, still preserving the centralization of foreign eco-
nomic operations in one agency. President Eisenhower's letter to
Secretary of State Dulles, of April 15, 1955, specifically stated that
these operations should not be dispersed either within the Department
of State or among other agencies of Government.
9
There was continuing congressional sentiment, however, reflected in
statements expressed in a hearing in January 1956, that both operating
and policy functions relevant to economic assistance should be more
fully integrated within the Department of State. The view of some
in Congress was that there should be maximum integration of eco-
nomic assistance functions with both the geographic divisions and the
functional offices of the Department of State; that there should be
maximum integration of administrative services for budget, per-
sonnel, and congressional liaison; and that whatever was permanent
in economic assistance should be merged with the permanent structure
and functioning of the department. The prevailing view of the execu-
tive branch was that integration should not proceed to that extent, but
that the essentially distinct functions performed by the International
Cooperation Administration should be kept in a semiautonomous
status. This view was expressed by Secretary of State Dulles, Under
Secretary of State Hoover, and Director of the International Coopera-
tion Administration Hollister, and rooted in earlier organizational
studies and conclusions of the President's Advisory Committee on Gov-
ernment Organization, under the chairmanship of Nelson Rockefeller.
Thus the issue persists: What should be the relationship between the
Department of State and the agency primarily responsible for admin-
istering the economic aspects of the assistance program, now the Inter-
national Cooperation Administration?
The following alternative courses of action appear to deserve con-
sideration:
1. To merge completely all International Cooperation Administra-
tion functions with the Department of State;
2. To create in the Department of State an Under Secretary for Eco-
nomic Affairs and bring under his jurisdiction both the International
* Technical Assistance Programs, hearing before a Subcommittee of the Senate Com-
mittee on Foreign Relations, 84th Cong., 2d sess. (Jan. 23, 1956), p. 408.
476
FOREIGN ASSISTANCE PROGRAMS
Cooperation Administration and the present economic staffs of the
Department;
3. To maintain the current organization and division of responsibili-
ties;
4. To grant greater independence to the International Cooperation
Administration, to the degree enjoyed by the Foreign Operations Ad-
ministration or the Economic Cooperation Administration; or
5. To establish a Department of Foreign Affairs, in which the Inter-
national Cooperation Administration would be a major component,
along with what is now the Department of State.
Complete merger of the Department of State and International Co-
operation Administration
Some of the major arguments for merging International Coopera-
tion Administration functions completely with related Department
of State operations appear, at least in part, to be administrative in
nature. There is a clear parallelism of structure between the geo-
graphic divisions of the International Cooperation Administration
and those of the Department of State. There is considerable ap-
parent similarity between their respective functional operations, too,
because both the International Cooperation Administration and the
Department of State are concerned with such fields as transporta-
tion, communication, promotion of private trade, and exchange of
persons. There is clear parallelism of administrative organization,
insofar as the International Cooperation Administration has inde-
pendent staffs for budget, personnel, congressional relations, and
other administrative services also found in the Department of State.
Hence, a merger might result in some reduction of duplication and
consequent increase in efficiency.
If, moreover, economic assistance matters should bulk large in future
international relations, there is the view that the permanent structure
of the Department of State should accommodate its organization and
staff to that fact. Merger might also alleviate the recurrent problems
of three-way consultation among the Departments of State and De-
fense and the International Cooperation Administration, which now
persist because of the virtual autonomy of the International Coopera-
tion Administration and its delegated powers of coordinating economic
and military assistance. The Department of Defense would have to
deal with only one outside agency responsible for policy guidance
and program coordination. Similar simplification could also be
achieved with reference to other agencies, such as the Departments of
Agriculture, Commerce, Interior, and Labor, that participate in over-
seas assistance functions.
The difficulties arising in consultations among the Departments of
State and Defense and the International Cooperation Administration
are real, and any appropriate steps to reduce them would be welcome.
It is obvious, however, that a mere merger of the International Co-
operation Administration and the Department of State would not of
itself abolish these difficulties.
The arguments against complete merger rest on the assumption that
it is not only possible but proper and desirable to separate the func-
tions of overseas economic operations from those of foreign policy
formulation, representation, negotiation, reporting, and rendering
consular services. Earlier experience in the Department of State
FOREIGN ASSISTANCE PROGRAMS
477
with the programing and execution of technical assistance through
the geographic desks revealed certain weaknesses in trying to use
those offices, as then constituted, for such functions. Even prior to
the decision to transfer technical cooperation to the Foreign Opera-
tions Administration, the Department of State discovered that it
would have to change the role of the Technical Cooperation Admin-
istrator from that of a coordinator, dealing through the geographic
and functional desks, to that of an operator with centralized re-
sponsibilities for programing and execution. The general need for
coordinating “policy" and "operations" can be served by creating
a strong link between the officer in charge of operations and the top
officials of the Department of State, reinforced by informal consulta-
tions at lower levels. The experience of the Foreign Operations
Administration can be said to have further validated the wisdom of
centralizing operations within a single agency, subject to the disci-
pline of policy control at the top.
Another argument against a merger is that it "demotes" the pro-
gram, making it more difficult to recruit personnel of appropriate
stature and capacity and to keep the program imaginatively abreast
of the times. If, however, the future program of foreign economic
assistance were to be relatively small and confined to a few countries
and few activities, the argument for merging its functions with those
of the Department of State might gain further weight.
The charge of duplication of such offices as geographic divisions,
personnel, budget, security, and congressional liaison is met by the
counter-argument that the specialized nature of the tasks of each
requires separate administration. So long as the tasks are distinct,
there is no point in centralizing them in those offices of the Department
of State that have a primary mission to perform traditional diplo-
matic functions. The argument for separate administrative services
appears especially strong to those who believe that the Department of
State has a poor record for administration, and who point out that
the structure and procedures for administering diplomatic and con-
sular affairs are ill fitted for economic operations.
An Under Secretary of State for Economic Affairs
Another course of action for altering the relationship of the Inter-
national Cooperation Administration to the Department of State
would be to reestablish the position of Under Secretary of State for
Economic Affairs and to place under his jurisdiction both the Interna-
tional Cooperation Administration and the offices now under the Dep-
uty Under Secretary for Economic Affairs. The new Under Secretary
would become the Director of the International Cooperation Adminis-
tration, and he would have as his programing and policy staff for
foreign assistance the organization now devoted to that purpose within
the International Cooperation Administration, plus the personnel now
assigned to the Office of the Special Assistant to the Under Secretary
for Mutual Security Affairs.
A major consideration favoring such a move is that the foreign-
assistance program is now in a difficult position-neither in nor out of
the Department. The proposed change would bring the International
Cooperation Administration more fully into the Department, in a
way that could improve its relations with the Department and still
preserve the advantages of a unified grouping of foreign-assistance
478
FOREIGN ASSISTANCE PROGRAMS
operations. That unity would be lost if the International Cooperation
Administration were entirely merged with the various offices of the
Department. The Director of the International Cooperation Admin-
istration reportedly does not have frequent access to the Secretary but
deals almost wholly with the Under Secretary, who has often served
as Acting Secretary. Given Under Secretary rank, he might have
more direct access to the Secretary. The consolidation of the staff of
the Assistant to the Under Secretary for Mutual Security Affairs with
the International Cooperation Administration would centralize the
points at which military assistance would be coordinated with eco-
nomic assistance. This alternative might also increase the prestige
of the International Cooperation Administration coordinating staff in
the eyes of officials in the Department of Defense. Some parts of the
International Cooperation Administration and of the economic area
that are truly similar in function and purpose might also be consoli-
dated, but there seems to be relatively little basis for such consolidation.
There might also be some gain in simplified relationships with such
financial institutions as the Export-Import Bank and the International
Bank.
Arguments against such a further integration of the International
Cooperative Administration with the Department of State comprise
all those looking toward the maintenance of the present antonomy or
the creation of new latitude for the International Cooperation Admin-
istration or its successor.
Maintenance of present arrangement
The various arguments against maintaining the International Co-
operation Administration in its current administrative status in rela-
tion to the Department of State consist of all the advantages perceived
for the other courses of action reviewed just above and below. The
arguments for preserving the status quo consist largely of the various
disadvantages that have been cited with regard to the other proposals.
There is, however, an additional argument for maintaining the
present arrangement that has not been previously noted: the value of
leaving the program undisturbed for a time in order to allow its ad-
ministration to settle down, shielded from any drastic reorganization.
at this time. Foreign assistance has endured many changes since the
days of lend-lease. Some of these have been made in response to
shifts in the world situation and the reactions to those events as they
have been perceived by the executive branch and by the Congress.
Much change has rested on the view that the foreign-assistance func-
tion is of an emergency character, a storm to be weathered and for-
gotten.
There is, however, great likelihood that foreign assistance will
persist as a consequence not only of the cold war but also of the long-
term challenge of world economic development. Current administra-
tive arrangements are the result of some 10 years of experience in
responding to a variety of stimuli, political, economic, and military.
The current structure appears to have sufficient flexibility to adjust
to further shifts of emphasis and of national interest. Most of the
problems can be coped with short of basic structural rearrangement.
Moreover, the current pattern has developed in response to continu-
ing problems that will not disappear merely because administrative
arrangements are altered.
FOREIGN ASSISTANCE PROGRAMS
479
Increased autonomy for International Cooperation Administration
There are two possible levels of greater autonomy for the Interna-
tional Cooperation Administration that seem to merit examination:
to give the International Cooperation Administration about the
same status and freedom (1) as that enjoyed by the Foreign Opera-
tions Administration or (2) that enjoyed by the Economic Coopera-
tion Administration. The main difference between the two is the
degree of freedom from foreign policy control by the Department
of State.
The Economic Cooperation Administration enjoyed a very large
measure of such freedom, being required only to consult with the Sec-
retary of State when an issue of foreign policy arose. This was more
than a formal freedom because the Economic Cooperation Administra-
tion enjoyed and exercised great latitude in negotiations with recipient
countries. And by virtue of the sweep and drama of its program
and its relatively temporary character, it was able to enlist the sup-
port of top-flight personnel. Although the directors of both the Eco-
nomic Cooperation Administration and the Foreign Operations Ad-
ministration enjoyed Cabinet status, the Foreign Operations Ad-
ministration was more limited in its freedom from foreign-policy
control, coming under the clear mandate that the supreme authority
under the President for formulating foreign policy should be the
Secretary of State. In both cases, however, there was clear recogni-
tion that the Secretary was the chief adviser on matters of general
foreign policy.
A major argument in favor of recreating a Director of Foreign
Operations at the Cabinet level derives from the hope that such an
official might do a better job of meshing foreign assistance with the
various and complicated procedures for arriving at national security
policy and executing such decisions than could any subordinate official
of the Department of State. He might also help in the related func-
tion of formulating top economic policy, foreign and domestic.
The question whether it is appropriate to reestablish either a For-
eign Operations Administration or Economic Cooperation Admin-
istration type of structure, may, in the last analysis, turn largely on
the nature of the economic-assistance program to be administered. If
it is to be a bold, new program, with ambitious perspectives and re-
sources, the case may be strong for giving it Cabinet status. If, how-
ever, the program is to continue much as at present, the case for leav-
ing the International Cooperation Administration in about its pres-
ent situation may be more persuasive. Even if the program is to have
new dimensions and horizons, there is grave doubt whether it is proper
to give it as much freedom from foreign policy direction as the Eco-
nomic Cooperation Administration enjoyed.
Proposed Department of Foreign Affairs
In recent months there has been no major addition to the arguments
put forward in years past for the establishment of a Department of
Foreign Affairs-a department generally patterned on the Depart-
ment of Defense, composed of 3 coordinate subdepartments-1 for
the current Department of State, 1 for foreign economic operations,
and 1 for overseas information.
Arguments for such a structure rest on the view that certain newly
developed overseas tasks of the United States Government far tran-
480
FOREIGN ASSISTANCE PROGRAMS
scend those traditionally undertaken by the Department of State, but
that they are so intimately related to the formulation and control of
foreign policy that the same top management must be responsible for
both categories. Many of the newer functions require personnel, pro-
cedures, and an administrative philosophy quite different from those
appropriate to the traditional functions of the Department. One view
is that the effective formulation of foreign policy requires freedom
from the responsibility of operating extensive and intricate programs
overseas. The position of the Secretary of State should not be com-
promised before the Congress or before the nations of the world by
having to play the role of claimant or defendant in affairs not proper to
his diplomatic functions. Whatever is permanent in the field of
foreign economic operations, as distinguished from negotiation and
reporting in the economic field, requires separate organization of suffi-
cient status and independence of operation to attract competent per-
sonnel and to give them adequate freedom of administrative action.
Establishment of a common "top management" for the functions of
diplomacy, economic operations, and overseas information would pro-
vide needed coordination and policy guidance, while permitting proper
freedom and flexibility for the components of the projected Depart-
ment of Foreign Affairs.
One of the arguments against the establishment of such a depart-
ment rests on recognition of the fact that it could not be made inclusive
of all significant overseas operations without absorbing segments of
departments and agencies of government that are primarily oriented
toward the domestic scene. The Departments of Defense, the Treas-
ury, and Agriculture all have important overseas extensions that are
hardly candidates for incorporation into a Department of Foreign
Affairs.
The implications of this fact support the view that the appropriate
remedy for lack of coordination in foreign activities need not be nearly
so drastic as the establishment of a superdepartment. This is
buttressed by the judgment that current provisions for coordination,
policy formulation, and policy guidance are working reasonably well.
The President, in Reorganization Plan No. 7 and elsewhere, has
clearly established the primacy of the Department of State in the
function of formulating foreign policy, in the conduct of international
negotiations, and in maintaining under continuous review those policies
and functions of other departments that impinge on foreign relations.
The separation of the United States Information Agency from the
Department of State has apparently not given rise to unhappy inci-
dents in the field of foreign policy. There is evidence that the policy
flow to the Information Agency from the Department of State is
more timely, appropriate, and integrated now than it was when the
information function was within the Department.
The Department of Defense analogy is hard to maintain. That
Department is composed of 3 segments, 2 of them with long traditions,
and all 3 with special interests requiring a considerable degree of
unification. The proposed Department of Foreign Affairs would
bring together far more unequal units, each with quite different ad-
ministrative and operating characteristics. A more feasible prospect
would be a Department of State left free to concentrate on the ele-
ments of its specialty, the formulation of foreign policy, while
FOREIGN ASSISTANCE PROGRAMS
481
economic operations and information activities are carried on by
special purpose agencies outside the department but within the broad
policy control of the Secretary of State.
Providing top management for a tripartite Department of Foreign
Affairs would be a tremendous executive responsibility, leaving little
time for the functions of policy formulation and top-level negotiation.
If the Secretary of State were made the head of such a department he
would find his responsibilities even more numerous and burdensome
than at present.
The argument that economic functions have now become so technical
and complicated that traditionally trained foreign service personnel
cannot discharge them leads to a dilemma. Economics comes to play
a greater and greater part in foreign relations, and thus cannot be
divorced from the central functions of foreign policy. Some means
must, therefore, be found to relate economic and political factors with
technical adequacy and political soundness. This dilemma will per-
sist, and its effects will be intensified if economic and political func-
tions are further separated.
PRIMARY
RESPONSIBILITY FOR
ADMINISTRATION OF TECHNICAL AND
RELATED ECONOMIC ASSISTANCE
Under the Technical Cooperation Administration, responsibility for
the administration of technical and related economic assistance was
to a large extent allocated among several executive departments and
agencies. This allocation was generally in accord with the existing
distribution of responsibilities for similar domestic activities among
the agencies concerned. The resulting diffusion of responsibility for
technical assistance led to difficulties, however, and seemed to demon-
strate the inherent weakness of that particular arrangement. Con-
sequently, when the Foreign Operations Administration was estab-
lished in 1953 and the Technical Cooperation Administration was
merged with it, the policy was changed. The Foreign Operations
Administration assumed direct responsibility for technical assistance
operations, but it continued to utilize the resources of other agencies
by contracting with them for technical services, using them as sources
of personnel, consulting them on technical questions, and using their
training facilities. This allocation of responsibility has continued
under the International Cooperation Administration.
Recently, however, the lessons of the earlier administrative exper-
ience have been questioned. The argument is again being made that
the departments and agencies concerned should be allocated more direct
responsibility for the administration of those types of technical and
related economic assistance operations abroad that are similar to their
activities in the domestic field. For example, the report of the second
Hoover Commission on Overseas Economic Operations recommended
in 1955 a further diffusion of responsibility along these lines for the
administration of the nonmilitary segments of foreign assistance.10
The general issue thus posed is given particular point by the special
situation that has arisen with respect to the present allocation of
responsibility for the administration of the foreign atoms-for-peace
10 Commission on Organization of the Executive Branch of the Government, Overseas
Economic Operations (June 1955), pp. 57–61.
482
FOREIGN ASSISTANCE PROGRAMS
program. Through this program, announced in 1953, the United
States is sharing with the peoples of other free nations technical and
material resources and is making financial grants for research reactors
in order to spur the development of the peaceful uses of atomic
energy. Differences have arisen between the Atomic Energy Com-
mission and the International Cooperation Administration over what
their respective responsibilities should be for this program.
The critics of the present allocation of administrative responsi-
bilities for technical and related economic assistance activities do
not agree on what are the faults of the present allocation or what are
possible remedies for these faults. The clear implication of their
position, however, is that several executive departments and agencies
have been cut too completely away from the programing and opera-
tions of foreign assistance to the detriment of both the assistance
program and, in some cases, the domestic activities of the agencies
concerned. The issue can therefore be stated broadly as follows: How
should primary responsibility for the administration of technical
and related economic assistance be allocated?
In examining the alternatives under this issue, the general question
of allocation of responsibility for technical assistance will be con-
sidered first. Next, the special question will be considered whether the
unusual features of the foreign atoms-for-peace program warrant a
special allocation of responsibility that differs substantially from
the policy to be followed generally.
The alternatives to be considered under this issue are as follows:
1. To allocate, as a general rule, operating responsibility for the
administration of technical and related foreign economic assistance.
to the executive departments and agencies having corresponding re-
sponsibilities in the domestic field and generally to confine the role
of the International Cooperation Administration to central manage-
ment functions:
2. To continue the present arrangement of centralizing responsi-
bility in the International Cooperation Administration for the ad-
ministration of technical and related economic assistance in practically
all fields;
3. To continue, as a general rule, the present centralization of re-
sponsibility in the International Cooperation Administration but to
make an exception in the case of the foreign atoms-for-peace program
by granting the Atomic Energy Commission primary responsibility
for that program, subject only to foreign policy guidance by the
Secretary of State; or
4. To make the present centralization of responsibility complete by
granting the International Cooperation Administration primary re-
sponsibility for the administration of the program.
Allocation of operating responsibility to other departments and
agencies
The distinctive feature of this alternative is that, in the principal
fields in which such assistance is provided, various departments and
agencies other than the International Cooperation Administration
would have primary responsibility for administration with the Inter-
national Cooperation Administration limited, in the main, to manage-
ment functions. These agencies would draw up programs in their
respective fields for each country in consultation with the appropriate
FOREIGN ASSISTANCE PROGRAMS
483
officials of the country concerned. The International Cooperation Ad-
ministration would have responsibility merely for coordination,
including the authority to approve programs and to make budget
presentations. The other agencies would administer all funds for
foreign assistance in their respective fields including the employment
and supervision of field personnel.
Perhaps the strongest argument from an administrative standpoint,
for allocating among several departments and agencies the operating
responsibility for the administration of technical assistance relates
to personnel. Shortages of technical personnel, such as public health
specialists, can usually be more readily filled by the agencies that nor-
mally employ such personnel than by the International Cooperation
Administration. Heretofore, such agencies have permitted their em-
ployees to accept a temporary detail to the International Cooperation
Administration and the reemployment rights of the employees have
been protected under two acts-one relating to transfers to defense
activities, in which the Civil Service Commission is the enforcing
agency, and the other relating to transfers to the Foreign Service,
which the Commission has no authority to enforce. Reemployment
rights covering transfers to defense activities are being terminated,
however, effective January 31, 1957, and employees thereafter may
have to resort to civil court action for protection of their rights under
the Foreign Service Act of 1946. Legislative and executive action to
strengthen reemployment rights or to improve career opportunities in
the technical assistance field would, however, largely offset this
advantage.
There is also the argument that the supporting technical services
available to field specialists would be far superior if provided by the
regular departments and agencies. The view is that the International
Cooperation Administration cannot hope to equal, or under the present
relationships to tap adequately, the resources of such agencies as the
Department of Agriculture, the Public Health Service, and the Bureau
of Reclamation. Moreover, as a result of experience and study, such
agencies have accumulated useful knowledge about the potentialities
for development in foreign areas in their respective fields of interest.
And they have pride in the international reputation of the United
States in their fields and do not want to have this reputation impaired
by the International Cooperation Administration.
Furthermore, these various departments and agencies now provide
technical support for United States delegations at worldwide and
regional conferences. The Department of State looks to them gen-
erally for developing international cooperation in their respective
fields. Their top officials and technicians know the corresponding
officials in other countries.
Another argument is that some foreign-assistance activities should
be integrated into other international programs, such as those for the
control of diseases, for the production and marketing of agricultural
crops, and for making weather reports. Although the International
Cooperation Administration emphasizes the coordination of programs
by countries, the proponents of diffusion of responsibility stress the
growing need for functional coordination on a regional and worldwide
basis whereby the departments and agencies having domestic responsi-
94413-57— -32
484
FOREIGN ASSISTANCE PROGRAMS
bilities would assume primary responsibility for participation on
behalf of the United States.
The arguments against this alternative are numerous, and most
of them can be illustrated by reference to the reasons given for the
deterioration of the arrangements under the Technical Cooperation
Administration.11 Divided responsibility among many departments
and agencies would tend to weaken program control and direction.
This would make it more difficult to hold officials accountable for their
acts. It would complicate the task of programing in the field and ne-
gotiating with foreign governments. Field personnel would be bound
even more closely to their departments and agencies in Washington
than at present, thus making teamwork in the field more difficult. Un-
der the Technical Cooperation Administration, when a major policy
problem was to be considered in Washington, so many agency repre-
sentatives had to gather that sheer size was an obstacle to methodical
analysis and decision making.
The contention that the division of operating responsibility would
be better from a personnel standpoint is refuted by pointing to the
experience of the Technical Cooperation Administration. That or-
ganization looked to the functional departments and agencies to re-
cruit the technicians needed. Too often, the latter recommended em-
ployees whom they had difficulty otherwise in placing. The recruit-
ment system in general was far from satisfactory, and it was impos-
sible to fix responsibility for its inadequacies.
It is also contended that the overhead costs would be far greater
under a program of divided responsibility. Technical support for
field technicians would be scattered all over Washington, with the re-
sponsible offices in the various departments and agencies so concerned
with administrative matters that they would be able to give little
time to the problem of providing technical knowledge and support for
their field personnel. Moreover, the International Cooperation Ad-
ministration would have to maintain a substantial part of its structure
if it were to perform central management functions, provide technical
services in certain fields, and attempt to develop and conduct coherent
country programs primarily through cooperative arrangements with
other departments and agencies.
The case against the alternative is also made on broad policy
grounds. The United States should, it is argued, deal with other na-
tions as a single government, not as a loose collection of governmental
agencies. The Government should be moving toward greater cen-
tralization of foreign assistance activities if there is to be coherency
of foreign policies and programs. The interests of the United States.
as a whole are often broader than the interests of the groups to which
the departments and agencies having primarily domestic operating
responsibilities are most sensitive.
Continuation of the present arrangement
Under this alternative, the International Cooperation Administra-
tion would continue to assume primary responsibility for the admin-
istration of technical and economic assistance. It would continue,
where appropriate, to contract with other departments and agencies

See National Planning Association, Organization of United States Government for
Technical Cooperation (May 1955), pp. 17-19.
FOREIGN ASSISTANCE PROGRAMS
485
for the performance of specific tasks, to borrow personnel from them
and otherwise to seek their assistance in recruitment of personnel, to
use their training facilities, to arrange with them for the procurement
of goods and services, and to consult them on policy and technical
questions when it feels it is desirable to do so. The International Co-
operation Administration pays for the goods and services provided by
other agencies and makes funds available to certain agencies to enable
them to employ staff on a continuing basis for this purpose. Failure
to take advantage of economies or superior services that might be de-
rived through the use of other Federal departments and agencies
would be subject to check through the regular legislative as well as
executive processes.
One important advantage of the current arrangement is that it
provides a focus of responsibility for all aspects of the program. The
Congress and the President can hold a single official accountable. This
is an inducement to consultation with other departments and agencies
on policy and technical matters. If errors in judgment occur and
there has not been previous consultation with other agencies con-
cerned, responsibility can be firmly fixed. Knowledge of this fact
can make the International Cooperation Administration even more
cautious than the regular departments and agencies.
Another important advantage, a corollary of the previous one, is
that this alternative permits central direction and control over the
program in Washington and unified administration in the field. This
facilitates negotiations with recipient countries and makes it possible
to achieve greater integration in the planning and administration of
country programs. It provides the authority required for effective
control of funds and for evaluation of projects to insure adherence
by other agencies to contract terms. In a message to the Congress
on April 20, 1955, President Eisenhower made the following state-
ment with respect to the use of the various departments and agencies
in the foreign-assistance program:
In the implementation of the program, the facilities of
all agencies of the executive branch will be used where appro-
priate, and to the maximum possible extent on a contract
basis. However, it is essential that responsibility for the
nonmilitary operations continue unified; to fragment this
responsibility among several agencies would seriously detract
from their effectiveness.12
The President also stated in a letter dated April 15, 1955, to the
Secretary of State that "we should avoid dispersal of operating
responsibilities either within the Department [of State] or to agencies
outside the Department." 13
The present arrangement gives the International Cooperation Ad-
ministration needed flexibility in deciding whether, in a given field,
it would be more economical and efficient to contract with another
Federal agency, to contract with a private firm, or to staff the Inter-
national Cooperation Administration for the purpose. The Interna-
12 Mutual Security Program, message from the President of the United States, transmit-
ting recommendations relating to the mutual-security program, H. Doc. 144, 84th Cong.,
1st sess. (1955), p. 5.
13 Technical Assistance Programs, hearing before a subcommittee of the Senate Committee
on Foreign Relations, 84th Cong., 2d sess., pt. 2 (January 23, 1956),
p. 401.
486
FOREIGN ASSISTANCE PROGRAMS
tional Cooperation Administration has reportedly developed greater
knowledge and skills in certain foreign-assistance fields than the
Federal departments and agencies having corresponding domestic
responsibilities. Furthermore, the International Cooperation Ad-
ministration has acquired specialized competence in planning, pro-
graming, and administering foreign-assistance activities. Granting
the International Cooperation Administration primary responsi-
bility enables it to apply this specialized competence more effectively,
Some of the disadvantages of the present arrangement are reflected
in the advantages claimed for the first alternative. In addition, there
is some feeling that other departments and agencies tend to overcharge
the International Cooperation Administration for the services they
render, and such charges are not subject to as close scrutiny as they
might be under a more diffused arrangement. Further detailed study
of this matter would seem to be useful because it may be that the
International Cooperation Administration sometimes utilizes the
services of other departments and agencies unnecessarily or makes
payments that are excessive in order to maintain cooperative relations
with them.
Another point, which may be noted as a disadvantage, is a tendency
in the International Cooperation Administration increasingly to staff
itself rather than to contract with other Federal agencies for techni-
cal services. As a result, official relations with other countries in
these fields may tend to flow through the International Cooperation
Administration rather than be handled by the Federal agencies having
corresponding domestic responsibilities, with consequent loss of useful
contacts between officials of the latter agencies and corresponding
officials in the aided countries.
Continuation of present arrangement with an exception for the foreign
atoms-for-peace program
The Atomic Energy Commission now exercises operating responsi-
bility for the foreign atoms-for-peace program under the foreign
policy guidance of the Secretary of State. This in itself constitutes
an exception to the general rule of centralizing the responsibility for
technical assistance in other nonmilitary fields. The International
Cooperation Administration, however, also carries on activities in con-
nection with the program, and an issue has developed over where
primary responsibility for the administration of this program should
rest.
The arguments given in favor of the Atomic Energy Commission as
the administering agency include all of those mentioned in support of
the first alternative, plus a number of others. They fall into two
categories, legal and administrative. It is understood that security
requirements in connection with the foreign atoms-for-peace program
are minimal and could be met equally well by the Atomic Energy
Commission regardless of whether it has primary responsibility for
the program.
The legal argument is that, although neither the Atomic Energy
Commission nor the International Cooperation Administration has
been explicitly assigned, by statute or Executive order, primary re-
sponsibility in this field, the Congress intended to have the Atomic
Energy Commission exercise this responsibility. This contention is
founded on provisions in the Atomic Energy Act of 1954 granting
FOREIGN ASSISTANCE PROGRAMS
487
certain functions to the Atomic Energy Commission that an agency
responsible for the foreign atoms-for-peace program should have,
including distribution to foreign countries of byproduct material and
the assignment of an important role in the negotiation of inter-
national agreements. Proponents of administration by the Atomic
Energy Commission also note that the Mutual Security Act, which
was enacted about 2 weeks after the Atomic Energy Act, did not dis-
turb these functions.
It is also pointed out that the President has vested responsibility for
carrying out the program jointly in the Secretary of State and the
Chairman of the Atomic Energy Commission. Furthermore, the
agreements made to date with 37 foreign countries designate the
Atomic Energy Commission as the operating agent for the United
States, and cooperative relations have already been established be-
tween the Atomic Energy Commission and agencies in foreign coun-
tries that specialize in this field. In brief, the Atomic Energy Com-
mission believes that the Congress and the public hold the Atomic
Energy Commission responsible for the foreign as well as domestic
activities of the Government in promoting the peaceful uses of atomic
energy.
The administrative reasons in support of the case for the Atomic
Energy Commission center on the existing shortage of scientists and
atomic materials and the special leadership that the Atomic Energy
Commission can provide. There is the argument that scientists, both
in and out of Government, are in such short supply that the Atomic
Energy Commission must be in a position to insure that the assign-
ment of scientists to foreign assistance activities does not detract from
essential domestic needs. Moreover, the atomic energy scientists re-
ceive salaries at levels that, if matched by the International Coopera-
tion Administration, might have a disruptive effect on the Inter-
national Cooperation Administration-particularly in the field. Even
if the International Cooperation Administration could match Atomic
Energy Commission salaries, it would allegedly have more difficulty
than the Atomic Energy Commission in recruiting scientists because
it has fewer career opportunities for them and would itself be able to
provide few supporting scientific services to field personnel.
The shortage of atomic materials is reportedly such that the Atomic
Energy Commission must control allocations to foreign countries.
The Atomic Energy Commission, moreover, has a statutory duty to
effect such control. Although the Atomic Energy Commission could
make a single allocation to the International Cooperation Adminis-
tration for foreign assistance purposes and still insure an adequate
supply for domestic purposes, legislation might be required to author-
ize such a practice.
The contention that the Atomic Energy Commission is in a better
position than the International Cooperation Administration to provide
the stimulus and leadership required in this vital field merits special
consideration. It is asserted that the foreign policy objectives of the
foreign atoms-for-peace program are more likely to be realized if the
program is administered by the Atomic Energy Commission than if
it is just another activity in the International Cooperation Admin-
istration. In support of this point, it is noted that much of the assis-
tance that the United States has to offer foreign countries in this field-
technical information, scientific personnel, research materials, power
488
FOREIGN ASSISTANCE PROGRAMS
reactor materials, and almost all the information on new developments
that other nations seek-would be drawn from the Atomic Energy
Commission or from institutions that have contracts with the Atomic
Energy Commission. Proponents of administration by the Atomic
Energy Commission emphasize this dependence on it. Although they
lament the conflict between high officials of the Atomic Energy Com-
mission and the International Cooperation Administration, they take
the position that unless the two agencies can work effectively together,
it would be safer to place primary responsibility for the program in
the Atomic Energy Commission.
Among those who support this alternative, however, are those who
also recognize that the International Cooperation Administration
should have a role in decision making with respect to the program,
particularly as power reactor programs develop. They would agree,
moreover, that the Department of State and the International Coope-
ration Administration should now have the same type of coordinating
authority, including veto authority, over the foreign atoms-for-peace
program that they have with respect to military-assistance programs.
They contend that the Department of State is now in a position to
exercise that authority and could consult the International Coopera-
tion Administration on its use if it so desired. On the other hand, it is
stated that, although this is theoretically feasible, the Department of
State has encountered considerable difficulty in coordinating the activi-
ties of these agencies partly because of ambiguities in the existing
allocation of responsibility.
Finally, there is the matter of timing. One view is that circum-
stances will change during the next 5 to 10 years, making it more
feasible at the end of that time to transfer responsibility for the
foreign atoms-for-peace program without jeopardy to either the do-
mestic or international program.
Assignment of responsibility for the foreign atoms-for-peace program
Although administration of military assistance by the Department
of Defense can be justified in large part on the grounds that the
assistance forms part and parcel of the national defense program,
Atomic Energy Commission responsibility for the administration
of the foreign atoms-for-peace program cannot be similarly justified
as essential to the primary objectives of the Atomic Energy Commis-
sion. The continued exercise by the Atomic Energy Commission of
operating responsibility for the program, particularly in view of the
likely expansion of the program and the increasing declassification
of information in this field, may tend to undermine the established
principle of centralized responsibility.
Evidence suggests that the Atomic Energy Commission cannot be
the sole agency for providing international assistance in the peaceful
uses of atomic energy. These uses now extend broadly into such
fields as medical diagnosis and therapy, medical and agricultural
research, and food processing and other industrial uses. Were the
Atomic Energy Commission to have primary responsibility for de-
cisions on aid for power reactor development as well as other peaceful
uses of atomic energy, it would have a controlling effect on Interna-
tional Cooperation Administration programs. The International Co-
operation Administration is considered to be better staffed to provide
advice to countries on the economic implications of a power reactor
FOREIGN ASSISTANCE PROGRAMS
489
program. Attention is also called to the need generally for the various
departments and agencies of the governments to put atomic energy
to use in their regular activities at home and abroad. A study made
for the Joint Congressional Committee on Atomic Energy concludes.
that:
The peaceful uses of atomic energy affect the functions of
almost every department and agency of the executive branch
and all of the corresponding committees of the Congress.
Organization of both branches of our Government must be
directed toward acceptance of the fact that the era of atomic
centralization in the Government in general and the Com-
mission in particular ended with the decision to press forward
with peaceful uses.
14
The study recommends that the Commission provide a focal point
for research and development of the peaceful uses of atomic energy
and-
that other departments and agencies of the executive branch
be encouraged to develop their own organizations for dealing
with their functional interests*** drawing upon the Com-
mission for advice and services rather than leaning on the
Commission or delegating their functions to it.15
The International Cooperation Administration has already demon-
strated-by its contracts for service in many fields with other
Government agencies, universities, and private research organ-
izations-how it can provide aid in this field. It arranged last
year, under contract with the Brookhaven National Laboratory,
for a team of scientists to visit Southeast Asia in order to
survey the available resources, the possible activities for the center,
and related matters, in anticipation of establishing a regional
nuclear training center in Manila. This experience suggests that the
International Cooperation Administration is not wholly dependent on
the Atomic Energy Commission. The International Cooperation Ad-
ministration should be able to tap the growing private sources of
scientific talent, clearing in advance with the Atomic Energy Com-
mission where the interests of the latter may be involved, as was
reportedly done in arranging for the survey mentioned above. Also,
the International Cooperation Administration should be able to con-
tract with the Atomic Energy Commission, in much the same way
that the International Cooperation Administration draws on the vast
scientific resources of the Department of Agriculture, for the technical
and material resources that it can apply and that may be needed in
the foreign atoms-for-peace program.
The Atomic Energy Commission was given administrative responsi-
bilities with respect to the atoms-for-peace program before the full con-
tent of the foreign assistance aspects of that program became known,
before the International Cooperation Administration was established
within the Department of State, and while security regulations in con-
nection with the program were still more strict than they now are. The
legal claims of the Atomic Energy Commission to administrative re-
14 U. S. Joint Committee on Atomic Energy, Peaceful Uses of Atomic Energy, Report
of the Panel on the Impact of the Peaceful Uses of Atomic Energy to the Joint Committee
on Atomic Energy, vol. I, 84th Cong., 2d sess. (January 1956), committee print, p. 154.
15 Ibid., pp. 154-155.
490
FOREIGN ASSISTANCE PROGRAMS
sponsibility for the program are disputed by reference both to the
broad mandate of the International Cooperation Administration for
administration of technical and related economic assistance and also to
the delegation by the President of "joint responsibility" for the atoms-
for-peace program to the Department of State, of which the Interna-
tional Cooperation Administration is a part, and the Atomic Energy
Commission. That the International Cooperation Administration has
a legitimate role in this field, unclear though it be, is further supported
by the following paragraph that appears in an agreement between the
Department of State and the Atomic Energy Commission:
It is recognized that atomic matters will be of growing im-
portance in the conduct of foreign relations in the future and
that the activities carried out overseas by the Atomic Energy
Commission may also increase. The Department of State
may find it necessary to assign to some posts full-time Depart-
ment officers for political and economic problems related to
atomic energy. The Atomic Energy Commission may find it
necessary to increase its staff of representatives as the foreign
activities for which it is responsible increase. The Inter-
national Cooperation Administration also has certain respon-
sibilities in the atomic energy field which will require atten-
tion by International Cooperation Administration field staff
in the United States operations missions.¹
16
Finally, in support of International Cooperation Administration
leadership in fostering peaceful uses of atomic energy in under-
developed areas, there is the argument that policy regarding foreign
assistance in this field need not and should not be governed by the
same considerations that determine the role of the Government in
the development of peaceful uses for atomic energy within the United
States. For example, the influences and other considerations that
might encourage or discourage Government aid in the domestic de-
velopment of power reactors should not be controlling factors on
United States foreign policy with respect to aiding in the develop-
ment of power reactors abroad.
RESPONSIBILITY FOR ADMINISTRATION OF LOANS
The Export-Import Bank of Washington makes loans on banking
principles for development projects in underdeveloped countries. In
addition, the International Cooperation Administration is required by
the Mutual Security Act of 1954, as amended, to make certain amounts
of its economic assistance available as loans rather than as grants.
These loans are usually repayable on much more favorable terms
(longer periods for repayment, lower interest rates, and optional re-
payment in local currencies) than the Export-Import Bank loans.
The Export-Import Bank serves as the fiscal agent for the administra-
tion of the loans made by the International Cooperation Administra-
tion.
When sales of surplus agricultural commodities are made abroad
for local currency, the proceeds of such sales become available in many
18 U. S. Department of State, Arrangements Between the Department of State and the
Atomic Energy Commission for Stationing Atomic Energy Commission Representatives
Abroad. (August 16, 1956). 4 pp. (mimeograph).
FOREIGN ASSISTANCE PROGRAMS
491
instances to the International Cooperation Administration for loans
within the purchasing country for development projects. Such loans
are to be repaid in local currency, with relatively long periods for re-
payment, up to 40 years usually, and at relatively low interest rates,
ordinarily 3 percent. Various proposals have been made that part
of regular economic assistance should also be made available as loans
repayable in local currency rather than as grants.
Experience with these arrangements has given rise to the following
issue: What should be the allocation of responsibilities between the
Export-Import Bank and the International Cooperation Administra-
tion for the administration of these loans?
There are three principal alternatives to be considered:
1. To continue the present allocation of responsibilities and the pres-
ent coordinating machinery;
2. To maintain the present arrangements but to formulate a clearer
dividing line, on the basis of agreed criteria, between the loans to be
made by the Export-Import Bank and those to be made by the Inter-
national Cooperation Administration; or
3. To amalgamate the developmental loan functions of the Export-
Import Bank and the International Cooperation Association.
Continuation of the present arrangements
Three arrangements now work concurrently to coordinate the loans
made by the United States to underdeveloped countries. First, the
International Cooperation Administration and the Export-Import
Bank have established informal procedures for mutual consultation
by their division and section heads before major loans are made.
Both agencies report that these arrangements for consultation are
satisfactory and that each is reasonably well informed of the activities
of the other. Second, the National Advisory Council on International
Monetary and Financial Problems, under the chairmanship of the
Secretary of the Treasury or his representative, provides continuous
interdepartmental consultation and coordination of the basic policies.
that govern foreign loans. Third, the National Security Council and
its Operations Coordinating Board relate and coordinate the financial
and economic policies to broader security considerations in the na-
tional interest.
In so large and complex a government as that of the United States,
it can be said that it is impossible to combine all related programs into
single entities and that reliance must be placed on arrangements for
consultation and coordination. Further, the economic and technical
assistance programs have been reorganized 4 times in the last 5 years
and are in need of a respite. Finally, there is considerable evidence
to support the view that the present arrangements have worked rea-
sonably well.
The opponents of leaving things as they are rest their case on the
desirability of the second and third alternatives, discussed below.
Establishment of a clearer boundary
Only a vague dividing line exists today between the projects or
proposals considered eligible for the loans made by the International
Cooperation Administration and projects thought to warrant the
much less favorable terms of Export-Import Bank loans. The latter
usually mature in 12 years or less and sometimes extend for as many
492
FOREIGN ASSISTANCE PROGRAMS
as 20 years. Loans made by the International Cooperation Adminis-
tration usually mature in 40 years and may extend for as many as 50.
Export-Import Bank interest rates are always somewhat above the
cost of money to the Treasury and now range from 5 to 5½ percent.
International Cooperation Administration loans, when repayable in
dollars, carry an interest rate of 3 percent, and, when repayable in
local currency, the rate of 4 percent.
the rate of 4 percent. The absence of a clear dividing
line concerning the respective responsibilities of the Export-Import
Bank and the International Cooperation Administration makes it diffi-
cult to maintain consistency of policy and invites pressures by bor-
rowers that tend to play one agency against another.
On the other hand, there is the argument that the search for such a
dividing line has gone on for some time, without developing any very
clear criteria. At present, the International Cooperation Administra-
tion and the Export-Import Bank both operate on the policy that the
International Cooperation Administration should make the residual
loans. In other words, International Cooperation Administration
loans are made when the project or activity cannot qualify for private
lending, International Bank lending, or Export-Import Bank lend-
ing. Under the policies followed by the Export-Import Bank, all
loans must be repaid in dollars, they must be used to purchase goods
in the United States, and they are supposed to encourage private
enterprise wherever possible. This arrangement can, and probably
will, be continued until more specific, workable criteria can be formu-
lated.
Merger of developmental loan functions of the Export-Import Bank
and the International Cooperation Administration
This alternative is supported by the view that a single agency ad-
ministering both loans and grants for developmental purposes would
be in a far better position than two independent agencies, even though
linked by coordinating arrangements, to study the creditworthiness
of a country and to make certain that assistance is not given as grants
where loans are feasible. A merger would assure that the develop-
ment lending function, previously performed by the Export-Import
Bank, would support, more closely than in the past, the basic develop-
mental policies formulated by the Department of State and the Inter-
national Cooperation Administration. The commercial lending func-
tion of the Export-Import Bank is principally concerned with
promoting the export of goods produced in the United States, even
though export credits also contribute to development overseas, and
therefore might be left with that institution or be transferred to
another department or agency.
Opposing this alternative are the considerations stated above in
favor of continuing the present arrangements. There are also three
other specific objections to such amalgamation.
First, the International Cooperation Administration has now been
established within the Department of State, and there is the view that
a department that is charged with the administration of foreign policy
is unsuited to serve as an administrator of loans. If the International
Cooperation Administration is maintained within the Department of
State, therefore, the developmental loan functions of the Export-
Import Bank should not be consolidated with the International Co-
operation Administration but should remain outside the Department
of State.
FOREIGN ASSISTANCE PROGRAMS
493
Second, there is the argument that if a single agency were to
administer all developmental loans made by the United States Gov-
ernment, it would have to administer both "soft" and "hard" loans.
"Soft" loans are generally understood to mean those that are made on
more favorable terms than are usually allowed by the Export-Import
Bank and private traders. They normally provide for lower interest
rates and are repayable over longer periods or in local currency, or
both. "Hard" loans are those that are based on the stricter standards.
The effect of combining the administration of these two categories
might be to weaken the integrity of the "hard" loans and encourage
borrowers to confuse the two. Although the Export-Import Bank is
the agent for administering the loans made by the International
Cooperation Administration, this is little more than a bookkeeping
and collections task, and borrowers can easily distinguish between the
hard loans made by the Export-Import Bank and the softer loans
made by the International Cooperation Administration.
Third, officials of the Export-Import Bank insist that there can be
no clear division of the bank's loans into "development" and "commer-
cial" categories, despite the common tendency to do so. They argue,
therefore, that the lending operation of the bank should remain unified.
A proposal is now emerging, however, for the making of a special
variety of "local currency loans" which are said to be about midway
between "hard" loans and "soft "loans, or between "hard" loans and
grants. These "local currency loans" are defined as follows: loans
made with the same interest rates and the same repayment periods as
"hard" loans, with the insistence that they be repaid in full. More-
over, as many installments as possible are to be repaid in dollars or
whatever other foreign currency may be borrowed, as agreed by bor-
rower and lender, in accordance with the capacity of the borrower to
repay, until the total loan has been repaid. Installments repaid in
local currency would become available as a revolving fund for further
developmental projects in the repaying country.
The advocates of these "local currency loans" believe that they
should be administered by the same agencies that make "hard" loans
because only then will the bank be able to determine, in consultation
with the borrower, what it can repay at any given time in "hard"
loans, what it can absorb in "local currency loans," and what its eligi-
bility should be for grants.
CHAPTER V
CHOICE BETWEEN BILATERAL AND MULTILATERAL
CHANNELS
The allocation of administrative responsibilities for United States
foreign assistance involves more than a consideration of the special
organizational arrangements within the United States Government.
Such arrangements are necessary primarily for the administration of
assistance that the United States extends on the basis of bilateral
agreements between it and the recipient countries. But a portion of
United States foreign assistance is also being extended on the basis of
multilateral agreements to which the United States and many other
nations, which include both donor and recipient countries, adhere.
These arrangements underlie international organizations and pro-
grams, of both worldwide and regional scope, through which assist-
ance can be channeled. In extending foreign assistance, therefore,
the United States has a choice between bilateral and multilateral chan-
nels; in the latter case, it also has a choice among different interna-
tional organizations and programs.
The portion of United States foreign assistance that currently is
provided through multilateral channels is used for technical assist-
ance and economic aid. Practically all military assistance is provided
by the United States under bilateral agreements with the recipient
countries. It is true, of course, that many of these bilateral agree-
ments are made and operated within the broader framework of multi-
lateral arrangements of a politico-military character, such as the
North Atlantic Treaty Organization. There is, however, no serious
proposal currently being considered for the United States to channel
its military assistance through an international organization or a
regional organization by contributing funds or military equipment
directly to the organization for subsequent disbursement or allocation
by it. The issue of a choice between bilateral and multilateral chan-
nels therefore is currently limited, insofar as the United States is
concerned, to technical and economic assistance.
THE PRESENT PATTERN
The United States participates in the financing and administration
of two multilateral technical cooperation programs. The United Na-
tions Expanded Programme of Technical Assistance, like the United
States bilateral program, is worldwide in scope and covers virtually
every field of activity that relates to economic growth. Within Latin
America, the Organization of American States administers a much
smaller program of regional technical training centers.
The economic assistance programs involve the expenditure of much
larger sums of money than the technical assistance activities. In this
field, too, in addition to grants and loans made, respectively, by the
494
FOREIGN ASSISTANCE PROGRAMS
495
International Cooperation Administration and the Export-Import
Bank, the United States participates in the administration and financ-
ing of the International Bank for Reconstruction and Development
and its affiliate, the International Finance Corporation.
The Expanded Programme of Technical Assistance of the United
Nations was initiated in July 1950. The principal responsibility for
conducting technical assistance work in the beneficiary countries is
borne by six agencies in the United Nations system. Five of these
are specialized agencies, and the sixth is an agency within the United
Nations itself, established especially for this purpose. The five agen-
cies are: the Food and Agriculture Organization, the World Health
Organization, the United Nations Educational, Scientific and Cul-
tural Organization, the International Labor Organization, and the
International Civil Aviation Organization. Because the fields of
activity of the specialized agencies leave some functional areas un-
covered, the United Nations established, within itself, the United Na-
tions Technical Assistance Administration, to give assistance in
industrial development, transportation, public finance, public admin-
istration, social welfare, and related fields. Two other specialized
agencies participate in the program to a much smaller extent-the
World Meteorological Organization and the International Telecom-
munication Union.
To coordinate the work of these several agencies, the United Nations
has established the Technical Assistance Board, headed by an Execu-
tive Chairman. The heads of the specialized agencies and of the
Technical Assistance Administration are members of the Technical
Assistance Board. In turn the Board reports to the Technical Assist-
ance Committee of the Economic and Social Council. On major
questions of administrative policy and procedure, the Administrative
Committee on Coordination, of which the United Nations Secretary
General is Chairman, gives guidance to the Technical Assistance
Board. In some 31 countries, the United Nations maintains a resi-
dent representative, who reports to the Board and is responsible for
coordinating United Nations activities at the country level.
The technical assistance program of the United Nations is operating
in more than 70 countries and has been spending from $20 million to
$25 million a year, increased to almost $28 million in 1955 and 1956.
It assists underdeveloped countries in programing their economic de-
velopment, makes expert technicians available to participating gov-
ernments, gives training grants for study and training abroad, gives
very small amounts as grants in the form of machinery and equipment,
and promotes the international spread of technology through semi-
nars, conferences, and publications.
Since April 1950, the Organization of American States and its
seven member organizations, somewhat akin to the specialized agencies
of the United Nations system, have been operating regional centers
to give training to technicians of the member states, nearly always in
their native languages and in institutions located in a cultural and
social environment familiar to them. The Organization program
does not make technicians available to governments. Seven regional
centers were in operation in 1956, distributed among six Latin Ameri-
can countries. The budget of the program in 1956 was just under
$2 million. The centers give training in agriculture, control of foot-
and-mouth disease, housing, children's services, statistics, teacher
496
FOREIGN ASSISTANCE PROGRAMS
training, and evaluation of natural resources. The work of the cen-
ters is coordinated by a Technical Cooperation Board, headed by an
Executive Chairman.
THE GENERAL ISSUE AND THE MAIN ALTERNATIVES
The choice the United States makes between bilateral and multi-
lateral channels for extending technical and economic assistance in-
volves questions of both general policy and administration. The
questions of general policy arise primarily from the issue whether the
Ünited States in its foreign relations wishes to emphasize the bilateral
or the multilateral approach as the better one for it to use in attaining
the objectives of its foreign-assistance programs. The questions of
administration arise primarily from the issue whether the organiza-
tional arrangements and procedures are or can be made the most effi-
cient, from the viewpoint of the United States, in the bilateral or in
the multilateral channels. The combined issue, therefore, can be
stated as follows: What should be the allocation of United States
resources and effort between bilateral and multilateral channels of
technical and economic assistance?
To understand clearly the main alternatives open to the United
States under this issue, the distinction between grants and loans must
be kept in mind. Aside from the loans made by the International Bank
for Reconstruction and Development and its new affiliate, the Inter-
national Finance Corporation, no economic assistance is now being
extended through multilateral channels, except for the very small
grants for machinery, equipment, and publications that are included
in the United Nations Expanded Programme of Technical Assistance.
It is true that proposals for large-scale economic assistance through
multilateral channels have been under discussion for some time
particularly the proposal for a Special United Nations Fund for Eco-
nomic Development, which would be authorized to make grants avail-
able to the less-developed countries as well as loans repayable in local
currencies over long periods of time and bearing low interest rates.
But a distinction must be made between the alternatives open to the
United States with reference to the present aid programs and the
alternatives that will become available if the present programs are
materially enlarged.
The economic and technical assistance programs administered by the
International Cooperation Administration, for fiscal year 1957, are
spending approximately $1 billion a year, of which approximately
$150 million is for technical cooperation. The United States is con-
tributing $15 million per year to the technical assistance program of
the United Nations and the specialized agencies, and $1.5 million per
year to the technical cooperation program of the Organization of
American States. The United States has also subscribed $3.1 billion
to the capital stock of the International Bank for Reconstruction and
Development and slightly over $35 million to the International
Finance Corporation.
In considering whether this is the best distribution of funds among
the bilateral and multilateral channels, five major alternatives appear
to be relevant:
1. To terminate the bilateral programs of the United States and to
make all economic and technical assistance available through multi-
lateral agencies;
FOREIGN ASSISTANCE PROGRAMS
497
2. To continue the bilateral program but to increase substantially
the United States contribution to multilateral programs;
3. To support the establishment of a new multilateral development
organization, while continuing the bilateral program;
4. To retain approximately the present distribution of effort be-
tween the bilateral and multilateral programs; or
5. To adopt the policy of placing virtually exclusive reliance on bi-
lateral channels, giving to the bilateral program any increased funds
that are to be made available.
Exclusive reliance on multilateral channels
In support of the alternative of placing exclusive emphasis on
multilateral agencies, there is evidence that such agencies possess sev-
eral inherent advantages over the United States bilateral program that
enable them to be more effective in achieving the purposes of foreign
assistance. One such advantage is that the beneficiary countries are
less sensitive about receiving such aid from multilateral agencies and
less fearful that their political sovereignty and independence may be
compromised. The United Nations agencies are, therefore, more
readily welcomed than national agencies with regard to such matters as
the formulation of national development programs and the adjust-
ment of trade and fiscal policies. Likewise, multilateral agencies can
insist on severe preconditions to aid, with less suspicion of ulterior
motives.
In the United Nations programs the less developed countries are
donors as well as recipients; they both send and receive technicians
and trainees. The greater willingness to see the program move into
sensitive areas of public administration and economic development is
a corollary of this sense of participation. The program for economic
integration in Central America is one example of what the United
Nations agencies are doing very well that the United States program
probably could not do as effectively. Closely related to this is the
fact that the United Nations policies are not controlled by the political
and commercial objectives of a single nation in arriving at decisions
on the giving and withholding of technical assistance.
In the recruitment of expert technicians to serve the program, the
United Nations has three advantages over the United States program:
(1) It can range over the whole world to find suitable people. In such
fields as tropical agriculture and tropical medicine, the United States
may have fewer experts than other nations. (2) The United Nations
can frequently recruit technicians from countries whose conditions are
not too dissimilar from those in the countries to be served, and the
experts will, therefore, be more familiar with the problems to be
solved. (3) The United Nations can attract competent experts from
most parts of the world without offering quite as much remuneration
as American agencies are compelled to offer.
Two further considerations are relevant. The United Nations pro-
gram has made greater advances in terms of regional projects that
require the concurrent action of several countries. Within the last
5 years, the Expanded Programme of Technical Assistance has initi-
ated many such regional projects, but the regional projects of the bi-
lateral program are still in the planning stage. Finally, there is the
hope that habits of cooperation developed in the promotion of eco-
nomic development will carry over into the solution of political prob-
lems.
498
FOREIGN ASSISTANCE PROGRAMS
It is possible, however, to recognize the merits of the multilateral
programs without going to the extreme of suggesting that the United
States either can or should terminate the bilateral program and place
exclusive reliance on multilateral channels. Two major considera-
tions are applicable here: (1) the administrative problem and (2) the
financial problem.
First, the point is made that the Expanded Programme of the
United Nations is still so new-only 6 years old-that it has not yet.
put its administrative house in order. To require it quickly to multi-
ply its operations several fold would create a serious danger of ad-
ministrative breakdown. The program has no central administrative
authority. The Technical Assistance Board coordinates the separate
efforts of 6 major and 2 smaller agencies, but it has no direct adminis-
trative authority. The resident representatives have recently been
given the authority to coordinate at the country level, but they have
yet to receive full acceptance from the major specialized agencies.
Their coordinating authority extends chiefly to program planning
rather than to operations. In many cases, the technicians at work
overseas are receiving quite inadequate technical support and guidance
from the headquarters of the specialized agencies. The new country-
planning mechanism of the program was being tried for the first time
in 1956.
The United Nations program has no procedures for making sub-
stantial grants for supplies, equipment, and machinery. Its arrange-
ments for introducing joint administration of project activities with
the host governments are only in the early stages of exploration. It
has not yet developed its own equivalent for the "servicios" (instru-
ments for joint administration), the interuniversity contract under
which established universities can assist in improving the quality of
universities in underdeveloped countries, or the enlistment of the serv-
ices of private engineering and management firms. The program has
yet to provide in most beneficiary countries a permanent core of ad-
ministration to which visiting short-term experts can be attached.
Second, there is the financial problem. The United Nations pro-
gram is spending approximately $28 million a year, of which the
United States contributes about 50 percent. The accompanying table
summarizes the financial contributions to the United Nations technical
assistance program during the period 1950 to 1956. Transfer of the
United States bilateral operations to the United Nations program,
without a significant increase in the contributions of other nations,
would mean that the United States would pay so predominant a share
of the total cost that the program would cease to be truly multilateral.
If 1 nation were to pay more than 90 percent of the cost, its influence
would presumably be overwhelming and its citizens and officials could
not long be expected to refrain from asking for a controlling voice.
Most of the other nations could probably not increase their contribu-
tions to preserve the ratios that now obtain in the United Nations pro-
gram without overstraining their treasuries. A marked increase in
United States contributions to the United Nations program must
therefore result either in a grossly disproportionate payment by the
United States to the multilateral program or in a drastic reduction of
the total amount available at a time when more funds are needed.
FOREIGN ASSISTANCE PROGRAMS
499
United Nations expanded program of technical assistance¹
GOVERNMENT PLEDGES BY YEAR
[United States dollar equivalent]



Year
United States
of America
United
Kingdom
France
Soviet
Union
All other
countries
Total
$20,036, 170
18, 797, 232
22, 405, 633
25, 342, 462
27, 661, 350
29, 681, 237
Number of
countries
pledging
per year
54
65
69
74
70
$68727
1950-51
$12,007, 500 |
1952...
11, 400, 000
$2,128, 255
1, 260, 151
$1, 207, 500
1,064, 643
1953.
12, 767, 145
1,400, 168
1, 207, 500 | $1,000,000
1954
13, 861, 809
1955
15, 000, 000
1956..
15,500,000
1,820, 218
2,240,000
2,240, 000
1,207, 500
1, 448, 571
1, 000, 000
1,000,000
$4,629, 915
5, 112, 438
6, 030, 820
7,452, 935
7,972, 779
1,448, 571
1, 000, 000
9, 492, 666
Total....
80, 536, 454
11,088, 792
7, 584, 28.5
|
4,000,000 40, 701, 553 143, 924, 084
1 Source: Office of International Affairs, U. S. Department of State, Oct. 16, 1956.
These figures represent pledges of contributions to the United Nations technical assistance special account
from which allocations to the participating agencies are made. They do not include contributions made by
recipient governments to the cost of projects carried out in their own countries in local currency or goods and
services. These local contributions are estimated to be approximately twice the cost borne by the partici-
pating agencies financed from the special account.
Increased reliance on multilateral program
The alternative of placing greater, but not exclusive, emphasis on
the multilateral approach can be based on the considerations cited
above both for and against the first alternative. Those considerations
stress the advantages, present and potential, of assisting the under-
developed countries through the United Nations programs. But ex-
perience suggests that the United Nations program probably cannot
carry the total administrative burden or be adequately financed with-
out straining its international character. There is, therefore, a need
for the continuation of the bilateral activity and even its growth in
size if events make that desirable. At the same time, there is support
for increasing the United States financial contribution to the United
Nations program to a much larger annual sum, as large an increase
as can be made without damaging the multinational character of the
program. Such a proffered increase may also elicit larger contribu-
tions from other nations and facilitate the necessary effort by the
United Nations to strengthen the administration of the Expanded
Programme of Technical Assistance by providing stronger coordina-
tion at headquarters and better integration of activities at the country
level.
Militating against increased reliance on the Expanded Programme,
there is the difficulty of achieving substantial administrative improve-
ment within the next few years, especially in view of the insistence of
the specialized agencies on the need for independence from United
Nations control. There is also doubt that the funds of the United
Nations program can be increased substantially if approximately the
present ratio of contributions is to be maintained. And there is the
argument that the identity of the United States contribution may be
lost in the United Nations program, and gratitude may flow to only
the United Nations as the immediate donor.
A recently developed variation on this alternative calls for increased
reliance by the United States on multilateral channels by developing
a joint programing agency that would prepare broad development pro-
94413-57-
-33
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grams that both the bilateral and multilateral programs would use as
the basis for grant aid, technical assistance, and loans. An important
consideration to note here is that the United States could support the
creation of such an agency whether or not it decides to increase its
financial contribution to the United Nations programs.
This proposal has recently been set forth in some detail, and the
full case for it need not be repeated here.¹ The essence of the pro-
posal is that such a programing agency, preferably organized as an
affiliate of the International Bank for Reconstruction and Develop-
ment, could perform the important functions of investigation, anal-
ysis, planning, and surveillance. Such an agency could draw on the
experience and staff of the International Bank for Reconstruction and
Development. It could formulate and generate acceptance of a set of
rigorous criteria for controlling assistance. On that basis, both bilat-
eral and multilateral programs might be less suspect and more effective
in insisting on those preconditions. The agency could also help to co-
ordinate the program planning of bilateral and multilateral agencies
and thus produce more effective concentration on an agreed program.
Whether such an agency would produce realistic development pro-
grams satisfactory to both underdeveloped and developed countries
alike is problematical. There is, in addition, the argument that the
administrators of bilateral programs should be in control of the plan-
ning as well as the operating phases. Directors of bilateral programs
may feel compelled to make different programing decisions in many
cases from those made by the joint agency. It can be asked, there-
fore, how much true coordination can be expected to result from this
proposal.
There are also grounds for supporting greater use of the Interna-
tional Bank for Reconstruction and Development. The bank has been
widely praised for having developed international cooperation in
long-term lending with exceptional energy, integrity, and competence.
As of December 13, 1956, the bank had made 160 loans totaling the
equivalent of nearly $3 billion to 43 countries. It has also carried
on extensive technical assistance operations, including country mis-
sions that have produced thorough and useful reports. Of all of the
multilateral agencies engaged in assistance activities the International
Bank for Reconstruction and Development has been the most suc-
cessful in winning respect and confidence from the United States
financial and commercial community.
In general support of the work of the bank, it is also possible to cite
many of the advantages of the multilateral approach discussed above.
Furthermore, its Articles of Agreement provide somewhat greater
flexibility than is possible in the case of the Export-Import Bank.
Whereas the Export-Import Bank provides dollar loans for the pur-
chase of goods and services from American suppliers, the Interna-
tional Bank for Reconstruction and Development can make loans in
various currencies and receive payment in the currencies lent. Bor-
rowers can purchase from any foreign bidders who meet their
standards.
On the other hand, it can be said that there does not appear to be a
need for any increase in the United States subscription to the bank be-
1 Max F. Millikan and W. W. Rostow, A Proposal: Key to an Effective Foreign Policy
(1957).
FOREIGN ASSISTANCE PROGRAMS
501
cause it already has, or can command, sufficient resources to take care of
all requests that meet its present standards. Moreover, it has seemed
useful in the past to maintain a bilateral lending program, largely
through the Export-Import Bank, which is directly and wholly sub-
ject to the political and economic directives of the United States
Government and is also in a position to respond more quickly than an
institution in which 60 members have a voice. Moreover, not all
governments to which the United States might wish to lend are mem-
bers of the International Bank for Reconstruction and Development.
Finally, some foreign governments may not wish to submit their loan
requirements to the scrutiny of the International Bank for Recon-
struction and Development, particularly when its membership may
include governments that are not on good terms with the petitioning
state.
There are also regional organizations through which the United
States might work in formulating project plans, in deciding on budget
allocations, in improving the quality of daily operations, and in pro-
moting regional projects. The most conspicuous instance of such a
regional grouping is the Organization for European Economic Co-
operation, which played an outstanding role in the administration of
the European recovery program.
Another multilateral channel is the technical cooperation program
of the Organization of American States. This program includes no
economic aid, and its technical assistance work is confined to operating
the seven regional technical training centers already mentioned.
Clearly, the Organization of American States program cannot carry
any major part of the technical cooperation work now administered
in Latin America through the International Cooperation Administra-
tion. However, the Economic and Social Council of the Organization
of American States is seeking ways to increase and broaden the tech-
nical assistance work of the Organization of American States in Latin
America. In an effort to avoid the charge that it is dominating the
Organization of American States, the United States has probably
leaned backward too far; it has not given strong leadership either to
the Organization of American States or to its technical cooperation
activity.
Another relevant arrangement is the Colombo Plan, which is serving
as a consultative arrangement for the pooling of views regarding the
economic development programs of countries in south and southeast
Asia. It thereby facilitates the planning and administration of the
United States bilateral assistance programs in the area and simultane-
ously serves the same purposes for a series of Commonwealth bilateral
aid programs among the nations of the British Commonwealth. The
Colombo Plan has also been able to help materially in promoting mu-
tual supplementation among most of the bilateral and United Nations
activities underway in south and southeast Asia. Two smaller re-
gional organizations that engage in some technical assistance activities
in their respective regions are the Caribbean Commission and the
South Pacific Commission.
Establishment of a new multilateral development organization
Because of the various administrative and financial obstacles that
seem to stand in the way of the United Nations Expanded Programme
of Technical Assistance, it has been proposed that a new multilateral
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FOREIGN ASSISTANCE PROGRAMS
development organization be established. It is not feasible to examine
the arguments for and against all of the various proposals that have
been put forward, but it is possible to summarize at least three major
types of suggestions that have been somewhat widely discussed.
One group of proposals would establish a new multilateral agency
for the administration of technical assistance alone, leaving loans to
be provided, as at present, by the International Bank for Reconstruc-
tion and Development. A second group would establish a new multi-
lateral organization for the provision of economic aid through both
loans and grants, leaving technical assistance to be provided, as at
present, by the Expanded Programme of Technical Assistance of the
United Nations. A third group would establish a new multilateral
development organization that would provide both technical and eco-
nomic assistance, and might absorb the present functions of both the
Expanded Programme and the International Bank for Reconstruction
and Development.
The first type of proposal is designed to alleviate one of the greatest
difficulties in the administration of the Expanded Programme: the
absence of a strong central authority. The Technical Assistance Board
coordinates the separate efforts of 6 major and 2 smaller agencies.
Of these 8 agencies, 7 are "specialized agencies" with independent con-
stitutional status. This proposal would call for terminating the Ex-
panded Programme and establishing a single United Nations Tech-
nical Assistance Organization, to which would be transferred the
funds and personnel now available to the Expanded Programme.
The present specialized agencies could continue to administer their
regular programs, to which their technical-assistance work has been
a major addition since 1950, and the new organization might contract
with the agencies for some work in their respective fields. Another
possibility would be to merge the specialized agencies with the United
Nations, but such a reorganization would be confronted with great
constitutional and political barriers. The strongest general argu-
ments leveled against this approach are that it would disrupt the
present arrangement, without ensuring any substantial improvement,
and it would create a new, independent agency, which might exacer-
bate rather than ameliorate the present difficulties of coordination.
The second set of suggestions clusters around the proposed Special
United Nations Fund for Economic Development. A number of
variations on this idea have been suggested to meet the principal objec-
tions to it raised from various sources. The Special United Nations
Fund for Economic Development, or some organization similar to it,
could be established to make both grants and loans available to under-
developed countries within a broad program for stimulating economic
growth. A principal motivation underlying this proposal is the view
that loans made by the International Bank for Reconstruction and
Development will continue to be made only on strict banking princi-
ples and that an agency like the proposed Fund must supplement
those loans with others made on more favorable terms, and with
grants. This group of proposals would continue the International
Bank for Reconstruction and Development and the Expanded Pro-
gramme of Technical Assistance, and would establish channels for
consultation and coordination between the technical assistance pro-
FOREIGN ASSISTANCE PROGRAMS
503
vided by the Expanded Programme and the economic aid to be pro-
vided by the Special United Nations Fund for Economic Development
and the International Bank for Reconstruction and Development.
There has been substantial support for this approach, but it has also
been criticized because of the strong voice given to the underdeveloped
countries and because of objections to such an expansion of "soft"
loans and grants.
The third group of proposals is based on the view that technical
and economic assistance are closely related, serve a single set of pur-
poses, and require union within a single, strong, multilateral organiza-
tion. Such an international development organization might be built
around the International Bank for Reconstruction and Development
as a nucleus and, according to some versions, could even absorb the
functions and funds of both the bank and the Expanded Programme.
The new organization could be equipped to assist the governments of
the underdeveloped countries both in formulating development plans
and in executing them. The assistance could be provided through
technical assistance, grants, and loans of various types. Aside from
general arguments against the multilateral approach, this proposal is
criticized because of the reasons just cited against the Special United
Nations Fund for Economic Development plan and also the objection
to combining "hard" and "soft" loan functions within a single agency.
The three groups of proposals briefly summarized here are not
offered as substitutes for the United States bilateral assistance activ-
ities. Most of them favor the continuation of such activities, but
they are put forward to provide a stronger administrative structure
for that part of the total assistance effort that is to be administered
through multilateral channels-usually with the hope that it will be
substantially increased.
Retention of present division
In support of the alternative to maintain approximately the present
pattern, it can be said that a suitable balance between the bilateral
and multilateral programs has been reached. The arguments urged
against exclusive reliance on the United Nations program are some-
times also urged against increasing the United States financial con-
tributions to that program. In particular, it is said, most nations
cannot substantially increase their contributions to the United Nations
program and the United States should adhere to the present ratio
of contributions to preserve the international character of the program.
Opponents of this alternative, who believe in continuing foreign
aid, advocate one or another of the alternatives described above. They
emphasize particularly that the approximately $15 million per year
contributed by the United States to the United Nations programs is
only 10 percent of the approximately $150 million per year con-
tributed to the bilateral technical cooperation program. They argue
that, at the very least, a larger portion of the total funds available
should be channeled through the United Nations programs.
Increased reliance on bilateral program
A major argument in favor of placing primary emphasis on the
bilateral approach is the view that the interests of the United States
are better realized through the bilateral program, in which the identity
of the benefactor is clear, than through the multilateral program, for
504
FOREIGN ASSISTANCE PROGRAMS
which the United Nations rather than the United States receives
primary credit. An unexpressed premise of this position is that
United States national interests in promoting economic growth in
the recipient countries are not satisfied unless those countries know
that the improvement is assisted by the United States. Also relevant
here are the arguments cited above against increased or exclusive
reliance on United Nations channels.
Experience suggests, however, that it would be a mistaken national
policy for the United States to place too great emphasis on the im-
portance of receiving gratitude in return for assistance. The in-
terests of the United States are served not by seeking to purchase good-
will, which cannot really be bought, but rather by promoting, through
whatever means are demonstrated to be most effective, economic
growth, political stability and independence, and rising standards of
living within the less-developed countries. Success in this effort
will help develop a more prosperous and more peaceful world, which
is one of the specific goals of United States policy.

CHAPTER VI
COORDINATION OF ADMINISTRATIVE
RESPONSIBILITIES
The major operational and planning responsibilities for the foreign
assistance program are divided between two long-established organ-
izations, the Departments of State and Defense, as well as the rela-
tively new International Cooperation Administration, a semiautono-
mous unit within the Department of State. Other executive units,
such as the Department of Agriculture and the Atomic Energy Com-
mission, have been assigned more limited, though significant, func-
tions in the foreign assistance field.
To coordinate these agencies, a number of devices have been devel-
oped, but their effectiveness still leaves much to be desired. Although
the existing pattern of the allocation of authority may be altered, past
experience suggests that some of the present divisions of responsibil-
ity, particularly between the Departments of State and Defense, are
likely to persist for some time to come. Among the various coordina-
tion issues that are posed by these divisions of responsibility, there
are at least four that deserve detailed analysis. These issues are:
1. What official should be assigned primary responsibility for the
central coordination of military and economic assistance?
2. What interdepartmental committee structure and process would
be most useful in helping to achieve coordination of military and
economic assistance?
3. What interdepartmental arrangements should be utilized to as-
sist in achieving coordination between foreign assistance and other for-
eign economic activities?
4. What should be the relationship between chiefs of diplomatic
missions and the personnel engaged in foreign assistance activities
in the field?
GENERAL CONCEPT OF COORDINATION
Before analyzing these individual issues, it is necessary to examine
briefly the general concept of the coordinating process. The term
"coordination" has no single meaning; the end result of coordinate
action may be achieved, depending upon the circumstances, in a wide
variety of ways. It may, therefore, facilitate analysis to identify
three major kinds of coordination that are found in the executive
branch.
1
1. Central coordination is exercised directly by the President or, on
rare occasions, it may be delegated to a presidential agency such as
the Office of Defense Mobilization. The President must retain ulti-
1 This discussion is based largely on an analysis contained in The Brookings Institution,
The Administration of Foreign Affairs and Overseas Operations (June 1951), pp. 216–242
and 341-367. (Prepared for the Bureau of the Budget and published by the Government
Printing Office.)
505
506
FOREIGN ASSISTANCE PROGRAMS
mate coordinating responsibility and should stand ready to resolve
conflicts of both substance and jurisdiction that cannot be settled at
lower levels.
2. Staff coordination is performed by presidential staff officials and
agencies. Those who serve in a staff capacity are supposed to have
no special jurisdictional interests but to maintain a position of neu-
trality with reference to the respective interests of the agencies to be
coordinated under directives issued by the President.
3. Line coordination is a function of an executive department or
agency within its special field of competence. Experience indicates
that attempts to put the head of one department in the chain of com-
mand between the President and the head of another department have
not proved very successful. But for many kinds of problems, the re-
sponsibility for exercising leadership in obtaining coordination
through voluntary agreement can be vested effectively in one among
equals when primary responsibilities are clear.
As for the means by which coordination is achieved, it should be re-
membered that the process does, and should, take place at all levels of
the governmental hierarchy. Decisions and actions in one field must
be geared to those in other fields at a time in the sequence of events
when decisions are still fluid and subject to change. Most coordina-
tion is carried on informally among opposite members of the lower
levels of the governmental structure. More formal arrangements have
developed at higher levels to enable busy department and agency heads
to deal effectively and expeditiously with differences that resist settle-
ment through procedures at lower levels.
The principal instrumentalities for high-level coordination are sin-
gle officials and interdepartmental committees. The individual co-
ordinator may be the President, a staff assistant to the President, or a
departmental or agency official with varying degrees of authority
according to the considerations previously discussed. In most cases,
the single coordinator depends in some measure on the collaboration of
an interdepartmental committee, but where committees are involved,
there is no substitute for a competent and authoritative presiding offi-
cer who is identified with the primary administrative responsibility
within the particular field of interest.
Past experience suggests that interdepartmental committees have
operated most effectively when they have concentrated on matters of
general policy and program formulation and have avoided detailed
administrative questions. Such committees have proved less well
suited to the making of specific decisions than to acting in an advisory
capacity, usually with reference to the chairman of the committee.
This process has seemed to function best when the chairman himself
has been in a position to make a decision committing the agency or
agencies having primary responsibility for the matter at issue. In the
event of a serious dispute that has threatened the viability of a deci-
sion, it has proved useful to have a clear and generally accepted pro-
vision for quick and effective settlement of the difference, normally by
appeal to a higher authority capable of rendering a final decision.
ASSIGNMENT OF RESPONSIBILITY FOR CENTRAL COORDINATION
The earlier review of the administrative history of foreign assistance
reveals a wide range of coordinating devices and the difficulties that
have arisen in the use of each of them. One of the central issues raised
FOREIGN ASSISTANCE PROGRAMS
507
by this experience is: What official should be assigned primary re-
sponsibility for the central coordination of military and economic
assistance?
The principal executive units that are likely to be responsible for
activities subject to this kind of coordination are divisions within the
Departments of State and Defense as well as the major agency charged
with administering economic assistance, so long as that agency retains
some degree of independent status. Emphasis is placed on the co-
ordination of military and economic assistance in the discussion of
this issue for the following reasons: these are the two major segments
of the program; it seems likely that the administration of them will
continue during the foreseeable future to be divided between at least
two executive departments; and this coordination has proved espe-
cially troublesome in the past. It has been argued, in fact, that the
shortcomings of the present coordinating arrangements have contrib-
uted to the creation of conditions of economic, and possibly political,
instability in countries receiving United States assistance.
Of the total of more than $3.7 billion appropriated for foreign aid
for the fiscal year 1957, about $2 billion is for military assistance, and
$1.2 billion is for defense support. The latter, as was indicated earlier
in this report,² is designed to assist in stabilizing and developing the
economies of countries that are judged by the United States to re-
quire such assistance in order to maintain defense forces at necessary
levels. Although 36 countries are scheduled to receive military assist-
ance during the fiscal year 1957, only 13 will receive defense support.
The degree to which aid is concentrated is reflected in the fact that
7 nations-Korea, Taiwan, Vietnam, Cambodia, Laos, Pakistan, and
Turkey-were scheduled, according to the proposed program for the
fiscal year 1957, to receive 43 percent of the total funds for military
and nonmilitary aid.
There is the view that the United States has devoted too large an
amount to military assistance and that a variety of adverse conse-
quences have flowed from this action. Without attempting to prove
or disprove this thesis, it does appear that the results of the policy-
formulation process could easily contribute to such a situation or at
least seem inadequately to protect against it. Country policies pro-
posed by the National Security Council and approved by the Presi-
dent are stated in very general terms. These policies do not indicate
priorities among countries nor provide sufficient guides for scheduling
the pace of military aid. Frequently, no mention is made of force
objectives (military goals and ultimate force levels to be maintained),
the type of aid, or the rapidity with which the goal should be achieved.
The Joint Chiefs of Staff develop force objectives for each country
on the basis of these broad National Security Council policies. The
force objectives, coupled with the pressures within the Joint Chiefs of
Staff to give each service an equitable share, are said to create rigidity
and consequent waste in the programing of aid. The services vie with
one another for foreign-aid allocations, partly because through them,
consistent with the letter and to a large extent the intent of the law,
they have been able to finance the acquisition of modern equipment
by granting foreign countries older models at prices based on replace-
• See above, ch. II.
508
FOREIGN ASSISTANCE PROGRAMS
ment cost, using the credits thereby obtained from the foreign-aid
appropriation to purchase new equipment.
There is some evidence to support the view that the Joint Chiefs of
Staff estimates of the military forces required to carry out stated
United States security objectives result in estimates of required United
States assistance greater than the United States appears willing to
support, even if it is conceded that the United States could support
such levels of assistance without serious strain on its economic re-
sources. Although these assistance requirements are subsequently
scaled down, the level and composition of military forces that the
United States desires to see supported, when taken together with the
nonmilitary requirements of the recipient country, frequently tend to
push the latter toward the outer limits of its economic capability.
Part of the problem may take the form of insufficient funds for
economic assistance, within the limits of current appropriations, with
which to supplement the local resources available to meet minimum
defense levels. In that event, the question whether the United States
should scale down its military assistance or accept the consequences
of involvement in the possible economic collapse of the recipient
country is one that should be consciously faced and requires decision
at the highest policy level.
There is, on the surface, agreement among the interested agencies
on force objectives for all but a few countries. But this agreement
has not always been exposed to a careful, orderly, and thorough con-
sideration, by agencies outside of the Department of Defense, of the
political and economic, as well as the military, factors that should
appropriately be weighed before such a policy has been decided upon.
In addition, it should be noted that force objectives are not static but
are subject to change and therefore need continuing reassessment.
It should be recognized that there are many problems involved here
besides the questions that are discussed in this chapter. There are,
for example, the difficulties inherent in the substantive issues them-
selves. On the administrative side, there are many aspects of the
problem of how to achieve effective communication between the mili-
tary and nonmilitary organizations that cannot be examined in a
report of this scope. This applies, for instance, to the much-debated
process, involving both military and civilian personnel, by which
military planning and operations are carried on. These questions
extend far beyond the limits of this study and cannot be examined
here in any detail.
Regarding the choice of a central coordinator, a strong case can be
made that the Secretary of State now has this responsibility. But
because of the ambiguity of the law, the generality of policy direc-
tives, and the traditional resistance of an executive department to
being coordinated by another department, the task of coordination is
not being adequately performed, and the Secretary of State is not
clearly accountable for the consequences. Part of the difficulty seems
to lie in the fact that the Secretary of State has delegated to the
Director of the International Cooperation Administration the func-
tion of general coordination of military and nonmilitary assistance,
largely in connection with the function of determining the value of
military-assistance country programs.
Although the Director of the International Cooperation Admin-
istration is charged with carrying out these functions, subject to
FOREIGN ASSISTANCE PROGRAMS
509
consultation with the Secretary of Defense and the concurrence of
the Secretary of State, some officials of the Department of Defense.
are less disposed to be coordinated by the International Cooperation
Administration than by the Department of State. There are sharp
differences between certain Department of Defense and International
Cooperation Administration conceptions of the role of the Interna-
tional Cooperation Administration in determining the value of mil-
itary assistance. Some officials of the Department of Defense give
a literal interpretation to the word "value," whereas International
Cooperation Administration officers at the program review level are
sometimes said to act on the basis that its meaning extends to the con-
tent of assistance programs. It is clear that coordination would con-
tribute little to the maintenance of balanced programs if it did not
affect the content of military programs.
In considering this issue, there are four basic alternatives to be
considered:
1. To designate a special assistant to the President as the principal
coordinator;
2. To assign this function to the Secretary of State;
3. To assign the function to the director of an economic-assistance
agency possessing a significant measure of independence; or
4. To rely upon negotiation among agency heads on a basis of
virtual equality.
Special assistant to the President
The first alternative, reliance upon a special assistant to the Pres-
ident, emphasizes the need for placing the coordinator above the de-
partmental level. This official might be charged with coordinating
responsibility solely within the foreign-assistance field or, as some
propose, within the whole area of foreign policy. The advocates of
this suggestion usually urge that the individual appointed to this
post be a person of outstanding ability and stature and be vested with
sufficient authority to act on behalf of the President so that he may
be effective in influencing the heads of executive departments and
agencies.
In
Presumably, the assistant might exercise the authority to approve
country programs and, to the extent allowed by the Congress, to al-
locate funds to the operating agencies. This would entail staffing
the assistant's office for field and headquarters review of existing
policies and programs. He would normally attend meetings of
the National Security Council and possibly also the Cabinet.
order to minimize conflicts between him and the heads of agencies
concerned, a high-level interagency committee, with the assistant
as the chairman, might be established to advise him on important
matters, subject to his decision. He would normally act with the
concurrence of the committee, but means should be provided for ap-
peal to the President, perhaps through the National Security Coun-
cil. A close parallel to this alternative is found in the former posi-
tion of the Director for Mutual Security, in the Executive Office of
the President, who was also responsible for directing the Mutual
Security Agency.
The strongest argument for this alternative is based on the premise
that only someone above the departmental level can exercise the au-
thority required for effective coordination of military- and economic-
510
FOREIGN ASSISTANCE PROGRAMS
aid programs. Because it does not seem likely that these programs
will be administered by a single agency, it can be argued that the
function of coordination must be raised to the Presidential level.
Moreover, there is the possibility that such an assistant would have
greater stature and thus could provide stronger leadership for the
foreign-assistance program than now appears possible under the
present arrangements.
This alternative is opposed by the doctrine that the responsibility
of the Department of State embraces the totality of foreign relations
and operations. The Department of State must be concerned not
simply with the political implications of foreign assistance but with
the total impact of assistance, direct and indirect, and therefore with
the coordination of all elements. It can also be argued that staff
assistants to the President should be anonymous and detached from
operational responsibilities, and that the establishment in the Execu-
tive Office of units that wield strong supradepartmental operational
authority is bound to create conflict. This would lead to the interpo-
sition of the assistant between the President and Cabinet members
on matters that are vital to the executive departments.
Such a post would also create a problem of coordination within the
Executive Office itself, for example, by creating confusion with respect
to the role of the Bureau of the Budget in reviewing estimates relating
to foreign assistance. Furthermore, if the assistant were to develop a
basis for independent judgment, he would require a sizable staff, which
might duplicate that of the departments and agencies being coordi-
nated. Finally, if the assistant were to be placed in charge of the
economic assistance agency, he would be exposed to a conflict of inter-
est that would jeopardize his neutral status as an assistant to the
President.
Secretary of State
The Secretary of State, it is argued, is in a key position to coordi-
nate military and economic aid programs. He is the President's
"channel of authority within the executive branch on foreign policy,"
and, when the Secretary of Defense advises and assists the President
"in the formulation and control of military policy," he does so "within
the framework of foreign policy." It is extremely difficult, if not
impossible, for a staff assistant to the President to equal the status of
the Secretary of State, particularly if the Secretary withholds his sup-
port. Perhaps the closest parallel to this alternative was the short-
lived experiment with the designation of the Secretary of State, in
1950, as the chief coordinator of all foreign assistance programs. The
Secretary is presently charged with the coordination of the military
and economic-assistance programs, but he has delegated most of this
responsibility to the Director of the International Cooperation Ad-
ministration.
Military officials are accustomed to accepting policy guidance from
officials of the Department of State. In order to encourage acceptance
of the coordinating role of the Secretary, consideration might be given
to reestablishing the position of Under Secretary for Economic Affairs
and transferring to it the functions of the Director of the International
• Memorandum by the President regarding the reorganization of the executive branch
for the conduct of foreign affairs, June 1, 1953, Mutual Security Legislation and Related
Documents, International Cooperation Administration (December 1955), p. 97.
FOREIGN ASSISTANCE PROGRAMS
511
4
Cooperation Administration and of the Deputy Under Secretary for
Economic Affairs, a proposal discussed earlier in this report. The
program and planning staff of the International Cooperation Adminis-
tration might then be combined with the office of the special assistant
to the Under Secretary of State for Mutual Security Affairs in the
Department of State, thus strengthening arrangements for achieving
an integrated view of foreign assistance and eliminating the confusion
now produced by the existence of two coordinating centers through
which the Department of Defense may seek approval of military
programs.
One argument made against reinforcing the coordinating role of
the Secretary of State is that he represents a claimant agency and
should not be placed in a position of control over other claimants.
Related to this is the view that political officers in the Department of
State tend to use assistance as an instrument of day-to-day diplomacy
and thus undermine its long-range value to United States foreign
policy.
Another argument is that active assumption of coordinating re-
sponsibility would involve the Department of State in "operational"
functions for which it is ill-fitted, and which could impair its func-
tioning as a "policy" agency and as an adviser to the President. This
view seems to be weakened, however, by the fact that there is no clear
line between "policy" and "operations." The Department has "op-
erated" the consular service since its earliest origins and has been
involved, to some degree, in all aspects of foreign assistance.
A final point against this alternative is the difficulty encountered by
the Secretary of State in 1950 in exercising coordinating responsibili-
ties with regard to other departments. This arrangement was super-
seded by the appointment of the Director for Mutual Security in the
Executive Office of the President.
Director of foreign assistance agency
5
The alternative of assigning the chief coordinating responsibility to
the director of the principal agency charged with administering for-
eign economic assistance is based primarily on the precedents of the
roles played by the Directors of the Foreign Operations Administra-
tion and the present International Cooperation Administration. Both
arrangements have been described earlier in this study. In the first
case, the Director of the Foreign Operations Administration had the
independent status of a Cabinet official and attended meetings of the
National Security Council in his own right. In the second instance,
the Director of the International Cooperation Administration is
clearly subordinate to the Secretary of State from whom he has re-
ceived his authority to coordinate the military and economic assistance
programs.
Perhaps the principal argument in behalf of this alternative is that,
at best, it places in the coordinating position an official who is prepared
to give the matter his primary attention, who is intimately acquainted
with the problems of foreign assistance, and can most readily put co-
ordinating directives to work in the economic assistance agency, which
is under his immediate control. Furthermore, despite the difficulty
of distinguishing between "policy" and "operational" functions, this
• See above, ch. IV.
* See above, ch. 11.
512
FOREIGN ASSISTANCE PROGRAMS
approach is favored by those who wish to rid the Department of State
of what they conceive to be "operational" activities.
There are, however, particularly strong considerations ranged
against this proposal. The director of an administering agency has
a special interest, which is always in potential conflict with the co-
ordinator's role. Moreover, an administering director who does not
have the status of a special assistant to the President, as did the Direc-
tor for Mutual Security, is placed on the same, or a lower, level than
the other departments and agencies that he must attempt to coordi-
nate. What is more difficult, he lacks the powerful status of the Secre-
taries of State and Defense whom he is supposed to influence. If this
was true of the Director of the Foreign Operations Administration, it
is even more true of the Director of the International Cooperation
Administration.
Negotiation among equals
When the Economic Cooperation Administration was created, no
provision was made for any chief coordinator, short of the President
himself, to gear the activities of the Economic Cooperation Adminis-
tration and the Department of State together. The Administrator of
the Economic Cooperation Administration was simply directed to
"consult" with the Secretary of State on matters of foreign policy.
This was an arrangement based fundamentally on negotiation between
equals.
Those who favor this approach point to the fact that it worked with
demonstrable effectiveness. Its success is usually attributed to a num-
ber of factors: the caliber of the men involved, the strong support
given the new program, the clear and generally accepted mandate of
the Economic Cooperation Administration, the absence of adequate
staff and experience within the Department of State to cope with the
task, and the temporary nature of the program. Today, as before,
there are those who say that there is too much coordinating machinery
and that, given good administrators, most of that machinery could be
discarded.
The opposite view is supported by the fact that the system of
negotiation among equals did not survive for long, especially after
a major military assistance program was erected beside the economic
program. The administration by independent agencies of programs
that must, by their very nature, be closely coordinated, inevitably
gives rise to conflicts that require well-organized attention at high
levels. Hence the need for some kind of central coordination. What
specific devices are utilized depends upon the arguments already
cited with respect to the other alternatives.
CHOICE OF INTERDEPARTMENTAL COMMITTEES
Another instrumentality that has been called into play to help
achieve coordination in the foreign assistance field is the interde-
partmental committee. Again, as the earlier historical review indi-
cates, the range of experience has been wide indeed. Committees
have varied significantly in mandates, membership, level, and rela-
tionships with regard to individual coordinators. At the present
time, the principal channels for coordinating military and economic
assistance are those associated with the National Security Council,
FOREIGN ASSISTANCE PROGRAMS
513
including the National Security Council Planning Board and the
Operations Coordinating Board. Although these arrangements per-
haps represent some progress, as compared with their predecessors,
there are grounds for saying that there is still no adequate coordinat-
ing forum for considering the foreign assistance program as a whole.
This experience gives rise to the present issue: What interdepart-
mental committee structure and process would be most useful in
helping to achieve coordination of military and economic assistance?
There are four main alternatives to be considered:
1. To adjust the National Security Council procedures to serve
this purpose,
2. To look to the National Security Council Planning Board to per-
form this function,
or
3. To adapt the Operations Coordinating Board for this purpose,
4. To create a new committee to deal solely with foreign as-
sistance.
National Security Council
The National Security Council is more than the usual interde-
partmental committee in that the President himself is both a mem-
ber and the chairman. It is a kind of special cabinet to deal with
the broadest issues of national security, particularly those that re-
quire coordination of the Departments of State and Defense. It
should also be remembered that the National Security Council has
no authority to make final decisions but is advisory to the President.
At the present time, it is the National Security Council that sets
the basic course of the foreign assistance program as part of the
process of formulating national security directives, frequently in
terms of specific countries or regions. The Council also engages in
a broad review of foreign assistance when it examines annual prog-
ress reports from various departments and agencies, including the
Departments of State and Defense and the International Coopera-
tion Administration. Papers concerning basic policy questions are
normally prepared under the direction of the National Security
Council Planning Board, which is composed of high-ranking policy
planning officials in the same departments and agencies that are repre-
sented on the Council. The bulk of the staff work is performed by
departmental personnel supplemented by the small professional staff,
numbering approximately 10, that is attached to the National Security
Council. Once a directive has been approved by the President, the
Operations Coordinating Board has the responsibility of bringing
operating officials together to see how that directive may best be exe-
cuted.
One of the principal factors that bear upon the appropriateness of
the National Security Council to coordinate foreign military and eco-
nomic assistance is the problem of the degree of specificity to be incor-
porated in National Security Council directives. Those who are most
critical of the existing procedure claim that the present directives are
not focused as sharply as they should be and, therefore, give the inter-
ested departments and agencies excessive freedom to interpret the
provisions to suit their respective interests. It can be argued that it
does little good from an administrative standpoint for the National
Security Council to cast its policy formulation in such general terms.
514
FOREIGN ASSISTANCE PROGRAMS
It is reported that the National Security Council often dilutes its
policy recommendations so that all its members may agree to some-
thing that can be presented to the President for approval. Such a
practice can be interpreted as an evasion of responsibility and a mis-
use of the coordinating process, with consequent damage to program
and policy objectives.
The National Security Council should aid the President in identify-
ing and settling policy differences, not in obscuring such differences.
The President, it might be said, should either issue more sharply
defined policy guides before delegating the task of administrative
coordination or should be prepared to deal directly with the numerous
conflicts involved in the operational process if he continues to approve
policies as general as those now customary. To issue general policy
directives and to delegate responsibility for coordination is to encour-
age friction in the coordination process, to limit unduly the possibility
of delegating substantial authority to the field, and to jeopardize the
ability of the assistance program to achieve its objectives in those
countries where a combination of political and economic stability and
strong defense forces is most vital to the security of the United States.
A related basis for criticism of the National Security Council is the
fact that its agenda is so crowded with crucial policy questions that it
can devote relatively little attention to foreign assistance. Neither
the members of the Council nor its staff have the time or the back-
ground to devote to the program the kind of analysis that is sufficiently
long-range, profound, and comprehensive. Furthermore, the Na-
tional Security Council faces the same difficulty in striking a balance
between military and nomilitary considerations that confronts every
other coordinating arrangement in this field. The military have
tended to have the advantage because their proposals for force objec-
tives have been said to be based on truly professional, objective, and
scientific analysis, because the Joint Chiefs of Staff have a secure
statutory basis and usually maintain a strongly unified position, and
because the military viewpoint seems to be less vulnerable to criticism
by the Congress and the general public.
On the other hand, in defense of the present procedures of the Na-
tional Security Council, it can be said that the Council has the vital
responsibility of advising the President on all matters affecting the
national security, that it is already overburdened, and that this
situation would be aggravated if it attempted to formulate for-
eign assistance policies in more detail. It must also be remembered
that the National Security Council was never intended to become in-
volved in the details of administration but rather to establish funda-
mental guidelines for such administration. Other channels, such as
the Operations Coordinating Board, have been created for the express
purpose of translating National Security Council directives into more
specific programs for action. If, moreover, the National Security
Council were to attempt to build up its own staff to engage in detailed
policy planning, it would undoubtedly encounter resistance on the part
of departments and agencies that might feel that their own staffs were
being duplicated or superseded.
It should be noted, however, that "generalism" and "dilution" are
by no means synonymous. Although policies may be stated generally,
there is no need for them to be diluted by an attempt to accommodate
FOREIGN ASSISTANCE PROGRAMS
515
basically divergent views within the same policy statement. If a
general policy statement is clear and if the delegation of responsibility
for the implementation of programs to carry out that policy is clear,
friction and confusion in the administration of the aid program can
be avoided or at least reduced.
As for the problem of weighing military against nonmilitary views,
the performance of the National Security Council indicates that it
has made important advances in this field. Although much remains
to be done along these lines, the matter cannot be dealt with, as ex-
plained earlier, simply through changes in the structure and proce-
dures of the National Security Council.
National Security Council Planning Board
The second alternative is the possibility of placing chief reliance
on the National Security Council Planning Board, under the general
direction of the National Security Council, as the principal inter-
departmental forum for coordinating foreign military and economic
assistance. The Planning Board is already involved in these matters,
but there is the possibility that it might be made to operate more effec-
tively than at present. The board is composed of policy-planning
officials, at approximately the assistant secretary level, drawn from
the departments and agencies that are represented on the National
Security Council. The principal function of the board is to direct
the preparation of policy papers for the National Security Council.
The arguments concerning this alternative are closely akin to those
just cited regarding the National Security Council, and this discussion
will concentrate primarily on the unique characteristics of the board
in contrast with other units, particularly the parent council. One
peculiar advantage of the board is that it is composed of very able
chief planners who are capable of dealing competently and authorita-
tively with the most complex and comprehensive problems of foreign
policy. Furthermore, they are in a strategic position to harness to
their studies the best staff resources available in their respective depart-
ments and agencies.
On the other hand, not every member of the board is the key planning
official of his department or agency with regard to foreign assistance.
Moreover, the board is not solely, or even primarily, concerned with
foreign assistance. It is also subject to most of the same criticisms
that have been voiced against the National Security Council with
regard to the volume and character of its burdens, the difficulty of
achieving specificity in its papers, and the problems involved in coor-
dinating military and nonmilitary planning.
Operations Coordinating Board
A third alternative would be to look to the Operations Coordinat-
ing Board as the chief center for coordinating military and economic
assistance. As described earlier, the Operations Coordinating Board
has essentially the same representation as the National Security Coun-
cil, but at the under secretary rather than the secretary level. More-
over, its chairman has been the Under Secretary of State instead of a
representative of the President. Below the Operations Coordinating
Board there is a group known as the board assistants as well as a large
number of working groups organized on an area and functional basis.
94413-57-34
516
FOREIGN ASSISTANCE PROGRAMS
The principal function of the Operations Coordinating Board is to
facilitate coordinated action in the execution of approved National
Security Council policies. The discussions of the Operations Coordi-
nating Board are focused largely on outline plans of operations and
progress reports, brought up to date every 6 months, as well as weekly
status reports and special papers.
Among the advantages that can be cited in support of this alterna-
tive is the fact that the Operations Coordinating Board is compelled
by its mandate to concern itself with translating broad objectives into
administrative programs that are more sharply defined than are those
dealt with by the National Security Council or its Planning Board.
Furthermore, those who comprise the Operations Coordinating Board
and its subgroups are departmental and agency officials who are most
strategically located to direct the course of foreign assistance opera-
tions. Finally, those who believe that the Secretary of State should
be the chief individual coordinator favor the arrangement whereby
the Under Secretary of State has been the Chairman of the Opera-
tions Coordinating Board.
It should be remembered, on the other hand, that the Operations
Coordinating Board cannot be expected to resolve interdepartmental
conflicts over the more fundamental policy questions that are dealt
with by the National Security Council Planning Board and the
National Security Council unless the mandate of the Operations Co-
ordinating Board is to be altered, and then there would be a danger of
increased overlapping with the Planning Board. Even within the
limits of the present jurisdiction of the Operations Coordinating
Board, however, there is some criticism that it has not developed suffi-
ciently rigorous standards or methods to have a really significant im-
pact on the departments and agencies whose operations it is attempt-
ing to coordinate. It is also possible to apply here some of the same
general criticisms that were leveled against the National Security
Council and the Planning Board.
A new committee
A fourth alternative is the creation of a new committee that would
be devoted exclusively to the coordination of foreign military and
economic assistance. It would be composed of high-ranking repre-
sentatives of the departments and agencies most directly concerned,
primarily the Departments of State and Defense and the agency
chiefly responsible for administering foreign economic assistance.
Presumably, whatever official is designated chief coordinator would
control the chairmanship, and the committee would be advisory to him.
The committee would be subject to the general National Security
Council directives approved by the President and could be established
in a position either parallel, or subordinate, to the National Security
Council Planning Board but would not displace it.
There are several precedents for this suggestion. One is the For-
eign Military Assistance Coordinating Committee, discussed in chap-
ter II of this study, which was composed of representatives of the
Departments of State and Defense and the Economic Cooperation
Administration, with the member from the Department of State hold-
ing the chairmanship. Another precedent is the International Security
Affairs Committee, which included the same representation, plus a
member from the Department of the Treasury, and the chairmanship
FOREIGN ASSISTANCE PROGRAMS
517
was again controlled by the Department of State. This unit was later
superseded by the Mutual Assistance Advisory Committee, containing
the same representation as the International Security Affairs Com-
mittee and chaired by the Director for Mutual Security at the level of
the Executive Office of the President.
At the present time, there is a similar arrangement, on a very limited
and informal basis, whereby officials at the Assistant Secretary level,
who are concerned exclusively with foreign assistance within the De-
partments of State and Defense and the International Cooperation
Administration, meet with a representative of the Bureau of the Bud-
get to agree on the budget presentation of the foreign-assistance pro-
gram. This group reviews major policy questions, such as those re-
lating to force objectives, that arise in the preliminary consideration
of budget estimates by interagency working parties organized on a
regional basis. This review via the budget process is worthwhile, but
it does not delve very deeply into questions of fundamental policy on
which the budgets are based and is not recognized as a continuing
policy-formulating process.
A new interagency committee, devoted exclusively to foreign assist-
ance, might provide a mechanism for resolving basic policy differences
and for evaluating prevailing policies more exhaustively than at
present. The committee would be composed of individuals who would
be well placed to perform this function effectively and would be di
rectly advisory to the chief coordinator.
A principal argument against this proposal is that several coordi-
nating committees already deal with parts of the problem. Another
consideration is that a new committee might find it necessary to create
subcommittees that would be likely to duplicate, at least in part, the
membership of the Operations Coordinating Board committees.
Others feel that such a committee would have too narrow a focus and
hence would not integrate foreign-assistance planning sufficiently
with other aspects of foreign political, economic, and military policy.
COORDINATION OF FOREIGN ASSISTANCE WITH OTHER ASPECTS OF FOREIGN
ECONOMIC POLICY

It is clear that the objectives and methods of foreign assistance are
closely related to other facets of foreign economic affairs such as for-
eign trade, transportation, foreign investment, monetary policy, and
overseas agricultural surplus disposal. But a wide dispersal of respon-
sibilities among a number of separate departments and agencies, most
of which have strongly competing domestic interests, has made the
coordination problem in this field particularly acute. At the highest
level, these difficulties are reflected in a proliferation of interdepart-
mental committees, all of which overlap and compete with each other
to some degree.
This problem is intimately related to the two previous issues. Some
of the agencies, officials, and committees that were discussed above are
also involved in this issue, but the focus is different. The center of
interest above was the examination of arrangements for coordinating
various aspects of the foreign-assistance program. The objective here
is to consider the coordination of foreign assistance with other forms
of foreign economic policy. It is neither desirable nor feasible to at-
tempt to explore in this report the appropriateness of existing coor-
518
FOREIGN ASSISTANCE PROGRAMS
dinating arrangements to deal with the substantive aspects of foreign
economic matters other than foreign assistance.
The issue is, What interdepartmental arrangements should be uti-
lized to assist in achieving coordination between foreign assistance
and other foreign economic activities? The alternatives to be con-
sidered are:
1. To continue the existing arrangements for coordination;
2. To place primary reliance upon the National Advisory Council
on International Monetary and Financial Problems as the principal
interdepartmental forum for this purpose;
3. To place primary reliance upon the Council on Foreign Economic
Policy under the chairmanship, as at present, of a special assistant to
the President; or
4. To place the National Advisory Council and the Council on For-
eign Economic Policy, or a single committee combining these two,
under the chairmanship of the Secretary of State or his representative.
Preservation of existing arrangement
The present pattern of Cabinet-level coordination is one of responsi-
bility shared primarily by two main committees, the National Advis-
ory Council on International Monetary and Financial Problems and
the Council on Foreign Economic Policy, on a basis of virtual equality.
The National Advisory Council on International Monetary and Fi-
nancial Problems deals chiefly with international lending and mone-
tary policy, while the Council on Foreign Economic Policy concen-
trates largely on commercial policy. There is also the Inter-Agency
Committee on Agricultural Surplus Disposal, commonly known as
the Francis committee, which is less active than the other two and
tends to be overshadowed by the Council on Foreign Economic Pol-
icy. A subgroup of that committee, the Inter-Agency Staff Com-
mittee, is the center of most high-level coordination regarding agri-
cultural surplus disposal. Moreover, the National Advisory Council
on International Monetary and Financial Problems and the Council on
Foreign Economic Policy are subject to the approved policies pre-
pared by the National Security Council and have submitted some ques-
tions, which seemed closely related to strategic matters, for clearance
through National Security Council channels. It should also be kept
in mind that, below the Cabinet level, there are approximately 56
other committees and subcommittees concerned with various special-
ized aspects of foreign economic policy.
The chief defense of the present pattern is that it represents the
accumulation of experience and gives recognition to some of the
strongest departmental interests that have emerged in the foreign
economic field. The existing committees represent certain clusters of
departments and agencies that are concerned with specialized aspects
of foreign economic policy and that have adjusted to this particular
organizational framework as a means of performing their peculiar
functions.
The emphasis on dispersal, equality, and voluntary cooperation
among these committees reflects the desire of departments, such as the
Departments of the Treasury and Agriculture, to play a dominant
role in coordinating those matters for which they have been assigned
major responsibilities. The concern of the Department of the Treas-
ury that the chairmanship of the National Advisory Council on Inter-
FOREIGN ASSISTANCE PROGRAMS
519
national Monetary and Financial Problems should be held by the
Secretary of the Treasury is an example of this attitude, which is
shared by many, if not all, departments and agencies. Furthermore,
the interlocking membership of the existing committees facilitates
coordination among them. A final defense of the present arrange-
ment is the argument that it exists and that it should not be altered
unless there appears to be a very strong reason to justify the inevitable
disturbance that would be precipitated by any fundamental change.
One of the disadvantages of the existing pattern is that the dispersal
of responsibility probably requires more coordination at a still higher
level than would be likely if there were some amalgamation of these
committees. Although many of the officials attached to the existing
committees claim that the need for such coordination is not a serious
problem, it is apparent that the committees represent different foci of
interests and that those who are dominant within one committee are
likely to be opposed by those who are dominant in another. The
struggle between the Departments of State and the Treasury over
the chairmanship of the National Advisory Council on International
Monetary and Financial Problems is one manisfestation of a conflict
that persists to this day.
Another criticism of the current arrangement is that the Council
on Foreign Economic Policy has not concerned itself with as broad
a range of problems as its name would seem to call for and has not
exercised as bold or as active initiative as it might. The Council on
Foreign Economic Policy has seemed to be guided by the doctrine
that it is not within its mandate or staff resources to try to lead the
way and that its major function is to serve as a court of appeals.
Finally, there is the position that both the National Advisory Council
on International Monetary and Financial Problems and the Council
on Foreign Economic Policy are not sufficiently in tune with the broad
objectives of United States foreign policy and that it would be advis-
able to place them more directly under the control of the Department of
State. The merits of this thesis will be discussed in connection with
the fourth alternative under this issue.
Reliance upon the National Advisory Council on International Mone-
tary and Financial Problems
The National Advisory Council on International Monetary and
Financial Problems was established by the Congress in order to coordi-
nate the policies and operations of the representatives of the United
States on the International Monetary Fund and the International
Bank, and of all agencies that participate in making foreign loans
or which engage in "foreign financial, exchange, or monetary trans-
actions." Thus, the National Advisory Council on International
Monetary and Financial Problems was given powers considerably
broader than merely those of bringing together governmental views
for the guidance of the United States representatives on the fund
and the bank. Other subjects reviewed have included the foreign-
loan program, the British loan agreement, Export-Import Bank
credits, and German financial problems. Also, the Foreign Assistance
Act of 1948 directed the Economic Cooperation Administration to act
in consultation with the National Advisory Council on International
Monetary and Financial Problems with respect to the nature and
terms of foreign assistance activities.
520
FOREIGN ASSISTANCE PROGRAMS
In addition to the already broad interests and responsibilities of
the National Advisory Council on International Monetary and Finan-
cial Problems, a further argument in favor of expanding its authority
is that its operation is generally considered to be efficient. From the
beginning, it has had top-level representation from the constituent
agencies. The specialized basis on which it has been developed, how-
ever, has created opposition to expanding it to carry out general
economic coordinating responsibilities. It is contended that the
changes in membership and outlook required to adapt the National
Advisory Council on International Monetary and Financial Problems
to a more general role in economic affairs would require its complete
reconstitution. Furthermore, there is resistance in some quarters to
giving the Department of the Treasury any additional influence in
the field of foreign economic policy.
Reliance upon the Council on Foreign Economic Policy
The Council on Foreign Economic Policy appears, at least on the
surface, to come the closest of any existing committee to being a gen-
eral center for dealing with all aspects of foreign economic policy,
including foreign assistance. In fact, the Presidential letter of July 10,
1955, designating the present Chairman of the Council on Foreign
Economic Policy, provided that he should-
assure the effective coordination of foreign economic matters
of concern to the several departments and agencies of the
executive branch.
On the other hand, the President added the qualifying words:
I shall expect you to establish appropriate working relations
with the National Security Council, the National Advisory
Council on International Monetary and Financial Problems,
and other relevant groups
***6
In practice, the Council on Foreign Economic Policy has confined
itself chiefly to matters affecting international trade and commodity
problems, and has acted more in a review than in an initiating capacity.
It has scrupulously avoided dealing with matters assigned to other
committees such as the National Advisory Council or the National
Security Council and its subordinate boards. It has had little to do
with foreign assistance except to consider certain issues affecting the
disposal of agricultural surplus commodities.
For the purposes of this analysis, it is assumed that placing primary
responsibility upon the Council on Foreign Economic Policy as the
principal forum for assisting in the achievement of coordination of
foreign assistance and other foreign economic activities would call
for a significant expansion of its jurisdiction, perhaps to the extent
of absorbing the National Advisory Council. This discussion does
not consider whether the Council on Foreign Economic Policy should
be brought into closer relationship with National Security Council
channels. This relationship now appears to be relatively effective
and is not at issue.
The chief argument in favor of this proposal is that it would bring
greater unity to a field that has long suffered from the effects of dis-
persal. The United States Government would be encouraged to look
• The White House, press release, July 10, 1956.
FOREIGN ASSISTANCE PROGRAMS
521
at foreign economic policy in its totality. There are also grounds
for the view that coordination of these matters can best be directed by
an official who stands above the departments and agencies to be co-
ordinated. The present Chairman has that status as special assistant
to the President.
Ranged against this suggestion, there is the possibility that the
establishment of a single coordinating committee might well arouse
more tensions than it would resolve because it would disrupt estab-
lished arrangements that have been reinforced by general acceptance
and that reflect certain strong departmental drives, which cannot be
ignored or suppressed. Such a committee, moreover, would have so
broad a mandate that it would be difficult for its members and staff
to include a wide enough range of experience and skills to deal with
it adequately. It would also be a problem to find sufficient time to
do justice to the many problems that would be submitted to the com-
mittee. Furthermore, few special assistants to the President have
achieved sufficient status and authority to compete with the heads of
some departments, such as the Departments of State and the Treasury.
Transfer of chairmanship to the Secretary of State
A fourth alternative would be to place all of the structure for co-
ordination of foreign assistance and other aspects of foreign economic
policy more directly under the guidance of the Secretary of State.
One approach would be to place both the National Advisory Council
on International Monetary and Financial Problems and the Council
on Foreign Economic Policy, or a single committee that would merge
these two, under the chairmanship of the Secretary of State or his
representative. The arguments would be essentially the same if the
chairmanship of only the National Advisory Council on International
Monetary and Financial Problems or the Council on Foreign Eco-
nomic Policy were to be transferred to the Secretary of State.
The chief precedent for this alternative is the Executive Committee
on Economic Foreign Policy, which was established under the chair-
manship of the Department of State in 1944. The Committee was a
major forum for the development of the charter for the proposed Inter-
national Trade Organization. Later it fell into disuse, largely because
of the competition of other committees and departmental interests.
other than those of the Department of State. It was officially termi-
nated in 1951.
One of the principal considerations that favor this alternative is the
fact that all foreign economic policy questions are related to general
foreign policy and therefore involve the Secretary of State. The
Secretary is charged with the broadest range of responsibilities in the
international field and plays a role in most deliberations regarding
foreign economic policy. Traditionally he has been thought to possess
preeminent stature among all of the Cabinet officers. Finally, there
are those who support this alternative because they want foreign
economic policy to be less subject to the influence of domestic pres-
sures, and they believe that the adoption of this proposal would have
this effect.
On the other side, those who favor the domestic interests involved
generally oppose this alternative. Moreover, it is pointed out that the
personnel resources of the Department of State do not equal, in ex-
perience or skill regarding certain specialized fields, those of other
522
FOREIGN ASSISTANCE PROGRAMS
departments and agencies. There is also the difficulty that the Sec-
retary of State has had in attempting to coordinate other departments,
which is cited as a reason for placing the leadership responsibility in
the hands of an official who stands above the Cabinet level, such as a
special assistant to the President. Finally, this alternative is criti-
cized on various other grounds that were cited above in defense of
the first three alternatives.
COORDINATION IN THE FIELD
The detailed problems connected with organization at the field level
for the administration of foreign assistance lie beyond the scope of this
study. Nonetheless, it is relevant to discuss some aspects of the co-
ordination process in the field because they are related to coordination
at headquarters.
First, however, it may be useful to examine briefly the division of
responsibility between Washington and the field. The relationships
between home offices and field offices of agencies occupied with foreign
assistance affect the coordination of the assistance programs at both
levels. The suggestion recurs that the solution to problems of general
coordination is to be found in better coordination of planning and
execution in the field. This involves the persistent question of the
extent to which action and policy authority is, or should be, delegated
to the field.
Experience suggests that planning and programing can be more
easily brought into harmony in Washington if there is effective inte-
gration within the overseas missions. The prospect of harmony in the
field has been reinforced by the experience of many par.icipants in
overseas programs who have gone from the vast complexity of Wash-
ington to the comparative simplicity of the field, where the need and
possibility of coordination have seemed greater. The plausibility of
the country-team concept and the skill of many ambassadors in creat-
ing such cooperation suggest that much can be done along these lines.
If, however, the parent agencies are not in agreement, and know
they are not, there is little the field can do to resolve the conflicts.
Field officers can live with conflict for a time, by carrying out those
parts of their duties that are feasible and are not blocked by Wash-
ington directives. Nevertheless, their maneuverability is severely
circumscribed by lack of consensus at headquarters. This, in turn,
makes it difficult to negotiate effectively with other governments.
If there is to be fully coordinated planning in the field, moreover,
there should be roughly equivalent devolution of authority and re-
sponsibility to the field by the several home departments. Otherwise
the various field staffs are not in comparable positions to negotiate
among themselves or with foreign governments.
There is a widespread view today that the problems that are re-
ferred to the home offices for resolution are too petty and detailed.
Once raised in Washington, they are processed through the massive
and often cumbersome machinery that militates against quick answers.
The coordinating process becomes clogged with detail, while the field
waits for a reply. The chief reasons that are usually cited to justify
relatively strict control of country-level operations are that field offi-
cials are not sufficiently aware of all of the policy considerations that
must be taken into account and that they are frequently not of suffi-
FOREIGN ASSISTANCE PROGRAMS
523
ciently high caliber to be entrusted with greater discretionary
authority.
The opposing position is to delegate more authority to the field and
to see to it that only the most critical questions are referred to head-
quarters for resolution. Only such problems, it is argued, merit the
attention of high-ranking officers of the departments affected. Such
a procedure would concentrate coordination efforts on major policy
matters, free participant agencies from the burden of small matters
and delegate greater initiative to field staffs in intimate touch with
the operational end-problems of the assistance program.
Before a larger balance of authority and freedom of action can be
given to the field, however, there should be assurance that the country-
level organization and staffing are sound. All of these conditions de-
pend in large part on the position of the Ambassador with respect to
the various technical missions operating in the country to which he
is accredited. This fact underlies the issue to be considered here:
What should be the relationship between chiefs of diplomatic missions
and the personnel engaged in foreign assistance activities in the field?
Three courses of action merit exploration:
1. To increase the powers of the Ambassador with respect to the
chiefs of the major foreign assistance missions in his area;
2. To leave matters as they are; or
3. To increase the autonomy of the chiefs of such missions.
Increased authority for the Ambassador
In the earlier years of United States foreign-assistance programs,
there were numerous examples of the lack of coordination in the field.
Especially in the days of the Economic Cooperation Administration,
various chiefs of economic assistance missions exercised unusual auton-
omy by virtue of their personal stature, the funds at their disposal, and
the temporary and special character of the program. This situation re-
flected, in part, certain coordination difficulties in Washington. These
problems have been only partially ameliorated during the periods
of the Mutual Security Agency, the Foreign Operations Administra-
tion, and the International Cooperation Administration. Even today,
it is reported that some technical mission chiefs enjoy a large degree
of independence, buttressed, in some cases, by special relationships
within the host country.
The chief argument against increasing the ambassador's powers
today, especially his formal ones, is that he already has ample au-
thority. Strong pressure has been brought to bear in support of the
position of the Ambassador, and the administrative doctrine that con-
trols his role and powers has been firmly stated." Only the President
or the Secretary of State may transmit instructions to the Ambassador,
and all important policy communications are reviewed by him, al-
though the foreign assistance field staffs of Washington agencies
communicate directly with their Washington headquarters on most
of their business. To give the Ambassador greater power over such
communications would not be consistent with a location of important
aid functions outside the Department of State in Washington, because
such agencies could not control their own field missions. As it is, the
Ambassador has wide authority and even wider informal power to
'Executive Order No. 10575, November 6, 1954, 19 F. R. 7249.
524
FOREIGN ASSISTANCE PROGRAMS
influence both the personnel and the activities of missions in his coun-
try, although his power to coordinate is not equivalent to the power of
command.
The current instructions covering this matter are not as tight as
they might be, but they have been supplemented by Presidential
letter. Recent evidence suggests that the position of the Ambassador
is respected by technical mission chiefs, and the instructions are work-
ing satisfactorily in the opinion of a majority of the Ambassadors
themselves. As regional organizations have been deemphasized, the
powers and role of the Ambassador have been clarified and freed of
considerable complication. Accordingly, there is some basis for be-
lieving that there is no need to reinforce them.
A further argument against increasing the power of ambassadors
over technical missions is that few ambassadors really understand the
foreign-assistance program or are deeply interested in it. Moreover,
there is so much turnover among ambassadors that even those favor-
ably disposed often need more time to become familiar with the
program and its requirements. Tight control by the ambassador
might, in some cases, actually hamper assistance operations.
A variant of the general proposal to increase the powers of the
ambassador vis-a-vis technical mission personnel in the field is the
proposal to extend further the practice of combining the offices of the
economic counselor and the chief of the economic assistance staff of
the United States Operations Mission (or the deputy economic coun-
selor and the deputy chief of the mission). The effects are, of course,
intensified if the further step is taken of integrating major parts of
the economic staffs of the embassy and of the operations mission into
an economic analysis and program staff. The possibilities of coordi-
nating embassy and International Cooperation Administration func-
tions would probably be enhanced by a move in this direction, but
whether they would be realized would depend a good deal on the
personal capacities of the ambassador. In countries where Interna-
tional Cooperation Administration missions and functions are large,
a great deal of work is executive in nature, and may not call for the
same degree of professional economic competence that is required
for commercial policy, economic reporting, and trade promotion
work. The person equipped to deal both with a full range of Inter-
national Cooperation Administration problems and with economic
reporting and analysis problems is rare, and candidates must be
acceptable to both the Department of State and the International
Cooperation Administration. The posts in which there are genuine
possibilities for effective integration of leadership and of economic
staffs are relatively limited. And there is danger that either the
International Cooperation Administration functions or the embassy
functions may suffer as a result of the merger.
In any case, the combined organization in the field must respond
to two different sets of instructions from Washington stemming from
the Department of State and the International Cooperation Adminis-
tration. Attempts at integration at the deputy level also run into
difficulties in those posts where the International Cooperation Ad-
ministration functions are so demanding that a part-time deputy of
the operations mission will not suffice. The absence of formal inte-
gration of leadership and of staffs, however, does not preclude a high
FOREIGN ASSISTANCE PROGRAMS
525
degree of informal coordination. The major success with integration
of this nature took place in Europe after 1951, where assistance pro-
grams and personnel were reduced and the remaining staffs tended
to coalesce.
Retention of present powers of the ambassador
The ambassador's position as senior United States representative
now appears to be understood and accepted by both United States
agencies and host governments. No longer can aid mission personnel
exercise such wide negotiating power without ambassadorial knowl-
edge or supervision, and host countries have fewer opportunities to
play United States agencies off against each other.
Experience suggests that to leave the degree of ambassadorial con-
trol to the judgment of each ambassador, working within his formal
authority and the instructions of the President and the Secretary of
State, helps to insure that the kind of control he will exercise will be
congenial to his tastes and capacities and will be disciplined by his
sense of what he must do to carry out his function of governmentwide
representation. Additional powers granted to an ambassador unable
or unwilling to use them could be a dead letter or might even be a
positive hindrance if exercised.
Increased autonomy for chiefs of assistance missions
Another point of view cites the advantages of giving to the heads of
assistance missions more power than they now enjoy. One argument
favoring this alternative is that it might help in the recruitment and
retention of more top-flight persons as heads of such missions than is
now the case. Part of the attractiveness of such a position lies in wide
freedom to do a significant job, strengthening institutions and leaders
in collaboration with the host country. Ambassadorial supervision
or interference, exercised in the name of coordination but without
adequate technical information, might well be worse than no supervi-
sion at all. Some postwar experience suggests that assistance missions
can discharge important and sensitive tasks with a minimum of am-
bassadorial control. The technical cooperation, military aid, and
information missions have had considerable autonomy in the past.
The validity of the autonomous mission technique depends in good
part on the nature of the organization and control in Washington
itself. If primary responsibility for various segments of the overseas
assistance program is located in a variety of agencies, each with its
clear and independent responsibility, each agency tends to claim that
it should be represented in the field by its own independent arm,
Separate missions lend themselves to the particular personnel and
budgetary procedures followed in Washington agencies, and they
easily accommodate the differences in devolution of authority thought
proper by each agency in balancing foreign and domestic activities.
A more extreme argument for independence is that individual mis-
sions can take distinctive positions, justified in their particular fields
but unpopular in others, and thus avoid involving the United States
Government as a whole or its general representative.
It can be argued, however, that the foregoing advantages of dis-
persal are more illusory than real. No United States agency can take
an unpopular position without embarrassing the embassy or the
United States Government as a whole. Divergent approaches by
526
FOREIGN ASSISTANCE PROGRAMS
separate United States missions may cause confusion that offsets the
alleged gains in flexibility. Independent missions may cause frictions
and inefficiencies in operations, as demonstrated by the overlapping
activities of the Economic Cooperation Administration and Depart-
ment of State in economic negotiation and reporting. It is difficult to
make the most effective use of a variety of independent personnel.
Finally, conditions of crisis and stress in countries abroad impose a
large element of cohesiveness among all missions in a country, tending
to bring them not only within the coordinating, but also within the
command, structure of the country mission. Separateness in Wash-
ington does not mean that each field mission should be equally separate
in the field.
CHAPTER VII
THE PROBLEM IN PERSPECTIVE
This report has been concerned with the problem of what procedures
and organization would be most suitable for the administration of
future programs of foreign assistance: technical, economic, and
military.
The concluding analysis draws attention to the major issues that
confront the Congress in providing the basis for an effective program
of foreign assistance. They are questions that the Congress cannot
avoid if it is to encourage sound administration of this effort. No
attempt is made in this report to recommend the specific course that
the Congress should follow. To offer such guidance would require
a consideration of the findings and conclusions of other studies cur-
rently in progress and not yet available for study. To be wholly
relevant, such recommendations would also involve the anticipation
of congressional preferences regarding the objectives, scope, and dura-
tion of future assistance programs. Furthermore, to formulate such
recommendations might require additional research.
The principal administrative issues, as disclosed by the previous
analysis of past experience, center around four main issues: (1) the
degree of administrative discretion to be authorized; (2) the allocation
of responsibilities among executive agencies; (3) the utilization of
multilateral agencies; and (4) the coordination among executive agen-
cies. Within these broad areas are a number of subordinate issues,
the resolution of which will directly affect the future administration
of any assistance program enacted. While devoting special attention
to these principal issues, some of the important lessons of the past
are cited as background and for guidance in the consideration of
these problems.
ADMINISTRATIVE DISCRETION AND LEGISLATIVE CONTROL
An issue of fundamental significance is: Should the foreign assist-
ance agencies be given greater freedom from detailed legislative in-
structions and limitations concerning their programs and use of
funds? This issue embraces the essence of several closely related issues.
that were examined earlier. The basic question is whether congres-
sional policies will afford sufficient flexibility, continuity, and con-
sistency of program to furnish a sound basis for future administrative
arrangements.
Effects of limitations
The previous analysis has revealed some of the adverse effects of
past congressional directives intended to restrict the duration of the
program and to promote objectives different from, or only incidental
1 See above, ch. III.
527
528
FOREIGN ASSISTANCE PROGRAMS
to, the main purposes of foreign assistance. The legislation presently
in effect is a visible expression of the extent to which objectives once
relatively clear have been obscured by the incorporation of secondary
and divergent objectives. This has been facilitated by a lack of
consensus concerning the scope and purposes of the program.
The persistent uncertainty about the duration of the program has
hindered both staffing and programing. The results of authorizing
appropriations mainly on a 1-year basis have been compounded by
obvious evidences of widely held intentions not to authorize funds
again for some or all portions of the program. Furthermore, most
of the amount annually appropriated must be obligated during_ap-
proximately 7 or 8 months in the middle of the fiscal year, regardless
of the willingness or ability of the other governments concerned to
come promptly to terms on a basis satisfactory to the United States.
Limited periods of availability of funds and short-run financing have
generally created serious administrative difficulties.
The procedure by which an illustrative program is presented in sub-
stantial detail on a country-by-country basis, followed by lump-sum
appropriations for broad categories of assistance and large areas of
the world, is, in some ways, a wise adaptation to the nature and re-
quirements of the existing program. Even these illustrative program
presentations, however, have a substantial limiting effect on freedom
of negotiation in the pursuit of the objectives laid down by law. And
the broad categories of the appropriations have become so cross-cut
by limitations and specific instructions that the cost and complexity
of administration are considerably increased, while maneuverability
is reduced. The existing ceiling upon administrative expenditures is
especially unwise if a more careful job of programing is to be achieved.
Policy foundations for administration
If there is any lesson suggested by past experience that is relevant
to these questions, it is that the basic aims and methods of the program
should be as sharply delineated and as internally consistent as possible.
Subsidiary objectives that are written into the legislation should be
carefully reviewed to make certain that they are essential to the na-
tional interest and do not so conflict with the main purpose that they
threaten seriously to impede its fulfillment. And, if the program is
to be continued in any form, its authorization and financing should
be placed on a more long-term basis than at present in order to provide
a reasonable opportunity for effective administration.
Any program that attempts to advance United States objectives on
a basis of mutuality in widely variant country situations should be
characterized by great flexibility of approach. The necessary flexi-
bility can easily be destroyed when too many political, economic, and
procedural strings are attached to foreign-assistance authorizations.
Greater flexibility will also enable the administrative mechanism to
adjust to changing national and international conditions. The pres-
ent situation is no longer what it was in 1948, when the Economic Co-
operation Administration was being devised, or even what it was 5
years ago, after the outbreak of the Korean conflict, when the Eco-
nomic Cooperation Administration gave way to the Mutual Security
Agency. All present indications point to an extremely fluid and
changing international situation for some years to come, one that will
continue to make extremely grave demands on the resources of the
United States.
FOREIGN ASSISTANCE PROGRAMS
529
One proposal that has sometimes been suggested as a means of giving
the principal economic assistance agency greater freedom from tradi-
tional legislative and executive controls is to transform the agency into
a Government corporation. The weight of qualified opinion, however,
leans heavily to the view that there is little or nothing that can be
done through the device of such a corporation that cannot be done
with equal facility through the normal type of Government agency,
provided the Congress and the President are prepared to grant the
necessary authority.
ALLOCATION OF RESPONSIBILITIES AMONG EXECUTIVE AGENCIES
The most conspicuous administrative issues in the foreign-assistance
field are those relating to the structure and assignment of responsi-
bilities within the executive branch. These issues have arisen from
the complexity of the program itself and can be expected to be signifi-
cant as long as the program is a compound of technical, economic, and
military assistance, with important segments of each.
Authority over military assistance
2
One of these issues centers around the question: What authority
and responsibility for the military assistance program should be
vested outside the Department of Defense? At present, the Director
of the International Cooperation Administration, by delegation from
the President through the Secretary of State, exercises authority to
approve military assistance programs on a country-by-country basis.
His approval must also be given before the funds appropriated for
such assistance may be made available to the Department of Defense.
This authority can be examined, as indicated earlier, in terms of its
relation to the mechanisms for coordinating military and economic
assistance, its contribution to administrative efficiency in the pursuit
of program objectives, and its appropriateness in view of the basic
functions of the Departments of State and Defense. The evidence
indicates that this authority and the procedures surrounding it have
contributed substantially to effective coordination. Their effect on
administrative efficiency is less clear. Protection of the program
against narrowness and specialization associated with the particular
interests of the military services has been achieved at the cost of con-
siderable interdepartmental negotiation, leading to friction and delay.
The question of appropriateness turns on the issue whether foreign
military assistance should be governed within the framework of gen-
eral foreign policy or within the narrower framework of defense
policy. The President's delegation of this approval authority to the
Secretary of State was based on the assumption that foreign policy
should take precedence in guiding defense policy when military assist-
ance programs are to be carried out through other governments. This
study has revealed no basis for reversing this assumption.
Two proposals for changing the present relationships between the
appropriations for military assistance, defense support, and develop-
mental assistance were discussed above. It is apparent that the con-
siderations bearing on the choice between the present arrangement and
either of the proposals for change are numerous, complex, and not
• See above, ch. IV.
See above, ch. IV.
530
FOREIGN ASSISTANCE PROGRAMS
easily subject to appraisal. Much of the complexity arises from the
intermediate position of the defense support funds, which are justified
mainly on defense grounds but administered in close association with
other forms of economic assistance. This reinforces the widely held
view that there is a need to draw a sharper and more accurate boundary
than now exists between the military and economic assistance pro-
grams. This could be done, however, simply by means of clarification
within the present single appropriation act. There is no clear pre-
ponderance of evidence or argument that would support separating
the appropriations for military and economic assistance.
Status of economic assistance agency
Another issue that continues to be of major significance is: What
should be the relationship between the Department of State and the
agency primarily responsible for administering the economic aspects
of the assistance program, now the International Cooperation Admin-
istration? The administration of economic assistance, unlike that of
military assistance, has not thus far been clearly identified as an
appropriate task for any established executive department. For 10
years, the issues related to the existence and status of a foreign eco-
nomic assistance agency separate from the Department of State have
been under active debate, while various types of agencies-the Eco-
nomic Cooperation Administration, Mutual Security Agency, Foreign
Operations Administration, and International Cooperation Admin-
istration-have been tested. The experience of history and the anal-
ysis of this study provide some guidance for narrowing the range of
alternatives that would merit further consideration but do not lead to
a specific conclusion.
At one extreme, a complete merger of present International Coop-
eration Administration activities with the regular machinery and
operations of the Department of State would probably disrupt
certain segments of the Department while jeopardizing the assistance
program. At the other extreme, to endow the assistance agency with
great freedom from the foreign-policy direction of the Department
of State is to invite a serious conflict of policies. The proposed
Department of Foreign Affairs still has its advocates, but the earlier
analysis suggests that the Department of Defense is not necessarily
the best model for application in the foreign-affairs field.
There must be a close working relationship between the administra-
tors of foreign assistance and the officials concerned with the adminis-
tration of foreign policy, both at home and abroad. But what should
that relationship be? The practical range of choice extends from
an independent agency subject to policy guidance by the Department
of State, such as the Foreign Operations Administration, through
the present arrangement of semiautonomy within the Department,
to closer integration with the Department, perhaps by merging the
position of the Director of the International Cooperation Adminis-
tration with that of a new Under Secretary for Economic Affairs,
allowing the International Cooperation Administration organiza-
tion to remain unified within the Department. Considerations of
program scope, duration, and boldness of objectives-all of which
are presently being reexamined-would affect the choice.
Also relevant, and perhaps more likely to be decisive, are matters
of theory and attitude regarding the status and functions of the
FOREIGN ASSISTANCE PROGRAMS
531
Department of State as an executive department. For some years,
it has been argued repeatedly that the Department of State should
be accorded a special status, unlike that of any other executive
department; and that, as one aspect of this special status, it should
be free as far as possible from "operating" responsibilities in order
to permit it to function more effectively as a "policy" agency. This
whole complex of arguments was examined by the Brookings Institu-
tion in a report prepared in 1951, and the report concluded that "the
Department of State should continue to serve as the executive depart-
ment with general foreign affairs responsibility. Like other executive
departments, it should perform major policy and operating functions
within its own major purpose field." 4
The present tendency of the executive branch, however, has been
to divorce the Department as far as possible from operations, and to
develop it only as a policy agency. The transplanting of the Interna-
tional Cooperation Administration functions into the Department
was largely the result of congressional pressure and was accepted
only with reluctance. Thus, many questions will remain difficult to
settle until there is more agreement on the appropriate status and
role of the Department of State.
Integration of administration
Still another major issue is, How should primary responsibility
for the administration of technical and related economic assistance
be allocated? Quite different views are held on this subject, although
there is increasing agreement that primary responsibility for the
administration of technical and related economic assistance should
be centered in one integrated staff.
The decision, made in 1953 and reaffirmed in 1955, that economic
and technical assistance should be brought together in a single agency
with undisputed control of country programs has been justified by
experience. The foreign atoms-for-peace program of the Atomic
Energy Commission has been a major exception to this arrangement.
In this instance, it is clear that there is urgent need for decisive action
to settle current jurisdictional conflicts. The settlement might well
provide for the establishment of a relationship between the Interna-
tional Cooperation Administration and the Atomic Energy Commis-
sion similar to the present general pattern of relations between the
International Cooperation Administration and other agencies pro-
viding specialized technical services, as soon as it is ascertained that
this can be done without impairment of domestic atomic energy
programs.
The prevailing tendency, since 1948, has been toward a greater in-
tegration of foreign assistance activities. Military assistance has
been brought more fully under the control of the Office of the Secre-
tary of Defense. More and more, the other foreign assistance opera-
tions have been gathered into a single agency in which the administra-
tion of foreign assistance has been the primary function. Unity has
been further aided by the practice of consolidated budgets, authoriza-
tions, and appropriations. In examining any specific issue of allo-
• The Brookings Institution, The Administration_ of Foreign Affairs and Overseas
Operations (June 1951), p. 239. (Prepared for the Bureau of the Budget and published
by the Government Printing Office.)
94413-57-—————35
532
FOREIGN ASSISTANCE PROGRAMS
cation of function, the presumption should be in favor of integration
of functions until a strong case is made for dispersion.
The weight of experience also confirms the wisdom of making appro-
priations to the President and centering responsibility in him. Pro-
grams involving the basic responsibilities of the Departments of
State and Defense and also affecting other departments and agencies
are certain to pose many questions of high policy, not all of which
could be anticipated in legislation even if it were desirable to attempt
to do so. In view of the constitutional responsibilities of the Pres-
ident for the conduct of foreign relations and as Commander-in-Chief,
it is especially appropriate to let those questions go to the President.
This can occur most readily when statutory authorities are vested
directly in the President in the first instance and are fully subject
to his delegation. This has been the general pattern of the foreign
aid legislation, and one that it would be wise to continue as long as
such programs are necessary.
UTILIZATION OF MULTILATERAL CHANNELS
Another significant issue that continues to confront the United
States Government is, What should be the allocation of United States
resources and effort between bilateral and multilateral channels of
technical and economic assistance? In this study, the analysis of
this issue has centered primarily around economic and related tech-
nical assistance because there is no significant movement in the direc-
tion of increased multilateral administration of military assistance.
In the past, the American people have been more accustomed to the
bilateral than the multilateral approach because it has been the tradi-
tional pattern among all nations and because it was thought to be the
simplest and surest form of administering foreign relations. But,
as early as the First World War and especially during and since the
Second World War, the United States has come to place greater
emphasis on, and has often taken the lead in developing, the multi-
lateral approach. This has come about not because of sheer altruism
but because this approach offered concrete advantages in terms of
the national interest. The principal advantages have been the greater
receptivity on the part of recipient countries to multilateral activities
because they are less dominated by the policies of any single country,
and the greater possibility, through multilateral agencies, of sharing
the financial and personnel burdens associated with economic and
technical assistance among a number of countries.
A strong case can be made for maintaining and even increasing the
present level of United States support for multilateral programs. An
examination of the performance of existing international agencies
indicates that they have operated reasonably well within their present
limitations. The International Bank for Reconstruction and Develop-
ment has been particularly effective in laying a firm foundation for
the international financing of economic development and, in the proc-
ess, has managed to win the confidence of commercial and banking
communities throughout the world.
The United States has discovered the value of these international
operations by having participated directly in them during much of
the past decade. Furthermore, it has cost relatively little to support
the multilateral technical assistance efforts because the present finan-
FOREIGN ASSISTANCE PROGRAMS
533
cial requirements for that purpose are quite modest. Some estimates
of requirements for potential multilateral economic assistance are in
terms of larger amounts.
This issue is not an easy one to resolve, however, partially because
of the lack of clear political guidance regarding the substantive
nature of future United States assistance efforts and also because of
administrative difficulties reviewed earlier in this study.5 The opera-
tions of the United Nations Expanded Programme of Technical
Assistance are particularly subject to criticism because of the cen-
trifugal tendencies of the cooperating agencies, the inadequate coordi-
nating arrangements at the center, and the absence of effective pro-
graming on a countrywide basis. Multilateral organizations, in gen-
eral, have sometimes found it difficult to enforce rigorous standards
because the recipient countries are partners in the enterprise and
usually play a more decisive role than they would in bilateral opera-
tions. Finally, because it might be difficult for other donor nations
to match any significant increase in financial backing by the United
States, there is the possibility that such an increase would jeopardize
the multilateral character of these international programs.
COORDINATION AMONG EXECUTIVE AGENCIES
The general subject of coordination is one on which it is extremely
difficult to arrive at precise and broadly agreed conclusions. As indi-
cated earlier, the concept of coordination itself is an elusive one, and
the term is applied in a variety of ways in different contexts.
Designation of principal coordinator
One of the principal continuing problems revolves around the
question, What official should be assigned primary responsibility for
the central coordination of military and economic assistance?
Although the President has not always designated an official for this
purpose, experience suggests that the absence of an effective coordi-
nator tends to invite the deterioration of policy and operations that
can result from interagency conflict.
Ultimate coordinating authority must rest with the President.
Assisting him are staff officials and agencies that are intended to per-
form coordinating functions under his direction and authority without
special jurisdictional interests of their own. Finally, the heads of
executive departments and agencies may be given coordinating respon-
sibilities, particularly in fields in which they are assigned primary
authority for taking action. It has proved difficult, however, to give
such department and agency heads the authority to coordinate by
issuing orders binding on other officials of similar status. Their role
must normally be one of exercising leadership in achieving voluntary
cooperation instead of exercising command authority.
Although this study provides no conclusive answer to the question
of what official should be vested with primary coordinating responsi-
bility, it does suggest a certain range of feasible alternatives. In the
light of experience, it is unlikely that coordination can be very effective
if it is left entirely to voluntary negotiation among department and
agency heads on a basis of equal status. It has also proved difficult
for the Director of the International Cooperation Administration,
* See above, ch. V.
534
FOREIGN ASSISTANCE PROGRAMS
which is not a fully autonomous agency, to coordinate military and
economic assistance.
Traditionally, the Secretary of State has been generally recognized
as the chief coordinator, below the President, of all foreign-policy
matters. He has the notable advantages of preeminent authority and
prestige in the field of general foreign affairs. But the rise of the
Department of Defense, as well as other departments and agencies,
to positions of prominence in the foreign-policy field and the inclina-
tion on the part of the present executive leadership to remove operat-
ing responsibilities from the jurisdiction of the Secretary of State
have provided strong arguments for assigning the chief coordinating
role to a special assistant to the President. Such an assistant might be
confined to the foreign assistance field alone or be given responsibility
for the coordination of all foreign policy issues that rise to the Presi-
dential level. At the same time, some adjustment might be required
within the Executive Office of the President to avoid undue prolifera-
tion of foreign-policy coordinating functions at that level.
Interdepartmental Committees
In addition to the question concerning a chief coordinator, there is
another important issue: What interdepartmental committee struc-
ture and process would be most useful in helping to achieve coordina-
tion of military and economic assistance? The National Security
Council and its subordinate boards comprise the highest inter-
departmental apparatus for resolving national security issues. The
approved directives prepared by the National Security Council pro-
vide basic guidelines for the foreign assistance programs. Although
there are shortcomings in the present structure and procedures of the
National Security Council complex, it is scarcely proper or feasible
to attempt in this report to explore with any thoroughness the general
adequacy of these arrangements, which are not primarily concerned
with foreign assistance activities. There is evidence, however, to
support the view that there is a need for more effective interdepart-
mental collaboration in the planning of both military and economic
assistance policy. This calls for more continuous, detailed, and pro-
found interagency analysis than is presently available, possibly under
the direction of a specialized subcommittee of the National Security
Council Planning Board.
The experience of the past has also demonstrated that interdepart-
mental committees are most useful when they are restricted to the
functions that they are equipped to perform most effectively. They
are best suited to discussion and advice instead of the formulation of
final decisions and should be limited to the consideration of matters of
general policy rather than detailed questions of day-to-day operations.
Their membership should not be encumbered with representation from
departments and agencies that have only marginal interests in the
subject matter. There should also be provision for the expeditious
settlement at a higher level of significant disagreements on substantive
and jurisdictional questions.
Coordination of foreign economic policy
Still another significant issue is, What interdepartmental arrange-
ments should be utilized to assist in achieving coordination between
foreign assistance and other foreign economic activities? Because
FOREIGN ASSISTANCE PROGRAMS
535
foreign assistance has, in the past, been handled largely within the
orbit of the National Security Council, relatively little attention has
been devoted to this problem. Although there is a Council on For-
eign Economic Policy, it has dealt only marginally with foreign as-
sistance. Meanwhile, several other major interdepartmental commit-
tees with interests related to foreign assistance have continued to
exist at approximately the same level as the Council on Foreign Eco-
nomic Policy.
The issues that come before these committees are far broader than
foreign assistance, and it is not appropriate in a report of this scope
to attempt observations on their general activities. The evidence
gathered here, however, does suggest that there should be more ef
fective coordination of foreign assistance with other facets of foreign
economic policy. At the same time, a shift in this direction might
lead to a dangerous division of leadership unless there were con-
comitantly some further consolidation of the coordination of foreign
economic policy, under guidance of those who are primarily responsi-
ble for the formulation of general foreign policy.
Coordination in the field
Finally, there is the issue, What should be the relationship between
chiefs of diplomatic missions and the personnel engaged in foreign
assistance activities in the field? Although the theory and practice
of the concept of the country team under the direction of the ambas-
sador have been strengthened, there is stili occasional friction be-
tween chiefs of diplomatic missions and various assistance missions.
The field directors of economic, military, and information activities
have direct communication with their respective agencies in Wash-
ington and take their main instructions from these agencies rather
than from the Department of State. The ambassador can mediate,
coordinate, and recommend, but in the final analysis, he cannot direct
the specialized missions if they feel that his wishes run counter to their
responsibilities to their respective agencies. Such conflicts must be
referred to Washington for settlement. If there continue to be sepa-
rate hierarchies in Washington for foreign political, economic, and
military functions, something like the present situation is probably
inevitable. Complete unity of command in the field would be possible
only if there were complete unity in Washington among the agencies
represented abroad.
All of this analysis reemphasizes the fact that fundamental to the
success of any future foreign assistance efforts is a more adequate and
more widely supported definition of basic policy. Once that founda-
tion has been established, it will be possible to begin to formulate firm
conclusións regarding the major structural problems. The future,
however, should be built on a careful appraisal of the past. Those
who must make the decisions regarding these matters will not be
starting anew but must operate within a framework of established
institutions and practices that have a momentum of their own. More-
over, the process by which these institutions have developed has pro-
vided invaluable experience that can be a useful yardstick for what
is to come.
APPENDIX
(This outline was prepared by the staff of the special committee
to serve as a guide for the Brookings Institution in preparation of its
report to cover subjects of interest to the committee.*)
THE ADMINISTRATIVE ASPECTS OF UNITED STATES FOREIGN ASSISTANCE
PROGRAMS
Chapter I. Summary: Scope and conclusions of the study.
Chapter II. Introduction.
A. Historical review.
B. Basic assumptions concerning future direction.
1. National interests and objectives of the United States.
2. Factors conditioning achievement of objectives.
3. Estimate of foreign aid requirements of concern to the
United States.
4. Potential and probable United States response to those
requirements.
Chapter III. Major issues: General allocation and coordination of
foreign aid functions.
A. What should be the allocation of major responsibilities for
the administration of foreign economic and military assistance
among existing or proposed departments and agencies? This
question will be examined in the light of certain basic assumptions
concerning the broad objectives and methods of the foreign as-
sistance program that will be discussed in the introduction.
Among the problems to be considered will be the relation between
types of aid and organizational arrangements to administer that
aid.
B. Can the principal military and nonmilitary aspects of the
assistance effort be geared together more effectively in order to
produce a more fully developed and balanced approach to the
problem? This question concerns the adequacy of the most com-
prehensive and authoritative coordinating apparatus, including
the National Security Council-Operations Coordinating Board,
the Council on Foreign Economic Policy, the Francis Committee,
and the Department of State as an interdepartmental coordinator,
as well as the feasibility of the proposal for a Department of
Foreign Affairs.
C. How may the administration of foreign aid programs at the
field level be further clarified and integrated? The chief problems

*The outline was modified in some respects as the study progressed on the basis of dis-
cussions between the Institution and the committee staff.
536
FOREIGN ASSISTANCE PROGRAMS
537
to be considered in this connection are those concerned with the
division of functions between headquarters and the field and the
coordination of activities at the local level.
Chapter IV. Major issues: Coordination of foreign-aid programs with
other United States governmental activities.
A. In view of the interaction between foreign-assistance oper-
ations and various other external operations, including various
economic and informational activities, how should these two areas
be linked together? The analysis of this question would be con-
cerned with such activities as the negotiation of trade agree-
ments, economic reporting, the procurement and development of
strategic materials, lending operations, export-import controls,
exchange-of-persons efforts, and general informational programs.
B. How can more adequate coordination be achieved between
the foreign-assistance effort and related domestic governmental
programs? This question is based upon the assumption that
there must be the closest relationship between these two areas if
they are to reinforce each other with maximum effectiveness.
Chapter V. Major issues: Improving the quality of operations within
United States agencies.
A. Do the peculiarly difficult tasks that have been assigned the
major operating agencies in the foreign assistance field warrant
exempting those agencies from certain traditional financial, per-
sonnel, and other administrative restrictions? This question
would focus primarily on the thesis that agencies, such as the
International Cooperation Administration, can pursue the ob-
jectives of the assistance program with maximum effectiveness
only if they are allowed greater flexibility in their operating
methods than is usual in most governmental agencies.
B. Are there sufficient resources devoted to the principal func-
tions of planning, operations, and evaluation within and among
the principal agencies involved in the foreign assistance effort,
and is there a proper balance among those functions in view of
the magnitude and significance of the program that they are
intended to serve? The purpose of this question is to determine
whether the administrative underpinnings of the program are
sufficient to support it.
Chapter VI. Major issues: Relations with other governments.
A. How may bilateral relations with other governments con-
cerning foreign-assistance matters be organized more effectively?
This question touches upon various phases of bilateral cooperation
with both recipient and donor countries regarding the planning
and operation of assistance programs.
B. How may multilateral channels be utilized more effectively
to further the objectives of the United States foreign assistance
programs? This issue involves an examination of a variety of
existing and proposed multilateral arrangements, including the
United Nations, the specialized agencies, and regional associa-
tions.
538
FOREIGN ASSISTANCE PROGRAMS
Chapter VII. Major issues.
A. How may Congress assume a more effective role with regard
to foreign-assistance matters? At issue here are the relations
between the Congress and the executive branch, arrangements
within and among the interested committees in the Senate and
the House of Representatives, and relations between the Senate.
and the House of Representatives.
Chapter VIII. Conclusions.
STUDY NO. 7
AMERICAN PRIVATE ENTERPRISE, FOREIGN
ECONOMIC DEVELOPMENT, AND
THE AID PROGRAMS
BY
THE AMERICAN ENTERPRISE ASSOCIATION, INC.
FEBRUARY 1957
539
CONTENTS
Page
Letter of transmittal_
Summary_
Section I. American private enterprise and foreign economic development.
A. The flow of United States private foreign investment..
543
1
545
O
551
551
B. Motivations for and obstacles to United States private foreign
investment...
557
D. Other contributions of United States enterprise to foreign economic
development..
C. Contribution of private foreign investment to foreign economic
development...
560
568
Section II. Misconceptions about private foreign investment and economic
development...
A. The size of private foreign investment.
B. The stagnation thesis..
C. Extractive industries_
D. The problem of servicing the debt.
E. Screening for exchange drain…………
F. Alleged disappointment and frustration..
G. Capital as the key to development.
H. Social capital.
I. The capital glut..
Section III. The State and economic development..
A. Free markets and economic development..
B. The essential role of government in economic development.
C. The case against development through government action_-
D. The implications for foreign capital requirements.--
Section IV. Instruments for promoting private foreign investment__
1
A. Private foreign investment and complementary public financing
570
570
571
575
577
579
580
I
582
1
F
1
1
1
I
584
585
587
587
594
599
602
605
measures.
605
B. The investment guaranties..
606
C. Tax incentives_.
D. Treaties of friendship, commerce and navigation and investment
treaties
608
610
E. Foreign aid and the promotion of private enterprise abroad..
F. An information program to promote investment and call attention
to investment opportunities..
612
615
Appendix...
617
541
LETTER OF TRANSMITTAL
The CHAIRMAN,
AMERICAN ENTERPRISE ASSOCIATION, INC.,
Washington, D. C., December 29, 1956.
Special Committee to Study the Foreign Aid Program,
United States Senate, Washington, D. C.
""
DEAR MR. CHAIRMAN: Pursuant to the agreement entered into on
September 26, 1956, by the Special Committee to Study the Foreign
Aid Program and the American Enterprise Association, we are
pleased to submit herewith the study report on "American Private In-
vestment, Foreign Economic Development, and the Aid Programs.'
The project was conducted under the joint direction of Dr. W.
Glenn Campbell, the association's director of research, and Dr. Wil-
son E. Schmidt of George Washington University. Others directly
participating on various segments of the study included: Dr. Leland
Yeager of the University of Maryland; Mr. P. T. Bauer of Cam-
bridge University, England; Dr. Virgil Salera of American Uni-
versity; Dr. Raymond Mikesell of the University of Virginia; Dean
Ben Rogge of Wabash College; Dr. Jack Behrman of Washington
and Lee University; and Mrs. Barbara R. Evans of the association's
staff.
In the required research work, members of the study group have
made extensive surveys of available pertinent literature and have
enjoyed the generous cooperation of many interested persons both
within and outside of government. Though it is not possible to
acknowledge here all the many sources consulted, special thanks are
due the officials of the International Cooperation Administration, the
Export-Import Bank, the Department of Commerce, the Treasury
Department, and the State Department for making available records,
data, and the experience of their respective agencies in the several
areas under study.
Also, through both interviews and questionnaires, a systematic at-
tempt was made to obtain information and help from more than 100
American companies having substantial foreign operations.
Both in the planning of the research and in the preparation of
the report, the project staff had the benefit of consultations with the
association's advisory board whose members are: Dean Charles C.
Abbott, University of Virginia; President Emeritus Donald J. Cowl-
ing, Carleton College; Prof. H. F. DeGraff, Cornell University; Prof.
Milton Friedman, University of Chicago; Dean Emeritus James E.
McCarthy, Notre Dame University; Felix Morley, editor and author;
Dean Emeritus Roscoe Pound, Harvard University; and Prof. David
McCord Wright, McGill University.
Due to the extremely limited time available and the complexity of
the subject studied, it has not been possible to do more than identify
543
544
LETTER OF TRANSMITTAL
and to some extent explore the principal issues involved. Such ex-
plorations, however, may have opened up for committee considera-
tion what may well prove to be profitable lines of further inquiry
leading to more definite solutions.
As in the case of all American Enterprise Association studies, the
association presents this report as the product of competent research
by competent authors on a subject of major national importance, but
assumes no responsibility for the authors' opinions. Any conclusions
or recommendations are those of the authors and do not necessarily re-
flect the views of the association's officers, board of trustees or ad-
visory board.
Primary responsibility for the preparation of the enclosed report
rests with the study project's codirectors, Dr. W. Glenn Campbell and
Dr. Wilson E. Schmidt.
Sincerely yours,
WILLIAM J. BAROODY,
Executive Vice President.
AMERICAN PRIVATE ENTERPRISE, FOREIGN
ECONOMIC DEVELOPMENT, AND THE AID
PROGRAMS
SUMMARY
THE REPORT IN BRIEF
The aim of this report is to show how best to attain our main eco-
nomic-based security objectives while minimizing the tax burden on
Americans. What we need to do is place major reliance on expanded
private foreign investment and the buildup of foreign private econo-
mies. Private investment, not government aid, is the most effective
way of helping other peoples to improve their levels of living.
THE PLACE OF AMERICAN FOREIGN INVESTMENT
Greatly increased efficiency in the use of scarce resources is the
main benefit which the less-developed countries obtain from Amer-
ican private investment. In effect, the presence of American enter-
prise stretches the supply of resources that are available for lifting
levels of living abroad.
The presence of American enterprise abroad also does much to widen
the local enterprise base, an indispensable requirement if the less-
developed countries are to achieve their maximum rate of growth
and economic improvement is to proceed on a self-sustaining basis.
American enterprise abroad helps to expand output not in a few
ways but in as many as there are methods and processes of produc-
tion-in industry, agriculture, and in distribution.
How the less-developed countries improve their economic per-
formance is of basic importance; when they progress along enter-
prise lines they simultaneously and imperceptibly cement ties with
the United States which are of great long-run political significance
to the United States.
THE SIZE OF AMERICAN PRIVATE INVESTMENT ABROAD
American private foreign investment is now at the record levels
attained in the 1920's-and in real terms. In dollar volume, it great-
ly exceeds anything ever recorded in the past.
However, the composition has changed. Our investments abroad
are now mainly in the form of direct business investments. Earlier,
most of our investments took the portfolio form.
WHY FOREIGN GOVERNMENTS HAVE REASONS TO WANT TO ATTRACT MORE
AMERICAN CAPITAL
"Contributions to development" is a short answer to the question
why foreign governments may be expected to work energetically to
create the conditions that attract American private capital. Amer-
545
546
SUMMARY
ican capital makes at least the following important contributions to
the economic development of the less-developed countries:
1. Capital is supplied directly;
2. Our firms make available initiating and organizing ability;
3. Skills are transferred and jobs created;
4. Our investments induce local capital to undertake many
complementary investments;
5. Modern marketing is encouraged;
6. Low-margin high-volume price philosophy stimulates the
local economy;
7. Capital markets are broadened;
8. There is some streamlining of Government-industry rela-
tions;
9. Our firms help to induce a shift of attitudes favorable to
enterprise and growth;
10. American investments encourage non-American foreign
investments.
Illustrations cited in the text show the increasing extent to which
American firms abroad expand employment opportunities, train
skilled workers, offer managerial jobs to local citizens, and help to
modernize production.
NATURE OF ECONOMIC DEVELOPMENT
Growth of the less-developed countries is a very long-run, not a
short-term, problem. This is because the processes of development
yield fruit slowly because most of them must be grafted on to deeply
rooted traditional ways of working and organizing economic activity.
Should a uniform mechanical approach to economic development
be adopted, it would be bound to waste scarce American as well as
local capital. The less-developed countries are heterogeneous in eco-
nomic, social, and political terms also for reasons rooted in history.
THE DANGERS OF CRASH PROGRAMS
Crash programs are inherently inappropriate to deal with the
growth of the less-developed countries. In particular, the Marshall
plan, which helped to restore a war-damaged but tested socio-economic
system, is not an applicable standard. We must face the fact that an
evolutionary program, not a crash effort, alone will fulfill the tech-
nical requirements of economic development in today's less-developed
countries.
The appeal of crash programs to some of the spokesmen for the
less-developed areas stems in large part from the view that levels of
living in such areas must not merely be raised but that it is necessary
to narrow per capita output differentials between such areas and the
United States.
The idea that differentials must be narrowed is a potentially dan-
gerous one, however much it may appear to be desirable in principle
as an objective. It is probably unattainable in the foreseeable future,
regardless of extent and scope of American generosity, because the
United States is itself steadily improving its economic performance.
Hence, development in the less-developed countries, which surely is
SUMMARY
547
attainable under correct policies, does not automatically or even nec-
essarily result in a narrowing of differentials and thus in an ameliora-
tion of the basic problems of American foreign relations that are
alleged to stem from international differentials in levels of develop-
ment.
Moreover, we have no objective and generally accepted means of
measuring the international differentials in question.
In official pronouncements and in information policy, therefore,
great care must be exercised to avoid promises of accomplishment in
terms of narrowed differentials.
COMMONSENSE OF THE AVERAGE MAN
Fortunately, the average man in the less-developed countries, like
the average American, is mainly interested in winning a better (abso-
lute) level of living for himself and his family as the years roll by.
This is an outcome that is reasonably certain in most of the less-
developed countries if appropriate domestic policies are pursued and
the United States (and other developed countries) continue to con-
tribute to development by appropriate policies and actions.
Moreover, the average man knows, partly from his own experience,
that countries develop largely on the basis of their own effort. There
is nothing in the contemporary world that justifies a different con-
clusion—a fact that is important for policy guidance.
WASTE VERSUS EFFICIENCY
In general, development achieved under State direction absorbs
more scarce resources per unit of achievement and cements fewer
strong ties with the United States than development achieved largely
by way of the activation of latent private resources in the less
developed countries.
We live in a world in which resources for satisfying human wants
are scarce. Controversy over wise resource-use thus is likely to be
intensified rather than to abate. Hence, efficiency considerations
assume prime importance. This is especially true for the United
States by virtue of the key role we are playing in supplying scarce
capital and know-how. We must not allow our emotional bent toward
doing good to get the better of our judgment of the technical dimen-
sions of the development problem.
In particular, policymakers must constantly bear in mind the
contributions now being made by American capital invested abroad
as well as the prospects for even greater contributions. If they fail
to do this, they will fail to see the overall development problem in
proper perspective.
WHY THE RECORD OF AMERICAN INVESTMENT IS PROMISING
There are two important respects in which the statistical record
of American private foreign investment is promising: First, our
investments appear to be moving increasingly to the less developed
countries of the world. Second, our investors seem to be increasingly
prepared to invest in nonextractive as well as extractive industries
94413-57- -36
548
SUMMARY
as the underdeveloped countries achieve a measure of economic
growth.
No less important is the fact that the record shows our private
foreign investment accords with sound principles of resource-use.
What the record clearly reveals is that the return on our foreign
investments, as we show statistically in this report, is higher than that
on comparable domestic investment. Yet there is an essential harmony
of interest too, in that (1) American capital's yield represents a
cost to capital-receiving countries that is well below the cost of their
domestic capital and (2) the benefits to them are substantially greater
than the costs.
Some observers recognize that American foreign investment is
expanding, but they are nevertheless disturbed by the small number
of companies that account for it. What is overlooked is that as in-
vestment conditions abroad improve, (1) a larger number of our
smaller companies may be expected to participate in foreign invest-
ment and (2) companies already abroad may be expected to broaden
the product-coverage of their foreign operations. Thus, there are
solid bases for the expansion of private foreign investment in the
very structure of existing investment.
THE MAIN OBSTACLES
But there are also obstacles to increased private foreign invest-
ment which it is well to bear in mind.
One takes the form of uncertainty over the scope of American de-
velopment aid policy. Hopes of receiving large-scale grant aid tend
to induce foreign governments to be less receptive to private capital,
which does not and cannot work on the gift principle. The adverse
attitude may prevail even though governments pay lip service to the
idea that they are anxious to attract increased private foreign capital.
Other obstacles to foreign investment consist of the inconvertibility
of currencies (which exposes capital to restrictions on the transfer
of earnings), the danger or threat of expropriation or nationalization
of property, political instability, discriminatory local taxation, limita-
tions on the use of foreign personnel, and requirements that local
investors must have voting control of companies.
THE WEAK LOCAL ENTERPRISE BASE
Weakness of the local enterprise base also operates as a powerful
obstacle. This weakness stems in part from anti-enterprise legislation
and hostile government regulations. Briefly, foreign capital usually
is not safe if local capital is vulnerable to arbitrary interference by
its own government. Contrariwise, if local capital's position is
strong, the very strength serves to attract foreign private capital.
MISCONCEPTIONS ABOUT PRIVATE FOREIGN INVESTMENT
A number of misconceptions about private foreign investment have
the effect of weakening the resolve of some less-developed countries
to encourage the maximum effort, domestic and foreign, to achieve
economic development.
It is alleged that American private foreign investment is too small.
Actually, it is substantial—and growing.
SUMMARY
549
Another common view is that the less-developed nations are caught
in a vicious circle of poverty. Actually, it is usually not stagnation
but a late start that is involved, as the report shows by citing appro-
priate supporting detail.
It is also alleged that extractive industry, which is a big field of
private foreign investment, contributes little or nothing to economic
growth-that it is a "colonial" form of investment. Actually, such
allegations are a misreading of history, which shows how much extrac-
tive investment has done and is doing to accelerate development.
Of particular importance is the fact that the extractive industries
provide enormous tax and royalty contributions to the governments of
underdeveloped countries. This revenue can be used for economic
development. Oil royalties and taxes paid to the governments of the
middle eastern countries amount to almost $1 billion a year. Tax
payments by United States firms in Latin America in petroleum,
mining, and smelting slightly exceeded $800 million in 1955.
The contention is made that foreign investment is bad for the United
States, in that it will eventually lead to an "import balance" which
will depress American employment and activity. Actually, this view
is a holdover from the thinking during the depression of the 1930's
and neglects the important fact that the United States is becoming
increasingly a "have not" nation that needs ever expanding raw
material imports.
IMPLICATIONS OF FINDINGS FOR LEGISLATIVE ACTION
Findings of the report suggest that Congress should consider pro-
posals for reducing taxes on both foreign business and personal income
both for equity considerations and for the purpose of stimulating
private foreign investment.
The International Cooperation Administration's investment guar-
anty program needs to be reconsidered. A useful purpose might be
served by requiring countries that receive American aid to sign a
bilateral investment guaranty agreement. Similarly, the guaranty
program seems to be weakened by the requirement that the foreign
government give prior approval to a project that seeks an investment
guaranty. Reconsideration of policy is also in order regarding the
availability of_guaranties for investments in the more developed
countries, i. e., Europe.
Our information program needs to be directed more toward increas-
ing popular understanding abroad about the role of American invest-
ment, countering doctrines that weaken the climate for investment, and
improving local business' recognition of the basically harmonious
relationship between local and foreign enterprise within a country.
The Government should make a greater effort to negotiate treaties
of friendship, commerce, and navigation which contain provisions
on foreign investment that are consistent with the mutual interest in
an expanded volume of investment.
To increase the flow of American entrepreneurial ability abroad and
strengthen the private enterprise base abroad, Congress should con-
sider proposals whereby aid and Public Law 480 local currency funds
are channeled through private enterprise, rather than through the
Government.
SECTION I
AMERICAN PRIVATE ENTERPRISE AND FOREIGN
ECONOMIC DEVELOPMENT
A. THE FLOW OF UNITED STATES PRIVATE FOREIGN INVESTMENT
Since World War II, the net flow abroad of American private
long-term capital has recovered from the slump of the 1930's and
has regained the record levels of the 1920's. In current dollars, the
earlier record has been far surpassed; and even with adjustment made
for changes in the purchasing power of the dollar, postwar investment
flows rival those of the 1920's. The comparison appears in table I.
TABLE I.—Net outflow of private long-term capital from the United States in the
1920's and since World War II¹

Year
Net
capital subsid-outflow and
Rein- Total of
vested net capital
Total of
net capital
outflow and
Year
out-
iary
flow earn-
reinvested
subsidiary
reinvested
Net
capital
out-
Rein- Total of Total of
vested net capital net capital
subsid-outflow and outflow and
iary
subsidiary
flow
earn-
reinvested reinvested
subsidiary subsidiary
ings earnings
earnings
ings
earnings
earnings
Millions of
Millions of
Millions of current dollars
dollars in
Millions of current dollars
dollars in
1955 prices
1955 prices
1922
822
1, 442
1947.
796
387
1, 183
1,440
1923...
383
654
1948.
790
581
1,371
1, 577
1924.
885
1,582
1949
740
436
1, 176
1,348
1925
871
1, 481
1950_
1, 116
475
1,591
1,796
1926..
821
1,388
1951.
965
752
1,717
1,806
1927
987
1, 717
1952-
1, 064
876
1,940
2,010
1928_
1,310
2, 164
1953_
536
776
1,312
1,347
1929_.
636
1, 108
1954-
984
644
1, 628
1, 650
1946_
103
303
406
549
1955
959
868
1,827
1,827
1 Survey of Current Business, September 1952, January 1954, July 1954, August 1955, June 1956, August
1956. For 1922-29, the balance-of-payments estimates for private capital outflow include reinvested sub-
sidiary profits. The conversion into 1955 prices was done with gross national product implicit price de-
flators as given in Simon Kuznets, National Product Since 1869 (National Bureau of Economic Research,
1946), pp. 51-52 and in Economic Report of the President, January 1956.
In relation to United States national income, the recent flow of
private long-term capital is less impressive. It averaged over 1 per-
cent of national income in the 1920's and only about one-third to one-
half of 1 percent since World War II. Portfolio investment is the
main item accounting for the difference.
The postwar boom in American private investment abroad has
drawn the following comment from the Department of Commerce:
The great postwar expansion of United States enterprise
abroad through foreign branches and subsidiaries, with the
total investment now reaching nearly three times the invest-
ment at the end of the war, has been one of the most dynamic
aspects of postwar international economic relationships.
Through the postwar years *** there have been shifts in
***
551
552 FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
investment among areas and industries, and after reaching a
peak in 1952 there appeared to be a tendency for the total out-
flow of capital to decline or level off. In 1955, however, there
was a definite upward turn, spurred by increased activity in
manufacturing and petroleum particularly, and extending to
a large number of countries. Information available up to
now for 1956 indicates an even greater rate of expansion of
United States enterprises abroad this year.¹
As this quotation suggests, the great bulk of postwar American for-
eign investment has been "direct investment," representing active
United States ownership of business property abroad, rather than
"portfolio investment," representing passive ownership of foreign
securities. In the decade ending in 1929, by contrast, over 60 percent
of new United States foreign investments were in the form of pur-
chases of publicly offered foreign bonds. While the portfolio foreign
investments of the 1920's were held by a large number of individuals
and corporations, direct investments have always been heavily con-
centrated in the hands of relatively few American companies with
foreign branches and subsidiaries. (Currently, one-half of 1 percent
of United States corporations have overseas investments.) Further-
more, an increasing share of additions to United States direct invest-
ments abroad has consisted of reinvestment of earnings rather than
of a flow of new capital. In 1946-51 this share consisted of about 40
percent; in 1954-55 it was up to about 53 percent.
The foregoing remarks relate to the current flow of investment
funds; a comparison of the accumulated amounts of portfolio and
direct investment is given in table II.²
TABLE II.—Private long-term foreign investment position of the United States
in selected years, 1914–55¹
[Billions of dollars]

1914
1919
1930 1939
1946
1953
1955
Direct.....
Portfolio..
2.6
3.9
8.0
7.0
7.2
16.3
19.2
.9
2.6
7.2
3.8
5. 1
6.0
7.4
Total private long-term..
3.5
6.5
15.2
10.8
12. 3
22.3
26.6
1 Survey of Current Business, August 1956, p. 15.
Since direct investment is now by far the largest category of United
States private foreign investment, a review of its growth is first in
order. In assessing the role of American business investment in for-
eign economic development, a distinction must be drawn between
investment in developed and underdeveloped areas. A rough distinc-
tion suitable in using Department of Commerce data can be made by
1 Survey of Current Business, August 1956, p. 15.
One difficulty to be borne in mind in comparing portfolio and direct investments-
a difficulty easily mentioned but not readily solved-is that portfolio holdings of market-
able securities are carried at market values, while direct investments are carried in
Department of Commerce statistics at book values, which may represent half or less
of market values. Thus table II understates the share of direct investment in the total
in recent years.
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
553
considering as underdeveloped all areas of United States foreign
investment other than Western Europe, Canada, the Union of South
Africa, Australia, New Zealand, and Japan.
Among underdeveloped areas, it may be useful to consider the Latin
American Republics and other areas separately, since the Latin Amer-
ican countries, by and large, have higher real incomes per person than
Asian and African countries. These distinctions appear in table III.
TABLE III.-Value of United States direct investments abroad in all industries,
selected years, 1929–55¹

Underdeveloped areas other
1929
1936
1943
1950
1951
1952
1953
1954
1955
than the Latin American
Republics:
Millions of dollars.
Percentage of all-area
total..
Underdeveloped areas in-
cluding the Latin Ameri-
can Republics:
Millions of dollars.
Percentage of all-area
total..
416.0
464. 4
5.5
6.9
6.5
507.7 1,368.0 1,473. 0 1, 711.0 1,978.0 2, 118. 0 | 2, 259. 0
11.6 11.3
12. 1 12.0
11.5
11.6
3,877.9 3, 267.4 3, 228.9 6, 103. 0 6, 649.0 7,469.0 8, 012.0 8, 362.0 | 8,815.0
51.5
48.8 41. 1 51.8
50.8
50.5
49.3 47.5
46.0
1 U. S. Department of Commerce, Foreign Investments of the United States (1953), p. 48; Survey of
Current Business, August 1956, p. 19.
Though figures for countries classified as in table III are not avail-
able for years before 1929, a comparison of United States direct
investments in all countries with such investments in areas other
than Europe and Canada and in areas other than Europe, Canada, and
Latin America may be useful, considering that the residual countries,
by and large, enjoy a lower degree of economic development than
Europe and Canada.
TABLE IV.-Value of United States direct investments abroad, selected years,
1897-1950¹

Areas other than Europe and Canada and
1897
1914
1919
1929 1943 1950
1955
Latin America:
Billions of dollars..
(2)
0.2
0.4
0.6
0.7
1.8
3.2
Percentage of all-area total...
7
10
8
9
15
17
Areas other than Europe and Canada:
Billions of dollars..
0.3
1.5
2.4
4. 1
3.5
6.5
9.7
Percentage of all-area total.
50
56
62
55
44
55
50
All areas.
0.6
2.7
3.9
7.5
7.9
11.8
19.2
1 U. S. Department of Commerce, Foreign Investments of the United States (1953), p. 4, Survey of Cur-
rent Business, August 1956, p. 19.
Less than $50 million.
Tables III and IV suggest that the fraction of United States direct
foreign investment located in all underdeveloped countries has fluc-
tuated around 50 percent both for many years before World War II
and since World War II. The fraction located in underdeveloped
countries other than the Latin American Republics seems to have been
larger since World War II than before. This shift provides grounds
for optimism about the future share of American private invest-
554 FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
ment aiding in the development of the most backward of the under-
developed countries.
To account for the increased share of American direct investment
in backward countries outside Latin America, it is useful to distin-
guish between investments in "extractive" and other industries. In-
vestments in extractive industries produce products primarily for
export to world markets rather than for the local market. The expan-
sion of American direct foreign investments since World War II
represents a quest for special resources such as oil or ores to a greater
extent than development or expansion of local markets in the under-
developed countries. Thus, about 60 percent of the increase in United
States direct investment in the rest of the world between 1950 and 1955
went to mining, smelting, and petroleum; the same percentage applies
to the growth of extractive investment in underdeveloped countries,
though the proportion was only about 40 percent for Latin America.
Interestingly, the comparison between Latin America and other un-
derdeveloped countries strongly suggests that American investors are
increasingly prepared to invest in nonextractive industries as under-
developed countries achieve a measure of economic growth.
One reason why American business in underdeveloped areas has
shown a preference for extractive investment is the booming postwar
demand for petroleum, of which the heavy American investments in
the Near East and Venezuela are a reflection. Another reason is the
existence of exchange control as an obstacle to the remittance of profits;
investments paying off in commodities salable on world markets for
hard currencies largely sidestep this obstacle. Actually, however, a
preference for extractive investment is nothing new. Even in the
19th century, direct business investment in underdeveloped areas of
non-European culture tended to shy away from industries devoted to
the domestic market and to concentrate instead on primary produc-
tion for export to the advanced industrial countries.
Investment in mining and smelting and petroleum, as reported by
the Department of Commerce, corresponds fairly well to extractive
investment and investment in other industries to nonextractive in-
vestment. Tables V and VI present figures on nonextractive direct
investment in underdeveloped countries and express them as percen-
tages of investment in all industries in all foreign countries.
TABLE V.—Value of United States direct foreign investments in industries other
than mining and smelting and petroleum¹

1929
1936
1943
1950
Areas other than Western Europe and Canada and Latin
America:
Millions of dollars.
378.5
Percentage of all-industry all-area total.
5.0
366. 5
5.5
381.0
4.8
468.4
4.0
Areas other than Western Europe and Canada:
Millions of dollars...
Percentage of all-industry all-area total.
2, 548. 5
33.9
2,052.7
30.7
2, 156. 6
27.9
3, 167. 4
26.9
1 Department of Commerce, Foreign Investments of the United States (1953), p. 49.
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
555
TABLE VI.-Value of United States direct foreign investments in industries other
than mining and smelting and petroleum, 1954 and 1955¹

Underdeveloped areas other than the Latin American Republics:
Millions of dollars..
Percentage of all-area all-industry total.
Underdeveloped areas including the Latin American Republics:
Millions of dollars.
Percentage of all-area all-industry total..
1954
1955
618. 0
3.5
675.0
3.5
4, 172. 0
23.7
4, 430. 0
23. 1
1 Survey of Current Business, August 1956, p. 19.
"Underdeveloped areas" are all areas of United States foreign investment other than Western Europe,
Canada, the Union of South Africa, Australia, New Zealand, and Japan. Because of an inadequate break-
down by countries in the Commerce Department data, the figures in this table are upper limits, representing
overstatements to some degree.
Tables V and VI show that a relatively small percentage of Ameri-
can business investment abroad has gone to the most backward of the
underdeveloped countries-those outside Latin America-for invest-
ment in nonextractive industries.
Using the figures in table III, we find that the growth in United
States direct investments (including retained earnings) in under-
developed countries including the Latin American Republics from
1950 to 1955 amounted to $2,712 million, or an average growth of
$542 million a year; while the growth in underdeveloped countries
other than the Latin American Republics amounted to $891 million,
or an average growth of $178 million a year.
In comparison with direct investment, United States portfolio
investment abroad has been small. This fact appears in table II,
showing accumulated values, and in table VII, showing flows during
various periods.
TABLE VII.-Net capital outflow from the United States and adjusted rates of
return on portfolio and direct investment ¹
Direct
Portfolio
Outflow,
billions of
dollars
Rate of return
adjusted
for changes
in capital
Outflow,
billions of
dollars
for changes
values
(percent)
Rate of return
adjusted
in capital
values
(percent)
1

Portfolio plus direct
Outflow,
billions of
dollars
Rate of retur
adjusted
for changes
in capital
values
(percent)
1920-30
1931-39...
1940-45
5.05
4.5
3.17
8.2
8.22
6.5
-1.38
-.2
.14
2.0
-1.24
1.2
.50
5.5
.75
5.9
1.25
5.7
1946-53_
1920-53.
1.04
5. 21
2.9
9.55
15.0
10.59
11.1
2.9
13. 61
8.6
18.82
6.4
1 Stephen H. Axilrod, "Yield on United States Foreign Investment," Review of Economics and Sta-
tistics, August 1956, p. 334.
Though relatively small, United States portfolio investment has
not been entirely absent from the postwar scene. The value of United
States holdings of foreign securities increased by $1.4 billion from
1946 through 1955, very largely through net capital outflows rather
than through appreciation of market values. This flow of portfolio
investment has gone mainly into securities of Canada, the Interna-
tional Bank for Reconstruction and Development, and Israel, though
in the past 2 years Belgium, Cuba, Norway, Australia, and the Union
of South Africa have successfully floated loans in the United States.
556 FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
The current preference for direct rather than portfolio investment
seems to stem from the severe losses experienced on portfolio invest-
ments during the 1930's. Over that decade the United States equity
in portfolio investment was cut by more than half, falling from $7.2
billion in 1930 to $2.8 billion in 1940. Though there was some re-
payment of capital, this decline reflects primarily defaults, the de-
faults in turn being largely connected with deterioration of the for-
eign-exchange position of the debtor countries during the depression
and with attempts to meet this deterioration by measures such as
exchange control. Capital losses are reflected in the adjusted rates
of return on portfolio investment shown in table VII above-rates
comparing unfavorably with rates of return on direct investment.
It is understandable, therefore, that in the face of the record of
defaults and widespread exchange controls Americans generally shun
portfolio investment nowadays. The current popularity of direct
investment, conversely, may result in part from the good record of
direct investment in the 1930's in keeping capital values relatively
intact. Another advantage of direct investment in a world of con-
trolled currency is that the investor can select foreign ventures whose
output is sold primarily for hard currency.
3
In comparison with the average annual flow of direct United States
investment to underdeveloped nations of $550 million since 1950,
United States nonmilitary aid to underdeveloped countries has been
$910 million per annum since the Korean war began. Of this, $503
million per annum went to underdeveloped countries in which we have
a military assistance program or where military interests dominate
(Iran, Turkey, Pakistan, Free China, Indochina, and Korea). Be-
cause it could be maintained that the motive for such assistance is not
development, some people exclude economic assistance to these coun-
tries in calculating our contribution to foreign economic development.
Exclusion of this assistance leaves our aid to underdeveloped countries
at the level of $407 million per annum.
For the calendar year 1955 United States aid to all underdeveloped
countries was $1,211 million; of this only $373 million went to coun-
tries in which military commitments did not dominate. This con-
trasts with a flow of direct investments to underdeveloped countries
of $458 million in 1955.
None of the foregoing figures include capital provided by the Inter-
national Bank for Reconstruction and Development. Over the last
6 fiscal years this has averaged about $152 million per year with
average annual disbursements from such loans running at $75 million.
In no small degree International Bank loans constitute an export of
United States private capital: American investors own approximately
$470 million of International Bank for Reconstruction and Develop-
ment bonds and the International Bank has sold to United States
investors about $120 million worth of its loans.
"This and the succeeding figures for aid include the accumulated balances of foreign
currency under the agricultural disposal program, starting from the middle of 1953,
owned by the U. S. Government because these reflect a transfer of goods to the countries
whose currency is held. While the figures comprise more than what is currently called
development assistance, undoubtedly much of the remainder of nonmilitary aid is used
for that purpose; thus, what is called developmental aid to India is called defense support
in Pakistan-where we have a military assistance program.
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS 557
B. MOTIVATIONS FOR AND OBSTACLES TO UNITED STATES PRIVATE FOREIGN
INVESTMENT
In a private enterprise system, it is axiomatic that companies invest
abroad to make a profit. The expectation of profit is the key moti-
vating factor. In extractive industries, the profit calculus is often
related to America's need for low-cost supplies of essential materials.
For other types of foreign investment, the expectation of profit is
found in attractive overseas markets for goods and services.
The choice between home and foreign investment rests largely on the
relative profitability of investment abroad and in the United States.
United States foreign investors have chosen well because, as the fol-
lowing table shows, in all industries except public utilities the rate
of return on foreign investment has been higher than that for the
comparable domestic industry.
Yields on United States domestic and United States foreign investments, by
industry, 1950 and 1951'
[In millions of dollars]
All industries.
Agriculture.
Mining and smelting.
Petroleum.
Manufacturing.
Public utilities.
Trade...
Other..
All industries.
Agriculture...
Mining and smelting.
Petroleum..
Manufacturing.
Public utilities..
Trade...
Other-------
Foreign investments
Yield on
domestic
investments,
Value out-
standing
Earnings
Yield,
percent
percent
1950

11, 788
1,766
15.0
11.2
589
115
19.5
12,0
1, 129
148
13. 1
8.1
3,390
627
18. 5
11. 5
3,831
637
16.6
14.1
1, 425
41
2.9
6.1
762
117
15.4
11.9
662
81
12.2
10.3
1951
13, 089
2,236
17.1
9.0
642
140
21.8
9.1
1,317
220
16.7
6.4
3,703
896
24. 2
11.5
4,352
696
16.0
10. 4
1, 431
43
3.0
5. 4
883
143
16. 2
8.3
762
98
12,9
9.6
1 Foreign yields based on U. S. Department of Commerce figures. Domestic yields based on U. S. Treasury
Department Statistics of Income. Net profits for the petroleum group, as shown in Treasury data, have
been increased by making an adjustment to the reported depreciation and depletion allowances.
Source: Axilrod, op. cit., p. 333.
Out of the vast array of profitable opportunities-domestic and
foreign-which lie before American corporations, consideration of the
foreign one is often triggered by special events. The imposition of
trade restrictions may restrict the exports of an American corpora-
tion: to maintain its foreign market, it may be obliged to establish
production abroad. A United States firm with overseas operations
may invite another United States firm to establish overseas operations
to provide it with necessary raw materials. Local competition with a
United States exporting firm may induce it to invest overseas in order
to maintain its market. The failure of a distributor of an American
558
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
firm to perform satisfactorily may induce a United States firm to
investigate the local market, whereupon it may find it desirable to
establish production abroad.
Despite the genuine interest of Americans in expanded private for-
eign investment, there are a number of obstacles to such investment
(a few of which are essentially fanciful). Some of the barriers are
said to arise from the working of the domestic American economy,
while others have their origin in conditions abroad.
According to one view, the prosperous American economy is re-
sponsible for the allegedly small flow of private foreign investment
since the war. That is to say, it has been claimed that the pressure
for domestic investment has been so great that very little capital has
been available for foreign investment. It is difficult to take this argu-
ment seriously. As we have already seen, foreign investment has been
more and not less profitable than that at home. If private foreign
investment has not attained a volume that satisfies everybody, is it not
because the investment climate abroad has not been as uniformly fa-
vorable as is possible and many potentially profitable foreign ventures
remain unattractive because they are surrounded by excessive risks
that stem from the policies of capital-receiving countries?
Moreover, is it accurate to characterize recent volumes of private
foreign investment as "small" when they have been running almost $2
billion yearly and will probably reach $2.5 billion in 1956? The facts
are that the volume is not small and that it is readily capable of being
expanded if measures are taken to attract more American capital.
It is also claimed that American private foreign investment is lim-
ited because only a very small proportion (less than half of 1 percent)
of our corporations have foreign investments. More foreign invest-
ment could be expected if a greater number of American corporations
operated abroad. It is undoubtedly true that the size of our invest-
ments abroad would be increased if a larger cross section of American
business conducted operations in foreign countries. But there are rea-
sons to believe that conditions abroad are at least partly responsible
for the narrow corporate base of American foreign investment, and,
more importantly, that improvement in those conditions will lead to an
expanded participation of smaller companies in foreign investment.
In this connection, it should also be borne in mind that American com-
panies with foreign investments frequently produce in their plants
abroad only a few of the types of products which are manufactured in
their domestic operations. There is considerable room for expanded
foreign investment, therefore, even within the list of companies now
in the field.
The tax treatment of foreign business income is another feature of
American policy that is said to limit foreign investment. At present,
Western Hemisphere trade corporations are taxed at 14 points below
the regular corporate tax rate. Foreign investment undoubtedly
would be expanded if this treatment were generalized to investments
located in the rest of the world.
Uncertainty over American development aid policy probably is an
important obstacle to increased private foreign investment. The
reason is to be found in the impact on foreign countries' economic
policy. Nations which feel that they have at least an outside chance
of obtaining large-scale development aid from the United States Gov-
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS 559
ernment are unlikely to take many steps to encourage increased pri-
vate foreign investment, since interest and dividends on such invest-
ments are often regarded by them as a net drain on their development
resources (thereby necessitating more aid). And the greater the role
assigned to multi-national arrangements for allocating American aid
in official or semi-official discussion, the less the probability that under-
developed countries will take positive measures to encourage increased
private foreign investment. In short, development aid and private
foreign investment are more often competitive rather than comple-
mentary. This statement, of course, does not apply in the case of aid
for the provision of genuine public service facilities such as roads.
That is, capital formation in the field of public service facilities, on
the basis of funds borrowed from public institutions such as the
World Bank, is an activity complementary to private foreign invest-
ment.
As will be detailed later, when we discuss the state and economic
development, most of the obstacles to expanded private foreign invest-
ment are found in the less-developed countries themselves. To say
this, however, is not to imply that all such countries are responsible
for having barriers of the indicated kind.
The most frequently mentioned obstacle to private foreign invest-
ment is the inconvertibility of currencies. Such inconvertibility has
often limited the ability of firms to transfer earnings or repatriate
capital. It has also restricted their use of foreign exchange to buy
raw materials and component parts.
Fear of expropriation or nationalization is another obstacle to pri-
vate foreign investment. Thus, countries which favor nationalization
of industry offer only minimal inducements to private investors even
when assurances are given about the protection which the capital-
receiving country is prepared to offer. The difficulty is this: For-
eign investors have alternative safe investment opportunities, and so,
naturally, look unfavorably upon such projects.
Political instability is yet another obstacle. Not only does such
instability create great uncertainty with respect to the rules, regula-
tions, and taxes to which the foreign investor will be subjected; it also
carries serious risk of property damage to plant and equipment and
injury to management personnel in the event that political change
takes violent forms.
Local taxation often operates so as to constitute an obstacle to
new private foreign investment. It is usually not the level of taxes,
but the discriminatory application of tax laws which makes for un-
expected increases in costs and unpredictably affects the competitive
position of firms. For example, additional taxes on income or assets
may be applied only to specified industries in which none of the firms
is locally owned. Sometimes a country will include in the tax base
income earned by branches or subsidiaries outside the taxing country.
Residence requirements may also operate as obstacles to foreign
investment. Thus, restrictions may unduly limit the use of foreign
personnel, so that efficiency is impaired for want of adequate numbers
of local people to staff management positions and those in which
special skills are involved. Similarly, local requirements may limit
foreign investors to no more than a minority position in the manage-
ment of their own companies. The rule that domestic investors must
560 FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
control over half of the voting stock is a case in point. Such regula-
tions usually have the effect of impairing the efficiency of management
and of making it difficult to obtain local capital.
The weakness of the local enterprise base, itself generally the result
in large part of anti-enterprise legislation and governmental practices
affecting domestic business, is yet another obstacle to private foreign
investment. That is, countries in which local private enterprise is
not securely established or is overly concentrated in commercial activ-
ities generally are characterized by a popular misunderstanding of the
social benefits that flow from a flourishing private enterprise system.
Private foreign capital thus operates in an environment that is not
as congenial as is called for by the true requirements of economic
growth. We discuss the matter at length later in this report.
There are important branches of economic activity from which
private foreign enterprise is excluded by statute or administrative
regulations in many underdeveloped countries. These include public
utilities, agriculture, mining, and various branches of trade, especially
internal trade. Such barriers apply in many countries, including
India and Burma, which are in receipt of United States aid.
Many of the obstacles to private foreign investment discussed in this
section affect small and medium-size enterprises more than large
international corporations. This is so for various reasons. First,
there is the greater political influence and effectiveness of the latter
organizations stemming in part from their access to politicians and
senior officials. Moreover, such organizations have specialized legal
and public relations departments and staffs, which help both in the
understanding of the scope and limitations of the regulations, and
also in securing some measure of modification when the interests of
the organization are particularly adversely affected. Such corpora-
tions can also draw on the experience of their offices elsewhere in
assessing the effects of these regulations.
C. CONTRIBUTION OF PRIVATE FOREIGN INVESTMENT TO FOREIGN
ECONOMIC DEVELOPMENT
American private investment overseas contributes to the growth of
foreign real income through the provision of capital, the transfer of
skills, the introduction of productivity increasing methods of organiz-
ing and carrying out productive processes, increasing employment op-
portunities generally, upgrading local labor, inducing non-American
foreign investment, encouraging the birth of complementary indus-
tries, introducing more efficient marketing practices, broadening local
capital markets, helping to streamline the governments' relations with
business and industry, and shifting local attitudes toward enterprise.
1. Supplying capital.-The capital that American industry invests
abroad permits greater productivity on the part of the local population
and thereby allows higher income per person in underdeveloped coun-
tries. Through the severe restriction of consumption, of course, this
same capital could be provided by the local population but this would
be done at great sacrifice, as evidenced by the very high rates of interest
ruling in underdeveloped countries. By obtaining the capital from
abroad, the underdeveloped country avoids a reduction in its con-
sumption level, and it obtains the capital more cheaply than if it at-
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS 561
tempted to form it at home since the cost of capital obtained from
abroad is lower than that within the underdeveloped countries.
2. Supplying the initiating and organizing ability.-American in-
vestors make important entrepreneurial contributions to the less-
developed countries. Tested methods of initiating and organizing
business activities are made available to such countries, after birth
pains and related costs have been borne in the United States. It is
not possible to place a monetary value on such initiating and organiz-
ing ability, but there is no question that it represents an important
real addition to local resources.
3. Transfer of skills and creation of jobs.-American foreign in-
vestments increase the number of jobs available to the local population.
These are often skilled and semiskilled jobs so that the local labor
force is upgraded as a result of the injection of American capital.
American firms undertake extensive training programs for the local
personnel both on the job and off the job. An American investment
carries with it United States technicians to assist local operations
by providing advice, counsel, and good example to local personnel.
Over the longer terms, the investments hold out prospects of work
at professional and executive levels to local citizens. The investments
serve, therefore, as an attraction that induces families to provide spe-
cialized education to their children. Improved capability of the labor
force in turn helps to increase the scope and efficiency of the industrial
sector of less-developed countries in the cumulative manner that has
characterized situations of sustained growth in every part of the world.
4. Complementary industries.-The advent of American private in-
vestment usually induces local capital to embark or expand upon all
manner of small and medium-sized complementary investments.
These are designed to supply components to American firms, finished
products that are suitable for manufacture on a relatively modest
scale (for example, the many items made locally for sale in Sears
stores in Latin America), or services for those directly employed in
foreign-owned industries. In most cases the record appears to in-
dicate that American firms abroad have active programs for stimulat-
ing the local manufacture of parts and sub-assemblies, often on the
basis of technical assistance to local suppliers. In due course, with the
expansion of the market, many of these suppliers branch out into the
production of full-fledged final products on their own account.
Private investments in less-developed countries expand employ-
ment, much of it relatively well paid, in industries that are established
because of the presence of foreign direct investments. The local con-
struction industry in particular is a major beneficiary, as is the trans-
portation industry and the communications industry. In addition,
service industries are stimulated to cater to the needs of those directly
and indirectly employed by the foreign-owned industries.
5. Encouragement to modern marketing.-American private invest-
ment, whether designed to cater to the export or the domestic market,
carries with it streamlined marketing practices that increase returns
to primary producers and to the national economy. This is partly
because of the investors' efforts to win compliance with standardiza-
tion norms in production (which lessen the variety of types and sizes
that need to be carried as inventories), and partly because of the ad-
herence to grading systems which permit purchases and sales to be
562
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
made by modern methods of communication instead of by personal
inspection of each package of merchandise. In addition, modern
packaging tends to be employed wherever risk of damage is high and/
or sales opportunities can be enhanced.
6. Low-margin high-volume policy. In most of the less-developed
countries there is a well-established practice of putting high unit
profit ahead of larger sales volume with lower unit profit. The result
is that many of the products of modern industry are kept beyond the
reach of consumers of small means. The advent of American enter-
prise in less-developed countries has tended to revolutionize thinking
and practice in this area. American firms try to sell the idea that the
lowest possible price consistent with reasonable profit will enable in-
dustry to expand sales, improve levels of living, expand productive
employment, and increase competition within the economy. A num-
ber of significant developments have already resulted from this price
policy and many more may be expected in the years ahead if there
is increased private foreign investment.
7. Broadening local capital markets. In some instances subsid-
iaries of American companies, such as American and Foreign Power,
invite the participation of local investors in their venture, which they
accomplish by floating equity and other securities and having them
listed on the local stock exchange. Since such securities generally en-
joy the reputation of the parent company, they are relatively strongly
traded on the local exchange and attract the attention of investors
who might otherwise refuse to consider equity investments. The pres-
ence of such securities on the local exchange thus tends to give a better
tone to the whole list, increasing interest in corporate equities, and
offering new outlets for saving. The importance of broadened se-
curities markets is that they help to accelerate local capital formation.
8. The streamlining of government-industry relations.-There are
two types of cases in which foreign investment may help to improve
the nature and working of government regulations affecting business.
In some instances such regulations have been simplified in the interest
of efficiency as the result of consultations between officials of the
country and executives from branches and subsidiaries of American
companies. The advent of American investment thus can have a
salutary impact on public administration. In other cases, governments
have taken the initiative to streamline parts of their regulatory
systems in an effort to attract more foreign investment.
9. Attitudinal shifts.-A boost to sustained development is given by
American foreign investments which help to produce fundamental
shifts of traditional attitudes in connection with work, saving, and
enterprise. (Risktaking by American business, necessarily of a long-
term nature, tends to induce local capitalists to assume similar risks
as well as to expand the size and increase the diversity of risktaking
by men who had remained on the sidelines. Local citizens who advance
in the ranks of foreign corporations inculcate in others the essence
of the entrepreneurial spirit, concern for expanding productivity,
pride of work, reliability, loyalty to the firm, and a sense of business
and civic responsibility. Public awareness of promotion programs
induce many young people to prepare themselves for positions with
American companies or new businesses that emerge in part because of
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS 563
the presence of American investments. Savings programs admin-
istered for employees by American companies, by responsibly manag-
ing the funds of the workers, induce desirable savings habits and thus
help to augment the supply of that necessary ingredient of capital
formation.
10. Expanding the local tax base.-When American investors sink
capital in foreign enterprises they simultaneously enlarge the tax
base of the less-developed countries. Sometimes, in fact, American
companies contribute the lion's share of the Government's revenue.
For instance, American business in Venezuela is the source of over
half of that country's tax receipts. Even when the tax contribution.
is modest, the enlarged tax base enables the government to finance
expanded programs in education, social security, transportation, agri-
culture, and the like. American investors thus make an important
contribution to the local economy by helping to expand the tax base.
11. Inducing non-American foreign investments.-An expanded
program of American private investment may be expected to provide
another important indirect benefit to the less-developed countries.
Because of the importance of the United States in the world econ-
omy-as a market and as a source of capital-the less-developed coun-
tries may be expected to attach importance to the maintenance of good
economic relations with us. The resulting investment "umbrella,"
however, is capable of sheltering more than the American investor.
It can also accommodate other foreign investors, such as those in
Western Europe. Hence, a stepped-up program of American private
foreign investment should also lead to expanded foreign business in-
vestments by other countries. A broad network of international in-
vestment of this kind makes good economic sense, and may also create
a political nexus with an increasing part of the free world.
Each of the foregoing gives an impetus to sustained growth in less-
developed countries.
12. Some illustrations of the contribution of American private in-
vestment. The immediately preceding discussion has classified the
outstanding types of contributions which American private enterprise
makes to the growth of the less-developed countries. For purposes
of exposition, that discussion was set forth in general terms. It may
be helpful, therefore, to cite some practical illustrations of more or
less typical American contributions to development.*
5
The most comprehensive, yet admittedly incomplete, study of the
impact of United States private foreign investment is that of the
operations of American firms in Latin America in 1955 which has
been recently released by the Department of Commerce. The fol-
lowing are but a few of the facts developed in this study covering
300 parent companies with nearly 1,000 subsidiaries and branches and
85 percent of the assets of American companies in Latin America.
(1) American firms produced nearly $5 billion of goods and serv-
ices for export or for local markets, with the latter slightly domi-
nating. The net amount made available to Latin America through
their operation equaled $3.5 billion (their total production less their
imports and remittances of earnings). This figure may be said to
• Several of the illustrations cited in this section are taken from the National Planning
Association's Studies of United States Business Performance Abroad.
5 The Role of United States Investments in the Latin American Economy, Survey of
Current Business (January 1957), pp. 6 ff.
94413—57- -37
564 FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
approximate the contribution made to Latin America's foreign ex-
change balance because the goods produced for the local market would
probably have to be imported.
(2) American firms in Latin America contributed about 5 percent
of Latin America's national income and of its gross national product.
(3) They paid nearly $1 billion in salaries and wages to 609,000
employees. Of these, only 9,000 were from the United States. And
82 percent of the 45,000 employees classified as technical, supervisory,
or professional were local personnel.
(4) American firms paid over $1 billion in income and other taxes
to Latin American governments, a sum approximating 15 percent of
all government revenues in the area.
(5) They paid over $1.8 billion for locally produced materials,
supplies, and equipment.
The illustrations that may be cited of individual country situations
are of interest. For example, in Venezuela about 60 percent of the
Government's revenue is derived from the petroleum industry, most
of which is operated by American companies; nearly 40 percent of
the Government's revenue is devoted to învestment purposes in agri-
culture, public service facilities, and industry.
The Creole Petroleum Corp. in Venezuela, one of the world's largest
and most modern oil companies, may be cited to illustrate employ-
ment effects of our direct business investments abroad. This corpo-
ration operated with at least 75 percent Venezuelans, even before the
Venezuelan Government required not less than that percentage of
employees to be nationals, simply because at least 75 percent of the
jobs could best be filled in that way. Even before Creole became
particularly conscious of its place in the community, the economics
of its environment produced a result favorable to extensive employ-
ment of local personnel. Today more than 9 out of 10 of Creole's
employees are Venezuelans. Nationals occupy 40 percent of its staff
positions, and Venezuelans are also on its board of directors.
General Electric in Brazil employs 5,300 employees, of which only
41 are United States citizens. Last year three Brazilian employees
celebrated their 40th year of service with the company.
A recent study of United States business in Mexico reports that of
46 companies having a total employment of 53,000 people, only 1.5
percent are North Americans-a much greater proportion of Mexicans
than is required by law. A prominent manufacturer of adhesives
and a concern making condiments hire no Americans at all. A rub-
ber concern has only 5 North Americans out of 1,550 employees. Out
of a grand total of 978 executive and managerial positions reported
by the 46 companies, 76 percent were held by Mexicans, and in many
cases the number of North Americans so employed totals 3 or less.
These figures take on special significance since Mexican law does not
require American enterprise to employ a single Mexican in an execu-
tive or managerial position.
United States enterprise abroad introduces new and different com-
modities which stimulate local effort for their purchase. Thus, Casa
Grace in Peru has had a long series of textile firsts through the intro-
duction of new textures, finishes, designs, and colors. It was the
first in Peru to make bleached and finished cotton goods before World
War I, pure indigo-dyed denim in 1927, printed cottons in 1936,
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
565
mercerized cloth in 1942, combed cottons in 1947, spun rayons and
other synthetic textiles and their printing by the silk screen process
in 1948, and everglaze cottons and its own roller engraving plant in
early 1954.
The role of American enterprise overseas in the development and
modernization of local industries makes a fascinating chapter in con-
temporary international relations. We may illustrate in terms of
the experience of Sears, Roebuck in Latin America. Sears began its
overseas operations with a store in Havana in 1941. Today it operates
about 25 department stores in Mexico, Cuba, Venezuela, Brazil, and
elsewhere. When Sears opened its Mexico City store in 1947, about 90
percent of the merchandise it sold was made in the United States.
In just 5 years, Sears was able to find and develop 1,300 small local
suppliers producing 80 percent of its annual retail volume in Mexico.
The firm's policy of providing technical advice and capital to develop
local suppliers has been repeated in most of the other foreign countries
in which it operates.
Today Sears can point to its Latin American operations with pride.
It is more than a merchandiser of department store products. About
two-thirds of the goods it sells south of the Rio Grande are produced
in the area.
The success which Sears has had in introducing the standard
American policy of low-margin, high-volume pricing is of interest.
When the firm entered Brazil, local suppliers were anxious to do busi-
ness with it, but on the traditional basis of high unit profits and small
sales volume. Starting at first in the garment field, Sears demon-
strated to firm after firm how to produce and market garments which
yielded low unit profits but enabled the goods to be priced so as to give
volumes that were a multiple of those previously known. Producers
thus were shown how to increase their income, and consumers for
the first time were offered locally produced merchandise at prices that
were within the means of broad sections of the population. In due
course, Sears extended the same basic pricing policy to hundreds of
different supplying industries in Brazil. On this point the repre-
sentative of another large American firm with substantial operations
in several foreign countries states:
In the area of price, for example, we try to sell the idea
that the lowest possible price consistent with reasonable profit
will enable us to sell more and thereby increase volume for
the supplier. This, in turn, will help to reduce the price and
further increase the volume. It is sometimes very difficult
to put this point across in the face of well-established practice
of putting high profit ahead of larger volume with lower
profit.
The contribution of American firms to the growth of local manufac-
turing is very extensive. When General Electric opened its electric-
bulb plant in Brazil in 1921, every material used in the manufacture
of lamp bulbs was imported. Today more than 88 percent of the
materials used are manufactured or purchased locally, including such
things as watt hour meters. One United States machinery company
operating in Mexico reports that over 70 percent of its line consists
wholly of Mexican-made finished goods. United States enterprises
566
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
in Mexico buy an impressive list of manufactured commodities from
Mexican firms. These include plastics, tools, dyes, cellophanes, inks,
paints, packing crates, structural steel, oil drums, machine tools, truck
bodies, batteries, cement, cotton fabrics, transformers, electric motors,
and radio chassis, among others. One electric company alone buys
parts from 500 Mexican concerns.
Typically, the American company will supply specifications and
sometimes technicians and know-how. Use is often made of expediters
as well, whose job is to keep in close touch with suppliers to make
sure that production is moving on schedule and, if necessary, to assist
with technical problems. It is by means such as these that some local
manufacturers have been built up into substantial operations; in some
cases, in fact, assistance from American enterprise has resulted in
creating competitors.
Many United States firms operating abroad provide on-the-job
training or formal training and educational programs. A United
States company in Mexico provides fourth year technical and engi-
neering students with on-the-job experience. A mining company
offers 15 scholarships in Mexican universities and permits students to
practice their profession on its premises. A retailer sends 12 Mexi-
cans to its stores in the United States where they will be trained for
managerial posts. An automobile manufacturer sends employees to
Detroit for advanced training. Standard Vacuum Oil Co. has a stu-
dent exchange program under which Indonesians study in the United
States. It has some 70 teachers in Indonesia to instruct native young-
sters. The Arabian American Oil Co. in Saudi Arabia provides
employee training programs and general educational facilities for the
children of its workers.
A major electric company has put nearly 1,800 persons from over
60 countries through a course in the United States to provide them
with valuable training. Graduates of this course and members of the
staff of this corporation have become heads or management members
of electric utilities in such areas as Argentina, Brazil, South Africa,
and India. At one time or other graduates of this course have man-
aged railway systems in Argentina and Australia, units of South
Africa's steel industry, departments of various foreign oil companies,
and units of local government.
Another firm provides the following as typical examples. One of
its subsidiaries introduced scientific industrial engineering into a
country and after 3 years of training, the best trained industrial engi-
neer among the foreign nationals left the company to set up in business
for himself as a professional industrial engineer. In still another
country a foreign national who had been trained to become chief cost
accountant left to join a local firm. Similarly foreign nationals who
had been trained in advertising procedures by the company so that
they had responsible positions with its subsidiaries left the company's
employ to take similar positions with local firms.
Examples of employees who have left still another American com-
pany to take positions in local industries include-
(a) A Brazilian engineer who is now vice president and chief
engineer of a Brazilian utility;
(b) An Indian engineer now on the professional staff of the
University of Bombay;
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
567
(c) Another Indian engineer now the chief engineer of a cement
plant in India;
(d) A Filipino engineer now an assistant chief engineer for a
refinery;
(e) An engineer from Colombia who is now vice president of a
One major firm in the extractive industry in Latin America is in
the process of initiating an industrial training program for all per-
sonnel, both overseas and national employees. It has for some time
conducted a program of training which involved sending the employee
and his wife to the United States for an intensive tour of industrial
organizations in which he has specialized. This 5-week tour is con-
fined to local employees of the middle and top management groups.
One company spends $67,000 per annum in the training of nationals
in formal programs. Another spends $78,000 in the provision of
graduate engineering training. One corporation, in an effort to de-
velop local employees, brings representatives from foreign facilities
to the United States for special training in either production, sale, or
finance. This affects on average some 12 people per year with an
estimated annual cost of $30,000 exclusive of salaries. Another
$35,000 is spent sending specialists into the field to keep local personnel
abreast of changing manufacturing techniques.
Formal training courses are by no means the only kind of training
provided by American enterprise abroad.
Creole's most effective training is in the day-to-day contact
of the unskilled or semiskilled worker with his more highly
trained colleagues. One of Creole's long-established labor
policies is to fill top supervisory positions with Venezuelans
as fast as qualified Venezuelan workers can be found or de-
veloped, and another is to improve work skills all along the
line. Consequently every North American who is hired is
selected partly for his willingness and ability to train the
people under him while they are working on the job, and the
success he has with such training is one of the major criteria
in appraising a man's own potential for advancement. Con-
sequently informal on-the-job training is a continuous
process. Largely because of this, Creole now has only Vene-
zuelans on its drilling crews and it runs some of its very com-
plicated installations with only a handful of North Ameri-
cans, assisted by Venezuelans who have learned practically
everything that they know by working at it with Creole."
Under Venezuelan law Creole is obligated to provide a few scholar-
ships each year and also it is so required under its union contract. Re-
cently, however, it provided over 200 scholarships at an annual cost in
excess of $300,000.
American corporations operating abroad often undertake charitable
activities. Thus in 1955 Esso Argentina flew nurses from its advanced
training center in the north of the country to Buenos Aires to relieve
the critical shortage of nurses during the capital's severe polio epi-
demic. The company was able to make the nurses available because as
• The Creole Petroleum Corporation in Venzuela, National Planning Association, 1955,
pp. 66-67.
568
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
a private investor it had not been content to concern itself simply with
handling petroleum but it sought also to advance the health of its
employees. As a result it has set up an advanced training school to
provide nurses for its own installations in the country. Similarly,
United Fruit operates 15 modern hospitals and 120 dispensaries in
the Caribbean area, employing over 100 doctors and 300 nurses.
D. OTHER CONTRIBUTIONS OF UNITED STATES ENTERPRISE TO FOREIGN
ECONOMIC DEVELOPMENT
International trade, by shifting men and capital to more efficient em-
ployments, increases the real income to be had with the resources at
hand. A steady growth of trade, founded upon comparative effi-
ciencies, provides an effective stimulus to the economic well-being of
ourselves and other nations. By introducing and making available
new commodities, trade stimulates efforts to gain these goods and
widens the choices that lie before people, which is, of course, one of the
most important measures of economic improvement. Representatives
of American firms abroad, in the interest of increasing sales, demon-
strate the advantages of their products; in part, these demonstrations
consist of lessons on how to use the product and how the potential
buyer can gain more profit, thereby stimulating the growth of techni-
cal knowledge and the desire for gain. The growth of trade, with its
attendant extension of the money economy to subsistence areas, in-
creases the possibility of useful exchanges and division of labor.
Foreign licensing of patents and know-how and engineering and
management advice also are growing forces in American international
economic relations. United States firms, desiring to enter foreign
markets without expensive expenditures or to keep their products be-
fore the foreign consumer, license production abroad. With these
licenses often go much technical knowledge and service. For example,
one firm provides its licensees with the following assistance: A special
division issues a bulletin supplying information on changes the com-
pany makes in its products; data are included on latest specifications,
on new products and product developments. Such information saves
the licensee both time and expense in research. The bulletin also pro-
vides information on the reports of various engineering and scientific
societies. Another bulletin abstracts information on United States
patents relating to its industry.
The division also helps solve technical problems of licensees. Day-
to-day problems in production which may not have a ready solution are
received by the division and problems are also solved by United States
technicians traveling abroad and by foreign technicians visiting the
United States plants.
This American licensor goes deeply into the conditions of production
by helping associates to set up modern labor standards, incentive
systems, and cost and scrap controls. Such systems have also been
copied by other firms and industries in the foreign country.
Besides skills and know-how, the agreements cover engineering
services, particularly in the construction of new factories or plants.
In such cases, assistance is provided in the selection of a site, in selection
of machinery to suit the labor and manufacturing conditions of the
foreign country, in the purchase of the machinery, in the preparation
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
569
of floor plans and machinery layouts, and in the preparation of archi-
tectural drawings. Engineers and technicians are sent to assist in
installation of machinery and to supervise initial operations. All
necessary information and know-how to start operation are provided
including specifications for the products to be produced.
The beneficial effect of licensing has been demonstrated time and
time again in the rise of industrial firms in otherwise underdeveloped
countries. For example there is Industria Electrica de Mexico, which
employees about 2,500 people and which produces a broad variety
of electrical goods under a Westinghouse license, and Elevadores Atlas
in Brazil, which has grown from very modest beginnings with a West-
inghouse license to be the third largest elevator manufacturer in the
world. Many of the miracle drugs are licensed for production abroad
and thereby alleviate suffering and illness in less-developed nations.
Comprehensive data on licensing are lacking, but, among the known
agreements, there does not seem to be any definite pattern which in-
dicates that either industrialized or nonindustrialized countries are
the largest recipients. Many firms have over 100 licenses in over
20 countries, and licensing seems to be undertaken by both small and
large United States firms. Gross yearly royalties received from
licensing agreements by United States firms have been estimated at
about $500 million.
Management and engineering services are provided by a number of
American firms. One management consulting firm does a million-
dollar business a year in Latin America alone. When employed to
undertake a task, these management consulting firms usually make
maximum use of the firm's own employees in arriving at suggestions for
improvement. Because of this approach, a more capable local per-
sonnel is left behind when the management firm completes its under-
taking. A vast range of services are provided by American manage-
ment consulting and engineering firms, varying from office layout
advice to virtually complete operational control of a plant under a
management contract as well as the construction and layout of plants
to be turned over to local operators. Industrial engineering, executive
development, quality control, wage structures, and marketing are just
a few of the types of problems on which assistance is provided.
SECTION II
MISCONCEPTIONS ABOUT PRIVATE FOREIGN INVEST-
MENT AND ECONOMIC DEVELOPMENT
It is often contended that private foreign investment is both insuffi-
cient and inefficient to aid effectively foreign economic development.
These contentions frequently provide the principal argument for
expanded aid programs and for primary reliance on state activity in
developing the economic capacity of nations. This section of the
report is devoted to a critical examination of these contentions, and to
certain aspects of development which relate to the need for aid to
foreign economic growth.
A. THE SIZE OF PRIVATE FOREIGN INVESTMENT
The alleged insufficiency of private foreign investment stems in
part from a statistical delusion. Some users of Department of Com-
merce data note that the net capital outflow of direct investment in
1955 was but $679 million.
This figure, however, is a net of nets. For one thing, the undis-
tributed profits of subsidiaries of American corporations (reinvested
earnings) are not included in this figure, as they should be if the con-
tribution of private foreign investment is to be accurately estimated.
Suppose an American company operating abroad distributes all its
earnings, and when it wishes to expand its operations it issues stock
which is subscribed for by its stockholders. This purchase of stock
would be counted in the $679 million above. But if the process is
short-circuited, as it usually is by the reinvestment of earnings, then
the reinvestment is not included in the aforementioned estimate of the
flow of capital. In terms of supplying capital, the short-circuiting is
merely a matter of form. As with the expansion of American indus-
try at home, much of the growth of American business operations
abroad is attributable to the reinvestment of earnings.
The phenomenal extension of the oil industry in the Middle East
and elsewhere has been financed very largely out of retained earnings;
and the same is also largely true of the expansion of many American
mining, manufacturing, and trading operations in Latin America,
and the growth of the Northern Rhodesian copper companies and of
the different branches of the mining industry in South Africa, in
which there are important American interests. The same applies to
British private investment in underdeveloped countries; the capital
investment of the West African merchants, of the Rhodesian copper
companies, of the British commercial and industrial interests in India
and the Far East, have been very largely derived from retained profits.
An example is provided by the United Africa Co., the largest mer-
cantile enterprise in Africa, a subsidiary of Unilever. The capital,
about £50 million to £60 million, employed in its West African opera-
tions is derived almost entirely from retained earnings of the com-
pany, its constituent elements, and its parent company.
570
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
571
The exclusion of investment out of depreciation funds further de-
tracts from the accuracy of estimates of private foreign investment.
It is a well known fact of American and foreign economic development
that firms do not simply replace existing equipment as it wears out
but rather improve it. Furthermore, the exclusion of depreciation
means that the $679 million figure fails to show the foreign exchange
contribution to the recipient country. The depreciation reserves
could be repatriated to the United States through the foreign exchange
market and thus there would be a drain of foreign exchange from
foreign nations but for local expenditures by overseas American firms
out of depreciation allowances. Exactly the same reasoning applies
to the retention of earnings by foreign subsidiaries.
Finally, none of the private foreign investment figures allow for
increases in the value of direct investment attributable to changes
in profitability. This makes for an understatement of the contri-
bution of United States overseas ventures to foreign economic growth;
adjustment of the value of direct investment for increased profitability
would reflect the growth of productivity which accompanies profita-
bility and which aids foreign economic growth.
Another source of private capital for underdeveloped countries that
is rarely mentioned is the short-term capital provided by American
banks and merchants in financing the sale of goods. This capital
finances such diverse activities as those of a Chinese dealer buying
small holders' rubber destined for the United States and a merchant
in the Middle East importing secondhand clothing from America.
The individual credits are usually for short periods but their aggre-
gate represents a revolving fund which sustains much activity and
development in underdeveloped countries. The credit received from
the United States enables the recipients to finance local traders who,
in turn, will often finance agricultural operations. At the end of
August 1956, short-term claims on foreigners reported by United
States banks totaled $1.7 billion. About $1 billion of this capital
was provided to Latin American and Asian countries.
In an attempt to provide a more meaningful measure of capital
formation undertaken by United States operators in Latin America
than the one commonly used, the Department of Commerce, in its
recent report cited above, calculated the sum of expenditures for plant
and equipment, net additions to inventories, and exploration and
development expenditures in 1955. This sum, running nearly $600
million, was twice the size of net capital flows plus reinvested earnings,
and it was over 4 times the size of net direct capital flows excluding
reinvested earnings (which is the type of calculation underlying the
$679 million figure which we have called a net of nets above). For
the period 1950-55 the Department of Commerce estimates that the
funds "spent to replace and modernize existing plant and equipment
by using funds currently set aside to cover depreciation, and to explore
and develop new resources" were nearly as great as the increase in
the net book value of United States private investment in Latin
America (the sum of net capital flows and reinvested earnings).
B. THE STAGNATION THESIS
It is sometimes contended that underdeveloped countries are caught
in a vicious circle of poverty which presents a barrier to development
572
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
that can be surmounted only by massive foreign government aid and/or
large-scale taxation for development. The main theme is that the
underdeveloped countries are so poor that they are able to set aside.
little or none of their income for capital formation. It is sometimes
added that their poverty discourages investment because their markets
are too restricted.
This view is questionable on general grounds because all developed
countries began by being underdeveloped. Their growth would not
have been possible if they were subject to this vicious circle of poverty.
Furthermore the advance of underdeveloped countries in the last half
century shows that the forces of development have operated. Their
poverty need not reflect stagnation but more simply a late start on
the road to material progress from a very low level of material attain-
ment. With a late start, a low level of income is quite compatible with
a rapid rate of economic growth.
There has been extensive development in many underdeveloped
countries over the last half century, especially in west Africa, south-
east Asia, and Latin America. National income statistics going back
before the 1930's are lacking but there is ample evidence of rapid
economic growth in these areas. Statistics of foreign trade are the
most easily accessible and reliable data. Although these refer to a
particular sector only, they are relevant in this context because in
these economies foreign trade is a significant part of the national in-
come, and exports are not infrequently produced by a large cross
section of the local population, and the bulk of imports is destined
for their use.
In west Africa at the turn of the century there were practically no
exports of such staple produce as cocoa from the Gold Coast, or of
cocoa, peanuts, and cotton from Nigeria; exports of palm oil and palm
kernels were about one-tenth of their present volume. In both Nigeria
and the Gold Coast the annual value of both imports and exports
was then around £1 million against about £100 million today; as prices
have approximately quintupled over the period, there has been a
twentyfold increase in the volume. Or, to take Malaya, there were
in 1900 no exports of plantation rubber, while by the 1930's the annual
volume of these was about a half million tons a year, about one-half
of which were then produced by small landholders.
There is much related information to confirm the general picture
of growth. There has been a great increase in the volume, range, and
variety of imports and in the consumption of commodities subject
to excise taxes (and for which these taxes serve as a consumption
index) both in total and per head. There has also been a substantial
increase in agricultural production for local consumption, obviously
in total and almost certainly also per head. This emerges from such
information as railway returns, occasional crop and acreage figures,
sales of agricultural and fishing equipment, and the like. The picture
is again confirmed by statistics of government revenue and of public
health. Latin America, west Africa, and southeast Asia are among
the more striking examples of economic growth among the underde-
veloped areas. In India, where economic progress in recent decades
has been slower than in many other underdeveloped countries, there is
much evidence of economic progress from such information as the in-
crease in the literacy rate, the reduction in famine and disease, the
fall in infant mortality, the increased consumption of fresh food and
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS 573
vegetables, the substitution of higher for lower quality food grains,
and the like. There is also ample evidence from similar data of
the economic growth of Latin America over the last half century or so.
The neglect of important categories of capital in much current dis-
cussion on underdeveloped countries adversely affects the assessment
of their position and prospects. Much the most important is the cap-
ital represented by agricultural holdings, and of the investment repre-
sented by their establishment, extension, and improvement.
A productive agricultural holding is an income-yielding asset the
productivity of which over that of underdeveloped land stems from
human activity. Such an asset is clearly capital; and the process of
establishing, extending, and improving it is clearly investment. The
neglect of this type of capital and capital formation (except when the
properties are owned by plantation companies or established or owned
by public authorities) results in paradoxes. Thus, the investment in
rubber estates owned by British and Dutch plantation companies in
the Far East is included in the foreign investment of Great Britain
or Holland; but the establishment and extension of rubber growing
small holdings (the output of which exceeds total estate output) is not
included in estimates of capital formation. If the vast cocoa acreage
of west Africa were owned by plantation companies, it would be
regarded as capital, and its establishment, extension, and improve-
ment would be seen as forms of investment. But as it is entirely in
the hands of African farmers it is not so regarded. The expenditure
of about £35 million on the east African groundnut scheme is regarded
as capital formation though it has not produced any groundnuts; but
the establishment of hundreds of thousands or millions of small
African-owned plots in northern Nigeria producing now over half a
million tons of groundnuts annually is not regarded as capital forma-
tion.
Other items of capital in agriculture often neglected in discussions
of capital formation in underdeveloped countries include simple tools,
pieces of equipment, simple structures, and also livestock. The con-
struction and purchase of tools, equipment, and structures absorb much
economic activity in the agricultural and trading sectors of many
underdeveloped countries.
Except where and when economic activity has been especially ad-
versely affected by political disturbances, economic progress has con-
tinued in underdeveloped countries in recent years. In Latin Ameri-
can countries over the period 1935 through 1953 the gross national
product has increased at an average annual rate of 4.2 percent, and
the output per head by 2 percent. From 1945 through 1954 the gross
national product of Latin America has increased at an annual rate
of about 5 percent in total, and about 22 percent per head, which is
a slightly higher rate than the growth in the United States over this
period.¹
For the other parts of the underdeveloped world the available infor-
mation is less comprehensive and consistent, but it is sufficient to show
that in recent years there has been appreciable growth both in total
and in per capita output in most countries for which reasonable infor-
mation is available. Thus, in India the rate of growth in the total
1 The information in this paragraph is from Analyses and Projections of Economic
Development, United Nations, 1955.
574 FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
gross national product seems to have been about 3 percent, which allows
for an appreciable increase in output per head, perhaps of the order of
112 percent or more.
The kind of information presented in the preceding paragraphs does
not indicate adequately the profound changes which have occurred
over the last half century or so in southeast Asia, west Africa, and in
some other underdeveloped areas. Malaya, which in the 1890's was
a sparsely populated country of hamlets and fishing villages, has
been completely transformed by the rise of the rubber industry
and has been developed into a country with populous cities, thriving
commerce, and an excellent system of roads. In west Africa slave
trading was still widespread at the end of the 19th century; the towns
of northern Nigeria, which are now important commercial centers,
were then important slave markets. Such profound changes in the
conditions of life greatly reduce the meaning of discussions whether
differences in real income between these countries and more developed
areas have widened or narrowed over the last half century. Indeed,
the conventional measurement of income does not indicate them.
These limitations on the concept of income are reinforced by the
implications of the rapid population growth which has accompanied
economic advance in many underdeveloped countries. For instance,
the population of Malaya, which in 1890 was about 12 million, is
today about 7 million; the number of Malays has risen from about
1 million or less to over 3 million. Economic progress is usually
measured by the growth of real income per head rather than by the
growth in total income. This procedure implies a very important,
though generally unrecognized, value judgment. The increase in
population in underdeveloped countries is generally brought about
by a fall in the death rate, which implies a longer expectation of life.
This implies additional satisfaction. Why else are people willing
to pay medical bills to postpone death? The usual way of drawing
conclusions from income per head thus obscures important problems
in the measurement and definition of income.
The achievement implied in these advances, and some of the prob-
lems and stresses presented by it, is better appreciated if we note the
very low level of material attainment from which most of the under-
developed countries started on the road to material progress a few
decades ago.
The underdeveloped world is often compared to the Western World
at the eve of the industrial revolution, in the 18th century. But this
is misleading because Europe had reached by then very high levels
of attainment following several centuries of economic and technical
progress, which had begun around the 10th century. This is clear
from the literary, cultural, scientific, and technical achievements of
the period. Moreover, Great Britain and Western Europe had evolved
social and political institutions by the 17th and 18th centuries which
contributed greatly both to the spirit of experimentation and to the
taking of long views in economic decisions. These countries also had
well-developed banking systems and money markets, and there was a
general expectation that private contracts would be honored.
This may be contrasted to the position of many of the under-
developed countries today, or a few decades ago. Africa south of the
Sahara never invented the wheel; over large parts of Africa, includ-
ing west Africa, even 50 years ago most people had never seen one.
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
575
There was still cannibalism in west Africa toward the end of the last
century, and slavery was a recognized institution until well into this
century. The position and development of most of the indigenous
people of Africa at the beginning of this century compared not with
the West in the 17th and 18th centuries, but at best with those of
Northern and Western Europe in the 6th and 7th centuries, when the
Germanic tribes of these regions were first contacted by Christian
missionaries.
Large parts of Asia and of the Middle East were in a rather
different position in that in the past they enjoyed high cultural and
technical standards, and are the repositories of a great cultural heri-
tage. But their technical achievements had very largely disappeared
or were submerged by the 18th century. Even where the cultural
heritage survived, the technical and economic achievement was meager
and the social institutions very uncongenial to economic development,
so that these countries also started on the road to economic develop-
ment from a far lower level than that of Western Europe in the 18th
century.
C. EXTRACTIVE INDUSTRIES
Investment in extractive industries (mining and petroleum), par-
ticularly private foreign investment, has been subject to considerable
criticism on the ground that it contributes little or nothing to economic
growth. Thus it is charged that the foreign financing of mines,
plantations, and other "colonial" forms of investment results in a dual
economy: a domestic sector living at a subsistence level of low pro-
ductivity because it has little capital and a foreign financed sector with
high output using capital-intensive methods of production, but offer-
ing relatively little domestic employment. The foreign financed
sector is said to be little more than an enclave of the lending nation,
an enclave to whose needs it caters by providing raw materials and
foodstuffs. Manufacturing and industrial enterprise allegedly has a
greater effect on the general level of education, skills, way of life,
inventiveness, habits, technology, and wants in an underdeveloped
country than extractive industry.
It is further charged that development efforts by local governments
are opposed by mineral investors because domestic development spend-
ing raises wages and thereby squeezes profits of the mineral producers.
Investors in extractive industries are also allegedly opposed to
domestic taxes for the financing of government development schemes.
These arguments are of doubtful validity or significance. Of par-
ticular importance is the fact that the extractive industries provide
enormous tax and royalty contributions to the governments of under-
developed countries. This revenue can be used for economic develop-
ment. Oil royalties and taxes paid to the governments of the middle
eastern countries amount to almost $1 billion a year. Taxpayments
by United States firms in Latin America in petroleum, mining, and
smelting slightly exceeded $800 million in 1955.
Complaints by extractive industries about their taxation concern
not taxation as such-they usually stem from discrimination against
them. It is worthy of note that after the tax rate was raised Creole
voluntarily paid sums to the Venezuelan Government equivalent to
the taxes that would have been levied during previous years if the
higher tax rate had been in effect.
576
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
The charge that extractive industries oppose domestic development
expenditures because they raise wages and squeeze profits does not fit
the facts. Should Government development expenditures raise wages,
it could only occur over a relatively long period of time, sufficient for
the corporation to adjust through price changes to the higher wages
even if no technological adaptations were available to offset the wage
increase. The implication that the extractive industries oppose devel-
opment per se does not fit with the fact that Venezuela's agricultural
development program has long been assisted by Creole (and other oil
companies) through the Consejo de Bienestar Rural and with the fact
that other companies are assisting in similar ways in their countries.
To the charge that investments in extractive industries provide addi-
tional capital to only a relatively small part of the local labor force,
it may be noted that this is better than none at all; even a small increase
in employment demand will raise wages somewhat, and the capital in
extractive industries assists in local economic development for it raises
the productivity and real income of those employed in conjunction
with it.
There seems to be no conclusive evidence, one way or the other, on
the comparative effects of extractive and nonextractive industries with
respect to the general level of education, skills, ways of life, inven-
tiveness, habits, store of technology, and so forth. Certainly many of
the extractive industry corporations are undertaking extensive educa-
tional programs and the fact that they often include highly complex
machinery in their operations suggests that the local population be-
comes perhaps more skilled through the injection of capital in the
extractive industry than in some other types of operation. Even if
the effects of extractive industry in these respects were zero, it would
still remain true that the injection of foreign capital would raise
local real income which in turn would provide a broader market
for local manufacturing efforts. It would also provide a greater basis
for saving and thus for capital formation.
Commenting on extractive industries, the Swedish economist Gun-
nar Myrdal says:
In fact, only the royalties and taxes, and these only to the
extent that they are actually used for the further development
of the economy of the country-instead of being squandered
on luxuries or whittled away in the form of private hoardings
of gold or foreign exchange can really be considered as a
productive capital influx from these sources.2
This statement is likely to lead to incorrect inferences. The argu-
ment applies to disposable resources from any source-including for-
eign aid. Thus the provision of governmental capital assistance to a
country does not necessarily increase the stock of physical capital;
the government inay simply reduce its taxation or increase its non-
development spending because of the availability of the foreign assist-
ance. The provision of aid gives no assurance that the people-as
distinct from the government-will gain; but foreign investment is
certain to produce that result because the wages of those who work
with foreign capital will normally be higher than they could otherwise
obtain.
• An International Economy, Problems and Prospects, Harper & Bros., New York, 1956,
p. 107.
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
577
A distinct advantage of investment in the extractive industry is that
it tends to provide foreign exchange with which countries can import
necessary capital equipment. While investment in manufacturing
in these countries would also increase the flow of goods and services
available to the local population, it would not necessarily provide the
foreign exchange required for economic development unless the balance
of payments adjustment mechanism were working satisfactorily.
America's national interest, at least directly considered, is quite
clear. The shift from a "have" to a "have not" nation in terms of cer-
tain basic raw materials requires us to facilitate, encourage, and cer-
tainly not restrict the flow of capital into foreign sources which will
supply those essential ingredients of our economic growth.
D. THE PROBLEM OF SERVICING THE DEBT
Private foreign investment makes for the most efficient development.
This is accounted for by several factors.
First, the most productive investments are given priority when pri-
vate parties, domestic and foreign, risk their own capital. This means
that there will be a minimum of waste in unwise investments, with
important implications for the pace at which the economy achieves
cumulative expansion. Second, capital formation on a private basis
carries with it conscientious and industrious follow-through in the
management function. This situation emerges from (1) the fact that
performance on a private basis is measured by results over the life of
the investment rather than in the completion of structural targets as
such (determined by Government officials), and (2) devoted attention
to detail in production and marketing on the part of men who have
the best of incentives because they stand to gain a substantial share
of the results of high efficiency. In contrast, equivalent capital
formed on a centralized planning basis too often tends to be operated
in routine fashion by managers with only lukewarm interest in effi-
ciency. The result is that more resources are used per unit of output.
Third, development in which there is substantial participation by
foreign private capital makes for the most effective division of labor
in capital formation. In particular, foreign enterprisers are able to
apply well tested techniques from the start, so that local enterprisers
are spared the risk and cost of coping with technical problems that
have already been faced and dealt with abroad. Local enterprisers
thus are encouraged to begin with industrial and other investments
that are mainly complementary to foreign investments, especially
when the latter are technically complex. Such are the means by
which underdeveloped countries, at low cost, place themselves in a
position to achieve a steady upgrading in the composition of industry
which is owned and managed by their own people.
3
A contrary view is illustrated by a report that asked the following
question: If Latin America borrowed United States capital at 8 per-
cent and did not have to amortize its loans, what would be the size
of Latin America's required new financing if the area sought by bor-
rowing to obtain $1 billion of new goods each year? At the beginning
of the second year the new financing would amount to $1,080 million
• Inter-American Trade: Measures for Its Expansion, Washington, Pan American Union,
September 15, 1954, pp. 144-145.
578
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
(of which $80 million would be financing charges). By the 50th
year, according to the report, Latin America would have to borrow
the staggering sum of $46.9 billion to net the area $1 billion of new
goods. $45.9 billion would be required just to pay the interest. The
clear implication, particularly since the context includes statements
that show a decided preference for capital on an aid basis, is that
developing countries incur a back-breaking burden in borrowing for-
eign capital.
This analysis ignores a key feature of the investment process.
There is a physical counterpart to the financial obligation incurred
by the foreign borrower. It is the productive goods (capital equip-
ment, etc.) which are obtained with the borrowed funds. These pro-
ductive goods increase total output within the borrowing nation, and
part of the additional production is transferred to the foreign creditor
in servicing the debt. Thus, some of the additional output is exported
while another part displaces various categories of imports, thereby
providing more than enough foreign exchange to service the debt.
Productive investment creates its own means of repayment, and, be-
cause of its influence on local wages and government revenues as well
as the environment for local investment, it provides additional goods
and services which lift levels of living within the borrowing nation.
A similarly based criticism of foreign lending is that American in-
vestors dare not carry out too much investment in foreign countries
because the receipt of interest and dividends on such investment would
threaten an import balance in the United States (as we use the income
to buy foreign goods) which would work to cause an American de-
pression. Ergo, United States policy should discourage private
foreign investment, or even Government lending; instead, foreigners
should be given the "surplus" American capital as a gift or, if interest
"must" be charged, the capital should be provided to underdeveloped
countries at least in the form of subsidized low interest rates.
This thesis regarding the impact on the United States of the service
on foreign investment is on a par with the "stagnation-inducing"
theory of savings. An American import balance, concludes one
widely quoted writer, "is the main obstacle to a successful foreign
investment program." Another writer is greatly concerned about
"how and at what sacrifice the United States can accept payment on
foreign investments." Still another writer does not see how the
American economy can adjust itself to the imports that would be
facilitated by our investments abroad. He also feels that the import
balance is the "most disturbing problem connected with American
foreign investments." •
5
These feared imports are in fact the benefit, at least the direct benefit,
which the United States obtains from overseas investment. If the
capital which is sent abroad had been invested at home, it would have
provided additional goods and services for the American people. And
if the capital which is sent abroad does not provide even more goods
and services to the United States than could have been produced at
home with that capital, the overseas investment results in a net loss of
E. D. Domar, "The Effect of Foreign Investment on the Balance of Payments,” Ameri-
can Economic Review, December 1950, p. 808.
N. S. Buchanan, International Investment and Domestic Welfare, New York, Henry
Holt & Co., 1945, p. 179.
H. B. Lary. "The Domestic Effects of Foreign Investment," American Economic Review,
Supplement, 1946, p. 678.
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS 579
8
real income to Americans. Thus it is essential that the United States
import the equivalent of the earnings on its overseas investment, lest
the American standard of living fail to increase as much as it could."
There are reasons to believe that the fear of imports is unwarranted.
The United States is consuming more and more imports of raw
and semi-processed materials and will need to do so increasingly
in the future. Five volumes of evidence presented in the well-
known Paley Commission report testify eloquently to this fact.s
Thus, we need high-grade iron ore from Canada and Venezuela,
copper from Chile, Peru, and Rhodesia, nickel from Canada, coffee
from Latin America, and so forth. The imports, which are required
by an expanding and efficiency-minded American economy, represent
well-earned payments for the use of American resources that have
been invested in the development of other countries. As our require-
ments for raw materials grow, we should be grateful that American
resources are being invested abroad to yield the necessary imports on
an efficient basis. We should also abjure propositions that discour-
age foreigners from taking a confident long-term view of the value of
partnership with American capital in the buildup of their economies.
The American economy is not "stagnating." It moves constantly
ahead, to the marvel of the world. It can absorb imports in its stride
and in dynamic fashion.
E. SCREENING FOR EXCHANGE DRAIN
A number of capital importing nations today screen foreign capital
with the objective of rejecting investment which would not in some
way save foreign exchange. This policy rests in part upon a fear
that the demand for foreign exchange for the remittance of profits and
the repatriation of capital may extend beyond the capacity of the
country to provide. This policy is sometimes justified to the capital
exporters as a means of insuring that the foreign investor can be
certain that his host country will not get into foreign exchange trouble
such that he might have difficulty transferring his profits and capital
at a later date.
Such reasoning seems to imply that some forms of private for-
eign investment do not assist the balance of payments situation of
the capital receiving country. But, so long as the capital is produc-
tive, the culprit is not the private foreign investment; productive for-
eign investment will lead to exchange drain only to the extent that
the country does not allow the balance of payments adjustment process
to work. Thus it is sometimes thought that a country should take
only capital which directly increases its exports or reduces its imports,
thereby saving foreign exchange. But the erection of a plant to pro-
duce for the local market will eventually divert some consumer ex-
penditures to the purchase of the new product; the shift of funds
which the consumers no longer spend on exportable products or im-
ports in order to buy more of the new product means that exports
will rise or imports will fall as an automatic result of the shift of
consumer expenditures. In this way foreign exchange will be pro-
vided to repay capital and profits.
If it should happen that the consumer does not reduce his pur-
chases of imports and exportable products by just the right amount
• When part of the earnings are reinvested abroad, as they are, the principle still stands
for the reinvested earnings are presumably more productive of goods and services than
if they were invested in the United States.
•Resources for Freedom, President's Materials Policy Commission, Washington, 1952.
94413-57-38
580 FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
which will make possible a transfer of profits, there still remains a
mechanism which permits the servicing of foreign investment. A
balance of payments deficit in connection with debt service will cause
deflationary pressure within the capital-receiving country or a de-
preciation of its exchange rate. Either result has the effect of raising
the exports and reducing the imports of the country which has re-
ceived the capital. Thus, so long as the investment is productive, it
increases the flow of goods and services available to the people at
home, and somewhere, some place in the economy resources will shift
as a result to provide the means for servicing the debt.
All this requires, however, that the Government be willing to allow
either the exchange rate to shift or the price level to change in re-
sponse to pressures on the foreign exchange balance. Many under-
developed countries are currently unwilling to do so, and prefer to
retain exchange and trade control to force a balance between their
foreign exchange receipts and payments. Thus in order to preserve
exchange rate stability or to have more control over their general in-
ternal price level, countries, through the screening of capital, reject
private foreign investments which would add to the total flow of goods
and services within their nation (and to local real income) without
foreign exchange drain.
F. ALLEGED DISAPPOINTMENT AND FRUSTRATION
Current discussion of private foreign investment generally registers
disappointment with regard to its record in assisting foreign economic
development.
It is contended that private foreign investment falls short of the
capital needs for an adequate rate of growth. A significant new pat-
tern or model has emerged in discussions which relate an alleged
paucity of private investment to the need for foreign assistance and
to the growth of real income within developing countries. This model
may be outlined as follows:
The level of income and its rate of growth in the particular country
or area are deemed unsatisfactory. The growth of income depends on
the rate of capital formation, which is measured by the money ex-
penditure on public and private investment. Capital formation is too
low, and needs to be raised to secure a desired rate of growth of in-
come. But this is not possible without special Government measures
both at home and abroad. At home the level of income is low, and the
willingness to save is also low, both because of the low level of in-
comes and because of certain other social and institutional factors.
The inadequacy of voluntary saving necessitates compulsory saving
(taxation) for development. But even with taxation it is impossible
to raise capital formation sufficiently to secure the desired rate of
growth of income. The difference has to be provided from abroad,
primarily because of the inadequacy of domestic resources. But pri-
vate capital is not available from abroad in sufficient volume, and this,
therefore, has to be bridged by capital supplied by foreign govern-
ments or by the international agencies.
Presentation of this case usually proceeds in the following order:
it begins with the desired rate of growth of income; then follows the
rate of capital formation necessary to secure this, which is deduced
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS 581
from a postulated numerical relationship between investment expendi-
ture and the growth of income (capital-output ratio); then follows the
projected level of private savings available, together with the amount
to be secured from taxation. The amount to be secured from abroad
represents the difference between projected capital requirements and
the domestic capital supply from voluntary saving and taxation.
This whole scheme is often presented in somewhat esoteric language.
However, in general terms it amounts to this. Some people, usually
spokesmen of the international agencies, government, or university
teachers or journalists, emphasize the need for a higher rate of develop-
ment. But this postulates additional resources which the population
is not prepared to make available voluntarily, either by loans or by
gifts, that is, either by voluntary saving or by charity or public spirit.
Therefore, they must be taxed for the purpose, i. e., compelled to make
available the resources. But this does not yield sufficient investment,
and additional resources have to be supplied from abroad. But again,
foreign individuals cannot be induced either to lend or to give volun-
tarily, that is, to supply the resources by private lending or through
charity.
On these ideas any rate of development can always be deemed insuf-
ficient as long as incomes in a particular country are lower than in
some other country-or even if they are the highest in the world. The
only test of adequacy of the rate of growth is the opinion of the pro-
ponent of the idea. This may be quite unrelated to the wishes of the
population, or at any rate to large sections of the population, as is
clear from their reluctance to make the resources available by volun-
tary saving. Similarly, on this sort of reasoning it can always be
asserted that the development which takes place in the absence of such
drastic measures is insufficient, and the contribution of private business
enterprise thus inadequate.
In addition to the fact that the projected rate of growth is purely
arbitrary, the ratio of capital to output which is used in such projec-
tions is, at a minimum, misleading. It is based on statistics of dubious
accuracy; we have already commented on some of the items excluded
from data on investment expenditures. For the economy as a whole
it is practically impossible to assign an increase in income to any
increase in capital except in very special short-period circumstances.
The capital-output ratio is very different in different types of activity
and the type of capital obviously varies with the various stages of
development. Lumping together heterogeneous assets makes the capi-
tal-output ratio of little significance for development planning.
Since capital is a scarce factor of production the dangers in using
such models for determining the appropriate quantities of foreign
capital can involve a serious waste of productive power. Thus if the
estimators assume a 3 to 1 capital-output ratio when more capital-
saving methods would permit the desired output to be obtained on the
basis of a 2 to 1 ratio, they are guilty of demanding 50 percent more
of the scarce capital than is warranted. The same is true if they have
simply misestimated the quantities of capital per unit of output.
Finally, because the quantity of foreign assistance required is the
end product of such calculations, emphasis is directed away from the
component variables which are to some extent under the influence of
the potential aid recipients. Not only is the proportion of domestic
582 FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
savings probably underestimated in fact, but the quantities of savings
which could be provided locally under more appropriate monetary,
fiscal, and other domestic policies is surely underestimated. The same
holds true for the flows of private foreign capital which could be
attracted if a more favorable environment were provided.
Marked discrepancies in the estimates of capital assistance required
by underdeveloped countries provide evidence that projections of this
nature are of questionable value. Thus, a United Nations study titled
"Measures for Economic Development of Underdeveloped Areas"
concluded that, in order to increase national income per capita in
Latin America by 2 percent annually, an annual investment of over
$2.5 billion would be required. This would leave according to their
estimates a deficit of $500 million which would have to be met with
foreign investment. A more recent study made by a member of the
staff of the International Bank for Reconstruction and Development
calculates that, for the same per capita rate of growth, investment
would have to be $3.5 billion to $4 billion with a gap to be covered
by foreign sources equal to $2 billion annually.
G. CAPITAL AS THE KEY TO DEVELOPMENT
In some quarters the injection of capital into an underdeveloped
country is regarded as the "open sesame" of growth. Such an em-
phasis misconceives the growth process. While capital is an essential
ingredient of economic growth, it is not alone sufficient. The ability
of a nation usefully to absorb capital depends on a number of factors;
(a) the quantity and quality of its natural resources; (b) the quality
and training of its labor supply; (c) the availability of domestic enter-
prise and management; (d) the extent to which the capital from
abroad is accompanied by technical skills including entrepreneurial
ability; (e) the existing stock of capital; (f) the history and present
status of the relations between government and the private economy.
Capital that is imported must be combined with the existing factors of
production within the recipient nation. This takes entrepreneurial
ability; that is, it requires the efforts of men who will search out the
best ways of using capital and of combining it with the available
resources. Unless the ability to combine it with other resources is
available and unless the resources are there, the capital will be largely
wasted and the rate of growth will be much slower than would other-
wise be possible.
It is especially misleading to suggest that an increase in income is
simply the result of a money expenditure labeled "investment." Yet,
this is often fundamental to the views which support foreign aid and
extended taxation for development. Investment even on a large scale
and in the form of objects of great durability need not result in an
increase in income. Evidence for this obvious point is provided by
the pyramids.
In contemporary life a premium is often placed on specific and
spectacular projects which can be credited to particular individuals
or governments. Indeed, economic growth is often assessed largely
in terms of such projects irrespective of their contribution to the
growth in income, rather than in terms of unspectacular though often
much more fruitful and pervasive growth. Further, in underde-
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
583
veloped countries the governments are generally under strong pres-
sure to emulate the technical achievements of more advanced coun-
tries. The distribution of political forces may be such that a readiness
to do so may be a condition of popularity and, indeed, of political sur-
vival; and those individuals who yield to these pressures do not sacri-
fice their own resources in doing so. These influences clearly en-
courage acts of economic showmanship. Such acts are not confined
to underdeveloped countries, nor to public investment. But for the
reasons just stated, they are likely to be prominent in this field. At
the same time the governments are encouraged to neglect other in-
fluences and factors contributing to investment, including neglected
categories of investments such as agriculture.
Thus in various ways the oversimplification and misleading em-
phasis on investment expenditure as the propellant of economic de-
velopment encourages wasteful policies. At the same time there are
strong political and psychological forces at work which will prevent
those responsible for these policies from abandoning them or admit-
ting their mistakes, however costly they may be. The more money
is spent on public investment the more necessary it is for those respon-
sible to insist on the value and productivity of the expenditure, irre-
spective of results.
On the other hand, a substantial increase in income is often possible
with little or no investment. For instance, the emergence of produc-
tion for sale (i. e., an exchange economy) instead of subsistence pro-
duction may bring about a substantial increase in income without heavy
capital investment. It may come about as a result of such diverse
factors as the establishment of settled government; the suppression
of tribal warfare and slave trading; the appearance of a few traders,
whose operations induce the population to produce for sale because
they bring incentive goods and suggest the cultivation of products for
sale; a comparatively modest improvement in communication; and so
on. Again the spread of knowledge and improved techniques of crop
and animal husbandry may increase output greatly with little or no
additional capital expenditure. These considerations are important
in view of the fact that most people in the less developed countries earn
their livelihood in agriculture.
Furthermore, the statistical record of American economic growth
seems to show that the increase of output per capita is much less a
matter of the resources a nation has in its possession than how well it
uses them. Almost 90 percent of the increase in American output per
head from 1869-78 through 1944-53 is attributable to an increase in
the combined productivity of labor and capital. If they had not be-
come more productive, the increase in the quantity of labor and capital
would have sufficed to raise output per capita by only 14 percent."
Similarly, A. K. Cairncross, until recently Director of the Economic
Development Institute of the International Bank for Reconstruction
and Development, notes that-
In most industrialized communities capital accumulation
out of savings equals about 10 percent of income. If inno-
vation were to come to a standstill but additional investment
•Moses Abramovitz, Resources and Output Trends in the United States Since 1870,
National Bureau of Economic Research, 1956.
584
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
could nevertheless yield an average return of 5 percent, the
consequent rate of increase in national income would normally
be no more than one-half percent per annum; we are told that
national income has, in fact, been rising by 2 to 3 percent per
annum. On this showing, capital accumulation could account
for, at most, one-quarter of recorded economic "progress." 10
H. SOCIAL CAPITAL
Still another argument for foreign aid, or at least for State de-
velopment of resources, is concerned with the need for so-called social
overhead capital. This term usually refers to harbor facilities, public
health programs, education, irrigation projects, agricultural extension
services, roads, and public sanitation facilities. By many writers and
in many countries the term is used elastically to include in addition
railroads, communications, electric power, and other basic industries.
The social overhead capital argument as a justification for aid and
State economic development means all things to all men-in fact, the
industries included within the concept differ with the ideology of the
writer. If the concept is limited to genuine public service activities
and facilities such as public health, education, agricultural extension
services, and roads, then it must be admitted that these yield indis-
criminate benefits. Hence, it is difficult, if not impossible, to charge
consumers for them and the best procedure is to finance the under-
takings by using the general tax revenues of the Government.
But when more elastic, all-inclusive definitions of social overhead
capital are used, the arguments favor not foreign aid or State develop-
ment but recourse to ways and means that will assure efficient operation
of technically complex and economically challenging undertakings.
Private enterprise is the tested method of achieving efficiency in the
use of complex equipment under changeable output and market cir-
cumstances, especially in countries without a soundly established public
administration. If necessary, governments may make use of subsidies
to induce private capital to undertake the types of capital formation
involved a policy for which there is ample historical precedent.
A vast amount of social overhead capital was provided to developing
countries by private investors in the 19th century. Thus, for example,
30 percent of British foreign portfolio investment in 1913 consisted
of Government securities, the proceeds of the sale of which were used
in large measure for harbors, railroads, roads, and the like. Another
40 percent consisted of railroad securities. Since railroads were built,
if not directly by the Government, at least in most instances with
extensive governmental help in the form of land grants, subsidies, and
guaranties of returns to investors, about 70 percent of British invest-
ment was the direct or indirect result of foreign government activity.
Of importance to current discussion is the fact that this capital was
provided by private investors-which suggests that there is no in-
herent reason why social overhead capital cannot come from private
sources under appropriate conditions.
Furthermore, it should be noted that over half of British railroad
investment was in Argentina and the United States and that the rail-
10 The Place of Capital in Economic Progress. International Social Science Bulletin,
vol. VI, No. 2, p. 232.
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
585
roads in these countries were built, owned, and operated almost com-
pletely by private enterprise with assistance in the form of subsidies
from governments. This, of course, suggests that today's investment
in some forms of social overhead capital can be made attractive to
private foreign investors-they can be induced through subsidies to
supply such needs as in the 19th century. The borrowing nation
thereby avoids, at the much smaller cost of the subsidy, the pain of a
deep cut in consumption which would be necessitated if the social
overhead capital were financed locally through taxation or, alterna-
tively, the American taxpayer is spared the pain of paying taxes to
provide large amounts of foreign aid for this purpose, as is frequently
proposed.
As will become clear as we proceed, many underdeveloped countries
have not used their resources in the most effective ways. They could
improve their real income simply by rearranging the allocation of
resources. Although, as we have pointed out, many underdeveloped
countries are presently enjoying a growth in real income, the supply
of extractive resources unexploited by domestic or foreign investment
is such as to make one believe that their real income could be further
increased through the expansion of extractive industries. Such seems
to be clearly the case, for example, in several Latin American coun-
tries. In Argentina and Brazil the Governments are sitting on sub-
stantial oil resources. Vigorous development of these resources would
not only yield oil, imports of which now produce serious strain on the
balance of payments, but also would provide substantial royalty and
tax payments which could be utilized to provide genuine public service
facilities. The undiscovered resources of many other underdeveloped
countries are undoubtedly also substantial.
The major activity of the International Bank is the provision of
social overhead capital to the underdeveloped countries. Time after
time the bank has commented on the relatively small absorptive ca-
pacity of these countries as well as on the scarcity of worthwhile proj-
ects for which it can make loans. It would seem that proponents of
large-scale United States Government grants for the provision of
social capital must show that there is a genuine need for it over and
above the amounts available from the International Bank, especially
when it is evident from the expansion plans of a company such as
American and Foreign Power (construction expenditures for the
5-year period 1956-60 are currently estimated at $527 million) that
private enterprise can be induced to provide social overhead capital
(elastically defined).
I. THE CAPITAL GLUT
Some writers find it a happy coincidence that the United States
and foreign countries will both benefit through the provision of
foreign economic assistance. Thus it is sometimes contended that
the United States suffers a capital glut; it is argued that we must ex-
port or give away this excessive capital in order to sustain employment.
A somewhat more sophisticated line sees an advantage to the United
States in that private foreign investment (or aid) will sustain our
exports of goods and therefore provide employment at home. Neither
of these views seems to be an accurate interpretation of the resiliency
586
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
of the American economy. Certainly there is no glut of capital-not
in these days of "hard money." In fact the United States is con-
fronted with just the opposite situation; it is necessary to suppress
some of the public's demands on American resources by way of tight
money policy in the interest of internal financial stability.
SECTION III
THE STATE AND ECONOMIC DEVELOPMENT
A. FREE MARKETS AND ECONOMIC DEVELOPMENT
Sustained and worthwhile economic growth can only be had if a
large role is given to free markets in the allocation of resources and
the satisfaction of consumer demand. Development is too big a job
for government alone. Devoted attention must be given to the million
and one places throughout the economy, in the relatively few large
units of production as well as the many small ones. The key element
in the improvement of this complex is the domestic enterprise base,
which unfortunately is neither wide nor strong in many under-
developed countries.
1. Coercion is not the answer.-If development has any meaning as
a desirable process, it must refer to an increase in desired output, and
not simply to an increase in physical volume of commodities unrelated
to peoples' wants and requirements. The conventionally measured
national income is only a first approximation of the net flow of desired
goods and services. The correspondence between the conventionally
measured national income and the flow of desired goods and services
is affected by various factors, of which only a few can be mentioned
here. Thus, it is affected by the proportion of the national income
subject to rationing (in contrast to commodities which can be freely
bought at ordinary prices); by the proportion of the output pur-
chased by the Government out of the proceeds of taxation in contrast
to the output purchased voluntarily by the population out of dispos-
able income. This last point is specially important in the present
context because if there is a large increase in the proportion of the
national income bought out of taxes by the Government rather than by
individuals out of freely disposable income, the pattern of demand
does not reflect individual desires in the same way as it did before the
change.
Even if compulsory saving (taxation to provide revenue for devel-
opment expenditures) increases the national income in the future this
does not imply development in the same sense as if this had been
brought about without compulsion. The necessity to exercise com-
pulsion shows that the population prefers the current private use of
the resources to the uncertain future increase in output-otherwise
it would have saved and lent voluntarily, and the exercise of com-
pulsion would have been unnecessary.
In general, future output is not as valuable as the same physical
amount of output at present. This is clear from the existence of inter-
est; and it is particularly evident when we consider long-delayed
returns. The general consideration is reinforced by the inherent
uncertainty of future output. Thus the reluctance of the population
to surrender a volume of resources at present to secure an uncertain
increment in the future is readily intelligible. It is reinforced yet
587
588
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
further when the type of output to be secured in the future is deter-
mined by the Government, and not by private choice. Thus, even if
there is an increase in future output as a result of compulsory saving,
which is by no means certain, this is not as desirable as development
achieved without the exercise of compulsion.
There is also often a striking discrepancy between those who advo-
cate the need for accelerated development and those who have to pay
for it. This is apt to be obscured by references to the national will,
or to the will of the community to develop, and by other similar
expressions which tend to neglect both the element of compulsion
in the process and the fact that those who so warmly advocate the
imposition of sacrifices are not those to bear them. Thus, in many
underdeveloped countries the advocates are drawn very largely from
among the urban population, while the sacrifices are often imposed
on the rural population. Moreover, the advocates of such measures
tend not only to escape the sacrifices, but very frequently benefit from
such policies, in that they occupy the positions of influence and power,
often accompanied by large incomes which are created.
For example, the exceedingly severe taxation of the producers of
West African export crops, which for many producers has involved the
imposition of a ceiling on their incomes, has been warmly supported
by people with 4 or 5 figure incomes in sterling, exempt from taxation
or taxed very lightly, and who are often holders of posts financed by
the official export monopolies, or in other ways beneficiaries of their
operations; and the policy they support implies extremely severe taxa-
tion of people with very low incomes. This is quite a familiar
phenomenon in the advocacy of taxation for development. The dis-
tribution of benefits and costs reflects the distribution of political
power in the underdeveloped countries of Asia and Africa. In these
countries there is a striking discrepancy between the urban and the
rural population: substantial sections of the former are literate, organ-
ized and vocal, and correspondingly effective, while the rural popu-
lation is illiterate, unorganized, and ineffective.
Moreover, it is not even certain that taxation will increase the future
national income. Taxation represents a transfer of resources from the
private to the public sector, and in assessing its results it is necessary
to consider the repercussions on the private sector both of the transfer
of funds, as well as the repercussions of the collection of funds on the
supply of work and saving; and it is necessary to consider also the
respective productivity of resources in the private and public sector.
It should be clear that these resources represent a transfer and not a
net addition; that to regard them as a net addition is to overstate the
increase in the supply of capital; and that the failure to recognize
these repercussions is likely to result in a structure of taxation not
designed to minimize these adverse repercussions. It is practically
certain that compulsory saving, even when it does increase net saving,
does not do so by the proceeds of compulsory saving because of the
reduction of saving in the private sector as the disposable income of
the taxpayers declines through taxation; and this reduction in private
saving may even exceed the proceeds of compulsory saving, so that
the net result is a decrease in the supply of saving.
2. The problems of psychological, social, and political adjustment.-
Any United States-sponsored policy which looks to rapid change must
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
589
take account of the psychological and social adjustments which will
necessarily be involved. It would seem that economic development
which is based mainly on private investment tends to minimize diffi-
culties connected with the indicated adjustments.
We have already referred to the substantial economic advance in
many underdeveloped countries over the last half-century, advances
which over large areas have amounted to a complete transformation
of the condition of life. The impact of such far-reaching changes
poses immense problems of psychological and social adjustment, such
as have not arisen in the West. There the series of changes usually
described as the industrial revolution took place when these coun-
tries had already reached a comparatively high level of economic
attainment, and accordingly they implied a far less violent change in
modes of living, attitudes and outlook than do the changes which
are now taking place in the underdeveloped countries with the pos-
sible exception of some Latin American nations.
It is in Africa that these changes require the most drastic readjust-
ment of attitudes. The late Mr. Frank Samuel, for many years man-
aging director and subsequently chairman of the United Africa Co.,
said in an address in 1949 that in Africa at present the 20th century
A. D. is being superimposed on the 20th century B. C., and this is
hardly an exaggeration.
The following episodes or contrasts may give some idea of the
drastic changes and readjustments implied. In Port Harcourt, a
busy trading center in eastern Nigeria, there are a number of African
traders, mainly women, operating on a very large scale. In 1950 the
turnover of these traders with one of the large European merchant
firms in the town amounted to several hundred thousand pounds.
Thirty miles from Port Harcourt there were 10 villages in which
the sale of meat without the hide was prohibited to make sure that no
human flesh was sold for consumption. Sometimes the contrasts are
merged in one person. Thus the Oni of Ife, the leading Yoruba
chief in Nigeria, is a director of large commercial undertakings.
But in his capacity as spiritual head of the Yoruba nation he is con-
sidered responsible for regulating the supply of rainfall in western
Nigeria.
In west Africa the largest trading concern is the United Africa Co.,
a giant firm operating enterprises employing the most up-to-date
equipment. Yet recently 5 night watchmen employed by the com-
pany were found guilty of having murdered 2 men and having eaten
their fingers in order to acquire greater strength. At about the same
time in a native court two men were tried for tying up the rain and pre-
venting it from falling. They pleaded guilty (it is not known whether
from conviction or from shrewd business motives), and were fined £5.
Over most of Asia the adjustments involved are different rather than
less difficult, since many of the social institutions and psychological
attitudes, uncongenial to sustained economic advance, are deeply
rooted in centuries or thousands of years of history.
The situation in these regions is thus essentially different from that
in the West in the 17th or 18th centuries where, as a result of 6 or 7
centuries of economic and social progress, peoples' outlook and at-
titudes and the political and social institutions had reached a stage in
which rapid economic advance was possible without very great psycho-
590 FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
logical strain. The nature and extent of the problems of readjust-
ment to be faced in these countries are rarely fully appreciated.
The problems are not so serious in most of Latin America chiefly
because of the large proportion of the population descended from
European immigrants who themselves have had centuries of economic
development behind them.
Japanese experience seems to provide an exception to the above argu-
ment but the difference is more apparent than real. The social in-
stitutions in the 19th century were far less uncongenial to economic
development than in the great majority of African and Asian countries
today. Moreover, deliberate attempts were made to harmonize eco-
nomic change with traditional social institutions. Interestingly,
Japan's development was not accompanied either by intergovern-
mental capital transfers or by a comprehensive development plan.
It is often contended that economic development will buy peace,
satisfaction, and political stability, but the changes generally imply
a disintegration of traditional forms of communal life; erosion or dis-
appearance of traditional loyalties, obligations or beliefs; and indeed
a drastic readjustment in the very modes and purposes of life. Eco-
nomic development did not assure democracy for Japan or Germany.
A pronounced lack of correspondence between economic advance and
social and political contentment is especially likely to emerge in
periods of rapid social change accompanied by a disintegration of
traditional communal life and its values. Such a situation is fraught
with political danger. For instance, peoples' readiness to accept a
totalitarian regime is particularly great when their traditional com-
munities and loyalties have disintegrated rather rapidly, and they have
not had a long enough time to evolve a satisfactory or satisfying exist-
ence as individuals with new purposes and directions. In these con-
ditions individuals are likely to emerge who are quite ready to lead
society in such directions. Individuals whose own lives appear to
them to have lost meaning and purpose often feel a sense of mission to
compensate them for this. With the comparative decline in religious
faith and of some other attachments and loyalties the zeal of such in-
dividuals is diverted to other mass movements, of which the passion
for development is one. In the less developed countries the advocates
of drastic measures for rapid development seem to include a dispro-
portionate number of such individuals, who hope to gain from eco-
nomic development a new meaning and purpose for a life empty of
attachments and loyalties, and possibly also to obtain great power over
their countrymen.
1
A distinguished group of students of the problem ¹ has noted that
the major source of discontent and unrest in many underdeveloped
countries is not the failure of the peasants to obtain a western standard
of living. Rather the causes are found in the disparities between the
remembered satisfactions of their ancestral ways and the values of
independence, security, and the sense of belonging which have suc-
cumbed to rapid economic and social changes. The dissatisfaction
produced by rapid growth in some areas may constitute the opening
wedge for the entry of subversive forces from the Soviet Union.
These tensions and difficulties which stem from the problems of social
and psychological adjustment to rapid and discontinuous change are
1 Elliott, W. Y. et al., Political Economy of American Foreign Policy, Henry Holt, 1955.
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
591
present whether the change is brought about by the action of private
enterprise or public policy. There is, however, a strong presumption
that the processes of private investment are less likely to cause extreme
social stress and upheaval than government programs for development.
Private investment is normally undertaken in order to secure profitable
returns. These generally depend on the presence of factors comple-
mentary to capital, notably on supplies of technical and administrative
skill. The presence of these sets up a presumption that people will
have made some progress along the road to development, that social
institutions and psychological attitudes are not wholly unrelated to
the new developments, which will not represent a complete break with
established conditions of economic and social life.
This presumption is less in most cases of public investment, espe-
cially of the spectacular type. These are not undertaken to secure
directly profitable returns, and are thus less dependent on supplies
of suitable complementary resources. This applies especially to gov-
ernment investment financed from compulsory saving. In this case
there is, indeed, a presumption that the society is not prepared to make
the required resources available voluntarily. For obvious reasons the
presumption is much less strong when the public investment is financed
out of voluntary savings.
The presumption that private investment is less likely to result in
social upheaval than public investment financed from compulsory
saving or from grants abroad is only a presumption which in a few
institutional, social, and political conditions may well be invalid. The
presumption essentially derives from the need for supplies of comple-
mentary factors as a condition of profitable operations, coupled with
the probability that their presence depends to some extent on some
progress in social and institutional arrangements and psychological
adjustments. Although not conclusive, these are reasonable prob-
abilities. Their relevance may be illustrated by certain contrasts and
examples, which could easily be multiplied, and which are not
accidental.
The east African groundnut scheme and some other officially financed
costly failures created considerable social strain in their limited areas
of operation. By contrast, the establishment and extension of the
production of cocoa, groundnuts, and kolanuts by hundreds of thou-
sands, if not millions, of Nigerian producers was accomplished without
such tension; indeed, for some years the process passed largely unno-
ticed. The phenomenal spread of rubber cultivation by local small-
holders in Sumatra and Borneo in the 1920's and 1930's remained
unnoticed for years, and its extent was not realized for over a decade,
even though the area under rubber came substantially to exceed 3
million acres. This is another example of the smooth accomplish-
ment of very substantial agricultural investment in response to market
forces.
The examples and contrasts of the foregoing paragraph also under-
score another important consideration. At an early stage of de-
velopment economic advance by means of agricultural production for
the market by individual producers usually involves a less violent
break with traditional modes of production and existence, and is thus
likely to result in less acute strain and upheaval than enforced in-
dustrialization or the enforced adoption of large-scale or collectivist-
type agricultural methods.

592 FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
Even at the risk of laboring the obvious, it should be said that
this discussion does not imply that economic development is unde-
sirable or that assistance from the United States is necessarily harm-
ful. On the contrary, economic advance in the sense of the widening
of alternatives to people is generally a desirable process; and in any
case it is certain that wide and far-reaching changes in the under-
developed world are inevitable. But it seems desirable to emphasize
some neglected results and implications of these changes, and the
care which is necessary in handling them.
In
3. Efficiency contrasts: Market processes versus aid.-Private enter-
prise, in search of profit, is not likely to make mistakes such as have
marred foreign aid programs. In Vietnam equipment was supplied
under public programs to a radio school and a marine navigation
school, but most of the graduates remained unemployed because of
a lack of opportunities for them in the Vietnamese economy.
Thailand some of the equipment supplied to a mechanical school was
so elaborate and complicated that the graduates of the school would
never be called upon to use it. Private enterprise is less likely to
inspire such unfulfillable desires which may take the form of frustra-
tion and resentment against the United States.
The desirability of economic development by private means is seen
on other grounds. Intergovernmental charity, says Professor Viner,
is ordinarily an inferior instrument of international cooperation. It
has no natural limits; it is certain to be condemned at home for ex-
cess and abroad for deficiency. It is likely to make the recipient
suspect ulterior motives and hidden designs. The donor is likely to
make it a pretext for demands for repayment in political rather than
businesslike form. Recurrent intergovernmental gifts, unlike private
charity, are bound to accumulate conditions and limitations, hu-
miliating to the recipient to comply with and ungracious of the donor
to exact.
As Myrdal² says:
Without the fixed idea that credit is business, that profita-
bility is important, and that there is a market where economic
demand and supply for capital meet, international finance
spills over into the indeterminate ocean of power politics,
where the crackpots and the demagogs swim with great
pleasure. The real danger is, of course, that with the dis-
appearance of the capital market in the old-fashioned sense
of the word, really worthwhile investment projects stand to
lose their chance of being financed, or else they are modified
for political reasons; in many cases they may then lose much
of their economic character as self-liquidating investments.
Economic development is an extraordinarily complex and slow-
moving phenomenon which is as yet inadequately understood even
by the specialists. The historians even differ markedly as to the
causative factors in European and American economic development.
Today, there is no general accepted theory of economic development,
nor even agreement among the experts as to the key variables in the
development process. For example, some writers argue that the lack
of capital is the sole obstacle to development-while other authors hold
•Op. cit., pp. 112–113.
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
593
an opposite view. But we may be sure of this: The underdeveloped
countries will not achieve development of substantial proportions in
short period and nations supplying aid are not likely to know
whether real headway is being made for many years.
It would seem, therefore, that we must beware of the dangers in-
herent in the combination of necessary legislative safeguards in an
American aid program and the essentially slow-moving process of
development. There will be a naturally human tendency for the
underdeveloped country spokesmen to try to persuade American of-
ficials that most of the observed shortcomings in development pro-
grams are due to insufficient aid and that more aid would take care of
such shortcomings. Since development processes are complex, how-
ever, and since there are many pitfalls in the bureaucratic approach
to development, American officials can be expected to suggest all man-
ner of local remedial measures rather than more aid as the solution
of many difficulties.
3
But suggestions of this kind, perhaps unless tied to American
promises of additional aid, are likely to be publicly resented by speak-
ers and writers in aid-receiving countries even if not directly by the
officialdom. The thesis that lack of capital is the sole obstacle to devel-
opment is likely to appear in many guises. The charge may be made,
as has already been adumbrated, that the United States is interested
in development only if it can be accomplished cheaply in terms of aid-
financed resources. The charge is also likely to be made that Ameri-
can experience and American economic criteria are largely irrelevant.
We may be told that we should be liberal with aid because the under-
developed countries' determination to achieve fast economic growth
reflects a pattern of wants for which the United States is largely re-
sponsible anyway. We can expect, in a word, that this country will
be charged, if it attempts to offer constructive suggestions about the
working of development programs, with fostering a new kind of
American "colonialism" under the guise of aiding development. It is
easy to see how such attitudes can work havoc with American foreign
policy. Ample opportunities will arise for expressing such attitudes
at least once a year as people in other lands read about Congress'
annual review in connection with budgetary appropriations.
4
Unfortunately, there are no objective criteria for judging the cor-
rectness of the international distribution of aid. If the test is a
seemingly measured deviation from a specified per capita income level,
so that aid is due in an amount inversely proportional to measured in-
come, we may penalize countries that are going all out to improve
their economic performance and favor nations that are negligent or
downright indifferent. We cannot defensibly use a population test,
since a nation's development status is not correlated with population in
any definite way. The balance of payments must also be ruled out
as a test, since the condition of the balance of payments is only a reflec-
tion of the totality of domestic economic policy, including develop-
ment policy. Nor can we necessarily accept national income targets
that are established by aid-recipient nations, since such action would
be tantamount to giving other countries a blank check on the American
As has been charged by James Baster in Development and the Free Economy-Some
Typical Dilemmas, Kyklos, vol. VII (1954).
Myrdal, op. cit., p. 193.

594 FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
Treasury--as well as acceptance of the theoretical and questionable
growth models on which the targets are based, to say nothing of the
suitability of measures to implement development policies.
Any distribution of development aid can be expected to give rise to
serious quarrels over fair shares. There are at least two reasons for
saying this: One concerns the absence of objective criteria for the
distribution of aid, and the other is the record of international eco-
nomic aid following the last war.
Experience under the Marshall aid program is of some relevance.
This experience shows that the allocation of aid is influenced in part
by concern for unfavorable comparisons that are actually made by
recipient countries which feel dissatisfied with their share. It may
be expected that aid to underdeveloped countries would involve much
greater difficulties, inasmuch as such countries (1) are unlikely to use
a consultative and technical organization comparable to the Organi-
zation for European Economic Cooperation (in which the United
States participates) and (2) are less homogeneous economically than
the nations of western Europe and also less adequately endowed with
objective economic information for decision-making.
5
B. THE ESSENTIAL ROLE OF GOVERNMENT IN ECONOMIC DEVELOPMENT
While the analysis so far has tended to argue for a minimal role for
government in the development process, it cannot be too strongly em-
phasized that there are certain tasks which must be satisfactorily per-
formed by the Government for the efficient functioning of the economy
and especially for economic advance.
The most obvious of these are the maintenance of law and order, na-
tional defense, the control of the supply of money, and the provision
of minimum education and health services. As has earlier been
pointed out, the provision of services yielding indiscriminate benefits
(public service facilities) is another important function of govern-
ment which devolves on it because the beneficiaries cannot be made
to pay (or at least not easily) for the services.
The establishment and shaping of institutions suitable for the effi-
cient operation of the economic system presents another wide and
complex range of tasks to the Government. Without suitable insti-
tutions the economy cannot function effectively, and the shaping of
these to accord with the desired ends of policy devolves largely on
the Government, since this is a task which cannot be performed by
individuals operating through the market. For example, the market
cannot be expected to bring about a suitable law of property, or the
institution of limited liability. This is a vast and important subject,
but it cannot be pursued here. The results of particular institutional
changes depend largely on local conditions, and opinions about their
merits depend on their probable effects on the total social situation
and on fundamental value judgments. The task of providing such
an institutional structure is often exceedingly difficult, complex, and
• Proponents of large-scale aid often propose to establish a multinational technical
agency for consultation and other purposes. It is doubtful, however, whether such an
organization would be able to operate in a manner at all parallel to that which has been
experienced in the Organization for European Economic Cooperation by virtue of (1) the
heterogeneous economic and political conditions, (2) the relatively inefficient public
administration, and (3) the extreme shortage of technical personnel in the less-developed
countries.
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS 595
delicate, especially in the early stages of economic development. But
it is generally also a continuing task, because changed conditions may
render obsolete existing institutions.
There are other specific tasks in the economic sphere which may
fall on the Government, and whose effective performance may be
extremely valuable in promoting genuine economic advance. One
function of specific importance in less-developed countries is the pro-
vision of appropriate agricultural extension services, a function which
particularly in the conditions of such countries can often yield very
high returns. Its provision generally devolves on the Government,
because once again much of the benefit accrues to people who cannot
be made to pay for the benefits they receive; and for various reasons
this is particularly so in less-developed countries.
The efficient performance of these tasks which are so necessary for
economic improvement would heavily tax the resources of most of
the governments of underdeveloped countries even if they did not
attempt at the same time comprehensive direction or detailed specific
control over economic life. That is, if governments pursue their essen-
tial functions effectively, they will have few administrative resources
to spare for comprehensive development planning.
An inability or unwillingness to carry out minimum government
functions (including the control of the supply of money) may in fact
lead to more detailed and specific control over economic life. The
exercise of business initiative and enterprise and the formation of
capital by individuals and firms are likely to be seriously reduced or
distorted by the failure of the state to perform its minimum tasks.
The failure of the private sector may then create the spurious impres-
sion that the necessary ingredients for economic activity and growth
have to be supplied by the state itself.
1. The performance record of government.-Even though govern-
ment may help to stimulate economic development, it still remains
true that government is one of the weakest links in the chain reaction
of development. The International Bank for Reconstruction and
Development stated in its annual report (1952-53) that—
Many observations by the bank confirm the widely held
belief that the resources of most underdeveloped areas are
adequate, if effectively used, to support a substantially higher
level of production and income. There are many and com-
plex reasons why these areas have not been more developed.
Many cultures, for instance, have placed a low value on ma-
terial advance and, indeed, some have regarded it as incom-
patible with more desirable objectives of society and the
individual. The character of government has not always
been of a sort to create popular incentives; certain forms of
social and economic organization have offered obstructions.
In part, the reasons have been physical. Climate and topog-
raphy have imposed limits on economic growth; distances
from centers of technological innovation and capital re-
sources, especially in the past, have been hindrances.
Capital equipment can now readily be sent to most parts of
the world; technical skills can be imported. Both the tools
and the knowledge needed for development are within reach.
But this does not mean, as is too often assumed, that the chief
94413-57-89
596
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
requirement is to finance imports of foreign equipment and
to attract foreign technicians. The availability of capital
for these purposes cannot, by itself, be expected to remove
some of the most important obstacles to economic growth.
To a greater or lesser extent, these obstacles to growth
exist everywhere. In one country or another, they include:
The lack of traditions of political responsibility; the weak-
ness of economic initiative; low standards of education and
training; and insufficient understanding that economic prog-
ress requires patience, effort, and self-denial. The conse-
quences may be lack of confidence between a government and
its people and frequent changes in government policies and
personnel; unsound economic and financial policies, dictated
by political pressures and often leading to prolonged periods
of inflation; a reluctance of important groups to accept neces-
sary economic and social changes; waste of public funds on
nonproductive activities; and weak administration in govern-
ment and business. These factors discourage domestic sav-
ings, and deter foreign investment.
The interdependence of each aspect of society in the de-
velopment process is reflected in the fact that, in countries
now described as "developed," the era of technological change
and rapid economic growth was preceded and accompanied
by other changes of great importance. These included the
evolution of new ideas concerning man, society, and the phys-
ical world, and the evolution of new political and economic
institutions that made it possible to apply capital produc-
tively and share the benefits of technology among large num-
bers of people. Not only the printing press and the steam
engine, but the schoolhouse and the joint venture corpora-
tion have their chapters in the still unfolding story of eco-
nomic development.
The Secretary General of the United Nations has testified to the
importance of sound government:
The capacity of a country to absorb large-scale economic
assistance or to make the best use of its domestic resources is
in no small measure determined by its administrative ar-
rangements. It is significant, for example, that in every one
of the reports of the economic survey missions sent out by the
United Nations and the International Bank, some reference
has been made to the handicap imposed by poorly developed
public administration and the shortage of competent officials.
It is no disparagement of any of the countries concerned to
note that the existing governmental organization is insuffi-
cient to carry out the greatly expanded public investment
and development programs that are needed."
2. Examples of lack of appropriate governmental activity. The
lack of appropriate governmental activity accounts in part for the low
state of individual enterprise in many underdeveloped countries.
• International Bank for Reconstruction and Development Annual Report, 1952-53,
pp. 9-10.
United Nations Review, July 1956, p. 12.
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS 597
First, protection of property leaves much to be desired, partly because
enforcement of property rights depends more on personal intervention
of the owner with officials having considerable powers of discretion
than on laws which are impartially administered. The result is that
local citizens with capital tend to invest it largely in quick-turnover
activities or in land and structures over which they have close per-
sonal control, where novel technical problems rarely occur, and where
vague government regulations are largely inapplicable. Operations
which promise good returns on capital, but which pay out only over a
period of years, are avoided to a large extent because the great un-
certainties induce investors to prefer a smaller but surer return in
safe and traditional activities.
When the governments of underdeveloped countries lack an ade-
quate civil service or suffer from corruption, sinecures, and nepotism,
administrative inefficiency negates even good intentions. By way of
illustration, Professors Buchanan and Ellis quote a report on condi-
tions in Indonesia early in 1951. Theft was the order of the day.
Factories and estates had to count on losing regularly up to 25 per-
cent of their production. Nothing was safe in harbors. On interisland
steamers officers were not allowed to go into the holds. Cargo was
ransacked right and left. One crew, seeing that the cargo consisted
of textiles, sent ashore for a sewing machine so that during the voyage
they could run up what clothes they needed from the bales at hand.
Governments often not only fail to protect private property ade-
quately but also exercise poor control over government property itself.
Perhaps the Latin American experience is better known, because the
area has been studied more than any other broad region in the under-
developed world. According to an official report to the 21 govern-
ments of the Organization of American States, for example, in some
Latin American countries there was widespread public "expectation
of a large loss of office equipment and other property when a govern-
ment changed." 8
Complex and poorly administered government regulations are a
second reason for the weak enterprise base. All manner of regula-
tions and documentary and license requirements confront the business-
man. The main trouble, however, is not with the number and variety
of regulations, which are largely distracting nuisances, but with the
procedures for compliance, the unpredictable delays, and the uncertain
costs of extra-legal payments that are exacted.
Thirdly, technical knowledge is only sparsely distributed among
the population, and the means of acquiring technical training are as
yet very limited. Too often good opportunities for career service
with the Government depend on who one knows rather than on merit.
The scope of business employment is restricted by virtue of the lim-
ited range of activities in the private sector. Hence there are at
present only minimal inducements for families to sacrifice themselves
in order that their children may acquire a technical education. The
result is that men of enterprising bent commonly face a situation of
economic claustrophobia-they are excessively confined to one-man
businesses, chiefly in fields of commerce. Business investment and
individual drive thus are stifled by the twin fears of extra-legal inter-
Public Administration Clearing House, Public Administration in Latin America.
Washington, Pan American Union, 1955, p. 26.

598
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
vention by the government officials and a shortage of men who have
the training required of potential members of a management team.
Fourthly, backward agriculture is sometimes responsible for an
inadequate domestic market and thus restricts the opportunities for
enterprising people throughout the economy. Most farmers produce
pitifully small outputs, though they could greatly expand their pro-
duction if they were able to use modern methods-practices that would
not generally make sizable drafts on available capital.
Studies of resource use in typical underdeveloped economies show
the traditional neglect of agriculture in official government policy,
especially that part of it which does not have export outlets. This is
important because agricultural improvement can generally be achieved
with much less additional capital per unit of additional output than
is typical in nonagricultural development. Poor methods of pro-
duction are often the cause of low farm productivity. Improving the
methods requires relatively little capital. Instead, it necessitates
increased numbers of trained agricultural technicians to assist farm-
ers, mainly through a good extension service.
The neglect of agriculture is also of significance in another sense.
Most of the people live on farms or in small villages. Low produc-
tivity on the part of such people means that the national market is
much smaller than it needs to be. Hence, the neglect of agriculture
has been partly responsible for poor industrial prospects in the cities.
Thus assistance to agriculture helps the underdeveloped countries'
biggest bloc of citizens, and, in addition, it is perhaps the fastest and
least capital-using means of helping to create an optimum indus-
trial base.
Shaky currencies are another difficulty. Removable factors such
as lax fiscal and monetary policies are largely responsible for the
deadening currency instability that characterizes many underdevel-
oped countries. The result is that people restrict their savings, the
structure of production is distorted, the public imports excessive
amounts of consumer goods, government increases its intervention in
business but only to deal with the symptoms (instead of the causes) of
inflation, and large parts of the community become engrossed in
speculative activities rather than in basic production.
Exchange and trade controls, which are the administrative mani-
festation of lax monetary, fiscal and exchange rate policy, have al-
ready been noted as a serious deterrent to the flow of private capital
to underdeveloped countries.
Companies endeavor to keep their dollar investment in
foreign subsidiaries as low as possible by extensive use of
local loans. Frequently they are willing to pay exceedingly
high rates of interest in foreign countries for local funds, in
preference to investing dollars in the operation. Because of
the shortage of capital in a great many foreign countries,
the rates of interest, which must be paid on local funds, are
significantly higher than would be required for a loan in the
United States. In some Latin American countries, the prime
rate of interest for the best companies is 8 percent. Com-
panies whose credit standing is poorer may have to pay as
high as 15 to 20 percent.
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
599
Companies were willing to pay these higher rates primarily
because of exchange restrictions. They did not wish to
invest more dollars in a country directly because there might
be difficulties in returning the funds to the United States
when they were no longer needed. Similarly, if the funds
were borrowed from banks in the United States by the par-
ent, and in turn loaned to the foreign subsidiary, there might
be problems involved in returning the funds at a later time
because of exchange restrictions. Possible devaluation of a
foreign currency and exchange restrictions were important
considerations.
Funds borrowed locally could be repaid from local cur-
rency, and the fluctuation in value of local currency would
not affect the amount to be paid. On the other hand, if
dollars were borrowed and the currency was devalued, it
would be necessary for the local company to repay more local
currency than was borrowed originally.
9
Finally, social security and labor legislation frequently overen-
courages consumption and impedes enterprise by expanding the cost
and risks of real investment activities. Typical of the difficulties are
systems of dismissal pay on a lump-sum basis, which place a premium
on quitting in order to "cash in" on dismissal benefits.
In short, there are serious man-made obstacles to a sound enterprise
base in most underdeveloped countries. The effect is that poor meth-
ods of production often prevail and many individuals of enterprising
bent are forced to do low-order work, some members of the bureaucracy
are permitted to earn good income by impeding economic growth
rather than assisting it, and there is the constant threat of loss of hard-
won capital because of improper government policies and unstable
political institutions.
C. THE CASE AGAINST DEVELOPMENT THROUGH GOVERNMENT ACTION
The exposition in the foregoing pages has not denied that the gov-
ernments of underdeveloped countries are capable of carrying out aid-
financed development programs. But a number of very serious ques-
tions have been raised about the wisdom and prudence of the govern-
ment approach to development. These boil down to three basic points:
(1) The waste of scarce resources that is inherent in the bureaucratic
method of directing the growth of entire economies; (2) the anti-
enterprise bias of the government approach and the resulting dis-
couragement of private initiative and the will to save; and (3) the
weakening rather than the strengthening of the average individual's
economic ties with America and its private enterprise system.
gov-
The earlier discussion has not ruled out a constructive role for
ernment within an enterprise-oriented development policy. There are
certain kinds of investment which are most appropriately carried out
by government. These are investments in public service facilities,
such as roads, irrigation projects, and the like. Such investments are
a necessary part of the overall drive for development.
• Barlow and Wender, Foreign Investment and Taxation, Prentice-Hall, New York,
1955, p. 162.
600 FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
The previous analysis has pointed up the danger of providing devel-
opment aid to countries trying to develop their economies mainly by
government management of resources. But comments to this effect
have been brief or adverse judgments have been indicated only by
implication. It should help to clarify matters, therefore, if particulars
are supplied,
1. The status of public administration.-A characteristic of gov-
ernment in most underdeveloped countries is the wasteful use of man-
power and attendant overburdening of taxpayers. Mr. John B.
Blandford, Jr., in his summary of the Latin American situation that
appeared in a report to the 21 member governments of the Organiza-
tion of American States, showed that at least one-half of the govern-
ments have excess employees for the present level of government serv-
ices. In fact, a number of ministers testified that their ministries could
be operated with half of the present employees if there was a a full
day's work and some increase in quality of performance.10
Another important feature is that governments in many under-
developed countries are quite unstable. Often, there is a "complete
turnover of employees whenever the political leadership changes." 11
Such situations lead to maladministration of economic resources.
Moreover, many administrations fail to survive their legal term of
office. Successor administrations rarely wish to carry forward pol-
icies and programs inaugurated by the previous regime. Frequently
tenure of office is regarded mainly as a means of acquiring wealth at
public expense. The recruitment and selection of personnel are simi-
larly unsuitable. Often, positions are filled by men who have the
"right" political connection, not by persons who are technically qual-
ified, have a good performance record, and are immune to corruption.
Corruption is a matter of degree. The extent of corruption in gov-
ernment, however, is much more marked in most of the less-developed
countries than it is elsewhere. Thus, in Burma the problem was so
serious that the former Prime Minister, U Nu, resigned his position so
as to "devote himself to reform of the (government party), par-
ticularly to cleansing it of corruption." 12 In Africa, a country about
to become a British Commonwealth nation, the Gold Coast, faces simi-
lar problems of corruption. It is responsibly reported that "doubts
about African capacity for decent administration" may "frighten
away the overseas capital Africa needs.” 13
Corruption discourages domestic capital formation and it presents
an obstacle to foreign investment since most investors have safe al-
ternatives for investment at home. Extra-legal payments by con-
tractors and subcontractors to government officials pad the cost of
capital formation, decision-making in big projects tends to become
overcentralized (owing largely to a desire to restrict knowledge of
10 Public Administration Clearing House, Public Administration in Latin America.
Washington, Pan American Union, 1955, p. 37.
When government economic policies are inappropriate, overstaffing in service lines
extends to private industry as well as to the government. An interesting case in point
concerns contemporary Argentina. The chief economic adviser to the present government,
Dr. R. Prebisch, points out that in just a single decade, from 1945 to 1955, that country
witnessed the startling increase of 43 percent in the number of service personnel employed
per unit of physical output. He attributes a considerable part of Argentina's present
economic difficulties to such malallocation of resources. See Supplemento del Boletin
Semanal Economic Survey, No. 554, October 16, 1956, Buenos Aires, p. 16.
" Public Administration Clearing House, op. cit., p. 36.
12 Burma's Troubles, The Economist, October 20, 1956, p. 213.
18 West African Customs, The Economist, September 8, 1956, p. 782, and Storm Clouds
Over the Gold Coast, The Economist, July 14, 1956, p. 142.
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
601
extra-legal activities), bids are unduly inflated because of the re-
duction in competition among suppliers owing to favoritism shown by
officials, and there is a widespread impairment of the will of the youth
to achieve sound technical training because of the realization that
"connections" and not merit are the main grounds for obtaining the
best positions in government.
2. Superficiality.-Ill-considered schemes abound in the record of
large-scale government management of economic resources.
As we
have already seen, the British Government's lavish investment in the
East African groundnut (peanut) scheme after the last war yielded
only negligible benefits. The reasons were, first, that the managers
failed to carry out adequate pilot projects. Hence, when the large-
scale and costly effort was undertaken all manner of snags developed.
Among other things, clearing the bush in Tanganyika proved to be
too tough for the bulldozers. Second, there was a poor investigation
of rainfall in the area, and moisture was heavily overestimated. The
managers relied on weather data that had been collected for only a
few years. Finally, there was bad management. Though the Brit-
ish undertook the project, performance proved to be not unlike that
commonly encountered when governments of underdeveloped coun-
tries try their hand at the management of economic resources on a large
scale.
A Latin American government, using its own resources and work-
ing in unpromising terrain, recently carried out an irrigation project
costing over $100 million but failed to make adequate preproject
groundwater surveys. It discovered too late that there was ample
water to be had by pumping from wells-and at a cost of less than
half the cost of water under the government project. Governments
have also made investments in farm storage projects which proved
unusable because the structures lacked ventilation facilities. And so
on.
3. Proliferation of agencies.-Principles of sound organization are
frequently so poorly understood, largely as the result of inexperience,
that government intervention in many cases has left little other than
a legacy of great numbers of uncoordinated government agencies.
In the words of a report of the International Bank on Colombia:
the Ministry of Agriculture has gradually divested itself of
many of the functions normally performed by such a govern-
ment body; development has been left to a large extent to
a multiplicity of agencies and institutions without adequate
coordination.14
This proliferation of agencies overburdens taxpayers, reduces the
nation's savings potential and thus impairs sound capital formation,
serves to expand the number of unnecessary channels through which
genuinely productive persons in the private economy must move before
they satisfy government regulations, and magnifies the opportunities
for government officials to exact investment-stifling, extra-legal
payments.
4. Disregard of price system criteria.-A typical feature of gov-
ernment intervention in economic development is the disregard of
14 International Bank for Reconstruction and Development, The Agricultural Develop-
ment of Colombia, Washington, 1956, p. 43.
602 .FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
the criteria of the pricing system. Governments establish programs
that run in terms of broad economic aggregates, such as multimillion
dollar investment schemes that are intended to expand per capita
income by a preconceived percentage each year. The price system
establishes objective tests of resource use through the play of com-
petition, but government investment programs too frequently ignore
such tests.
To illustrate, the Italian Government recently proposed the
reclamation of 20 million hectares in southern Italy, where a big
program of development is in progress. Financial assistance was
requested from the International Bank. When the bank applied
market tests in making its evaluation of the project, it found that
the poorest 4 million hectares would have required an investment
outlay about as large as that needed for the best 16 million hectares.
On the basis of this showing the Italian Government agreed to omit
the 4 million hectares from the project. The application of market
criteria by the bank, which consisted largely of investigations to
establish benefit-cost ratios for each part of the big project, made for
a great saving in resources. In effect, the bank's work (1) released
capital equipment and technical skills for much more productive
uses in other countries; (2) served to protect the capital and reputa-
tion of the International Bank; and (3) saved the Italian people
from being saddled with foreign debt that might otherwise have been
incurred for submarginal projects.
5. The magnification of errors.-Governments typically emphasize
large-scale projects, partly because of the officials innate desire to
be identified with dramatic operations. This predilection, coupled
with the characteristic superficiality already indicated, tends to pro-
duce situations in which mistakes are large and costly. In contrast,
investments of similar aggregate magnitude carried out by many
private investors-local and foreign-are characterized by (1) a
small error factor in individual investments, and (2) the likelihood
that any errors that are made will be quickly taken into account
in the mass of other investments.
D. THE IMPLICATIONS FOR FOREIGN CAPITAL REQUIREMENTS
What does all this mean with respect to the amount and kind of
foreign capital requirements for development? Briefly, it means that
a given amount of foreign capital will make a maximum contribution
to the economic progress of underdeveloped countries only if it effects
the maximum activation of the many latent private enterprise forces
which are found in such countries. In this connection, close attention
has to be paid to the implications of a policy of supplying capital
directly to the governments of underdeveloped countries. The danger
is that such capital will do nothing itself to change the local conditions
of enterprise.
Unlike all but a few local investors in underdeveloped countries,
foreign private investors are free to choose the country in which they
wish to risk their capital. Countries offering relatively poor oppor-
tunities for investment, or which burden investors with excessive risks
and uncertainties of doing business, lose out in the competition for
scarce capital. But they have it in their power to qualify for foreign
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS 603
capital. Such countries may do something to remedy their relatively
poor environment for enterprise if they are temporarily passed over
by foreign capital.
The availability of aid discourages the governments of the recipi-
ent countries from borrowing capital from private sources. It may
even induce them to adopt measures which discourage the inflow of
private capital generally. They would make greater efforts to obtain
private capital, and would be more reluctant to introduce measures
restricting the activity of private capital, if they could not expect to
receive officially provided capital free of cost or on subsidized terms.
They will clearly try to secure as much of their capital requirements
as they can free or on subsidized terms.
For example, foreign borrowers may not seek capital in United
States private markets if they have hope of better terms from govern-
mental lending institutions. The point is not that American grants
and loans will compete with private capital. In general, most United
States Government agencies and international organizations like the
International Bank for Reconstruction and Development have sought
to avoid competition with private capital in fields that would be at-
tractive for private investors. The point is rather that governmental
loans carrying especially easy terms as a kind of gift will create mis-
understanding in the borrowing country about the rate of return on
private loans or investments that is appropriate and commensurate
with the risk.
Foreign aid is channeled through the governments of the receiving
countries. Generally it is given for specific purposes, and foreign
supplies for these are obtained by the Government. This may take the
form of work carried out by public works departments or the placing
of contracts through private firms. Some of the aid takes the form of
the supply of food or raw materials to the governments (or the where-
withal for their purchase) and these supplies are then resold by the
Government. The procedure generally results in an expansion of state
trading, with all the disincentives that such trading creates for pri-
vate enterprise.
Intergovernmental aid generally increases the relative importance
of the recipient government as a source of investible funds in the
economy. The effects of this are reinforced by the fact that the
granting of aid is often tied to the formulation of development plans
and programs, which envisage substantial government investment or
compulsory saving, or other forms of government control over the
economy, and which in a number of ways retard the emergence, entry
and activities of private enterprise, both domestic and foreign. At
times the aid is not only tied explicitly or implicitly to the prepara-
tion of such a plan but actually takes the form of a grant for such
purpose. (This, for example, has happened in Burma.)
Aid programs also tend to lead to the adoption of extravagant
fiscal and monetary policies, because they frequently set up a well-
founded expectation that if the country runs into balance-of-payments
difficulties it will be bailed out under the aid program. Bail-out loans
have already been a feature of aid to Latin America. Such loans not
only encourage extravagant policies, but also default on past obliga-
tions. Aid, including subsidized loans from the Export-Import Bank,
is more readily forthcoming if a country has no reserves left. The
604 FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
knowledge that unlike private loans such grants and credits are forth-
coming irrespective of the servicing of existing obligations encour-
ages default on these obligations. This in turn prevents the emergence
of a commercial morality, which recognizes the need to honor contracts.
The absence of such a morality both retards development and dis-
courages the participation of foreign private enterprise in the eco-
nomic life of the defaulting country.
Most of these results of the aid program are, of course, undesigned
and unintended. But they are not accidental, in that they are likely
to emerge in the absence of special safeguards or counteracting tend-
encies that are clearly set forth in basic legislation.

SECTION IV
INSTRUMENTS FOR PROMOTING PRIVATE FOREIGN
INVESTMENT
A. PRIVATE FOREIGN INVESTMENT AND COMPLEMENTARY PUBLIO
FINANCING MEASURES
We have alluded at several points in this report to the fact that
there is a place for public programs that complement private foreign
investment. The matter is important enough to merit further atten-
tion before considering the various instruments for encouraging pri-
vate foreign investment.
Those who regard vigorous private foreign investment as a vital
force for growth in the less-developed countries are not unmindful of
the fact that certain categories of capital formation (public service
facilities) are usually undertaken by government. Roads and schools
are public facilities in most countries. An agricultural extension
service is also a public operation.
To the extent that financing in addition to that available from local
resources and private foreign investment is needed it can be and is
being provided on a loan basis by the Export-Import Bank and the
International Bank for Reconstruction and Development. Both
agencies carefully screen requests for funds to assure that only well-
considered projects, which will make a contribution to the borrowing
country's economy and which show reasonably good repayment pros-
pects, qualify for financing. Such public works improve the attrac-
tion of the borrowing country to private foreign investors. The
projects, in short, complement the private economy.
Much the same may be said about international efforts to improve
educational facilities directly related to production, especially in the
big agricultural sector of the less-developed countries. Thus, technical
assistance programs of the kind that have been carried out bilaterally
are also complementary to private foreign investment. Increased
productivity in agriculture and improved levels of health that result
from public health programs are the key accomplishments of the
technical assistance programs in which the United States is engaged.
The success of such programs depends on meeting more than merely
financial requirements. Indeed, the limiting factor has been and still
is suitable personnel. Subject to the proviso that properly qualified
individuals are available for staffing positions, it would seem that
the technical assistance program is complementary to an expanded
volume of private foreign investment.
However, with increasing prosperity in the underdeveloped coun-
tries, it could be questioned whether it is necessary to ask the United
States taxpayer to provide technical assistance. Total outlays on this
kind of aid are not large and are probably within the means of under-
developed countries.

605
606
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
B. THE INVESTMENT GUARANTIES
The United States Government provides guaranties against the
risks of inconvertibility of capital and investment receipts, expro-
priation and confiscation, and war risk. A charge of one-half of 1
percent is made for each kind of risk, except for war risk where the
rate has not yet been determined.
Investments covered by these guaranties must be new investments or
additions to existing investments by Americans and they must, in
effect, expand trade or aid economic development. In the event of ex-
propriation or inconvertibility of earnings and capital the United
States Government reimburses the American investor for his losses
and his property claims are transferred to the Government. Before
any investment can be covered by such a guaranty it is necessary that
the foreign government sign a special bilateral agreement with the
United States. These agreements assure that the claims and property
transferred to the United States Government in the event that the
guaranty is activated shall be subject to direct negotiations between the
two governments and that the local currency acquired by the United
States Government pursuant to such guaranty shall be accorded as good
treatment as that accorded to private funds arising in transactions
with United States nationals. A number of these agreements include
provisions which call for arbitration of those claims which the two
governments cannot satisfactorily negotiate. The agreements also
provide that no guaranty will be issued with regard to any project
unless the project is approved by the government of the foreign
country.
No payment under the investment guaranty program has ever been
made. It seems unlikely that governments will take action which
would lead to claims since such action would involve them in nego-
tiation with the United States Government and thus might jeopardize
their economic relations with the United States. The fact that there
has been an excellent service record on recent United States Govern-
ment and International Bank for Reconstruction and Development
loans suggests that foreign nations are not likely to endanger their
credit standing with the United States Government, and therefore
they are not likely to endanger the assets in which the United States
Government has a contingent interest.
It is impossible to say whether or not the program is in fact a sub-
sidy to United States private foreign investment because there is no
actuarial basis for establishing the appropriate premium. It seems
clear, however, that private enterprise cannot provide insurance
against these risks and that the Federal Government is not displacing
private activity in this regard.
Since the start of the program in 1948, only $124 million of con-
vertibility and expropriation insurance has been written; less than
15 percent covers investments in the less-developed countries. How-
ever, during the last 2 years interest in this program has been picking
up, with a greater number of underdeveloped countries being covered
and with a greater number of contracts being written.
The somewhat disappointing record of this program has been
caused in part by the fewness of the countries with which bilateral
agreements have been signed. Of the underdeveloped countries only
Bolivia, China, Colombia, Costa Rica, Ecuador, Guatemala, Haiti,
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
607
Honduras, Israel, Pakistan, Paraguay, Peru, Philippines, Thailand,
and Turkey have signed such agreements, though the dependent terri-
tories of a number of European countries are also included in the
investment insurance program.
Furthermore, guaranties can do little to assist private foreign
investment so long as the overseas climate for investment is poor.
Expropriation and inconvertibility are not the only obstacles to
private foreign investment as we saw earlier. Losses due to currency
depreciation are not covered and losses due to "creeping expropria-
tion" are not included. Thus, according to the United States Govern-
ment Investment Insurance Manual "taxation and regulation by the
foreign government will not be considered expropriatory unless it
can be shown that the government's primary object is to divest the
owners of the investment property." Independent determination of
the motivation for the government's action might be one way to give
assurance to prospective investors that this clause will be fairly inter-
preted. But the fact remains that this interpretation will always be
somewhat arbitrary by the very nature of creeping expropriation.
Considerable administrative scrutiny of the potential investors'
financial and economic activities is required in the consideration of an
application for a guaranty. Furthermore, the process is lengthened
by the fact that the foreign government must give approval to the
specific investment project under consideration before the United
States Government will approve it for insurance. Foreign govern-
ments have often acted very slowly in giving this approval.
Still another reason for the paucity of activity in this program is
that it has been difficult to negotiate the bilateral agreements with
underdeveloped countries. Sections dealing with expropriation have
been particularly difficult to negotiate, partly because expropriation
is in itself a delicate subject. The requirement that there be direct
diplomatic negotiation runs contrary to the views of a number of
underdeveloped countries that the United States Government should
not intervene on behalf of its private foreign investors.
The ultimate effect of the investment guaranty program on the
volume of private foreign investment is unfortunately indeterminate.
Queries to those who received investment guaranties indicate that a
substantial percentage of the investment would have been undertaken
in the absence of the investment guaranty, although this conclusion.
rests upon the assumption that the respondent clearly knows how
significant the investment guaranty was in the ultimate decision to in-
vest abroad. A further complicating factor is that the investment
guaranty probably improves the general climate for foreign invest-
ment in countries where it operates. Foreign governments are un-
likely to discriminate in favor of private foreign investment covered
by investment guaranties and therefore the program reduces the risk
for other foreign investments.
There is a strong case for ceasing to make investment guaranties
available to the more developed countries of the world. It is ques-
tionable whether the gain in our national interest through investment
in these areas offsets the potential cost to the American taxpayer in
the event of inconvertibility, expropriation, or war.
When the pro-
gram was initiated in 1948 there was a clear-cut interest in expanding
United States investment in Western Europe in order to facilitate
economic recovery and rehabilitation; this motive hardly holds today.
608
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
Furthermore, cessation of guaranty contracts for Western Europe
would permit a shift of effort on the part of the staff toward activities
in the underdeveloped countries, and a shortening of the time required
to obtain guaranty coverage.
The possibility of requiring any country that receives foreign aid
assistance from the United States to sign a bilateral agreement should
also be considered. While this would not assure the flow of private
investment to countries where the general investment climate is not
favorable, it might increase the number of propositions for invest-
ment which were presented to the foreign government for approval
and, upon seeing the potential benefit of such foreign investment, the
attitude of the government toward foreign investment might change.
The requirement that the country sign an investment guaranty agree-
ment with the United States if it is to receive foreign aid would tend to
remove one of the shortcomings of the existing program-at present,
because of the small number of cases involved, the existence of an
agreement with a country tends to suggest that that country makes it
difficult for investors to remit earnings or repatriate capital.
The Congress should also consider the feasibility of dropping the
requirement that the foreign government give approval to the specific
project under consideration. Probably the major protection to Ameri-
can investment abroad is the fact that the United States Government
"goes in" with the investment, when it is covered by investment
guaranty. The requirement of foreign approval has acted as a deter-
rent to the completion of contracts because of the lengthy time periods
involved.
C. TAX INCENTIVES
The tax treatment of foreign income is a factor affecting private
foreign investment. At present, with several qualifications, the effec-
tive maximum rate of tax on foreign income is equal to the United
States corporate rate except when a foreign tax rate is higher than
the United States rate, since under American law the recipient of
income from abroad can offset his foreign tax against the United
States tax.
A number of proposals have been made for reducing the tax burden
on corporate income received from overseas investment which are
worthy of careful consideration by Congress. Some of these proposals
find their justification on grounds of equity within the context of
foreign operations themselves. Thus, some overseas operators, being
liable to United States as well as lower local foreign taxes, are subject
to higher total taxes than their local competitors (either nationals or
businessmen from other capital-exporting countries). For the pur-
pose of reducing the inequity involved in the relations among com-
peting firms in foreign countries and to stimulate private foreign
investment, there are grounds for arguing in favor of a lower United
States tax rate on foreign income. Of particular importance is the
fact that lower tax rates should help to expand private investment
in the less-developed countries.
It has been argued, however, that in some situations lower tax rates
on foreign business income may produce inequitable situations in
terms of the relations among firms operating wholly within the United
States and those which also operate abroad where lower taxes prevail.
In such cases firms with foreign plants may well have a cost advantage
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
609
with respect to sales in third markets or even conceivably with regard
to sales in the United States. Since such advantages are likely to be
concentrated in products that are fairly advanced manufactures, which
are produced in the developed and not in the underdeveloped countries,
this argues in favor of limiting the tax reduction on foreign business
income to income earned in the underdeveloped countries.
The following example illustrates why private foreign investment is
likely to be stimulated by a United States policy of lower taxation
of income earned abroad. Today, when the foreign tax is 52 percent
or lower, American companies operating abroad retain 48 cents on
each dollar earned. If the same companies invested in a country with
a 30 percent rate, and if the United States did not impose a tax on
the income in question, the retained income would be 70 cents; this
would represent a 46 percent increase in investment yield. At a some-
what intermediate position is the present policy of applying a tax
rate that is 14 percentage points below the regular rate on the income
of Western Hemisphere trade corporations. Such a rate increases
the investment yield by 29 percent, provided that the local country
imposes a tax rate no higher than 38 percent. Since it is a fact that
the largest part of the United States taxes collected on foreign direct
investments comes from investments in Africa, the Middle East, and
the Far East, it would appear that the improvement in yield to
investors that would result from generalizing the 14 percentage point
tax reduction should serve to stimulate greater private investment in
the less-developed areas.
Not all students of the problem are in agreement with the position
outlined above. Thus, a recent study by Messrs. Barlow and Wender¹
concludes that company executives interviewed by the authors in no
case felt that the removal of the United States tax would have changed
the decision against any fully investigated investment project. How-
ever, many investors contend that tax factors are important. Further-
more, it is, of course, possible that full investigation was prevented
by the tax itself since the tax situation is not necessarily the last
thing to be considered in an investment decision. The Barlow and
Wender study also concluded that a major reason why some companies
do not invest abroad is the lack of interest on the part of the executives
of the companies. It may be argued, however, as we have done above,
that a significant change in the tax treatment of income from foreign
investments could change this situation by revising profitability ex-
pectations and thus inducing many firms to examine situations of the
type which have heretofore been ignored.
Tax adjustment of the kind suggested above will involve some loss
of revenue to the Treasury. Data on which to base an estimate of
revenue loss are not available, but the Treasury estimated that a 14
percentage point reduction in the tax on foreign income would cost
$147 million in the first year. Opponents of tax reduction note that it
is generally agreed that any proposal for tax relief to a particular
segment of taxpayers should carry a heavy burden of proof. This
reasoning, however, stems from experience in purely domestic tax
matters. It must not be overlooked that a policy of easing the tax
load on foreign investors would lighten the burden on the general
taxpayer to the extent that increased private foreign investment
1 Foreign Investment and Taxation, Prentice-Hall, New York, 1955.
610 FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
served as a substitute for grant aid or subsidized lending to the less-
developed countries.
At present a corporation which operates abroad through branches
is taxed currently by the United States on its income from abroad,
whereas the income of subsidiaries incorporated abroad is left free
of United States taxation until the income is distributed as dividends.
There seems little reason for this discrimination. Thus Congress
should consider allowing United States corporations to defer paying
United States tax on the foreign income of their branches until that
income is "finally repatriated." This should have the effect of en-
couraging the retention of earnings abroad, thereby promoting foreign
economic development.
Congress should give serious consideration to the adoption of pro-
posals for removing discriminations against portfolio investment in
foreign securities. For example, under present law regulated invest-
ment companies ordinarily pay no United States income tax. There-
fore, they are not able to take advantage of the credit against the
foreign tax paid on their dividend and interest earnings. Only com-
panies with more than 50 percent of their assets invested in foreign
securities can pass the foreign tax credit through to their shareholders.
A practical method should be worked out whereby regulated invest-
ment companies would be able in effect to pass on to their stockholders
the credit for foreign taxes.
Because the managers of investment companies are ordinarily quite
sensitive to slight differences of yield, it is not unlikely that the result-
ant increase in the yield on foreign securities would induce a signifi-
cant shift in portfolios toward foreign securities.
D. TREATIES OF FRIENDSHIP, COMMERCE AND NAVIGATION AND INVESTMENT
TREATIES
Some assistance in the promotion of private foreign investment can
reasonably be expected from treaty arrangements-for example,
treaties of friendship, commerce, and navigation.
The purpose of international treaties relating to foreign investment
is to provide legal recognition of the right of United States capital to
enter other countries, to carry on business abroad, and to define its
rights in the conduct of business, remittance of profits, and the repatri-
ation of capital.
Treaties of friendship, commerce, and navigation have been the his-
toric method of codifying regulations with regard to commercial rela-
tions apart from duties. Prior to World War II national treatment
had been normal for many years in United States treaties with respect
to natural persons, but this was not true of juridical entities. Rather
they had been, in practice, either ignored or dealt with only in a
limited way or else assured only a most-favored-nation treatment.
the postwar series of treaties, a comprehensive effort has been made to
extend the same liberal standard to companies and the activities of
companies. Such a shift has been necessitated by the growing impor-
tance of corporations in international investments.
The postwar efforts to improve the climate for United States invest-
ments through foreign commerce and navigation treaties have been,
by and large, disappointing. Foreign commerce and navigation
treaties containing investment clauses have been negotiated with the
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS 611
following less-developed countries: Uruguay, Colombia, Haiti, Israel,
Ethiopia, Iran, and Nicaragua. However, only those with Israel and
Ethiopia have been ratified by both legislatures. While there is little
doubt that the effort spent negotiating such treaties is useful and that
every effort should be made to increase the number of treaties, the fact
remains that they are probably of only minor significance in affording
protection to United States enterprise. Nonetheless, it serves a useful
function to spell out the existing area of real agreement and perhaps
the negotiation of these treaties suggests lines for further agreement.
The treaties probably serve to restrain a future government of a signa-
tory country from unfriendly acts should it have an attitude less
favorable toward private foreign investment than the government
which signs the treaty.
Perhaps the chief obstacle to using friendship, commerce, and navi-
gation treaties to improve the investment climate of underdeveloped
countries is that the provisions establishing national treatment for
American corporations run head on into the xenophobia and the na-
tionalistic legislation of many such countries. It is this difficulty
which has led to extensive criticism of the provisions of existing
treaties. Thus some treaties recognize the right of the signatory to
screen projected foreign investment. Some fail to require that no
established interests of any kind may be impaired by government
action except upon payment of prompt, just, and effective compensa-
tion. Some fail to prohibit the nationalization of private industry or
at least to require that no expropriation may occur until after compen-
sation has been agreed upon and paid. Some lack specific commit-
ments regarding the entry of foreign technical personnel and a state-
ment of clear rights for American accountants and other professionals.
None carry categorical guaranties regarding the remittance of earn-
ings and the repatriation of capital. Many lack precision regarding
the rules for the awarding of government contracts and concessions.
They almost entirely neglect those governmental actions which might
be classified as creeping expropriation, that is, discriminatory tax
treatment, certain kinds of labor legislation, some administrative
activities, and the like.
Still another difficulty is that these treaties cut across the interests
of all ministries of a government and therefore pose many problems
requiring careful study by many persons. Because the treaties are
long-term projects and because they must compete with the time and
energy of the bureaucracy of the state, the tendency is to put off
consideration of the treaty.
By their nature these treaties are mutual and reciprocal. But they
contain little bargaining power and they do not lend themselves to the
ordinary process of exchanging concessions. Thus the conclusion of a
treaty does not assure the other signatory that it will receive a sub-
stantial amount of American private investment. No treaty can be
more liberal than United States laws and policies. Thus the United
States does not pay compensation for certain types of injury done to
business in making Government policies effective. Furthermore the
United States restricts the right of aliens to enter certain professions.
To an unknown degree this is significant because American corpora-
tions employ accountants, lawyers, and other professional people
abroad. The limitation of the right of foreigners with respect to
94413-57-40
612 FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
minerals on public lands in the United States may be negligible in this
country, for only a minor part of mining opportunities are affected by
the limitation, but the reciprocal reservation may effectively bar
United States enterprise from all or a major part of investment oppor-
tunities in other countries.
It is sometimes suggested that the foreign commerce and navigation
treaties be ended and that special investment treaties, i. e., those dealing
only with foreign investment, be negotiated. It is exceedingly doubt-
ful that this would accelerate the negotiation of investment provisions
since the investment clauses of the foreign commerce and navigation
treaties are almost invariably the most difficult parts to negotiate.
Furthermore, what are not regarded as investment provisions often
impinge on investment climate. Thus police protection and censor-
ship of the mails are important "noninvestment" provisions of foreign
commerce and navigation treaties which are germane to the climate
for American operations abroad.
It has also been urged that the United States enter into some
form of multilateral investment treaty or international investment
code involving a number of countries. Such a suggestion suffers on
two counts as has been shown, for example, by the experience with
the International Trade Organization. First, such multilateral con-
ventions tend to reflect the least common denominator position; thus
the country least favorable to private foreign investment would accept
only weak clauses, and the whole convention would suffer. Secondly,
in the light of recent experience it is highly probable that still another
international conference on international investment would develop,
reveal, and crystallize further support for doctrines and views which
are essentially repugnant to American enterprise and thus worsen the
climate for private foreign investment.
E. FOREIGN AID AND THE PROMOTION OF PRIVATE ENTERPRISE ABROAD
The major finding of this study is that private enterprise is more
effective in promoting the growth of the underdeveloped countries
and the efficient use of their resources than government-to-government
grants or credits. The crucial importance to development of an
extension of the enterprise base in the underdeveloped countries has
also been demonstrated.
In spite of the fact that the principle of primary reliance on private
investment in our program of assisting the less-developed countries is
constantly reaffirmed, a large part of our assistance to these countries
has taken the form of public loans and grants to governments for
government-sponsored projects. Only a small percentage of United
States Government funds has gone directly to assist United States
enterprise operating abroad. Thus in fiscal 1956 none of the Interna-
tional Cooperation Administration industrial projects using goods
financed by United States aid were owned by United States citizens.
Somewhat less than 10 percent of the Export-Import Bank's loans in
fiscal 1956 went to overseas enterprises owned by the United States.²
Only
This figure excludes loans which take the form of commodity credits, dollar exchange
credits and military assistance credits as well as credits canceled in their entirety.
those United States firms in which more than 50 percent of the ownership is held by
United States investors are included in the statement; thus firms in which Americans
have a controlling minority interest are excluded as are the instances where foreign
enterprises gain United States entrepreneurial ability through management contracts with
Americans.
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS 613
During the postwar period the Export-Import Bank has provided
about 12 percent of its loans to United States-controlled enterprises and
almost one-half of its total loans have gone to privately owned United
States or local firms. So far as can be determined, only one loan has
been made to American-owned enterprise out of the local currency
proceeds of Public Law 480 (the Agricultural Trade Development
and Assistance Act of 1954, which authorizes the sale of surplus
agricultural commodities to foreign governments for local currencies).
Assuming that foreign economic aid continues to be provided to
the underdeveloped countries, the important question that arises thus
concerns whether there is any way in which the aid program can be
used directly to stimulate United States private investment abroad
and the expansion of the domestic enterprise base in aid-recipient na-
tions. To do this it has been proposed that, to the extent such sub-
stitution is feasible, foreign aid funds, including local currency
proceeds of Public Law 480 sales, be channeled through loans to prí-
vate enterprise instead of by means of grants or loans made directly
to foreign governments.
Under this proposal the United States Government would actively
enlist the assistance of well-established and reliable United States
firms, both large and small, in overseas operations. Suitable United
States firms could be acquainted with the various investment oppor-
tunities that have been brought to the attention of the United States.
Government and also brought in contact with the appropriate officials
of foreign governments. More loans could also be made available to
local enterprise in the less-developed countries, particularly from the
Public Law 480 local currency proceeds.
One obvious advantage of such a program is that it is a method
whereby the government of a country which owes its great economic
strength and high levels of living to private enterprise can mobilize
the entrepreneurial experience and skill of American business (and
also of foreign private enterprise) for achieving some of its foreign
policy objectives. Another important related consideration is that
there are hundreds if not thousands of American firms which have
never considered going abroad. But once an American firm obtains
a stake in foreign investment it usually becomes enthusiastic about
overseas operations and seeks to expand. This proposal would offer
a positive inducement to United States firms to expand or initiate
operations in underdeveloped areas.
An important further advantage of this proposal is the leverage
effect on private capital. Because private funds would join with the
foreign aid moneys, we would be able to give a maximum amount of
the most effective kind of assistance to the less-developed countries.
and at the same time reduce the foreign aid tax burden of the
American people.
Not only would this program implant more entrepreneurial ability
and increase the amount of private investment in the underdeveloped
lands, but the United States Government participation would act as
an umbrella over the United States firm against expropriation and
maltreatment. When the United States firm requires only this um-
brella to induce overseas activity, very small sums of Government
money may be required, for the length of time that the United States
Government will commit its funds as an umbrella is more important
than the size of the financial assistance.

614 FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
Because the development and extension of the enterprise base of
underdeveloped countries is of prime importance in stimulating worth-
while, sustained growth, it follows that one of the chief values in the
provision of assistance through such institutions as the International
Bank for Reconstruction and Development, the Export-Import Bank,
and the International Cooperation Administration is that they can
bargain for improvements in the legislative, fiscal, and regulatory en-
vironment of underdeveloped countries. Private enterprise can hardly
demand that a foreign government stop its inflationary monetary and
fiscal policies, adjust its exchange rate, ease regulations on local enter-
prises, improve public administration, and other matters germane to
governmental activity in the underdeveloped nations. But the sources.
of public capital can.
The International Bank for Reconstruction and Development is to
be congratulated for withholding loans from countries which are in
default on publicly held foreign debt and for sometimes refusing to
lend to countries which pursue unsound policies with respect to budget-
ary and power rate policies. Similarly, the Export-Import Bank is
perhaps contributing as much to foreign economic development
through conditions upon its loans, such as the explicit statement fol-
lowing the Argentine negotiations that the bank would give "due
consideration" to the progress that Argentina makes in respect to at-
taining monetary and financial stability and its efforts on behalf of
free enterprise, as in the provision of capital.
It seems inconceivable that the United States should not nudge
underdeveloped countries into a better use of their productive re-
sources; and if the taxpayer is to provide the funds, there is no reason
why he should not gain the greatest benefits both for others and for his
money. Those who contend that the attachment of conditions is an
unwarranted intervention in the affairs of others, which intervention
will redound to our loss politically, make an important point that all
United States negotiators must never forget. But it should also be
noted that the conditions which are imposed to make more effective
use of the funds provided are much less likely to induce ill will than
this view would suggest. Who can deny that the United States has
an obligation to its taxpayers to see that its aid is used appropriately?
Clearly, effective use of aid depends upon many facets of governmental
policy exchange rates, public administration, etc. To suggest that
conditions cannot be attached with circumspection and with success,
with the conditions being imposed as between gentlemen, is_to_cast
doubt upon the negotiating competence of American personnel. Fur-
thermore, to suppose that this constitutes dictation, misunderstands
the complexity and heterogeneity of government.
As can be easily seen from the disparities of opinion within our
own Executive or between Congress and the Executive, any govern-
ment contains many views on any given subject. Some departments
and individuals within the government of an underdeveloped country
undoubtedly favor the policies which we have outlined above as being
essential to effective and sustained growth. By making it clear that
assistance is dependent upon such policies, we strengthen the hand of
those who share our views, thereby fortifying them in policy debates
within their own governments. The policy of foreign governments is
not fixed and is rarely unanimous; conditions provide a means of
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
615
shifting policy by strengthening certain segments of opinion in foreign
governments in the determination of policy.
F. AN INFORMATION PROGRAM TO PROMOTE INVESTMENT AND CALL
ATTENTION TO INVESTMENT OPPORTUNITIES
Though recent efforts within the Government to improve informa-
tion on foreign investment opportunities are praiseworthy, much re-
mains to be done.
Several activities have been undertaken in recent years to expand
the information program that deals with foreign investment. The
Department of Commerce has issued some very informative invest-
ment handbooks on particular countries for the guidance of investors.
These are helpful to businessmen, since they provide realistic informa-
tion on business conditions and investment opportunities in specific
underdeveloped countries. The dissemination of information through
a recent publication titled "Investment Opportunities Abroad," merits
praise, and the Department of Commerce is to be congratulated for
assisting in the organization of local committees of businessmen,
bankers, and securities dealers for furthering that end.
The trade promotion efforts of the Department of Commerce con-
stitute another useful enterprise, even though such activities are only
indirectly related to the field of investment. Participation in trade
fairs enables our Government to display the products of American
industry so as to show both the range of output that is produced by
the American economy as well as categories of output that might be
produced locally by American capital. Trade promotion, therefore,
bears in a general educational way on the problem of how to expand
opportunities for foreign investment.
The International Cooperation Administration could further assist
the growth of private foreign investment by making its studies of
prospective projects available to United States firms at no cost. The
Congress might consider requiring the International Cooperation
Administration, wherever possible, to publicize its prospective projects
and to publish its studies in order to afford private firms the oppor-
tunity to undertake them; if there were no takers after a certain date,
the International Cooperation Administration could then proceed.
Another recent step relates to new procedures for improving the
quality of Government personnel working in fields associated with the
promotion of investment. Thus, the agreement in 1956 between the
Departments of Commerce and State for the exchange of personnel
is of interest. Under this agreement 20 foreign service officers will
be assigned to work in the Department of Commerce and 20 individ-
uals in the latter Department will take up duties in various embassies
abroad. The Department of State will also recruit another 20 per-
sons, with the concurrence of the Department of Commerce, to serve
as commercial officers abroad. That efforts of this kind are useful is
indicated by the commentary of Mr. Samuel Waugh, at present presi-
dent of the Export-Import Bank and formerly Deputy Under Secre-
tary of State for Economic Affairs:
It is true that the embassies are presumed to improve the
[investment] climate to the limit of their ability, but if we
616
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
would be completely frank I think that we must admit that
the climate for the attraction of foreign investments has not
been given very much consideration as I think it should be.
It is doubtful, however, whether a mere increase in the number of
people within the Government who are concerned with the problem
will meet the basic issue involved. There are two facets of the im-
portant information problem. First, there is still a great lack of
knowledge and many misconceptions about American foreign invest-
ments. In most countries only a few individuals are well informed
about United States investments within their borders. The basic
facts should be known by a larger cross-section of the people. Second,
the misconceptions about United States investments that are current
abroad, especially in vocal intellectual circles, are so damaging to the
basic cause involved that unless they are counteracted not much head-
way will be made in increasing popular understanding about the con-
tributions which foreign investment makes to the improvement of the
less-developed countries.
Congress should give serious consideration to the need for addi-
tional funds for studies of the impact of United States private foreign
investment on the economic growth of foreign countries, roughly on
the order of the Department of Commerce study recently completed
that deals with Latin America. Information of this kind has already
effectively countered some of the unfounded comment on the subject.
The true and very important facts about investments must continually
be given suitable publicity.
Simultaneously, it will be necessary to find concrete methods by
which officials of the United States government are able to help im-
prove both the local enterprise base, the volume and scope of local
private enterprise, and understanding within the circle of local enter-
prisers that expanded American investment is entirely consistent with
solid opportunities for the growth of local industry of all kinds. A
thorough case study of recent Mexican experience should prove to
be a worthwhile endeavor, for that experience clearly shows how local
opposition to expanded American investment was overcome when
peo-
ple generally came to realize that, if anything, expanded American
investment in Mexico increased rather than reduced the opportunities
for profitable investment by Mexicans.
What is required is first of all a general awareness of the problem
just outlined. Once this is recognized, and the challenge understood,
it should be only a matter of time before an effective solution is found.
APPENDIX
(This outline was prepared by the staff of the special committee to
serve as a guide for the American Enterprise Association in prepara-
tion of its report to cover subjects of interest to the committee.)
AMERICAN PRIVATE ENTERPRISE, FOREIGN ECONOMIC DEVELOPMENT,
AND THE AID PROGRAMS
Purpose. This study will survey those aspects of American business
operations abroad which relate to the economic development of other
countries. It will be confined to essentially independent business
operations-direct investment, private loans, franchise, patent agree-
ments, etc.-as distinct from activities of private business as the direct
or indirect agent of the United States Government under contract to
carry out parts of the foreign aid program.
The study will evaluate the impact of private business operations
on foreign economic development with a view to determining why this
is insufficient, if in fact it is insufficient, in stimulating such economic
development abroad as may be in our national interest. It will aim
at suggesting changes in our aid policies, particularly as embodied in
legislation or supplementary legislative measures which might alter
the present role of private enterprise in foreign economic development
in such a manner as to contribute to the total national interest of the
United States.
Scope. The project will seek to answer the following questions:
I. What is the extent of American business activity abroad related
to economic development and what part does it play in such develop-
ment? A brief survey of American private investment and other
business activity in foreign countries, particularly since World War
II. The section will cover-
A. Significant contrasts in the pattern of United States busi-
ness activity abroad related to development before and since
World War II.
B. The amount and geographic distribution of current business
activity abroad related to economic development.
C. Industries and resources being developed abroad by Amer-
ican business.
D. Direct or indirect impact of American business operations
abroad on the development of indigenous skills, managerial tal-
ents, and investment.
II. To what extent can American business activities abroad promote
the kind and degree of economic development abroad which is neces-
sary in the national interest? An analysis of the differences and simi-
larities in foreign economic development resulting from private busi-
ness operations and foreign aid programs. It will consider, but not
be limited to, the following:

617
618
FOREIGN ECONOMIC DEVELOPMENT AND AID PROGRAMS
A. The kind of foreign economic assistance being sought by
other countries that is in our national interest; their capabilities
of obtaining it on a commercial basis.
B. The extent to which this type of assistance is presently being
supplied as a direct or indirect result of American business op-
erations.
C. The extent to which it is being supplied by United States
aid programs.
D. The points, if such is the case, at which private American
business operations and governmental aid activity may overlap
or impede each other.
III. What prevents private business from supplying all or a larger
part of what is needed and desirable from the point of view of our
national interest in the development of other countries in the normal
course of its activities abroad? An examination of the interest and
motivations of private business in engaging in activity abroad and the
reasons why developing countries encourage or discourage this in-
terest. This section will include, but not be limited to, the following
matters:
A. The interest of American business in engaging in activities
abroad and factors which encourage or discourage this interest.
B. The interest, real and imagined, of other countries in en-
couraging or discouraging American business activities within
their borders and the political and other devices through which
this interest is expressed.
C. The role of the aid programs in encouraging or discouraging
a reconciliation of the interests of American business and develop-
ing countries, including an evaluation of the impact of the
guaranty provisions.
IV. To what extent may the operations of private business be ex-
pected to provide what is needed from the point of view of our na-
tional interests in the development of other countries in the future?
An estimate of the part private business may be expected to provide
of what is needed in the way of foreign economic development in the
years ahead, from the point of view of our national interest. The sec-
tion will cover, but need not be limited to, the following:
A. An examination of the various measures of further govern-
mental stimulation of private business activity abroad, and the
desirability of such stimulation from the point of view of impact
on other countries and our national interest.
B. An appraisal of the effects of increases or decreases in the
foreign aid program on the role of American business in the de-
velopment of other countries.
STUDY NO. 8
FOREIGN ASSISTANCE ACTIVITIES OF THE
COMMUNIST BLOC AND THEIR IMPLICATIONS
FOR THE UNITED STATES
BY
THE COUNCIL FOR ECONOMIC AND INDUSTRY
RESEARCH, INC.
MARCH 1957
619
CONTENTS
Letter of transmittal.
Introductory comments.
Summary
1
1
Chapter I. The Communist bloc economic offensive..
A. The Communist objective.
B. Main elements in Sino-Soviet bloc policy
C. Background and contrasts in policy..
D. The trade offensive__.
E. Trade promotion.
F. Bloc credits..
G. Technical assistance.
1
H. Impact of bloc activities on trade.
I. The role of Communist China..
J. The military assistance program.
K. Concluding remarks.
le
1
1
}
1
1
}
1
1
1
1
1
1
Page
623
625
627
633
633
J
634
1
1
1
1
635
637
1
640
I
1
1
641
643
645
650
651
1
652
Chapter II. Economic capability of the bloc
656
Chapter III. Susceptibility of recipient countries.
663
Chapter IV. Objectives of the Communist bloc..
665
Chapter V. Some comparisons of United States and Communist bloc
assistance programs__
667
Chapter VI. Some impacts on the United States program.
Chapter VII. Possible courses of United States action..
Partial list of sources..
Appendixes
A. Estimated expenditures on international trade fairs by members
of the Sino-Soviet bloc by host country, 1955.
675
1
1
678
1
686
691
B-1. Imports of selected free-world countries from the Sino-Soviet bloc,
1938, 1948, 1950, 1952-56..
693
B-2. Exports of selected free-world countries to the Sino-Soviet bloc,
1938, 1948, 1950, 1952-56-
702
C. Sino-Soviet bloc, economic, technical and military aid and trade
agreements, arrangements and implementation with free-world
underdeveloped countries (including specific offers under current
consideration), 1953–56.
D. Committee staff outline.
711
765
621
LETTER OF TRANSMITTAL
COUNCIL FOR ECONOMIC AND INDUSTRY RESEARCH, INC.,
Washington, D. C., December 31, 1956.
The CHAIRMAN, SPECIAL COMMITTEE TO STUDY
THE FOREIGN AID PROGRAM,
United States Senate, Washington, D. C.
DEAR MR. CHAIRMAN: I take great pleasure in transmitting here-
with our report on the study of the "Foreign Assistance Activities
of the Communist Bloc and Their Implications for the United States"
undertaken in accordance with the contract entered into October 16,
1956, between the Council for Economic and Industry Research, Inc.
and the Special Senate Committee To Study the Foreign Aid Program.
The council feels honored to have had the privilege of participating
in this study, and will gladly hold itself available to answer any ques-
tions that may arise in connection with the review of our report by the
committee, or by the committee's staff.

Respectfully yours,
HERBERT W. ROBINSON, President.
623
INTRODUCTORY COMMENTS
The council wishes to acknowledge at this point the substantial
contribution made to this study by the project director, Dean Arthur
E. Burns, of George Washington University. Dean Burns not only
prepared the original draft of this report, but participated in the
survey fieldwork, and served as chairman of the council's advisory
board on this project.
We are indebted also to the members of the advisory board, whose
comments and advice respecting the questions and problems arising
in the course of the survey were most constructive. The members
of the advisory board were:
Dean Arthur E. Burns (chairman), George Washington Uni-
versity
Dr. Lincoln Gordon, Harvard University
Dr. Yale Brozen, Northwestern University
Dr. Joseph S. Berliner, Syracuse University
Dr. William H. Stead, economic consultant, Washington, D. C.
The data utilized or presented in this report were obtained from
a great variety of sources: foreign technical journals and general
publications, particularly those of Soviet bloc countries; the reports
and files of the United States Government agencies, especially those
of the Departments of State, Defense, Commerce, and Agriculture,
and the International Cooperation Administration; United Nations
documents; the files of the Council for Economic and Industry
Research, Inc.; and various House and Senate committee reports.
A detailed, partial list of sources consulted will be found at the end
of this report.
Although the views and ideas of many persons are incorporated
in this report, the council assumes full responsibility for their final
blending and presentation.

625
FOREIGN ASSISTANCE ACTIVITIES OF THE COMMUNIST BLOC
AND THEIR IMPLICATIONS FOR THE UNITED STATES
SUMMARY
I. THE COMMUNIST BLOC ECONOMIC OFFENSIVE
The Communist bloc opened up an economic offensive in 1953 as
part of a general diplomatic drive to strengthen its position in world
affairs. This drive is concentrated on the less developed coun-
tries of the world, in particular those of Asia and the Middle East.
Credits extended by the bloc through the latter part of 1956 come
to $1.4 billion, at low rates of interest (2 to 2.5 percent) for periods
up to 30 years. Credit extension is a new departure in Soviet bloc
policy. The borrowers are underdeveloped countries. Approxi-
mately one-quarter of the credits financed arms shipments to Egypt,
Syria, and Âfghanistan. The balance of the credits mainly finance
capital goods imports into the borrowing countries.
Bloc technicians are known to be operating in 14 countries, largely
on industrial mining and petroleum projects. Considerable numbers
of foreign technicians are training in the bloc, mainly in the Union
of Soviet Socialist Republics.
Bloc trade agreements have nearly doubled since 1953. Most of
the new agreements have been concluded with underdeveloped coun-
tries. As part of the trade drive, the bloc has participated more
widely in trade fairs and has pushed other means of trade promotion.
These developments mark an important change in Communist bloc
policy. They modify, and in some respect reverse, the traditional
policy of the Soviet Union. This is the Soviet version of "economic
assistance," which stresses trade expansion and the extension of
credits. Communist propaganda bitterly attacks United States eco-
nomic and military aid, as degrading, aggressive, and imperialist in
design.
Concrete results of the economic offensive are modest thus far, but
considerable for the short period of time involved. In 1955, only
3 percent of free world trade was with the bloc; most of this was
trade with the European satellites. Bloc trade with the free world
grew 70 percent from its low point in 1953 to 1956. This growth
equaled 10 percent of free world expansion of trade in the same
period. Expanded trade with underdeveloped countries accounted
for nearly half of the bloc's trade increase since 1952. More than
10 percent of the foreign trade of Afghanistan, Egypt, Finland,
Hong Kong, Iceland, Iran, Turkey, and Yugoslavia is now with the
bloc.
Bloc credits now in force, and the expanded network of trade agree-
ments, point to continued growth of trade, particularly with the
underdeveloped countries.
II. BLOC ECONOMIC CAPABILITY
Whether the bloc economic offensive can gain momentum depends
on many things, especially on its economic capability and its foreign
94413-57-41
627
628
SUMMARY
policy. The facts make clear that the bloc can plan an increasing
role in world economic affairs if its political policies so dictate.
In terms of total production-gross national output-the United
States leads the Union of Soviet Socialist Republics 3 to 1; $410 bil-
lion as against an estimate of $140 billion. Production per capita in
the United States is $2,400 for 1956; in the Union of Soviet Socialist
Republics, the figure is about $700.
The United States has an impressive lead. But the average annual
growth rate seems greater in the Union of Soviet Socialist Republics
than in the United States: 6 percent as against 4 percent. The Soviet
figure is an approximation-it could be larger. Industrial output as
a component of total production has an average annual growth rate
of about 9 to 11 percent in the Union of Soviet Socialist Republics;
this is considerably greater than the United States industrial growth
rate. Some 70 percent of Soviet industrial output is in producer
goods; this is about twice the United States percentage. The sixth
5-year plan calls for a continued emphasis on capital goods produc-
tion. Press reports (December 26, 1956) on the meetings of the
Central Committee of the Soviet Communist Party indicate again
their intention to "catch up" with the capitalist world.
The facts of Union of Soviet Socialist Republics industrial growth,
and the stated policy on future growth, lead to the general conclusion
that the export capability of the Union of Soviet Socialist Republics
will grow in the years ahead. Satellite industrial growth has also
been substantial; larger exports can be expected from these countries,
although events in Poland and Hungary during late 1956 alter the
outlook somewhat.
Although the Communist bloc is poor by western standards, its
industrialization is growing. If it deploys its resources carefully,
the bloc can in time become a significant competitor of the West in
a limited number of underdeveloped countres, notably in Asia and the
Middle East.
III. SUSCEPTIBILITY OF UNDERDEVELOPED COUNTRIES
The Communist economic offensive has laid special emphasis on
the less developed countries of Asia and the Middle East. Many of
these new countries have only recently thrown off colonial rule. Their
outlook is anticolonial and in general anticapitalist. The Union of
Soviet Socialist Republics cultivates this anti-Western sentiment.
These new Asian countries are in process of rapid change: old social
and political norms are dissolving. High hopes are held for economic
growth, which requires substantial capital imports. The likelihood
of achieving rapid growth in these countries is not bright, for a num-
ber of reasons. Unless Western capital exports and trade with these
areas grow, a faltering in the economic growth of these countries
and their consequent frustrations might impel them toward the Soviet
model. Their urgent capital needs account in part for their favorable
reception of recent Soviet trade and capital deals. Susceptibility
arises from additional particular conditions: the anti-Israeli feeling
in the Arab States makes them receptive to any offer of military
assistance.
SUMMARY
629
IV. OBJECTIVES OF THE COMMUNIST ECONOMIC OFFENSIVE
The objectives of the trade, credit, and technical assistance activities
of the bloc cannot be treated independently of their larger diplomatic
objective. Since 1953, the Soviets have sought to persuade Europe and
Asia of their peaceful, progressive intentions, presumably to encour-
age "neutralism" and lack of sympathy for United States defensive
policy. Trade and credit proposals reinforced this Soviet diplomatic
effort. Technical assistance may be viewed as a subtle means of ideo-
logical penetration, supporting their general propaganda drive against
the West. Closer trade relations give the bloc a vantage point for
the exploitation of troubles that develop between a Western nation
and any of the underdeveloped nations. Closer economic bonds may
make a country more responsive to Soviet wishes; these bonds are
partly financial as a result of credit extension and market relations
due to expanded trade. Undoubtedly, a bloc objective is to create
friction between the United States and recipients of its aid by purport-
ing to provide bloc aid on more favorable terms. Part of the reason
back of the bloc policy may be simple economic advantage-a means of
getting food and raw materials through the export of industrial
products. The objective of its military assistance activity seems
mainly to exploit situations disadvantageous to the political position
and prestige of the West; ideological penetration of military groups
is another likely objective.
Thus there appear to be many specific objectives which fit into the
general objectives of enhancing Soviet prestige and influence, to the
detriment of the position of the United States. And this can be
presumed to further the general objective of the Communist bloc:
to communize the world.
V. COMPARISON OF COMMUNIST AND UNITED STATES FOREIGN
ASSISTANCE PROGRAMS
The United States program is vastly larger and in this sense more
costly than the bloc program. In 1955, United States aid alone
exceeded by far the total of bloc exports for all purposes.
The bloc renders "assistance" through means of barter, relieving
its trading partner of surpluses. It also relies heavily on loans (not
grants), which are repayable usually in commodities. There is little
or no cost, therefore, in its assistance program. United States grants,
and the frequently "soft" repayment provisions on loans, mean a net
cost to the United States in providing assistance.
Considerable United States assistance is in the form of consumer
goods; bloc assistance places little weight on consumer goods.
Bloc loans at 2 or 2.5 percent appear on this basis more advantageous
than United States loans. The United States has "softer" repayment
features on many of its loans.
The bloc has no elaborate administrative bodies in recipient coun-
tries; there is no counterpart of the United States operating missions
or military missions. In its economic development activities, the bloc
contracts to build industrial, power, or other projects. Each project
seems administratively self-contained, somewhat like projects financed
privately by Western firms.
The bloc military assistance is not as "balanced," and gives less
attention to the absorptive capacity of the recipient compared with
630
SUMMARY
United States military assistance. Bloc arms shipments seem designed
mainly to exacerbate existing tensions, in contrast to the United States
defensive emphasis.
The bloc has developed no techniques not known to the United
States assistance programs.
VI. IMPACT OF BLOC ACTIVITIES ON UNITED STATES PROGRAMS
It is not possible to isolate the impact of the trade, technical assist-
ance, and credit activities of the Communist bloc from the general
impact of their diplomatic offensive. Their military assistance activi-
ties are similarly related to particular diplomatic purposes in a limited
number of countries. The diplomatic offensive attempts to place the
role of aggressor and troublemaker on the West, and particularly on
the United States. A general effort to weaken support for United
States sponsored defensive alliances is evident in the pattern of propa-
ganda and activities. The Soviets won some measure of success in
their offensive; this can be seen in the trend toward "neutralism," evi-
dent in 1955 and early 1956.
Soviet bloc credits, trade deals, and technical assistance are methods
used in support of its diplomatic offensive. They met with consider-
able success; these forms of assistance were favorably received in the
recipient countries, and reinforced the hope that the Union of Soviet
Socialist Republics harbored no aggressive designs. Bloc military
assistance damaged United States relations with Egypt and Syria.
The sudden growth of bloc-Icelandic trade, following the Anglo-Ice-
landic fishing dispute, helped the local Communist group and weak-
ened the United States military position in Iceland. Bloc trade and
credit terms have increased United States loan-negotiating problems
in Indonesia, and somewhat in India. Except in the Middle East, and
to a lesser extent in Iceland, the bloc impact has been of no great im-
portance, but its troublesome effectiveness has been demonstrated in
special areas, particularly in situations ripe for exploitation.
VII. POSSIBLE UNITED STATES COURSES OF ACTION
The Communist bloc offensive has injected a new element in the
appraisal of United States foreign assistance policy.
This report assumes that the bloc is moving against the United
States international position, that the bloc has a growing capability
of increasing its efforts along this line, and that the bloc will do so.
It is necessary to distinguish different elements in United States
foreign assistance activities: (a) the welfare element (public health,
education, disaster relief, school lunch programs), (b) military assist-
ance and directly related economic programs, and (c) economic assist-
ance per se.
Welfare activities are not directly affected by the bloc offensive;
these should be developed on their own merits." Military assistance
activities must depend on the assessment of United States and free
world defense requirements.
Economic assistance, mainly economic development, is the principal
activity affected by the Comunist bloc offensive. Possible courses
of action include―
SUMMARY
631
(a) An out-and-out competition with the bloc in economic
assistance activities. This course of action is unwise.
(b) A drastic reduction or withdrawal by the United States in
its economic assistance efforts. This course of action would tend
to strengthen the Communist position.
(c) An independent course of action in economic development
policy is preferred. Supplemental economic assistance to meet
special economic problems, however, is desirable to counter pos-
sible Soviet moves.
(d) Economic aid to satellite nations, as a counteroffensive
against the Soviet Union, stands little prospect of success.
In addition to these courses of action, the United States should
become increasingly alert to head off problems that the bloc might
exploit. The United States should increase its efforts to encourage
multilateral trade and payments in order to reduce the bloc's oppor-
tunities to exploit special difficulties. With the growth of the bloc
economic offensive, it is now more important to streamline United
States administrative arrangements and procedures and to achieve
more flexibility. The administrative and fiscal separation of military
aid from other forms of aid is desirable.
Policy proposals in this report do not imply any reduction or in-
crease in United States foreign aid. At present levels, foreign-aid
costs are easily within the economic capability of the United States.
If necessary, a considerable increase in aid outlays to meet the Soviet
threat could be carried without adverse economic effects. If the Soviet
threat fails to materialize the added cost would not be great in terms of
capability. But if the threat materializes the cost of not being ready
might be very heavy.
CHAPTER I
THE COMMUNIST BLOC ECONOMIC OFFENSIVE
A. THE COMMUNIST OBJECTIVE
NOTE.-In this report, the terms "Communist bloc" and "Sino-Soviet bloc" refer to all
Communist countries, including the Union of Soviet Socialist Republics, the East Euro-
pean satellites (Albania, Bulgaria, Czechoslovakia, East Germany, Hungary, Poland, and
Rumania), Communist China (including Inner Mongolia, Manchuria, and Tibet), North
Korea, North Vietnam, and Outer Mongolia. The term "Soviet bloc" refers to the Union
of Soviet Socialist Republics and the East European satellites; the term "satellite" to the
East European satellites.
***We recognize the necessity for the revolutionary
transformation of capitalist society into Socialist society.
These are Khrushchev's words, spoken before the 20th Congress of the
Soviet Communist Party, February 1956. Again:
The fact that we support peaceful coexistence does not
mean that one can relax in the struggle against bourgeois
ideology.
No long-run coexistence, competitive or otherwise, is to be found in
these pronouncements. They again proclaim the Soviet determination
to achieve a Communist "one world" and with it the destruction of
western democracy. Force is one method to attain this end. As he
said:
There is not a shadow of doubt that for a number of capi-
talist countries the overthrow of the bourgeois dictatorship
by force and the connected sharp aggravation of the class
struggle is inevitable.
But civil war is only one of the means, not necessary "in all circum-
stances." The Soviet's political weapons system embraces much more
than force. As Khrushchev said in the same speech:
It is quite likely that the forms of the transition to socialism
will become more and more variegated.
The much-heralded "new look" in Soviet political and economic di-
plomacy must be interpreted as part of the more variegated forms
employed by the Soviet Union in its worldwide offensive on the non-
Communist world. Any other interpretation of the new economic
assistance policy is dangerous to the West. To be sure, the Soviet
Union at times in the past has pursued policies which in the short run
seemed contrary to its long-run goal. The present offensive might be
another example of such expediency. But Soviet propaganda and
actions indicate otherwise. This is not to say that there are no other
elements in the explanation of the recent Soviet economic offensive, as
633
634 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
will be shown below. But political prudence requires that the United
States view all major Soviet moves in the light of the Communists'
well-publicized long-run aim: the communization of the world. The
cold war is still on. The present Soviet economic assistance policy,
aimed at underdeveloped countries, is part of it. Soviet arms ship-
ments to Egypt and Syria fit into the same pattern of disruption and
aggression. Both reflect a growth in Soviet economic strength, and a
decision to employ this strength against the influence and position
of the West in the underdeveloped countries, especially in Asia and
the Middle East.
B. MAIN ELEMENTS IN SINO-SOVIET BLOC POLICY
Sino-Soviet bloc economic assistance to non-Communist countries
represents a new departure in policy. Tangible evidence of this policy
appeared in 1953; during 1954, Soviet bloc activities expanded. The
new policy was given worldwide publicity through the extravagant
pronouncements of Krushchev and Bulganin during their 1955 Asian
tour. The tempo has continued through 1956; the Soviet Union and
the satellites have set loose upon the world an army of salesmen offer-
ing machinery, credits, arms, technical assistance, and good will, to
the accompaniment of bitter assaults on the West in general and the
United States in particular. The main elements in this economic
offensive are as follows:
1
1. Since 1954 the Soviet Union and its European satellites
have concluded trade agreements ¹ with underdeveloped countries
in unprecedented numbers. They provide for the exchange of
food and raw materials from these countries largely for the
industrial products of the Communist countries. Growing Soviet
bloc exports of machinery and railroad equipment represent a
new departure in its export policy toward the non-Communist
world.
2. The bloc extends medium- to long-term credits,2 mainly for
capital goods, to speed the economic development of economically
backward countries, mainly in Asia and the Middle East. As of
late 1956, some $1.4 billion of such credits had been accepted by a
number of these countries.2a
3. Technical assistance to underdeveloped countries has been
increased greatly. Technicians usually are supplied by the Soviet
Union and the satellites to help build or install the capital projects
financed by development loans. Large numbers of persons from
these underdeveloped countries are invited to study in the Soviet
Union, mainly in its technical institutes. In 1954, the Soviet
Union abandoned its informal boycott of the United Nations
technical-assistance programs. These activities have brought
hundreds of persons to the Soviet Union for technical training.
4. These activities-trade agreements, credits, and technical
assistance-are accompanied by a steady, often shrill, denuncia-
tion of American foreign economic assistance as a form of
"economic enslavement" and "capitalist imperialism" having as
its purpose the restoration of colonialism.
1 For detailed information see appendix C, p. 79.
2 See footnote 1.
2a For recipient country detail see summary table on first page of appendix C.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 635
5. Unlike the United States, the Soviet Union gives practically
no grants to recipient countries. The Soviets get a quid pro quo,
and make a virtue of this businesslike arrangement. United
States grants are represented as having political "strings" at-
tached and as demeaning to the recipient. Soviet deals are rep-
resented as mutual benefit arrangements made freely by equals.
6. Soviet and satellite (mainly Czech) arms are going to a
few countries-Egypt, Syria, Afghanistan-to aggravate tense
situations. The Middle East conflict partly stems from this
mischievous policy.
Later in this report, considerable data are presented, by major activi-
ties and by countries, showing the extent of the present Communist
economic offensive and its military assistance operations.
C. BACKGROUND AND CONTRASTS IN POLICY
The striking nature of the Communist economic offensive is a
manifestation of sheer opportunism or, more likely, a shift in long-
range Communist strategy in keeping with its changing economic
structure. This shift came to light following Stalin's death, but it
probably was in the making during the latter years of his rule. The
contrast in policy, past and present, calls for a brief review. His-
torically, the Soviet Union approached foreign trade and other forms
of participation in international economic affairs with extreme cau-
tion. It feared possible penetration through the trading process,
and the possible disruptive influence on its internal economy due to
dependence on foreign sources. To insulate itself from outside in-
fluence the state trading monopoly was created soon after the revolu-
tion. During the 1920's and 1930's, the Soviet Union imported
machinery and technical services for the expressed purpose of building
a self-sufficient base for its socialist economy. It paid for these by
exporting food and raw materials; this trade was held to the mini-
mum necessary to build up an industrial base on what had been an
essentially agricultural economy. By the late 1930's, dependence on
foreign capital goods decreased, and Soviet trade declined. In 1940,
the Ministry of Foreign Trade expressed satisfaction that the Union
of Soviet Socialist Republics was 2d in the world in industrial pro-
duction—and 19th in foreign trade. Its pre-World War II exports
had sagged to $500 million, roughly matching its imports.
After World War II, this autarkic policy was imposed by the
Union of Soviet Socialist Republics on its captive East European
satellites. Their trade became a state monopoly; trade agreements,
and in some cases reparations, directed the bulk of their exports to
the Soviet Union. As independent countries before the war, they pro-
vided the Union of Soviet Socialist Republics with only 4 percent of
its imports. By 1954, 80 percent of the Soviet Union's trade was
with its satellites and Communist China. Satellite trade with former
trading partners in the free world declined greatly under the impact
of this forcible economic integration with the Union of Soviet Social-
ist Republics. This Soviet policy had much to do with the drop in
East-West trade; this was, however, accentuated by the imposition
of strategic trade controls by the West in 1947. The Soviets placed
the blame on western trade controls, which in fact accounted for the
636 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
drop in machinery and strategic materials exports to the bloc. How-
ever, the decline in East-West trade was probably due as much to
Stalinist autarkic policy as to the western embargo. This is sug-
gested by the fact that in 1950, the exports of the West to the bloc
were 63 percent of prewar, but imports from the bloc had dwindled
to 28 percent (Economic Bulletin for Europe, vol. 3, No. 2, Geneva
1951, Economic Commission for Europe). The Soviet fear of west-
ern economic influence, and its economic control over the satellites,
was demonstrated by its opposition to Polish and Czech participa-
tion in the Marshall plan. In 1949, it established the Council of
Economic Mutual Assistance to further the economic integration of
the captive countries with the Union of Soviet Socialist Republics.
This it accomplished; Soviet bloc exports to the free world declined
to $1.26 billion by 1952, less in dollar amounts than the prewar level,
and only one-third in physical volume. The Korean war helped
account for this. From the world trade point of view, the Commu-
nist bloc had all but withdrawn from the rest of the world-it was
down to less than 2 percent of world exports, and imports. Stalin
had insulated his empire quite effectively from what he regarded to
be the baneful influence of the capitalist world that extensive trading
might bring.
3
But evidence indicates this trade decline hurt the Soviet bloc;
this was the purpose of the West's export controls and the unwitting
consequence of Stalin's autarky. In their economic plans the bloc
placed primary emphasis on the growth of the heavy goods industries,
to speed industrialization and to build their impressive armaments
industry. The food and raw materials industries lagged. As a
consequence, the bloc developed structural maladjustments (World
Economic Survey 1955, United Nations). The food and raw ma-
terials base became inadequate in relation to the superstructure of
heavy industry. Evidence, of course, is scanty, given the nature of
Soviet statistics. But the needs of industrial production pay little
attention to the ideological characteristics of a system. The facts
suggest a bloc requirement for more food and raw materials than
their plans accomplished. Unrest in the satellites for lack of ade-
quate food, and production shutdowns for lack of raw materials,
bear out this view. The refusal of Bulgaria, Hungary, and Rumania
to include grain exports in trade negotiations with Turkey and
Greece is further indication of shortages.
In 1951, the Soviet Union urged an increase in East-West trade
at the meetings of the Economic Commission for Europe. This seems
to be the beginning of the "more trade" position, although earlier the
Soviets had repeatedly complained about western control of exports
to the bloc. Later in 1951, the Soviet delegate at the meetings of the
Economic Commission for Asia and the Far East voiced the willing-
ness of the Soviet Union to sell industrial machinery in exchange for
raw materials from that region. This campaign in Asia continued
during 1952, with the Soviets blaming the United States and its
United Nations associates for denying Asian countries needed capital
goods while expending great sums fighting an "aggressive" war in
Korea. The Soviet propaganda campaign-in Europe and in Asia-
called for "normal" trade relations throughout the world as a means
of solving the problems of needed industrial development, higher liv-
* See World Economic Survey, 1955, United Nations, New York, 1956, pp. 111-122.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 637
4
ing standards, and national independence. The purpose seemed to be
to set the stage for increased East-West trade by showing Soviet good
intentions in international relations. In 1952, Stalin (in Bolshevik
No. 18) placed a different emphasis on the desirability of more
trade, and in doing so made a significant shift in his traditional
economic isolationist position. He called attention to the Soviet
Union's economic capability for world exports. The purpose of such
exports would be to cut into the markets of the Western Powers, dam-
age their export industries, cause unemployment, intensify capitalist
rivalry for the constricting markets, and lead to another war among
rival capitalist countries. With bloc exports to the free world at the
time a mere $1.26 billion-less than 2 percent of the total free world.
imports his strategy seemed charted for the distant future, if at all.
Although Stalin seemed ready to shift his foreign-trade policy, his
death lifted his heavy, restrictionist hand all at once. With this re-
lease and because of internal political uncertainty, his successors began
in earnest the policies which bloc economic requirements called for
some years earlier. A number of trade agreements were negotiated,
and the Soviet Union showed its inclination to trade seriously. Since
then, its trade with non-Communist countries has grown. Satellite
trade has grown even more. The bloc began negotiating the export of
capital goods for food and industrial raw materials with under-
developed countries, and for capital goods from the industrial coun-
tries of Western Europe. In the process, the Union of Soviet Socialist
Republics bought far more capital goods from the free world than it
sold to it, while the satellites became net exporters of capital goods to
the free world. With this willingness to trade in larger quantities
came, in 1954, bloc offers of credit and technical assistance, and the
intensified economic offensive of 1955 and 1956.
This modification of traditional trade policy was born in part of
economic need. To sustain and continue its vast industrialization
program, the bloc seems to have needed consumer goods and raw
material imports. Polish and Czech imports of iron ore, and the Union
of Soviet Socialist Republics imports of shoes from India indicate
this. Bloc exports of industrial products indicate strength in its indus-
trial sector and, most likely, an economic advantage in trading such
products for food and raw materials. While economic need-or
perhaps simple economic advantage-seems to be an important element
in the dramatic shift in Communist trade policy, the Soviets have lost
no opportunity to exploit the political advantages as well. Such ex-
ploitation fits into their main purpose. This they have done especially
in the underdeveloped countries, many of whom view the Soviet "new
look" in economic and political diplomacy with evident satisfaction.
The objectives behind this striking change in Communist economic
policy will be discussed more fully below.
D. THE TRADE OFFENSIVE
Communist bloc trade agreements with the countries of the free
world increased from 113 in force at the close of 1953 to 203 by the
third quarter of 1956. This is an impressive increase. These agree-
• U. S. S. R. and East European satellites.
638 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
ments express the willingness of both parties to engage in trade,
establish the amounts and types of commodities that might be ex-
changed, and arrange for the means of payment. In general, they
establish the official facilities for the conduct of trade, the framework
and conditions. Actual trade deals within this framework are worked
out by negotiation. The purpose of these agreements is to pave the
way for future trade. The rapid growth in such agreements seems
clear evidence that future trade expansion is high on the agenda for
the Communist bloc.
The expansion in Communist bloc trade agreements with free-world
countries has been accompanied by a pronounced shift in their geo-
graphical pattern. Bloc emphasis has favored underdeveloped
countries. In 1953, one-third of bloc agreements were with under-
developed countries; by late 1956 more than half were with these
countries. Practically all new agreements signed in 1956 were with
such countries. Most of these new agreements were made between
them and the satellites (not the U. S. S. R.). Three-quarters of the
agreements concluded for the first time between the parties were with
underdeveloped countries. This can be ascribed in some measure to
Soviet political design. But this is likely not the whole explanation;
political and economic considerations are intertwined. As mentioned
above, the change in bloc trade policy increased the emphasis on
industrial exports and raw material and food imports. Apart from
any political considerations, such an emphasis, based in some measure
on economic necessity, would direct trade toward underdeveloped
countries. Moreover, most of the new countries of Asia and the
Middle East acquired national independence during the period when
the Union of Soviet Socialist Republics was surrounding the satellites
with its autarkic Iron Curtain. The latter had virtually no chance
to trade with either the old or the new countries. Once freed some-
what, and in need of primary products, satellite trade moved toward
the underdeveloped countries that could provide these products and
absorb satellite industrial output. In this sense, the geographical
shift is normal, i. e., to be expected with an increase in bloc world
trade, bloc requirements, and the normal industrial import require-
ments of underdeveloped countries. To turn this to political advan-
tage is an easy step, well within the capability of the Communist mind.
This they have done, with much strident propaganda.
Table 1 shows in summary form the numbers of trade agreements
between the Communist bloc and the free world countries for 1953
and 1956. The geographical shift is evident from the figures in
table 1. Table 2 shows the growth in these agreements by selected
countries by years. Changes in trade facilitated by these agreements
will be shown statistically below, and the bloc motives and country
reactions to this trade offensive will be analyzed.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 639
TABLE 1.-Number of trade and payment agreements between Sino-Soviet bloc
and free-world countries, December 1953 through August 1956

Estimated as of
August 1956 1
Estimated number at end
of-
Free-world area, country
Number Increase
1955
1954
1953
over 1955
21
8
13
11
6
6
16
0
4
304
3884
1
8
2300 2 600
4
12
211
817
1140
2180
South Asia.
Afghanistan.
Ceylon..
India
Pakistan
Far East.
Burma.
Cambodia..
Indonesia...
Middle East…..
Egypt...
Greece.
Iran.
Israel..
Lebanon
Sudan.
Syria..
Turkey.
Yemen.
Africa: Ethiopia..
Latin America...
Columbia.
Paraguay.
Uruguay.
Argentina.
Brazil.
Mexico
Western Europe...
Other Europe:
Yugoslavia.
Finland.
North America: Canada……….
Grand total.
7
3
1
0
6
WOO
0
0
3
52
9
43
30
20
7
0
7
0
4
0
5
0
6
7745 SHEHLO NO
2130M
48730
4
4
5
4
3
4
0
0.
7
6
0
0
35421OLLO
0
0
1
16
-2
17
0
0
0
18
16
12
0
-1
1
0
3
0
3
4
0
4
6
0
6
21
-1
3
3
0
1
1
022521
O246MI
80
2
78
14∞ ∞
8
0
8
0
1
∞ ∞∞∞
70
64
8
8
0
180
0
080
203
23
180
143
113
1 Includes 136 agreements known to be in force, 48 agreements assumed to have been tacitly renewed,
and 19 newly signed agreements of uncertain date of entry into force.
TABLE 2.-Growth of the Soviet trade agreement network with underdeveloped
countries, 1952–56


Afghanistan.
Iran
Egypt.
Argentina.
India
Greece..
Lebanon
Uruguay
Iceland.
Yugoslavia.
Burma.
Syria
Yemen.
Pakistan.
Indonesia
1 As of Oct. 1.
* 2-year protocol.
• Short-term agreement: 3 months.
• Supplemental protocol signed on June 6, 1956.
Source: U. S. Department of Commerce.
1952
1953
1954
1955
1956 1
October.
June
Dec. 24
Nov. 28 | Aug. 27
June 10
June 17
May 4 Sept. 5
Mar. 3.
Aug. 15
Mar. 27 May 12
Aug. 5
Aug. 22
May 19
Dec. 2
Dec. 23
Dec. 13
July 28
Sept. 2 |
Aug. 23
Apr. 30
Oct. 1
July 282
Aug. 11
Aug. 1
June 19
Sept. 23
Sept. 28
Oct. 13 Jan. 5 4 Jan. 6
July 1
Apr. 1
Nov. 16
Mar. 8
June 27
Aug. 12
640 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
E. TRADE PROMOTION
As part of its trade offensive, the bloc countries have increased
materially their participation in trade fairs. In 1955, they showed
products at fairs in 32 nonbloc countries, compared with 23 in 1954,
and still fewer in the preceding years. It is estimated that the bloc
spent about $18 million for this purpose in 1955, nearly $3 million in
India alone. Half of the total was spent in underdeveloped countries,
mainly in Asia and the Middle East. Reflecting the satellite interest
in the current trade expansion, Czechoslovakia accounted for the
largest amount spent by the bloc countries, with the Union of Soviet
Socialist Republics next in importance. Table 3 and appendix A show
trade fair data.
TABLE 3A.-Summary of the participation of the Sino-Soviet bloc in international
trade fairs and exhibitions, 1951-55

Number of countries in
which bloc exhibited
Year
Free world
Bloc
Number of
fairs and
exhibitions
in which bloc
participated
Number of
individual
bloc exhibits
Estimated
expenditures
(United
States
dollars)
1951
1952
1953.
1954.
1955.
1 Not available.
6
**2**
13
21
23
32
Thousands
2223 O
8
20
(1)
20
92
58
120
60
125
10,000
9
149
288
38,000
TABLE 3B.—Summary of estimated expenditures on international trade fairs by
members of the Sino-Soviet bloc, by host area, 1955
[Thousands of United States dollars]

Union of
Host area
Other bloc members
Total bloc
Soviet
Socialist
Republics
Czecho-
slovakia
East Ger-
many
European Far East
North America...
206
202
Latin America__
4
514
502
4
Europe..
6
2
7,961
2,718
2,598
Asia
1, 741
4.84
420
5,726
1, 172
1, 400
550
692
Middle East and Africa….
1,912
3,536
1, 572
500
Oceania...
1, 144
320
200
200
Total free world…..
18, 143
4,392
5,976
2,791
Total intrabloc..
2, 330
19, 680
7,296
3, 447
3,089
4,936
2,654
912
Grand total…….
37,823
11, 688
9, 423
5,880
7,266
3,566
Trade promotion assumed other forms. The free-handed offers of
credit, industrial plants, other capital goods, and technical assistance
by Khrushchev and Bulganin, and many of the lesser lights in the
Soviet hierarchy, promoted interest in trade with the bloc. Czechs,
Poles, and East German ministry of trade representatives lost no
time in urging the advantages of trade with their respective countries.
Specific trade agreements followed the framework of the general
agreements, providing for specific commodities of particular regional
and national interest.
In some countries, the bloc appointed agents-sometimes local busi-
ness firms, at other times bloc nationals-to promote interest and
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 641
handle the details of the trade deals. Advertising campaigns in Asia,
the Middle East, Argentina, and Mexico promote the sale of bloc
capital goods. Shipping agreements, e. g., India and Poland, and air
service arrangements have been concluded. Credit arrangements with
private firms have been established in some places.
Of course, trade promotion at the highest level is carried out by
Soviet and other bloc diplomats who seek assiduously to cultivate the
image of a Soviet full of good intentions toward poor countries strug-
gling to grow and consolidate national independence. This image is
in striking contrast to the one seen in Hungary.
F. BLOC CREDITS
The most striking aspect of Soviet foreign economic policy is in
its extensions of credit. This it had never done before outside the
Communist nations. Once started by the Soviet Union, some satellite
countries, notably Czechoslovakia, entered the lending business.
As of August 1956, the total of credit offers accepted came to the
equivalent of $1.4 billion. Another $200 million in credits were under
negotiation. Standing offers, not yet in the negotiating stage, run
to much higher figures, but no precise estimate can be given. These
can be accepted in the future; there have been very few outright
rejections of Soviet credit offers. The way is open to those approached
to begin negotiations, which they would probably do should other
sources of outside credit be inadequate or unattractive.
Undoubtedly many of the general offers are made as part of a
propaganda campaign, but they should not be dismissed as such.
Propaganda usually contains some truth. Credit offers in 1954 and
1955 were often regarded as mere propaganda-but the fact is that
$1.4 billion is now committed and accepted.5 The Soviets are quite
capable of extending considerably more; and all countries approached
need credit from some source.
Early in 1956, some 90 percent of the established credits were made
available to the following five countries: Yugoslavia, Egypt, India,
Afghanistan, and Indonesia.
This credit program has grown rapidly. It began modestly in 1954,
rose sharply in 1955. During the first 8 months of 1956 some $600
million had been extended, bringing the total to $1.4 billion. About
half of this comes from the Soviet Union; most of the Soviet credit has
gone to Yugoslavia.
So far as can be learned, Communist China has granted almost
no credit, except to Malayan business firms. It would be incongruous
if China did provide much credit. But even more incongruous are
China's recent grants of $22.4 million to Cambodia and $12.6 million
to Nepal. Except for relatively small gifts, the Union of Soviet
Socialist Republics and the satellites have avoided grants to other
countries. The gifts incidentally seemed ceremonial; the recipients
usually reciprocated with their own gifts.
Credit terms are easy in most respects. The Union of Soviet So-
cialist Republics loans usually run from 10 years on up to 30 years,
with interest rates from 2 to 212 percent. These rates are low in rela-
tion to capital earnings in the Soviet Union; a grant element may be
"For details see appendix C and its summary table.
642 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
involved as discussed later. In the case of the Yemen loan, no interest
was charged. Satellite credits ranged upward in maturity to 10 years,
with the same low rates of interest. Repayment provisions are varied.
Depending on the specific agreements, the lenders may be repaid in
the currency of the borrower, occasionally in sterling or dollars or
other acceptable currency, in food or raw materials, or in the output
of plants financed by the credit. Thus India will presumably repay
in sterling and goods its $100 million credit for a Soviet-built steel
mill and in industrial diamonds for its diamond mining equipment;
Egypt will repay its Czech arms credit in cotton; Yugoslavia will
discharge its credit for an aluminum plant with aluminum exports
to the Soviet Union. Local currency is accepted in some cases, either
to be used for Soviet purposes in the country in question or to pur-
chase commodities for shipment to the Soviet Union.
The purposes of these credits likewise vary. It is estimated that
between $300 and $400 million of the funds lent to Egypt, Syria, and
Afghanistan are for arms purchases; additional arms were purchased
with cash. Other loans are essentially lines of credit for the purchase
of capital goods, raw materials, and technical assistance from the
bloc. But the nonmilitary credits are mostly for completed capital
projects, including the planning, construction, and installation of
equipment, bloc technicians, and the training of local people. Such
projects include steel mills, sugar processing plants, cement plants,
textile mills, fertilizer plants, an atomic research facility, and power-
plants. The Union of Soviet Socialist Republics made gold loans of
$30 million and $20 million to Yugoslavia and Finland, respectively.
Evidence thus far indicates speed and dispatch on the part of the
bloc in fulfilling its commitments. Khrushchev and Bulganin of-
fered Afghanistan $100 million in December 1955; by March 2, 1956,
the deal was signed. Loans to Burma and India were quickly ar-
ranged. Undoubtedly, part of the purpose is to impress officials in the
recipient countries, many of whom had negotiated United States loans
only after protracted delays.
Bloc credits for industrial, power, and transport projects appear
to be the result of detailed surveys made well before the credit is
offered. Bloc technicians seem furthermore to develop projects which
will have strong popular appeal, such as paving the streets of Kabul.
With the preparatory work accomplished, the credit is offered, and if
accepted, work starts promptly. Technicians arrive speedily, there
being no recruitment problem in the Soviet Union such as confronts
the United States in its economic assistance programs.
In short, the bloc appears to be making an effort to demonstrate its
capacity to "deliver the goods." It also makes much of its generously
low interest rate, in contrast to the 4 percent United States loans
under Public Law 480 and the Mutual Security Act, International
Bank loans of 4 to 5 percent, and Export-Import Bank loans of similar
rates. In other respects, they may be easier than the United States;
they seem not to insist on the "maintenance of value" provision as does
the United States in its local currency repayment loans (Public Law
480 and Mutual Security). Repayment of bloc loans usually begins
with the completion of the project financed. Bloc terms that are easier
than those required on United States loans cause some trouble in United
States loan negotiations, as evidenced by the negotiating problems
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 643
with Indonesia. Loan contrasts are discussed in section V of this
report.
The present bloc credits of $1.4 billion will probably be utilized
by the borrowers within 5 years, possibly less. At the present level,
then, such credits will finance from $250 million to $300 million in
capital goods and arms imports per year over the next 4 or 5 years.
This will increase if the bloc loan program expands. The prospects
of increased bloc trade with the borrowing countries therefore seems
assured. These credits thus reinforce the trade-agreement program
described above.
The bloc credit and expanded trade programs are vigorously pre-
sented to the underdeveloped countries as means of furthering their
economic development. Linking trade with financial assistance is a
strong point in the Communist program. Should the bloc continue
this connection in the years to come, and increase the volume of credits
and trade, the program is likely to draw the free nations, especially
of Southeast Asia and the Middle East, more closely to the Communist
orbit. Much depends, of course, on the steadiness of bloc trade and
credit extensions, and on the political handling of their relationships.
G. TECHNICAL ASSISTANCE
Together with their trade and credit activities, the bloc countries
have pushed strongly into technical assistance operations in the more
or less contiguous underdeveloped countries. They have technicians
at work in at least 14 countries in Asia and the Middle East. In most
respects, their technical assistance program parallels that of the United
States. Two important differences in the bloc program may be noted
(undoubtedly there are others): The recipient country usually pays
for the service (salaries are relatively generous), and the bloc seems
to place greater emphasis on the industrial arts than does the United
States.
Table 4 shows the available data on the countries in which Commu-
nist bloc technicians are known to be. Czech specialists are particu-
larly ubiquitous, probably for both technical and political reasons.
Bloc technical assistance activities may be classified as follows:
1. Technicians sent to work on capital development projects, as
planners, construction specialists, and operators. There are many
hundreds of Soviet technicians in India working on the steel mill
project, and on petroleum, coal mining, diamond mining, and
other developmental projects. In Afghanistan, there are Soviet
transport technicians; in Yugoslavia mining specialists include
Rumanian petroleum geologists and drillers, East German scien-
tists and engineers, and Polish technicians, together with the
large numbers of Russians and Czechs. These men are all work-
ing on developmental projects under contract with the recipient
government.
2. At the same time, many of the project contracts or agree-
ments provide for the training of recipient country people in the
Soviet Union. It is reported, for example, that over 700 Indian
skilled steel workers, engineers, and technicians are to go from
India for special training in the Soviet steel industry and
institutes.
94413—57———42
644 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
3. Project agreements also provide in many instances that bloc
countries establish training centers in the host country to train
workers and technicians to take over the projects when completed.
4. The Soviet Union has agreed to establish and/or support
technical institutes in a number of countries. A part of its ruble
contribution to the United Nations technical assistance program
has been used for the Bombay Technological Institute. About 20
Indian professors from this institute are to train in the Union
of Soviet Socialist Republics. An atomic research laboratory in
Egypt, and a technical institute in Rangoon, Burma, will send
professionals to the Union of Soviet Socialist Republics and re-
ceive some from there.
the
5. Visiting scientists from Russia go to the underdeveloped
countries, lecturing in such fields as solar energy, plant pathology,
and other fields. Here the purpose apparently is to build up
scientific reputation of the Union of Soviet Socialist Republics.
From these visits arrangements are made for foreign scientists to
visit the Union of Soviet Socialist Republics.
6. Beginning in 1954 the Soviet Union belatedly contributed to
the United Nations technical assistance program. Its contribu-
tion in rubles is approximately $1.2 million annually. Since the
ruble is inconvertible, technicians receiving help under this grant
must go to the Soviet Union for training.
TABLE 4.-Soviet-bloc technical, professional, and scientific personnel in free-
world areas, Apr. 30-Aug. 31, 1956

Union of
Free-world country
Soviet Czecho- Poland
Socialist
Republics
slovakia
East Rumania Hungary Bulgaria
Germany
Commu-
nist
China
Afghanistan
P. M
P, M
M
Argentina.
M
M
M
Burma.
P, M
M
M
Egypt.
A
A, P, MA, P, M
P, M
M
Ethiopia
Р
M
M
India..
P, M
M
M
P, M
M
M
Indonesia.
M
Iran.
M
Mexico_
M
Paraguay
M
Syria
A, P, M
M
M
Sudan
M
M
Turkey
M
M
Yugoslavia...
M
A=Arms technicians.
P=Professional and scientific personnel, including advisers.
M=Industrial technicians.
As a consequence of its interest in technical assistance, in its
various forms, bloc technicians and scientists have become increas-
ingly familiar figures in the underdeveloped countries of Asia and
the Middle East. And the Soviet Union is host to many hundreds
of foreign technicians. Moreover, it is estimated that only 100
nonbloc students studied in the Soviet Union in 1954. Most of these
were from India. In 1956 there were about 450 Indian students in
the Soviet Union, joined by large numbers of other Asians. Military
technical assistance will be discussed separately later in this report.
In its technical-assistance work, and in supplying underdeveloped
countries with agricultural and industrial equipment, the Soviet
Union has some advantages not possessed by the United States. In
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 645
point of time, the Union of Soviet Socialist Republics itself is only
a short stage in its economic development from most of the new
countries of Asia and the Middle East. Indeed, vast areas of the
Soviet Union are primitive, or only slowly emerging from such a stage.
Being closer in its stage of economic development to these countries
than is the United States, the Union of Soviet Socialist Republics
possibly understands them better. Its technology, especially in agri-
culture, is probably more suited in many respects. Moreover, being
multiracial, the Soviet Union is in a position to send technicians of the
same or similar race and cultural background to the underdeveloped
countries contiguous or geographically close to it. This tends to lend
substance to their oft-repeated propaganda theme that they, too, are
Asian. Undoubtedly, many of the 450 Soviet technicians reportedly
in Afghanistan had their origins in the general area of the Afghan
border.
Communist China is supplying a few technicians to Cambodia and
to India. But their supply is undoubtedly too limited for much of
this work. Peiping has encouraged Chinese in neighboring countries
to come to the mainland for training, education, and resettlement.
Some 20,000 are reported to have answered the call during the years
1950-54. Many have remained in China; others have returned to
Malaya, Vietnam, Indonesia, and their other adopted lands.
The bloc technical assistance program reveals in its own way the
growing and varied interest of the Soviet Union in the world about
it. One of the principal purposes is to back up its economic-develop-
ment projects in the underdeveloped countries. Good will is probably
another tactical purpose, as well as to impress the underdeveloped
countries with its own accomplishments in science and technology.
Ideological influence is probably valued as a byproduct; it appears
not to be an overt purpose. Very likely, its program is a competitive
reaction to the United States technical-assistance program, which
might be taken as a form of unintended flattery of the United States.
H. IMPACT OF BLOC ACTIVITIES ON TRADE
The new bloc economic offensive is now nearly 4 years old. What
has it accomplished? Some of its accomplishments have been de-
scribed above. Here, the effects of the economic offensive will be
viewed in terms of changes in the volume and pattern of bloc trade
with the non-Communist world, focusing attention on those coun-
tries most affected by the bloc trade drive.
The actual impact of any trade policy, Communist or otherwise,
depends in large measure on the relative importance of the country
or group of countries affected by the policy. For example, the United
States accounts for roughly 20 percent of world exports; by the same
token roughly 20 percent of world imports come from the United
States. As an importer, the United States buys roughly 17 percent
of world imports. Its position as a supplier of, and a buyer in,
world markets overshadows that of any other country. With such
a commanding position, any dramatic change in United States foreign
trade and financial policy would likely have far-reaching effects
throughout much of the trading world.
From a world-trade position, the Soviet bloc presents quite a dif-
ferent picture. Its position is relatively negligible, even less impor-
646 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
tant than before World War II. Table 5 shows the trade of the
free world with the Sino-Soviet bloc; gives Soviet bloc export figures,
from 1948 to 1956; totals are shown for the component parts of the
bloc. This table shows total trade turnover, and exports and imports
separately. The Union of Soviet Socialist Republics runs well behind
the satellites in trading with the rest of the world, and often behind
Communist China.
1
TABLE 5.—Trade of free world ¹ with the Sino-Soviet bloc, 1948-56
[In millions of United States dollars]

Period
Total Sino-
Soviet bloc
Union of
Soviet
Socialist
European Communist
satellites
China
Republics
Free world total trade turnover with bloc
1948.
3,976. 5
1,027. 2
1, 926. 7
1,022. 6
1949
3, 463. 5
709. 1
2, 004. 1
750.3
1950_
3, 271.4
553. 2
1, 731. 4
986.8
1951
3, 570.9
778. 1
1, 821.9
970.9
1952_
3,063. 9
946. 4
1, 479.9
637.6
1953_
3, 008. 9
797.6
1, 489. 6
721.7
1954.
3,599.6
1,074. 0
1,856. 2
669.4
1955
4, 492. 9
1, 242.0
2,440.0
810.9
1956 (1st half, annual rate)
5,094. 6
1, 387.0
2,733. 8
973.8
Free world exports to bloc
1948
1,968. 5
533. 5
900.7
534.3
1949_
1, 666.7
428. 4
914. 2
324. 1
1950...
1, 544.8
301.1
791.6
452. 1
1951__
1,687.9
387.5
854.2
446. 2
1952
1, 438. 3
483.3
682.4
272.6
1953.
1, 388.9
423.5
677.8
287.6
1954
1, 764. 2
573.5
896.7
294.0
1955
2,074.5
599.5
1, 158. 5
316. 5
1956 (1st half, annual rate)
2,458. 2
745. 2
1, 355. 2
357.8
Free world imports from bloc
1948_.
1949_
1950___
1951___
1952_
1953.
1954
1955
1956 (1st half, annual rate).
2,008.0
493. 7
1, 026. 0
488.3
1,796. 8
280.7
1,089.9
426. 2
1,726. 6
252.1
939.8
534.7
1, 883. 0
390.6
967.7
524.7
1,625. 6
463. 1
797.5
365.0
1, 620.0
374. 1
811.8
434. 1
1, 835. 4
500.5
939.5
375.4
2, 418. 4
642.5
1, 281.5
494. 4
2,636.4
641.8
1,378.6
616.0
1 This and all subsequent trade tables in this report are based on U. S. Department of Commerce data
(Bureau of Foreign Commerce, International Economic Analysis Division) which cover all those free-world
countries for which data are available and which imported from or exported to the Sino-Soviet bloc
merchandise valued at $1 million or more in any 1 year since 1947. The totals shown cover 71 such free-
world countries for the 1948-54 period. Because of incomplete or delayed reports, 68 countries are covered
in the 1955 totals and 67 countries in 1956. These countries account for all but an insignificant fraction of
total free-world trade with the bloc.
The percentages in table 6 show the modest position of the bloc
in its trade with the free world. In fact, the percentages during the
1950's thus far are below the late 1940's and 1930's. In physical vol-
ume, roughly adjusting for price increases, bloc exports in 1955 were
less than in 1938. The Union of Soviet Socialist Republics part of
the 1955 bloc total is roughly one-third. It ranked about with Cuba
as an exporter in 1955. Bloc trade increased some 70 percent from its
low point in 1953 to 1956, and its percentage of world trade (exclu-
sive of intrabloc) rose from 2.2 to 3.0 percent, as shown in table 6.
While world exports increased by $8 billion in this period, bloc ex-

FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 647
ports rose nearly $800 million, or 10 percent of the worldwide incre-
ment. The bettering of its world position perhaps can be ascribed to
its trade campaign.
TABLE 6.—Trade of free-world regions with the Sino-Soviet bloc, selected years,
1948-55
[In millions of United States dollars]

Imports
Exports
Region
Year
From Sino-Soviet
bloc
To Sino-Soviet
bloc
Total
from
world
Value
Percent
of total
imports
Total
to
world
Value
Percent
of total
exports
United States and Canada.
1948
9, 760. 7
242. 4
2.5
15, 728. 5
444. 5
2.8
1952
14, 837. 1
76.0
.5
19, 597. 1
1.7
.01
1953
15, 323.2
51.7
.3
19, 951.6
2.3
.01
1954
14, 428. 1
54.9
.4
19, 059. 3
12.1
.1
1955
16. 148. 7
73.2
.5
19, 840.9
19.0
1
Europe (excluding Greece and
1948
25, 269. 7
1, 240. 4
4.9
17, 702. 4
985.6
5.6
Turkey).
1952
33, 103. 2
1,057.9
3.2
28, 075. 2
952. 2
3.4
1953
32, 077.8
1,073. 1
3.3
28, 315, 8
946. 0
3.3
1954
34, 626. 4
1, 185.1
3. 4 | 30, 746. 7
1, 128.5
3.7
1955
39, 776. 1
1, 525. 4
3.8 | 34, 395. 1
1,299.4
3.8
Middle East and Africa (includ-
ing Greece and Turkey).
1948
5, 948. 8
167.6
2.8
4,075. 9
130.6
3.2
1952
7, 417. 1
151.5
2.0
5, 186.9
147.2
2.8
1953
6, 934. 7
142. 3
2. 1
5, 131. 3
121.0
2.4
1954
7,477.8
179.1
2.4
5, 530. 1
189.0
3.4
1955
8, 074. 4
252.8
3.1
6, 040. 2
261.6
4.3
South Asia and Far East...
1948
5, 623. 4
294. 4
5.2
4, 520.0
250.0
5.5
1952
8, 905. 6
293.5
3.3
6, 578.0
297.0
4.5
1953
8, 112.7
308.8
3.8
5, 853.8
207.8
3.6
1954
8. 155.9
291.4
3.6
6. 494.9
219.0
3.4
1955
8, 243.0
391.9
4.8
7,293. 0
255.2
3.5
Oceania...
1948
1,667.9
23.8
1.4
1952
2, 379.0
16.3
.7
1953
1, 747.1
12.7
.7
1954
2, 289.5
15.4
.7
1955
2, 641.2
16.2
.6
47776
2. 145.0
59.6
2.8
2, 389.8
18.9
.8
2, 681.2
73.3
2.7
2, 372.5
73.2
3.1
2,521.5
57.8
2.3
Latin America.
1948
5, 517.6
38.9
.7
1952
6, 598.0
30.5
.5
1953
5, 469.1
31.3
.6
1954
6, 332.3
109.5
1.7
1955
6, 230.3
152.8
2.5
75675
6, 009. 5
98.3
1.6
6, 297.2
21.3
.3
6, 778.8
38.5
.6
7, 059.9
142.4
2.0
5, 176.4
181.5
3.5
Total (all regions) ¹.
1948
53, 788. 1
2,007. 5
3.7
50, 181.3
1, 968. 5
3.9
1952
73, 240.0
1,625. 7
2.2
68, 124. 2
1,438.3
2. 1
1953
69, 664. 6
1, 619.9
2.3
68, 712.5
1,388.9
2.0
1954
73, 310.0
1,835, 4
2.5
71, 263. 4
1, 764.2
2.5
1955
81, 113.7
2, 418. 4
3.0
75, 267.1
2,074.5
2.8
1 These data cover total world trade of the 71 free-world countries covered by the U. S. Department of
Commerce series on free-world trade with the bloc, as explained in footnote 1 to table 5. Though less than
the grand total of exports and imports for all nations of the world appearing in other sources the all-regions-
trade totals cover those countries in the Department of Commerce series, which, as noted previously, ac-
count for all but an insignificant fraction of total free-world trade with the bloc. This provides a more
meaningful basis for developing ratios of bloc trade to total trade of the free world.
It is important in any assessment of the bloc's economic role to keep
in mind its position as a trading entity in the world. In this light,
it is not leading from a position of strength, and is not likely to for
some years to come, if ever.
But world aggregates and percentages conceal important particu-
lars. The Soviet drive has concentrated on particular regions. Table
7 shows underdeveloped countries by regions. For the years 1952 to
1955, imports from the bloc into the Middle East rose from 2.4 per-
648
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
cent (of total imports) to 3.6 percent. Latin American imports from
the bloc increased fivefold; and south Asian imports from the bloc rose
about 30 percent. Bloc exports constituted only 2.8 percent of all un-
derdeveloped country imports in 1952; in 1955 this had grown to 4.6
percent. While this is still a very low percentage, the rate of increase
since 1952 is substantial. Moreover, imports from the bloc increased
while free world imports into these countries declined. Nearly half
of the increase in bloc exports from 1952 to 1955 went to these less
developed regions.
TABLE 7.—Trade of free-world underdeveloped countries (by region)¹ with
Sino-Soviet bloc, selected years, 1948-55
[In millions of United States dollars]

Imports
Exports
Region (underdeveloped
Year
From Sino-Soviet
bloc
To Sino-Soviet
bloc
countries only)
Total
from
world
Value
Percent
of total
imports
Total
to
world

Value
Percent
of total
exports
Europe.-
1948
1, 269.5
151.6
11.9
1952
1, 294. 8
4.7
.4
1953
1, 394. 4
6.7
.5
1954
1, 374. 6
17.9
1.3
1955
1, 545. 2
52.1
3.4
O SELO GD SH
900. 4
163.6
18. 2
931. 1
10. 3
1.1
931.0
14.2
1.5
1, 010. 2
25.6
2.5
1,032.9
56.7
5. 5
Middle East and Africa...
1948
4, 613.9
159.6
3.5
3, 501.5
123.3
3.5
1952
6, 244. 2
146.8
2.4
4, 093. 2
142.2
3.5
1953
5,743.7
137.4
2.4
3, 974.5
126.9
3.2
1954
6, 236.7
173.0
2.8
4,639.5
181.6
3.9
1955
6, 724. 3
245.4
3.6
5, 009. 4
246.4
4.6
South Asia and Far East..
1948
4, 939. 2
266.2
5.4
3,862. 1
229.4
5.9
1952
6,876.8
275.6
4.0
5,305.1
296. 2
5.6
1953
5, 703. 1
271.0
4.8
4, 579.0
203. 4
4.4
1954
5, 756.5
243.0
4.2
4,865.6
194.9
4.0
1955
5, 771. 6
302.8
5.2
5, 206. 5
203.0
3.9
Latin America.
1948
5, 517. 6
38.9
.7
1952
6, 598. 0
30.5
.5
1953
5, 469. 1
31.3
.6
1954
6, 332. 3
109.5
1.7
1955
6, 230. 3
152.8
2.5
75675
6, 009. 5
98.3
1.6
6, 297. 2
21.3
.3
6,778.8
38.5
7,059.9
142.4
5, 176. 4
181.5
'sis
.6
2.0
3.5
❤360 5
Total, all free-world underdevel-
oped countries..
1948
16, 340. 2
616. 3
3.8
14, 273. 5
614.6
4.3
1952
21, 013. 8
457.6
2.2
16, 626. 6
470.0
2.8
1953
18, 310. 3
446. 4
2.4
16, 263. 3
383.0
2.4
1954
19, 700. 1
543. 4
2.8
17, 575. 2
544.5
3.1
1955
20, 271.4
753.1
3.7
16,425. 2
687.6
4.2
¹ Underdeveloped countries by region include: Europe: Iceland, Portugal, Spain, Yugoslavia; Middle
East and Africa (including Greece and Turkey): All countries in region except Union of South Africa;
South Asia and Far East: All countries in region except Japan; Latin America: All countries.
Changes in bloc trade with a number of the less-developed countries
are shown in table 8. In some instances, such as Cuba, the percentage
changes from 1953 to 1955 are very large due mainly to special cir-
cumstances. The figures show the results of the intensified interest
of the bloc in building up trade with these countries.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 649
TABLE 8.-Underdeveloped countries exhibiting significant recent increases in
trade with Sino-Soviet bloc, 1948, 1953, 1955
[In millions of United States dollars]

Total trade with Sino-
Soviet bloc
Imports from Sino-
Soviet bloc
Exports to Sino-
Soviet bloc
Underdeveloped country
1948
1953
1955
1948
1953
1955
1948
1953
1955
Argentina.
70.8
39.7
188. 5
18.9
15. 3
103.6
49.5
24. 4
84.9
Brazil.
35. 3
21. 2
84.7
12.1
9.9
38. 1
23.2
11.3
46.6
Burma.
18.9
5. 1
34.9
5.5
2.2
4.1
13. 4
2,9
30.8
Cuba
.6
1.7
39.5
.5
.8
1.3
.1
.9
38. 2
•
Egypt.
135.4
86.8
141.9
63.9
38.6
35.8
71.5
48.2
106. 1
Greece
16.0
12.1
21. 7
7.6
3.8
13. 2
8.4
8.3
8.5
Iceland...
14.8
14. 4
31.7
6.0
5.8
17.3
7.2
8.6
14. 4
India.
66.8
22.5
50.8
22. 1
7.9
23. 2
44.8
14.6
27.6
Indonesia..
18.7
11. 5
74.3
15.7
7.0
40.4
3.0
4. 5
33.9
Iran..
11.8
27.6
46. 5
5.9
16. 4
25.8
5.9
11.2
20.7
Pakistan...
53.6
24.0
40. 4
24.5
4. 2
3.4
29. 1
19.8
37.0
Sudan
3.0
3.7
8.3
1.4
3.6
4.2
1.6
1
4. 1
•
Syria-Lebanon.
6.8
9.3
15. 1
6.5
8.2
11.8
.3
1.1
3.3
Turkey.
42.6
58.8
160. 0
24.0
29.5
91.3
18.6
29.3
68.7
Uruguay
4.5
2.0
13.0
1.6
.8
2.5
2,9
1. 2
10. 5
Yugoslavia..
297.2
0
68. 5 143.2
0
33.0
154.0
0
35.5
Table 9 shows the percentage of exports of particular products
going to the bloc from selected countries, from 1952 to 1956. The
trend is generally up and the share going to the bloc is in most cases
extremely large.
TABLE 9.—Selected major commodity exports of underdeveloped countries to the
Sino-Soviet bloc, 1952, 1954–56
[In millions of United States dollars]



Exporting country
Commodity
Year
Total
exports
to world
(value)
Exports to Sino-
Soviet bloc
Percent of
total
exports
Value
Ceylon....
Crude rubber.
1952
76.2
37.8
28.8
1954
59.9
72.7
43.6
1955
73.6
34. 1
25. 1
1956 1
29.1
56. 4
16. 4
Egypt....
Cotton (raw)..
1952
363. 1
19.5
70.7
1954
324.8
15.6
50.7
1955
314.0
30. 1
94.4
1956 2
190. 1
40.9
77.8
Iceland..
Fish (fresh, frozen, and salted) -
1952
29.3
6.5
1.9
1954
40.7
29.4
12.0
1955
22.7
59.3
13.5
1956 2
22.6
37.0
8.4
Turkey.
Tobacco (unmanufactured).
1952
61.8
7.1
4.4
1954
85.9
16.9
14.5
1955
89.0
27.6
24.5
1956
(3)
(3)
(3)
1 January-August.
* January-June.
3 Not available.
In all or most of the cases showing large-scale trading in particular
products the Soviet Union stepped in to exploit special situations.
Burma was burdened with a rice surplus and falling world prices.
Afghanistan found its principal export outlet through Pakistan
blocked because of the Pushtoonistan controversy. Egypt mortgaged
650 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
much of its cotton crop for arms, the demand for which grew out
of the Arab-Israeli problem. Iceland lost its British export market
for fish and the bloc moved in.
This exploitation of special problems arising among non-
Communist countries has become a familiar Soviet policy. In some
cases this might turn out to be a temporary advantage only for the
Soviets. Long-term trade relations are not likely to be based on
short-term difficulties. But nevertheless the Soviets do get in, and
such inroads might lead to closer trade relations. This Soviet tech-
nique suggests that the United States and the other major trading
nations might exert greater effort to prevent situations from deteri-
orating to the advantage of the bloc.
The data presented here show marked successes in the Soviet bloc
economic offensive in some of the underdeveloped countries of Asia
and the Middle East. The increased flow of bloc exports to these
countries has stressed manufactured goods, especially capital goods
for economic-development projects. For their part, these under-
developed countries shipped food and raw materials to the bloc.
This trade can be expected to grow. Trade agreements facilitate
the process, and bloc credits help finance it over a long term of years.
The prospects of long-term growth in trade relations are favored by
the essentially complementary character of the trade relationship.
How far this process will go depends on, among other things, the
intensity and duration of the bloc's offensive, the policy of the United
States and other western powers, internal political developments in
the underdeveloped countries, and the diplomatic capacity of the
Soviet Union. Some of these factors will be discussed elsewhere in
this report. In concluding this section on the results of the offensive,
the following points can be made:
1. Considering the short period since the offensive started the
bloc has achieved a considerable measure of success in increasing
its trade. If the rate of growth should continue, the bloc will
become a formidable competitor in some of the less developed
countries. However, at this present time its trading position is
not as yet of decisive importance in any of the regions of the
free world.
2. The following countries carried on more than 10 percent
of their foreign trade with the bloc: Afghanistan, Egypt, Fin-
land, Hong Kong, Iceland, Iran, Turkey, and Yugoslavia.
3. The stage is set, the facilities are present through a network
of trade agreements, and bloc capacity exists for a growing and
continuing effort to challenge the West's economic position in
Asia and the Middle East.
I. THE ROLE OF COMMUNIST CHINA
Communist China's role in the Communist trade offensive is not
clear. It accounts for only 20 percent of total Sino-Soviet bloc trade,
and its trade is mainly with Asian countries, especially Indonesia,
Burma, and Malaya. In fact, it accounts for about 80 percent of
bloc trade with south Asia and the Far East, possibly as part of a
general understanding with the Union of Soviet Socialist Republics.
Communist China trade with the free world is shown in table 5.
Between 65 and 75 percent of its trade is with other parts of Asia,
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 651
and much of this is with the British Crown Colony, Hong Kong.
But Red Chinese trade delegations roamed far during 1956, including
Latin America and the Middle East on their itineraries; they even
offered to sell coal-mining equipment to Egypt, which on the face
of it seems odd.
Mainland China exports are mainly raw materials and consumer
goods. Their manufactured goods exports are largely of the con-
sumer type and light producer goods. China is no exporter of heavy
capital goods; it needs whatever it produces of this type for its own
ambitious developmental plans.
As noted above, mainland China does not send many technicians
abroad, and provides only limited credits-to Malayan business firms.
Its grants of $35 million to Cambodia and Nepal recently appear to be
its only grant assistance thus far. The limited role of Communist
China at this time is readily understandable. It has the lowest per
capita gross national product in the Communist bloc. In terms of its
goals for economic expansion, it has much heavier requirements for
capital than any of the neighboring underdeveloped countries. In-
deed, it is difficult to believe that Red China approves the Soviet bloc
trade and credit programs in southeast Asia. These credits and the
capital projects they finance could be of help to China itself if they
came her way.
Although Red China's role is limited at the present time, it could
become the dominant economic force in Asia should its industrializa-
tion program make good headway.
J. THE MILITARY-ASSISTANCE PROGRAM
Fragmentary evidence indicates that about one-fourth of the $1.4
billion in Soviet bloc credits are for the purchase of arms by Egypt,
Syria, and Afghanistan. There have been additional arms shipments
for cash, and possibly on a grant basis. Small amounts have been
sold to Burma, Indonesia, and Laos. The total of bloc arms exports
is simply not known. Any dollar figure representing the value of such
bloc exports would have little meaning because the basis of valuation
cannot be known. The amount exported by type of item would be
more revealing information, but here again data are fragmentary.
Soviet bloc military exports coincided with its diplomatic and eco-
nomic offensive of 1953 to the present. As with many of its trade.
deals, the bloc has taken advantage of crisis situations to sell its arms.
Egypt and Syria accepted bloc arms when they were unable to get
what they wanted from the Western powers. Arab rivalries and the
Arab-Israeli problem opened the way for bloc arms assistance to Syria
and Egypt. The Afghanistan-Pakistan dispute over the Pushtoon
tribal area, coupled with Pakistan membership in the Baghdad Pact
and United States arms assistance, made Afghanistan amenable
to an arms deal with the bloc.
In all such cases, the Soviet motive appears to be primarily politi-
cal-to win support in Moslem areas traditionally opposed to com-
munism, and to exacerbate Middle East-West political relationships.
The military value to the Union of Soviet Socialist Republics of bloc
aid is dubious; no strong military allies are likely to come from it.
From evidence at hand, the arms shipped by the Union of Soviet
Socialist Republics and Czechoslovakia are often not the latest types,
652
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
and some are probably used; but some MIG-17's were shipped to Egypt.
In this respect, Soviet practice follows the original United States arms
assistance programs in, say, Turkey and Pakistan. But, as in the
United States case, these arms represent a considerable improvement
over the still more obsolete World War II (and earlier) equipment
in use in Afghanistan, Syria, and Egypt before the Soviet shipments
Soviet and Czech military technicians are reported in the recipient
countries, and military personnel from these are reported to be training
in the Union of Soviet Socialist Republics. The need for such training,
of course, has been well demonstrated by United States experience.
The effectiveness of Soviet training of Chinese troops in Korea was
amply revealed. But the Egyptian Army did not handle its Soviet
equipment with skill in the recent Sinai Peninsula fighting, probably
because of limited time for training. Soviet MIG's sold to Afghanis-
tan are flown by Soviet crews; maintenance is handled across the
border in the Union of Soviet Socialist Republics. Afghanistan is
simply not in the jet age as yet. Indeed, Soviet small arms shipments
have not yet replaced the long rifle of the 1890's in units of the Afghan-
istani Army.
The military assistance program of the Soviet bloc undoubtedly
has been highly successful thus far from their point of view. It
has enabled them to get more deeply into the Middle East; it has
worsened the relations between the Arab States and the West. And,
finally, these arms deals are good business deals. Some of the equip-
ment shipped probably had little more than scrap value to the Union
of Soviet Socialist Republics. By selling it for Egyptian cotton and
raw materials of the other recipient countries, the Union of Soviet
Socialist Republics gains an obvious economic advantage the differ-
ence between the scrap value of the arms and the value of the things
obtained in exchange. Moreover, such credit deals bind the recipient
economies to the bloc for years to come.
In another respect, military assistance might closely tie the recipient
country to the Union of Soviet Socialist Republics. Military experts
estimate that the annual cost of training, maintenance of equipment,
spare parts, ammunition supply, and petroleum, oil and lubricants,
comes to about 20 percent of the original cost of the military equip-
ment. Most of the physical items covered by this cost must come
from the equipment-supplying country. This cost is a continuing
drain which a poor country has trouble meeting, unless it accepts
continuing aid from its source of supply. By its military aid program,
the Union of Soviet Socialist Republics reaps a political advantage
and ties up the recipient country for years. Such penetration might
be its principal purpose.
K. CONCLUDING REMARKS
1. The bloc has made some impressive gains in a number of coun-
tries by its economic and military assistance programs since 1953.
Even though the bloc plays a minor role as a world trading group,
this should not lead to the dismissal of its threat to the countries it
selects for special attention. It has the capability potentially of taking
a dominant position in the economic life of southeast Asian and
Middle East countries in the course of time.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 653
2. While the bloc has pushed its economic offensive vigorously and
has cultivated the impression of its good will, it has encountered some
difficulties. Burma is a case in point. Soviet purchases of surplus
Burmese rice were acclaimed at the time by Burma. The price paid
was somewhat above the world price, but a subsequent rise in the world
price made the transaction less attractive in retrospect to Burma. As
part of the barter deal, Burma received cement. Inconveniently large
amounts arrived just ahead of the heavy rains, and some of it became
both useless and an awkward burden. While this was due largely
to Burma's poor buying judgment, the tendency was to blame the bloc
exporter. The fact that the bloc supplied cement to India at a lower
price added further to Burma's irritation. Its dissatisfaction led
Burma to request partial release from its commitment to ship rice.
At Burma's request, part of its credit balance with the Union of
Soviet Socialist Republics was shifted to Czechoslovakia where it
could purchase more readily what it wanted. Because of these diffi-
culties, the Union of Soviet Socialist Republics appointed a Burmese
firm to handle its trade with Burma, a move requested by Burma much
earlier.
The Union of Soviet Socialist Republics paid premium prices for
Turkish goods. The favorable effect of this policy vanished when the
Turks realized that they in turn paid premium prices to the Union
of Soviet Socialist Republics for the goods received in exchange.
Bloc deals customarily (except with Finland) are bilateral. These
are less advantageous to the underdeveloped countries in many cases
than multilateral arrangements. Burma's insistence on a shift in its
Soviet credit balance to Czechoslovakia suggests this disadvantage.
In recent Union of Soviet Socialist Republics negotiations with
Uruguay, the Soviets agreed to Uruguayan use of its credits in third
countries.
The problems mentioned here are partly normal and partly inherent
in the nature of the Soviet system and its policy. Their importance
should not be magnified in order to support the complacent view that
Soviet policy will collapse of its own weight. Nor should the opposite
view prevail-that the Soviet system is so skillful that no problems
arise, or if they do solutions are skillfully devised. The economic
offensive is not predestined for failure or success. Results will depend
in part on how it is handled by bloc officials. In dealing with the
underdeveloped countries, the Soviet bloc will undoubtedly confront
many of the same problems the United States has faced in its aid
programs. They might make some of the same mistakes and perhaps
invent some new ones; they might achieve some of the same successes,
or perhaps more. Results will probably be mixed. Their program
is still too limited in time to warrant confident predictions.
3. Some bloc advantages. Although the bloc has and will encounter
troubles as its trade expands, it has some special advantages on its
side.
(a) Technologically and in stage of development, the Union
of Soviet Socialist Republics is, in some respects, closer to the
underdeveloped countries than are the western industrial nations.
In many respects the Union of Soviet Socialist Republics equip-
ment and techniques might be more suited to the less developed
regions of Asia.
654 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
(b) Geographically, the Union of Soviet Socialist Republics is
contiguous to some of these underdeveloped nations, and close to
others of the Asian group. As means of transportation improve
proximity becomes advantageous.
(c) Racially, some sectors of the Soviet population are similar
to the racial composition of some of the underdeveloped countries
of Asia and the Middle East. Bloc technicians of similar racial
origins and outlook may be more effective working with local
groups than are westerners.
(d) Trade, credit, and technical assistance deals are made and
carried out by governments in the bloc. Their control mecha-
nisms are well known; they are not hampered, obstructed, or
slowed down by divergent private interest. They do not depend
on voluntary acquiescence. Obviously, any economic policy deci-
cision can be made only within the limits of the possible. But
within these limits action can be speedy if political policy now
dictates. The bloc can sell below world prices, and buy above
them. The Union of Soviet Socialist Republics paid above-world
prices for Afghan wool and cotton, Czechoslovakia bought Cey-
lonese rubber 10 percent above the world price, and there are other
examples. The bloc has offered goods at low prices, for example,
planes to Argentina, oil-refining equipment to Syria, and Union
of Soviet Socialist Republics petroleum and sugar to Afghan-
istan. Up to a point they can buy what they do not need, if this
serves a political advantage.
(e) The Soviet Union's appearance in the economic development
field increases the alternatives open to the recipient country.
Further, dealing with the Union of Soviet Socialist Republics
might be something of a novelty.
4. Some bloc disadvantages.-Offsetting in some measure its advan-
tages, the bloc does suffer actual or potential disadvantages.
(a) The quantity, variety, and sometimes quality of what it
can sell are often well below the amounts, types, and quality avail-
able from western industrial suppliers. Rumanian kerosene had
to be refined again in Egypt, Bolivia found Czech goods defective,
and Indonesia objected to second and third rate quality of some
bloc imports. This disadvantage will not be fully overcome in
the foreseeable future, but it is likely to diminish in time.
(b) The bloc, and particularly the Union of Soviet Socialist
Republics, lacks the rich experience, contacts, and trading facili-
ties at the disposal of the practiced trading countries of the West.
(c) Currency inconvertibility makes the bloc a less attractive
trading partner than any of the western countries.
(d) Political motivation is inherent in the bloc's trade and
credit deals. This fact is known to other governments, fearful of
their indigenous Communist groups.
(e) Since bloc deals are governmental, any trouble arising
from deliveries, terms, and quality becomes not a simple issue
between commercial parties but a political issue.
(f) Although the Soviet system with its centralized powers
of decision has certain advantages in the competitive struggle
for the uncommitted countries, the system also produces bureau-
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 655
cratic redtape and inflexibility. To the extent that this manifests
itself, it will be a disadvantage.
(g) The bloc is poor by western standards. This limits the
margin available for aid to non-Communist countries. The Union
of Soviet Socialist Republics credits to, say, India, are at the
expense of Communist China. Or raising the living standards
of Afghans might appear to be denying some increase to Soviet
citizens. Internal and intrabloc politics will impose limitations
above those imposed by the force of economic circumstances.
5. The nature of Soviet bloc economic "assistance."-Much thought
has gone into the distinction between "normal" trade and trade that
might represent "assistance" or economic penetration. No useful
distinction can be drawn. If economic assistance is limited to bloc
credits, a reasonably good figure can be obtained. But this is no
adequate basis for the distinction. Some of the trade thus financed
might represent exchanges of goods wholly justified on commercial
grounds. On the other hand, some deals, involving no credit exten-
sion, may be mainly motivated by political advantage.
As the Soviet economic offensive has developed in recent years,
Soviet propaganda makes all trade transactions with underdeveloped
countries part of its policy of "assistance" and mutual benefit. This
is much like saying that the $17 billion of United States exports in
1956 represents United States "assistance" to the world. In one
sense this position is correct-trade involves reciprocal benefits. But
such statements confuse the question of economic assistance as an
object of public policy.
Both in method and in purpose Soviet economic assistance differs
from that of the United States. They make no grants; the United
States does. Unlike United States credit extensions, Soviet credits
tie the borrower to the bloc by taking payment in commodities. Re-
cipients pay for the technical assistance provided directly by the bloc.
Most important, the purpose differs. United States aid is intended to
foster economic growth and higher living standards as means of
enabling the recipient countries to maintain national independence.
This cannot be the long-term purpose of Soviet economic assistance;
national independence in the United States sense is incompatible
with Moscow's long-term design. Thus, the Soviets either reject the
United States view that economic growth and higher living standards
deter communism, or their present policy is a short-term competitive
reaction to the United States policy and public opinion in the recipient
countries. Of course, they might believe that economic growth deters
communism, yet feel constrained to participate for short-term politi-
cal advantage. They might hope in the near future to help, say,
India to achieve economic growth to make it more independent of
the United States. This brings up objectives which will be discussed
later in the report.
CHAPTER II
ECONOMIC CAPABILITY OF THE BLOC
THE ECONOMIC CAPABILITY OF THE SINO-SOVIET BLOC
From the foreign trade data presented thus far in this report, the
Soviet bloc occupies at best a very modest position as a world trader.
Moreover, the general impact of its economic offensive, measured in
terms of its trade growth, has thus far been relatively small. The
evidence shows, however, that the bloc has made significant gains in a
number of underdeveloped countries. The distinction between_its
general impact and its particular (country) impact is important. Re-
sults, to be meaningful, must be viewed in terms of countries, not
world aggregates.
The results thus far of the bloc offensive in limited areas constitute
no cause for complacency. The present offensive only dates from
1953; it gained momentum only in 1955 and 1956, and it has made.
headway in some crucial places, e. g., Iceland. Credits extended and
trade agreements concluded point mainly to the future. Bloc pro-
nouncements on its economic policy stress the long term and the con-
tinuing conflict with the West.
It is essential, therefore, to assess the future prospects of bloc ac-
tivity. Among the many variables involved, these three are highly
important: (a) Communist political intentions, (b) Communist bloc
economic capability, and (c) the susceptibility of recipient countries
to bloc advances.
It is not our purpose here to consider long-range Communist po-
litical intentions. We take these as stated by Khrushchev (and end-
lessly by others before him) at the 20th Soviet Communist Party
Congress. The opening paragraph of this report states these inten-
tions with sufficient clarity. Soviet actions in Hungary confirm them.
The present section of this report will consider briefly the question
of long-term bloc economic capability, drawing on the statistical and
analytical work of experts on the Soviet economy. In the following
section, the matter of susceptibility or vulnerability of underdeveloped
countries is treated briefly.
Economic capability is considered here in a limited sense: Does the
Soviet bloc have the economic base sufficient to sustain and to increase
its economic offensive and its arms exports? This offensive lays stress
on the export of capital goods to underdeveloped countries, partly
financed by credit extension. Technical assistance goes with these
capital exports. Arms go to countries to further the political aims
of the Soviet Union. Can these exports grow over the years ahead?
Is bloc capability likely to grow relative to that of the free world?
Relative growth is the key point; this is compounded of growth in
productive capacity and the emphasis given to foreign economic policy
on the part of the bloc and the free world. Foreign policy is of cru-
656
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 657
cial importance; it is of greater importance than economic growth in
the contest now being shaped by the Communist bloc. The outcome
does not automatically go to the economically stronger; it goes to the
side that uses its economic strength more skillfully than the other in
pursuit of definite goals.
The main facts may be outlined as follows:
1. The Soviet Union is the second industrial power in the world,
in most respects far behind the United States. In 1956, the gross
national product of the United States approximated $412 billion, or
roughly $2,450 per capita for its 168 million inhabitants. Estimates
of Soviet Union gross national product are subject to considerable
margins of error, based on the nature of its statistics and concepts of
product; as an order of magnitude a reasonable figure of $140 billion
may be suggested, or roughly $700 per capita for its approximately
200 million inhabitants. Per capita output in the United States is
thus more than three times that of the Soviet Union-as an approxi-
mation.
Taking Western Europe, Canada, and the United States together,
aggregate gross national product comes roughly to 750 to 800 billion
dollars. For the Soviet bloc, the total approximates 200 to 225 billion
dollars. To repeat, these are orders of magnitude; international in-
come and product comparisons for statistical and other reasons are
only approximations.¹
The Soviet bloc is poor compared with the industrial nations of
Western Europe and North America. In aggregate and per capita
terms, the industrial nations of the free world have more than a 3-to-1
advantage over the Soviet bloc in terms of gross national output. This
is the most general measure of relative capability or economic
potential.
2. The rate of growth in total production is another consideration.
Statistical evidence on Soviet growth rates is subject to considerable
upward bias, as western specialists on the subject generally agree.
But even among these experts there is considerable difference of opin-
ion on the meaning of Soviet statistics. There is widespread agree-
ment that the Soviet gross national product is rising more rapidly than
that of the United States, on the average, over time. A reasonable
figure seems to be 6 percent, as against the United States average of
about 4 percent.
Taking the recently revised Soviet statistics on industrial growth,
the figures show a 12 percent per annum increase (1950-55) when
measured in current prices, and a 16-percent increase in constant 1952
prices. Both appear excessive. Various non-Soviet estimates indi-
cate a probable growth of 9 to 11 percent per annum. The low esti-
mate represents a substantial growth rate, considerably above the rate
of industrial growth in the United States for the same period.
The Union of Soviet Socialist Republics, by concentrating on indus
trial production, and on producer goods as a component, will prob-
ably continue to enjoy rapid expansion. For example, some 70 per-
cent of its industrial output is in the form of producer goods, in
contrast to approximately 35 percent in the United States industrial
1 The problems of measurement and comparison are discussed in some detail in Trends
in Economic Growth, Joint Committee on the Economic Report, Government Printing
Office, 1955.
658 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
output. The Soviet figure shows great concentration on investment
goods, at the expense of consumer goods.
Despite this emphasis, the absolute annual increase in the United
States gross national product at present exceeds that of the Union.
of Soviet Socialist Republics; the United States not only leads in
total production but is increasing its lead. However, the difference
in percentage rates of growth-of gross national product, and more
especially of industrial production-if continued, means the Union
of Soviet Socialist Republics will eventually catch up and then exceed
the United States. This results from the working of the compound
interest principle. But there are indications that the Soviet rate of
growth may slow up somewhat as the industrial base gets larger.
If this retardation of growth occurs the Union of Soviet Socialist
Republics may never match United States gross national product.
Satellite industrialization has grown rapidly also, particularly in
Czechoslovakia and Poland. But the current troubles in the satellites
reduce their potential in the sense discussed here. Poland seems likely
to stress increased consumption; the Hungarian economy is disrupted.
3. Comparisons of absolute size of the gross national products of
the contending sides is not a reliable guide to relative capabilities
for the purpose of our problem here. If absolute size were the de-
ciding factor, the industrial nations of the West would have unques-
tioned superiority for some time. But an important variable is the
composition of the gross national products. Here there are im-
portant differences between the Communist countries and the free
world. Between 60 and 70 percent of total production in the United
States and Western Europe goes into consumer channels; in the
Soviet Union the percentage ranges somewhere between 40 and 50
percent. The United States devotes about 17 percent of its gross
national product to investment, including housing. Soviet Union
investment outlays approximate 30 percent of its gross national
product, excluding housing. In recent years, between 55 and 61 per-
cent of its investment was in heavy industry in the means of further
capital growth. In this respect, the Soviet Union is probably not far
behind the United States in annual heavy capital investment. A
considerable part of Soviet investment, however, is directed toward
the production of military end items, a considerably larger portion
than is the case in the United States.
As a specific case on this matter of composition, the steel industry
may be taken as an example. Soviet steel output in 1955 was 49.8 mil-
lion short tons (equal to that of West Germany and Britain), while
United States output was 117 million short tons. A considerable
part of United States steel capacity is in sheet and strip, reflecting
the importance of such consumer goods industries as automobiles,
refrigerators, washing machines, and the like, as consumers of steel.
These are negligible consumers of steel in the Soviet Union. There,
the bulk of steel capacity is devoted to structural, heavy steel shapes,
and plate production-all essential to the production of capital goods
and armaments. As a basic industry, steel reflects the composition of
the end product of a nation's output, and its purpose. The Soviet
Union devotes a far larger share of its scarcer resources to the process
of growth and armament building than does the United States. In
this country, consumer choice largely directs the composition of the
Nation's output in peacetime. There it does not; state purposes rule
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 659
the allocation of resources, and these purposes dictate rapid indus-
trialization and huge military preparations. The control mechanisms
of the Union of Soviet Socialist Republics over income distribution,
production, and consumption give it great power to direct economic
resources to the state's political purposes.
Policy governing the use of total output is therefore another vari-
able that must be taken into account. If political purpose dictated
the export of sizable amounts of capital goods, the Union of Soviet
Socialist Republics might export more in relation to its total resources
than does the United States. It is far short of this at present.
4. In its great emphasis on heavy industry, the Union of Soviet
Socialist Republics has evidently created imbalances in its economy.
Food production has lagged, and poor crops at times have cut produc-
tion below that planned. There is some evidence that industrial raw
materials have lagged in relation to industrial growth. Imports
of Indian iron ore into Poland and other satellites lend credence to
this view. Studies of Soviet production and prices lead some experts
(but there is no unanimity) to the general conclusion that both food
and raw material costs in general have increased in relation to the
costs of industrial products. Or, stated differently, the Soviet Union
appears in this view to have reached the point in its development
where it enjoys a comparative advantage in the production of indus-
trial output, particularly in important categories of capital goods.
This has resulted largely from its traditional emphasis on heavy
industry and its comparative neglect of agriculture and, to a lesser
extent, of raw material production.
The data on this question of the Soviet's internal comparative advan-
tage in industrial production are not conclusive. Relative prices as
a measure of relative real costs are open to question. But some expert
opinion, and the recent developments in Soviet policy, suggest an
economic advantage to the Union of Soviet Socialist Republics in
exporting industrial goods for food and raw materials from abroad.
In any case, events in the bloc indicate the need for such imports.
Food has been short in the satellites, due to the overemphasis on indus-
trial development and to poor crops. Indications are that industrial
capacity in the satellites and in the Union of Soviet Socialist Repub-
lics in some lines has not been fully utilized for want of adequate
supplies of raw materials. Industrial growth in the European satel-
lites has placed a strain on Soviet capacity to meet their needs for raw
materials and its own growing requirements. In short, industriali-
zation in the bloc, coupled with the relative deemphasis of food and
raw material production, fits into the pattern of the recent trade
developments: to export industrial products for needed food and raw
materials at an economic advantage.
5. The prospects of Soviet economic growth through 1960 are
outlined in the sixth 5-year plan. The planned rate of industrial
growth, 1960 over 1955, is 65 percent, somewhat less than the 85 per-
cent increase reported for the 1951-55 plan period. This is shown in
table 10. Largest increases are planned for automation equipment
and mechanization-automatic production control instruments, meas-
uring instruments, and construction mechanization machinery. This
emphasis on automation, together with less stress on expanded indus-
trial construction, suggests more attention to improving the efficiency
of existing capital facilities than to forced expansion of new plant.
94413-57-43
660 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
But the projected increase in productivity per man seems overambi-
tious. Agricultural production is to expand at a greater rate than
in previous plan periods, as seen in projected increases in farm mech-
anization and fertilizers. Production of consumer goods is scheduled
for a 60 percent increase, with consumer durables leading nondurables,
but this is from an extremely low base level.
Although the planned rate of growth in industrial production of
65 percent is less than the reported actual rate of 85 percent for the
last plan period, the projected rate is high by any standard of com-
parison. It is approximately the rate achieved by the United States
during World War II. By 1960, the world will face a stronger
Soviet economy (assuming even moderate fulfillment of the plan)
than now, for the projected rate of growth exceeds any normal expec-
tation for the industrial powers of the West.
TABLE 10.—Union of Soviet Socialist Republics, 5th and 6th 5-year plans

Item
Agricultural production ¹....
Industrial production.
Producer goods.
Consumer goods...
Total employment.
Employment in industry 2.
Output per man in industry.
National income.
Real wages---
Real income of peasants..
Retail sales ³.
1955 (1950=100)
1960
(1955-100)
planned
Planned
Actual
140-150
120-125
170
170
185
165
180
191
170
165
176
160
115
122
115
113
129
110
150
144
150
160
168
160
135
139
130
140
150
140
170
190
150
1 Data for 1955 are estimates based on planned and actual output of specific agricultural items.
Derived from data on production and output per man.
• In government and cooperative trade.
Source: Pravda (Moscow), Feb. 15, 20, and 23, 1956, as shown in World Economic Survey 1955, United
Nations, p. 195.
Satellite plans call for substantial rates of industrial growth also.
But the political events of 1956 becloud the probable result. The
revolt in Hungary and the political shift in Poland will undoubtedly
curb planned expansion in those countries. Czechoslovakia, the prin-
cipal industrial satellite in the trade offensive, seems not seriously
affected thus far by these political movements.
6. Given the past and projected growth of the Soviet economy,
what can be said of its economic capability? No serious question is
raised concerning its growing economic strength. Its increased ca-
pacity to expand trade is not doubted. Its trade with the free world
is perhaps one-half of 1 percent of its total production, and probably
no more than 1 percent of its industrial heavy-goods production. The
continuation of rates of growth roughly equivalent to recent years,
and as projected in the plan, would permit--
8
A large flow of capital goods exports, and
Substantial imports of raw materials and food into the
Soviet bloc.
Under the credits now extended by the Soviet bloc-roughly $1
billion for nonmilitary purposes-the Soviet bloc will export on the
average some $250 million annualy over the next 4 years from credit
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 661
extension alone. A fourfold increase in credit-financed capital ex-
ports seems well within the industrial capability of the Soviet bloc
during the next few years. In addition, regular trade, not financed
by long-term credits, is capable of substantial growth. The import
requirements of the bloc are potentially great; its productive capacity
is capable of producing increased amounts of exports to buy these
imports. And the underdeveloped countries have growing needs for
capital goods, from any source.
Bloc
Soviet bloc capacity to export consumer goods is limited.
trade agreements rarely provide for such exports. When they do,
the provisions are vague, and appropriate escape clauses are inserted.
If the trade offensive continues, it will therefore stress the export
of producer goods.
7. Soviet bloc exports to the free world, now at the rate of $2.5
billion a year, could double or triple during the next few years.
This assumes maintaining customary restraints on the growth in
per capita consumption. The Soviets have a demonstrated capacity
to achieve such restraint.
Trade expansion will involve the sacrifice of alternative internal
uses of the exported capital in many instances; such exports could
slow up Soviet economic growth. But the cost of denying itself the
use of exported capital might be offset entirely or largely by the
value of the imports it gets in return. The Soviet bloc gives little
if anything away. Up to a point, imports relieve the Soviet bloc
from some internal investment in food and raw material industries.
The capital thus saved is available for investment in other industry,
part of whose product may be exported. To the extent that the Union
of Soviet Socialist Republics enjoys a comparative advantage in some
industrial sectors, such trade might entail no net cost, but an economic
advantage. It enhances her war potential.
Undoubtedly, large-scale capital goods exports will slow up some
planned internal growth. For example, the export of fertilizer plants
will limit the growth of such plants in the Union of Soviet Socialist
Republics. In such cases, the Union of Soviet Socialist Republics will
undoubtedly weigh the political advantage from such exports against
the internal economic cost. The point is, such exports are being made
and are presumably regarded as advantageous.
A limiting economic cost may be assumed in the Soviet credit policy,
with low interest rates of 2 to 212 percent. This is a low yield; internal
investments presumably earn a greater return. State enterprises pay
4 to 6 percent on working capital to the state bank in the Union of
Soviet Socialist Republics; savings banks pay 5 percent and
Soviet bonds 3 percent. The low rate on external credits perhaps in-
volves a measure of subsidy (or grant) to the recipient country.
Considerable political propaganda is made against the West and the
International Bank with their higher rates. Thus, the political returns
may be regarded as offsets to the presumed economic loss. At some
point, however, the disparity between external and internal capital
yields can be expected to limit cheap credit to underdeveloped coun-
tries.
Another limiting factor may be mentioned. The Union of Soviet
Socialist Republics is not likely to push its capital exports and the
accompanying or subsequent imports of raw materials and food to
the point of being heavily dependent upon the West. Some minimum
662 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
autarkic base will always be maintained in keeping with its traditional
policy and fear of the West.
These, and other limits, are to be expected. The Union of Soviet
Socialist Republics has a forced-draft economy; alternative uses com-
pete vigorously for its scarce resources: internal capital growth, mili-
tary requirements, consumer demands, and now (probably) an ac-
celerated expansion of capital exports.
The growth of the Soviet Union enables it to provide increasing
amounts for allocation among these competitive uses. How it makes
its choices is largely a matter of Soviet policy. If political policy
calls for a substantial increase in capital exports, the industrial ca-
pacity and technical services are there to back up such policy. Some
experts on the Soviet regard the present offensive as entirely politi-
cally motivated. Whether the offensive is mainly political, or has
roots in Soviet economic advantage (or both), the Union of Soviet
Socialist Republics is capable of expanding it much beyond its present
level.
Two further points may be made. The Soviet Union's arms export
capability is reliably considered to be impressive. Its arms industry
is known to be large, and the quality of its output is high. Reserve
stocks of arms are undoubtedly large. With changes in design and
type, reserve stocks and arms in use become excess and are available
for export. Thus, export capability derives both from large-scale
current production of latest types and excess stocks of older types.
The Union of Soviet Socialist Republics can probably export_arms
in excess of the capacity of its likely recipients to import and absorb.
At the outset of this chapter, attention was called to the particular
rather than the general impact of the Communist bloc economic
offensive. Should the bloc concentrate its efforts on limited areas,
such as Asia and the Middle East, its capability to supply capital goods
would be formidable. In more limited areas, such as Iceland, a
far-reaching impact can be achieved with an inconsequential sum.
In such a case, our economic superiority becomes irrelevant. What
matters is what we are able to offer, and our relative political skill.
CHAPTER III
SUSCEPTIBILITY OF RECIPIENT COUNTRIES
SUSCEPTIBILITY OR VULNERABILITY OF RECIPIENT COUNTRIES
The principal direction taken by the Soviet bloc drive is toward the
underdeveloped countries of Asia and the Middle East. In many
ways these countries are susceptible to the promises and blandish-
ments of the bloc. Some elements underlying this susceptibility may
be briefly discussed.
These countries aspire to economic growth. To them, this means
diversification through industrialization. They need capital and tech-
nical assistance to achieve this purpose. Being poor, they have inade-
quate internal resources to achieve expansion by themselves. There-
fore, they are inclined to welcome capital and technical assistance from
any outside source.
The new countries of Asia have recent colonial backgrounds. The
former colonial areas hold in varying degrees strong anticolonial atti-
tudes. This tends to make them anti-West in outlook. Some non-
colonial areas have felt the force of the economic power of the Western
colonial countries, and share in varying degrees an anti-Western feel-
ing. The Soviet Union constantly plays on this anticolonial senti-
ment, and brands United States aid as a means of restoring colonial
influence. As a western power, the United States is bracketed with
colonialism in Soviet propaganda.
The anticolonial attitude borders on an anticapitalist attitude. In
many of these countries, the social value systems show a preference
for socialism, in some sense, over the private-enterprise system. Pri-
vate enterprise is linked largely to trading, money lending, and colo-
nial ventures, all of which are in bad odor. The Asian intellectual has
little or no respect for those who live by trade, and the peasant has
often felt exploitation from their hands. These attitudes make those
who hold them responsive to the Soviet condemnation of capitalism,
again linked to colonialism.
In many or most of these Asian countries, traditional norms, stand-
ards, and ways of living are changing. This is sometimes called the
revolt of Asia. It is accompanied by widespread aspirations for a
better life in the material sense, and a conviction that this better life
can be attained. The disintegration of traditional attitudes makes a
people susceptible to something new; new institutions and attitudes
must replace those in process of dissolution. In this ferment, the
Soviets are active with their prescription. Western Europe has the
handicap of its discredited colonial past; and the Soviets make every
effort to associate the United States with this past.
The Soviet Union represents itself as largely Asian, sharing the
Asian dislike of western imperialism and pressure. It, too, was op-
posed by the western powers, but grew despite this hostility. In this
663
664 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
way, the Union of Soviet Socialist Republics seeks to create the idea
of a community of interest. Up to some point they succeed. The
Union of Soviet Socialist Republics takes opportunity to side with
these new countries against the West to foster the community-of-
interest attitude.
There are, therefore, elements in the outlook or attitude of these
Asian countries that will tend to predispose some of them toward
the Union of Soviet Socialist Republics. But this is not to say that
the Soviet Union encounters no problems. Indigenous Communist
groups have caused political trouble in most of these countries.
Political leaders may be wary of these groups and fear them. Soviet
propaganda now goes to great lengths to disavow political designs
while cultivating the predisposition that tends favorably toward
them.
These attitudes found so widely prevalent in the new countries of
Asia may in the future play into Soviet hands. There are high, even
extravagant, expectations of economic growth in these countries.
There is not much in the way of capital, technical know-how, or tradi-
tion to support such exaggerated expectations. The process of growth,
western style, is slow and arduous. Should growth expectations, and
the aspirations toward higher living levels, be disappointed, the
democratic method may itself be discredited. The Soviet method
may then be sold to these people as the quick, effective means. There
are indications of susceptibility along this line. The Soviet Union
represents itself as an example of how to industrialize quickly; Com-
munist China might in time afford another example.
The willingness of many of the Asian countries to go along with
the Soviet economic offensive is only partly to be explained by these
attitudes. On their part, the Asian leaders welcome another source of
capital supply. In a hardheaded way, they might hope to get more
from 2 suppliers than from 1 only. Playing one off against the other
might have its dangers, but in business and politics it often gets re-
sults. As a new source of capital and technical assistance, the
Union of Soviet Socialist Republics is likely to earn good will. The
novelty of the situation is likely to have at least short-run effects in
its favor.
Moreover, the Soviet willingness to trade, to take surpluses, places it
in a good light in the eyes of the underdeveloped countries. To the
extent that economic penetration increases political vulnerability,
many of the underdeveloped countries of Asia may move closer to the
Communist orbit-unless western economic policy draws them more
closely to western markets, and western political policy creates con-
fidence in western ideas and objectives.
CHAPTER IV
OBJECTIVES OF THE COMMUNIST BLOC
For decades the central objective of communism has been clearly
and frequently stated: the communization of the world. A recent
statement to this effect is quoted to open this report. But the Soviets
seek many specific objectives which are, in turn, direct or indirect
means to the attainment of the final goal.
The bloc economic offensive cannot be viewed as a separate interest
or separate policy. It is intertwined with their new emphasis in
diplomacy, in cultural and scientific exchanges, and in generally fur-
thering their position and prestige throughout the world. Their
foreign economic policy, in short, is framed to strengthen their in-
ternal economy, and to further their external political relations and
designs.
Within the framework of their main political objective, the fol-
lowing purposes are either evident or appear as likely:
A. Economic assistance is designed to enhance the attractiveness
of neutralism. Help goes to those who stand politically aloof from
the West. Moreover, economic aid might be intended to strengthen
some countries in order to lessen their dependence on the West.
B. Offers of economic assistance-to Pakistan, Turkey, and Japan-
were intended to detach those countries from the United States.
C. Economic assistance serves also to support the Soviet propa-
ganda drive to create in underdeveloped countries a peaceful, benign
image of the Union of Soviet Socialist Republics. This propaganda
drive associates United States economic assistance with imperialist,
warlike motives.
D. By creating such an image, and by inducing substantial num-
bers of students and technicians to the Soviet Union, the Union of
Soviet Socialist Republics seems to be bent on attracting the intel-
lectual group. There seems to be no overt proselytizing involved in the
recipient countries; this would be too crudely transparent. The pur-
pose seems to be to take advantage of the traditionally anticapitalist
disposition of the Asian intellectual and government official in order
to convert him to a pro-Communist position, or at least to a view
friendly toward communism.
E. Closer economic ties might help give the Union of Soviet Soci-
alist Republics an "in" to exploit situations disadvantageous to the
West. Iceland is a case in point.
F. Being aware of the sensitivity of underdeveloped countries and
the frictions that develop between recipient countries and the United
States in handling the United States aid program, the Union of Soviet
Socialist Republics offers and blandishments may be partly designed
to cause trouble between the United States and recipient countries.
G. Soviet and satellite industrialization programs seem to have
created maladjustments within the bloc. Agriculture and raw ma-

665
666 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
t
terial production has lagged behind heavy industry. Their economic
offensive, stressing food and raw materials imports from under-
developed countries, might be prompted by the need to redress the
imbalances created by their own economic policies.
H. Soviet and satellite industrialization possibly has resulted in
achieving a comparative advantage to them in heavy industry as
against agriculture. If so, their objective in exporting capital goods
for food and raw materials might be prompted by the simple eco-
nomic advantage of trading lower-cost goods for higher-cost goods.
Deputy Premier Mikoyan at the 20th party congress stated the need
for a wide division of labor on the principle that "it is not equally
profitable to turn out all forms of production in all countries." If
it is part of their object to enjoy the economic benefits of inter-
national specialization, this suggests a long-range and growing eco-
nomic offensive. However, it is unlikely that the Union of Soviet
Socialist Republics would depart from its traditional goal of self-
sufficiency to the extent that specialization would greatly increase its
dependence on free world imports. Thus far, the satellites have
moved more rapidly in this direction than has the Union of Soviet
Socialist Republics.
I. Part of the Soviet purpose might be the long-run economic inte-
gration of Asian and Middle East economies with the bloc-as a basis
for possible political association through Communist takeover even-
tually.
J. It might be thought that the economic offensive would help de-
velop local Communist parties and create an espionage apparatus.
This is not evident. Any overt move along this line would undoubtedly
undo whatever good (to them) has come from their new policy.
K. The success of the United States aid programs has undoubtedly
impressed the Union of Soviet Socialist Republics. By following a
"constructive" approach similar to United States assistance policy,
the Soviets hope to offset the United States influence and gain similar
benefits for themselves.
L. As noted above, the military assistance activities seem inspired
by the purpose of exacerbating tensions and Arab-West relations.
Possibly there is some interest in building up a material base for
Soviet "volunteers" should circumstances make this appropriate.
Simple infiltration of armed forces is another obvious intent. Finally,
the economic advantage of selling equipment might play a part in
Soviet military assistance. Future credit repayments and continuing
costs of maintenance might be viewed as means of economic
penetration.
CHAPTER V
SOME COMPARISONS OF THE UNITED STATES AND COM-
MUNIST BLOC ASSISTANCE PROGRAMS
COMPARISON OF COMMUNIST AND UNITED STATES FOREIGN ASSISTANCE
PROGRAMS
A. There are many striking objective contrasts between the United
States assistance programs and those of the Communist bloc (table 11).
1. The United States program is vastly larger; since 1945
United States loans total $9.5 billion and grants $47.5 billion. In
1956 alone United States loans and grants for foreign assistance
per se far exceeded in value total bloc exports to the free world for
all purposes, assistance or otherwise.
2. The United States relies heavily on grants; the Communist
bloc almost never does. Much of what is termed "Communist
economic assistance" is currently paid for by recipient country
exports to the bloc. By and large, United States assistance is not
on a trading basis.
3. Bloc loans usually are tied in with repayments specified in
terms of recipient country exports; United States assistance loans
rarely are tied to commodity repayment.
4. In the past, and currently, a considerable part of United
States economic assistance takes the form of consumer goods, e. g.,
surplus foods; the bloc almost never renders assistance in this
form, except in a few instances of disaster relief. Stated differ-
ently, the much smaller bloc program places relatively more em-
phasis on capital projects in recipient countries than does the
United States.
TABLE 11.-Comparison of free-world and Soviet-bloc post-World War II aid,
July 1945-56¹
[In billions of United States dollars]

Free world:
United States
Grantor
Estimated value of aid
Total
Economic
and technical
Military
Other free world.
UN and International Bank
3 16-18
4 75-77
Total free world.
Sino-Soviet bloc:
To free world countries.
To other bloc members
Total bloc❝_
¹ 1956 estimated.
2 57
37
10-11
20
6-7
42
12
49-50
26-27
5 1.5
68.5
1.0
6.0
0.5
• 2,5
6 10. 0
7.0
63.0
2 Comprises $47.5 billion in grants and $9.5 billion in loans.
* 45 percent in grants.
• Includes approximately $20 million contributed by Soviet bloc to UN and associated international
organizations for relief and technical assistance.
* Includes approximately $125 million of grants and gifts (estimated).
• Covers estimate of bloc military aid to Communist China and North Vietnam only, excluding special
military aid for Korean War. Does not include any intrabloc military aid to Soviet European satellites.
667
668 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
These differences are basic and make comparisons difficult. The
Communist bloc program uses many of the techniques developed in
the United States aid program, but the comparison ends there. In
fact, it is impossible to distinguish bloc "assistance" from its regular
foreign economic activity-except for isolated instances, such as the
gift of tractors to a State farm in India, and the bloc contribution to
United Nations technical assistance.
The contrast in the two programs can be brought out in terms of
cost. The cost of the United States economic, technical, and military
assistance can be calculated in dollar terms with reasonable accuracy.
This is shown in another report. Grants have played a large part
and these may be counted as a net economic cost to the United States.
Moreover, loans made by the United States carry provisions in most
instances that leave repayment in real terms virtually to future nego-
tiation. Thus far such loans have entailed a real cost to the United
States-with the possible exclusion of loans arising from the sale of
surplus agricultural commodities. In terms of United States gross
national product, this foreign assistance cost has ranged from 1 to
1½ percent per annum. On the other hand, the bloc program is based
on a quid pro quo, with some political advantage to boot. Low
interest rates as observed above might contain an element of real
cost to the bloc, but the definite commodity repayment features prob-
ably make this a small cost, or offset it entirely. In short, its program
has cost the bloc little, if anything, in economic terms. Being poor
itself, the bloc has given little or nothing away to its poorer neigh-
bors. Thus the term "assistance" has quite different meanings when
applied to the United States and bloc activities.
B. The techniques employed
1. Loans.--Bloc loans have already been described. The Union
of Soviet Socialist Republics' loans range from 10 to 30 years in
maturity and carry 2 to 22 percent interest charges (except for an
interest-free loan to Yemen). Satellite loans range up to 10 years,
with the same low rates. Repayment usually begins within 2 or
3 years, and usually in commodity form.
United States loans under the mutual-security program and Public
Law 480 range upward to 40 years for repayment, at 3 percent inter-
est if repayment is in dollars and 4 percent if repayment is in local
currency. There is a 3-year grace period for interest and amortization
begins at the end of 4 years.
Bloc loans on their face appear more generous with their low
interest rates. But when the United States provides grants along
with loans to a country, the effective interest rate on the entire amount
of the assistance is considerably below the 3 or 4 percent. Taking
all United States loans and grants together and applying the interest
on the loan portion to the total, the effective rate of interest works
out at about one-half of 1 percent.
The bloc gets some propaganda value from its lower interest rate
on loans. The low rate has an appeal to the borrowing country.
Foreign officials have asked for lower interest rates on Public Law
480 loans-without avail-because of the lower bloc rates. A recon-
sideration of United States interest policy seems in order because of
(a) bloc propaganda and (b) the nature of Public Law 480 and,
in part, mutual security loans.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 669
Bloc loans are made for arms and for capital projects, and mainly
for the latter. Capital project loans find favor in recipient countries
and as such benefit those countries-through these loans they get
capital equipment and installations from the capital exporting country.
A large portion of current United States mutual security loans is also
for such purposes. But a considerable part of current United States
lending arises from the sale of surplus agricultural products for local
currency, with part of the proceeds lent back to the recipient country
under section 104 (g) of Public Law 480. Some part of the mutual
security loans also comes from local currency sales of surplus agri-
cultural products under that program. Public Law 480 funds re-lent
are for local currency costs of local development projects. In effect,
the recipient country borrows to get Public Law 480 surplus agri-
cultural products and some capital goods under the mutual-security
program; when it borrows from the bloc it gets imported capital
goods, and in some cases arms. By and large the bloc loans are likely
to be more effective in a developmental sense than are United States
loans arising from the sale of surplus food and raw materials.
Moreover, foreign officials negotiating Public Law 480 loans tend
to regard their purchases of surplus agricultural products as a favor
to the United States-to help it get rid of burdensome surpluses. The
purchase of such surpluses undoubtedly saves the borrowed foreign
exchange (usually at the expense of third-country suppliers), and this
might enable it to purchase more capital goods from abroad. But this
is not the purpose of the surplus commodity program. The contrast
may be put this way: Public Law 480 and part of the mutual security
loans bring into the borrowing country surplus products unwanted in
the United States; bloc loans bring in the more important capital
goods that the bloc itself could use. Or, it could be said that Public
Law 480 loans currently cost the United States nothing (because the
products exported are "surplus"), while the bloc loans cost the bloc
the use of the exported capital.
Repayment provisions alter this contrast in important respects.
Bloc payments are as a rule expressed in future commodity shipments,
thus returning to the bloc its initial loan plus interest, both expressed
in real terms. United States loans under the current assistance pro-
gram require repayment in dollars or local currency, at the option of
the borrower. Repayment in local currency carries with it an exchange
guarantee. Dollar repayment seems unlikely (but dollar payments
of interest and principal on the earlier Marshall plan loans to Europe
are being made). Local currency repayment will give the United
States huge amounts of foreign currency; the United States "agrees
to take into account the economic position of (borrower) in any
contemplated use of the local currency" interest and principal pay-
ments as they come due in the future. These terms are more favorable
than the bloc's; but bloc loans provide capital goods imports. Public
Law 480 and, in part, mutual security loans do not.
Bloc loans and United States surplus commodity loans present strik-
ing differences; the United States loans are unusual by any standard.
However, other United States loans made through the Export-Import
Bank are commercial in character and require dollar repayment.
Surplus commodity sales serve recipient country needs for food and
raw materials; bloc loans serve their needs for imported capital
goods. The poor countries need and want both types of goods. In the
670 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
long run their growth depends more on imported capital than on
imports of food and raw materials that happen to be in surplus in this
country.
Administratively the loan programs are handled differently. The
United States operating missions handle loan negotiations, work with
recipient country officials on assistance programs and projects, and
disburse loan funds on the basis of approved projects. The procedures
are complex, often time consuming, and engender no small amount of
recipient country irritation and complaint. With minor exceptions
United States loan policy is the same for all borrowing countries, and
each borrower knows the terms all others get. Bloc loans seem tailored
to fit each occasion. Bloc credits are not part of an operating program
in the recipient country. The bloc negotiates to build a given project
(steel mill, fertilizer plant, etc.), a loan is signed, and the bloc under-
takes the project. As a rule the proposed project had been surveyed
and planned by bloc experts before the loan proposal is made. The
bloc performance record thus far seems good; technicians arrive speed-
ily and the work is done quickly. In this respect, the bloc seems to
work faster than the United States at present. But the bloc program
is in its opening phase; the United States worked faster on a larger
scale at the outset of the Marshall plan.
As a technique the United States uses loans more flexibly than does
the bloc. Bloc loans are "hard" loans; United States loans range from
"hard" on to the "soft" loans under Public Law 480 and the mutual-
security program. The so-called soft loans are substitutes for grants,
which accounts for the unusual character of the loans. Bloc loans
focus on capital imports for economic development projects (and to
a lesser extent arms), while current United States loans finance capital
imports and act as a substitute for grants of surplus agricultural
products. In terms of economic development the United States effort
is more diffused, but considerably larger in magnitude than is the
bloc effort.
2. Grants. This form of aid overshadows loans in the United
States assistance program. It is inconsequential in the bloc program.
The Communist Chinese grant of $22.4 million to Cambodia appears
to be the largest. The Soviets made a grant of $1.5 million in agricul-
tural equipment for an Indian state farm, gave some hospital beds to
Burma, and an occasional plane for official use. In some cases gifts
have been exchanged by both parties. Evidence is lacking but there
are indications that some Soviet military aid has been given on a
grant basis.
As noted before, the bloc condemns United States grants as a de-
meaning, imperialist device. It is difficult to say what lies behind
the bloc attitude toward grants. It probably cannot afford large-
scale grants in any case. It probably lacks the spirit which makes
grants a large element in United States foreign-assistance policy.
Perhaps also the bloc avoids grants because they lack the subsequent
commercial tie that is part of their loan program. It has been sug-
gested that in the Asian and Arab mind a grant is considered a bribe
with actual or implied strings attached; perhaps the bloc shrewdly
avoids this technique while charging the United States with sinister
designs to discredit it in the eyes of the sensitive recipients.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 671
There has been some reluctance in a few Asian countries to the ac-
ceptance of United States grants. But the United States manages
to grant all funds so appropriated with no real trouble and much more
would be accepted if the funds were available. In short, bloc anti-
grant propaganda might be no more than a coverup for its unwill-
ingness or inability to give assistance freely, and to make whatever
trouble it can for the United States program.
3. Barter agreements.-Barter as a technique is employed by the
bloc in many of its trade and investment deals with underdeveloped
countries. Some examples may be mentioned:
(a) Union of Soviet Socialist Republics development of In-
dian diamond mines in return for payment in industrial dia-
monds.
(b) Bloc construction of a Yugoslav aluminum plant in re-
turn for payment in aluminum output.
(c) India traded tea for Union of Soviet Socialist Republics
steel and wheat.
(d) India traded tobacco for Chinese raw silk.
e) India traded iron ore for Polish cement and steel.
(f) Burma traded rice for East German machinery.
(g) Indonesia traded rubber for Czech textiles.
(h) Pakistan traded cotton for Chinese coal.
Both trade and credit agreements usually stipulate the types of com-
modities to be exchanged, or provide for capital installations to be
repaid later in commodities. The line dividing barter agreements and
many other types of bloc agreements is difficult to define. The point
is that bloc transactions, as emphasized before, usually involve mutual
exchange, either current or deferred, and they are usually on a bi-
lateral basis. As intergovernmental arrangements, each party speci-
fies the volume and types of trade within well-defined limits. With
state trading the rule in bloc countries, most trade deals approach the
barter basis.
The United States has used the barter technique sparingly. It is
not a technique congenial to this country, with its multilateral trade
policy and reliance on normal channels (even in the export of Govern-
ment-owned agricultural products) of trade and finance. To be sure,
both Public Law 480 and mutual-security loans provide, if both par-
ties agree, for the "payment of all or any part of principal and interest
by the delivery to the United States of (a) such materials, or (b) such
other valuable consideration as may be mutually agreed upon by the
parties" to the loan agreements. This provision has not been invoked;
in fact repayments will not begin for another year or more, and they
will undoubtedly be made in local currency.
The United States strategic stockpile program does involve some
barter transactions. United States surplus agricultural products are
exchanged for such strategic materials. Since 1949, the United States
has contracted for the delivery of approximately $700 million in such
materials against the United States export of agricultural commodi-
ties. Approximately half of the strategic materials have been deliv-
ered. Similarly barter is involved in the few "triangular" arrange-
ments concluded by the United States under its assistance programs.
On the whole, barter transactions account for roughly 1 percent of the
total United States assistance over the years, and most of this is under
the stockpile program. The technique is not congenial to United
672 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
States trading practices and traditions; and its extensive use is im-
possible under an aid program that stresses grants.
The bloc barter technique is part and parcel of its state trading
policy. Its ability to do business on this basis with many underdevel-
oped countries is due mainly to special difficulties facing these coun-
tries: price-depressing surpluses in some instances, unrealistic ex-
change rates that hamper their foreign trade, restrictions in importing
countries. Freer multilateral trading relationships throughout the
free world would limit the bloc in its use of the barter technique.
4. Technical assistance.-The bloc technical assistance program,
started in 1954, copies the United States technique in many respects.
Indeed, the Union of Soviet Socialist Republics entered into this
activity quite likely because of the popular appeal of the original
point 4 program in the underdeveloped countries. And the appeal of
the various United Nations technical-assistance programs made the
initial Soviet abstention undoubtedly somewhat embarrassing. More-
over, technical assistance is in some measure inseparable from the
export of capital and arms to countries lacking in technical know-how.
Once committed to such exports, technical assistance follows of
necessity.
As in the case of the United States, the bloc sends technicians to
recipient countries, invites technicians for training within the bloc,
and engages in technical assistance through the United Nations; mili-
tary technicians go along as part of their military-assistance activi-
ties and recipient country military officers take training in the Union
of Soviet Socialist Republics.
The number of technicians sent abroad by the bloc is not known.
Such information as is available indicates that the number exceeds
the number of technicians sent abroad by the United States. Frag-
mentary reports also indicate that Soviet and satellite engineers, scien-
tists, and technicians are well trained. There is no objective basis
for comparing them with their Western counterparts. Reports also
indicate that technical assistance is quickly supplied by the bloc once
an agreement has been signed. On the other hand, considerable
delays are frequently encountered in the dispatch of United States.
specialists to programs abroad. On this score, performance records
are also difficult to compare. Given their more flexible operation to
date, and their entirely different recruitment problem, the bloc
might be providing technical assistance more expeditiously than the
United States.
Their emphasis runs more heavily toward industrial technical
assistance; this follows from the attention given to industrial projects
in their credit program. Should any account be taken of private
investment abroad by United States business firms in such a compari-
son as this, the bloc might show up to no advantage at all. Business
firms send their industrial, petroleum and mining engineers and other
technicians abroad promptly when need arises. Such activity in a
free enterprise system is analogous to bloc capital projects constructed
abroad under the Soviet method of doing things.
The Union of Soviet Socialist Republics appears determined to
impress the underdeveloped countries (and others as well) with its
scientific attainments. This is a small aspect of its general effort-
diplomatic, cultural, economic-to create a favorable impression as a
country of peace, good intentions, and achievement. Accordingly
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 673
Soviet scientists have visited Asian and Middle East countries in large
numbers and the Union of Soviet Socialist Republics has invited
scientists from these areas to visit and study there. This is a small
part of their technical-assistance program.
While no approximation of cost can be given for the bloc technical-
assistance activities, the bloc pays only a small part of whatever the
figure is. Except for its grant to the United Nations technical assist-
ance program, all or most of the remaining costs are borne by the
recipient countries, in the contract price agreed on for the projects
undertaken by the bloc.
5. Administration.-The United States administers its economic,
technical, and military-assistance programs through operations mis-
sions and military missions established in the host countries. Another
report covers administration in detail; here only brief comparisons
will be made between the bloc and the United States programs. There
is no Soviet model of the United States operating missions. Nor does
there appear to be anything analogous to military assistance advisory
group. Bloc trade promotion organizations have been established in
some countries of Latin America, Europe, and Asia; and in some
places local business firms handle trade transactions for the bloc.
Embassy attachés, of course, have a part to play in bloc economic and
military-assistance activities. But no formal organizational struc-
tures have been established along United States lines.
This system-or lack of it-gives the appearance of great flexi-
bility. On their capital projects the bloc sends the necessary officials
and technicians to do the specific job. They avoid the rather detailed
administration and supervision of local official actions that are part
of the United States administrative arrangements. They also avoid
the irritation that foreign governments display toward the admin-
istrative procedures of the United States. The United States works
more openly, both in the host country and at home. Whether bloc
administrative simplicity abroad is matched by a comparable sim-
plicity in Moscow is not known. In any event, they appear more
expeditious than the United States in dealing with host countries.
But this advantage might merely reflect the small scale of their activi-
ties, and possibly an uncertainty as to their duration. The comparison
suggests the desirability of reviewing United States administrative
procedures and streamlining operations.
6. Military assistance.-Comparisons are very difficult to draw on
this phase of the bloc program. But there are some general contrasts
of interest. United States military aid stresses a "balance" in equip-
ment, supplies, and forces. The bloc has shipped substantial amounts
of particular arms to its recipients with less emphasis given to balance.
The United States tends to relate its shipments to the absorptive
capacity of the recipient country forces; the bloc recently has given
little weight to this factor. Far more attention is given by the United
States to the economic capacity of the recipient country to maintain
any given force than has been given by the bloc. The Soviet Union
employs military assistance as a means of exacerbating political ten-
sions and exploiting difficult situations. Egypt, Syria, and Afghan-
istan, the principal recipients, were all involved in political troubles;
arms shipments purposely aggravated them. On the other hand,
United States military assistance has the purpose of strengthening
the free world against Communist aggression, not to promote tensions.
→
674 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
་
The recent disavowal of any intention to draw satellite countries into
a western military orbit underscores the difference in approach. Mili-
tary assistance by the United States is mainly in the form of grants;
the bloc relies mainly on sales for cash or credit.
7. Conclusion.—A review of comparisons is interesting for possible
policy guidance it might give. But there is virtually nothing in the
Communist techniques that might afford such guidance. The United
States has inore experience under more varied circumstances in eco-
nomic, technical, and military assistance than any other nation. Most
of the innovations in this type of policy are of United States origin.
The Soviets not only have come up with nothing new, but they have
had too limited an experience with the techniques at hand to demon-
strate any special gifts at adaptation. If anything, the Soviet offen-
sive may only hasten changes in United States policy and techniques
which were known to be needed, or possibly desirable before. A more
responsive administrative arrangement; a long-run approach to the
economic development problem; more emphasis on trade, preferably
by further encouraging multilateralism; a further look at United
States lending policy, are among the things that become more urgent
with some competition in the field.
In surveying bloc activities in economic and military assistance the
fact stands out that the Union of Soviet Socialist Republics is alert
to exploit problems to the detriment of the West. Their program
appears somewhat more flexible; they are quite adept at "moving in" to
muddy the water. The United States with its established programs
and higher standard of international conduct seems less flexible.
This difference might be attributable to basic contrasts in government
and to the Soviet conception of its economic, technical, and military
assistance programs partly as means of international troublemaking.
CHAPTER VI
SOME IMPACTS ON THE UNITED STATES PROGRAM
IMPACT OF BLOC ACTIVITIES ON UNITED STATES RELATIONS WITH OTHER
COUNTRIES
The impact of the activities described in this report on United States
relations with other countries cannot be treated independently of
Soviet diplomatic efforts in the larger international political arena.
Briefly, Soviet diplomacy during the last several years has been di-
rected toward bettering its diplomatic relations with major sectors
of the free world. It has sought to create for itself the image of a
benign, peace-loving, and progressive system, harboring no aggres-
sive designs on the rest of the world. This pattern of diplomacy was
tailored differently for different parts of the world, depending on
the prevailing circumstances. The purpose of this general diplomatic
offensive seems to have been to allay possible fears of Soviet aggressive
intent among the nations of Asia, the Middle East, and Europe. Be-
hind this was the intent to weaken popular and official support for the
defensive alliances largely fostered by the United States, namely
the North Atlantic Treaty Organization, the Southeast Asia Treaty
Organization, and the Baghdad Pact. In effect, it sought to make the
Western Powers appear as the aggressively minded nations.
As part of this general offensive it encouraged closer trade relations
with Western Europe. It offered economic and technical assistance
mainly to the countries of Asia and the Middle East and offered its
help for their economic development plans. It played up its friendly,
helpful intentions among the former colonial areas and accused the
United States of imperialist, aggressive designs-an attempt to put
the aggressor's shoe on the United States foot. As noted above, the
Union of Soviet Socialist Republics tailored its diplomacy to fit the
situation, taking the Afghan side in the Afghan-Pakistan dispute,
and the Arab side in the Middle East issue.
Given the comprehensive and varied nature of the Soviet diplomatic
offensive, the impact of any facet of the drive is affected by all others.
And in any event it is difficult to assess the relative importance of
any one part even if the effect of the total program can be accurately
appraised.
In general, the Soviet diplomatic offensive was well received in most
of south Asia. Soviet and satellite trade and credit offers supported
the diplomatic efforts, and sentiment in favor of neutralism made
headway. The great attention and acclaim given to Bulganin and
Khrushchev in their Asian tour are indications of official and popular
approval of the Soviet new look. Soviet repression in Hungary has
undoubtedly tarnished the shine on the new Soviet model; probably
the events in Hungary have lost for the Soviets much of what their
diplomatic offensive had gained for them in Asia up to that time.
94413-57-44
675
676 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Some examples suggest the impact of the bloc program in this
area.
Burma requested the end of United States aid and the withdrawal
of the United States mission soon after the bloc drive began and
shifted to closer ties with the bloc. But as noted earlier the Burmese
in time found the bloc trade deals less attractive than they had hoped-
in fact the deals in part turned out disadvantageously. Burmese
suspicion of subsequent bloc meddling in elections aggravated matters.
Burma turned again to the United States to negotiate, with some
hesitation and caution, for economic assistance.
Bloc loan proposals have caused delays and irritations in negotia-
tions on the Public Law 480 loan to Indonesia. The 4 percent interest.
rate, the maintenance-of-value provision, and project-by-project ap
proval- all required by United States policy-have caused protracted
delays. Soviet loan terms seemed more favorable to the Indonesian
negotiators and were made a bargaining point by them. To some
extent this problem was present in the Indian Public Law 480 loan,
but a sizable grant reduced the effective rate of interest. Likewise a
rupee repayment schedule accompanied the dollar repayment schedule.
(which rules). Negotiating problems of this sort partly, or largely,
arise because bloc terms are considered an alternative. They stiffen
the position of the other negotiators and tend to soften up the position
of the United States negotiators. Should the bloc continue its credit
program, more problems of this sort will arise-unless offset by bloc
political blundering or bad luck.
In Iceland the bloc economic offensive has made substantial inroads,
due to the British restriction on Icelandic fish imports arising from
a British-Icelandic dispute over fishing rights. In effect, the bloc took
over the Icelandic exports barred by England and thus captured
nearly a quarter of total exports. It was a quick and inexpensive
move. The Union of Soviet Socialist Republics then moved in as the
principal supplier of petroleum to Iceland in exchange for fish. This
intervention helped Iceland through her foreign trade problem. Un-
doubtedly this Soviet gesture of good will contributed to the political
fortunes of Iceland's Communist group, and made the status of United
States airbases a matter of considerable uncertainty. Again, the
Soviet intervention in Hungary shifted political forces in Iceland
toward the West.
The major impact of Soviet diplomacy and its assistance programs
is to be found in the Middle East. The long-festering Arab-Israeli
problem, the Anglo-Egyptian issue over Suez, and the anticolonial
sentiment widespread in the Arab world provided a bundle of prob-
lems seeking a solution or exploitation. The Soviets exploited them
politically and by arms assistance to Egypt and Syria. The outcome
up to this point is apparent in the degree of Soviet penetration into
parts of the Middle East. With Arab preoccupation with the Israeli,
British, and French moves into Egypt, the Hungarian issue has not
had the effect in the Middle East that it has had in south Asia. The
Soviet position in general appears stronger than before.
In Europe the bloc diplomatic offensive considerably allayed fears
of Soviet aggression, which in turn cooled West European interest in
the North Atlantic Treaty Organization buildup. Bloc willingness
to expand trade, coupled with its more friendly diplomatic face,
caused a growing doubt on the need for stringent East-West trade
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 677
controls. As the fear of aggression receded coexistence seemed attain-
able. Europe had had enough of war; the Soviet diplomatic offensive
played upon this fact, and made headway.
Except in the Middle East and Afghanistan, Soviet intervention
in Hungary has considerably offset the initial favorable impact of
its diplomatic and economic offensive. Important as this is, the
long-run implications of the Soviet economic offensive, carried out
in concert with the appropriate diplomatic and propaganda moves,
must figure prominently in United States policy formulation. These
implications are difficult to assess for lack of a clear picture of Soviet
short-run objectives. The long-range objective is clear, and it would
be imprudent to conclude, in the absence of certainty, that the economic
objectives are inconsistent with it.
It is therefore important that the United States not dismiss the
economic offensive as a flash-in-the-pan operation-another brief ex-
perimental move by the Soviet Union. It might turn out to be such,
but to bank on this is to court trouble. Chapter II of this report re-
viewed the question of Soviet economic capability. The facts point
to a growing capacity to enter into, as Soviet leaders term it, a new
economic competition with capitalist countries. Some evidence sug-
gests an economic advantage to them in doing so, apart from what-
ever political advantage they might achieve. In chapter III the
question of susceptibility to Communist influence was considered.
Bloc economic activity has shown its greatest rate of growth in
countries which manifest such susceptibility. These are areas most
in need of new capital and technical know-how. And they suffer
chronic economic troubles. In short, these are areas in which the
growing economic strength of the bloc can make a potentially sub-
stantial impact-in the absence of diplomatic blundering.
United States policy should therefore assume a continued and
growing bloc economic offensive. This assumption seems reasonable,
not only because of bloc economic capability and possibly economic
advantage, but also for other reasons. Overt political penetration is
not likely to succeed, given the strong nationalist tendencies in the
less developed countries. And aggression to impose Communist re-
gimes is not safe. Local wars to attain Soviet aims can spread; it
is not safe to assume western acceptance of the "nibbling away"
process indefinitely. The realities of thermonuclear war are probably
as apparent to the Union of Soviet Socialist Republics as they are to
the United States and its allies. The conflict with the non-Communist
world seems likely, therefore, to assume other forms, as Khrushchev
clearly stated. One of the alternatives at hand is economic influence
and pressure, developed in concert with increased contacts through the
exchange of specialists and students, a propaganda offensive, diplo-
matic maneuvering, and subtle ideological penetration in the long run.
The economic offensive by itself is not decisive. For this reason,
United States policy should consider it only as one aspect of a general
move on the part of the Soviet Union to attempt to impose its design
on the world. Considering the implications of the Soviet economic
offensive in this light avoids the risk inherent in the wrong miscalcula-
tion. The other miscalculation-overrating the significance of the
Soviet economic offensive entails no political risk. At the most it
would add something to the cost of foreign policy, but an easily
managed incremental cost.
CHAPTER VII
POSSIBLE COURSES OF UNITED STATES ACTION
POSSIBLE ADJUSTMENTS OF UNITED STATES AID POLICY IN RESPONSE TO THE
FOREIGN ASSISTANCE ACTIVITIES ON THE COMMUNIST BLOC
The Communist bloc's foreign assistance activities-trade promo-
tion, credit extension, technical and military assistance-inject new
elements into the consideration of United States foreign assistance
policy in light of the bloc's activities. This report makes the following
assumptions:
A. The bloc's foreign assistance policy is directed against the
position, prestige, and influence of the United States, particularly
in the less developed countries.
B. The bloc has the capability of increasing its foreign assist-
ance activities in areas of its own choosing and important to
United States interests.
C. The bloc will increase these activities within the limits of its
growing capacity and in consonance with its traditional political
objective.
The third assumption is a matter of judgment on which views may
reasonably differ. Our position is that this is safer from the stand-
point of United States interest than any alternative assumption.
On these assumptions, there is increasing need to clarify United
States foreign assistance policy to separate out its various elements,
and to determine their relationship to the new Soviet offensive. This
is necessary in order to chart a long-term policy. In this discussion,
foreign assistance policy is limited to the rendering of direct financial
(or commodity) assistance, as distinguished from economic policies
which are helpful (e. g., tariff reductions, customs simplification) but
entail no appropriations or loan authorizations.
The main elements in United States foreign assistance activities in-
clude technical assistance, humanitarian aid (school lunch programs,
disaster relief, etc.), economic development per se, military assistance
per se, economic support of friendly armed forces, rehabilitation of
war-ravaged areas, and aid tendered for specific political reasons to
take care of a foreign political crisis (e. g., aid to Iran in 1953). A
more detailed breakdown undoubtedly could be made, but this list is
sufficient to bring out the variety of purposes involved. Aid takes the
form of grants, "soft" loans akin to grants, and "hard" loans. Surplus
agricultural commodities, given away or sold for local currency, form
a growing portion of the substance of United States aid.
There is, in short, a multiplicity of purposes and methods involved
in United States aid. This is to be expected in so complex a policy
framed to handle a variety of foreign situations by a variety of means.
678
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 679
United States foreign policy has suffered from the mixture of pur-
poses and means. It is essential that the main purposes be separated
and that the means most suited to the several purposes be clearly
defined.
We propose here to regroup United States foreign assistance as
follows:
A. Welfare assistance
This includes the traditional forms of aid or assistance such as aid.
for public health and education, as carried out for many years by pri-
vate agencies, and by the United States Government under the old
Institute for Inter-American Affairs program and point 4. School
lunch programs and disaster relief come within this category.
The main purpose of such assistance has been and is to help other
people improve their own conditions or to take care of urgent welfare
situations. This assistance can properly be said to reflect humani-
tarian impulses; it is offered less to serve United States national in-
terest directly than to serve human needs abroad. However, such
assistance serves United States national interest indirectly by building
up friendly groups and good will abroad.
We propose that such activites be carried forward and possibly be
expanded. A useful type of expansion might be the inclusion, where
needed, of assistance in setting people to work on a range of small proj-
ects to build community facilities and thus provide both employment
and the physical facilities essential to the health and educational serv-
ices we encourage through technical assistance.
As in the past, this category of assistance should remain on a grant
basis. We propose, further, that the growing sums of local currency
generated by sales of surplus agricultural commodities under Public
Law 480 be in part used for such activites. To the extent that these
funds can be used, there is no added cost to the United States for this
category of foreign assistance.
This type of assistance should be relatively stable from year to year,
depending on the needs to be met and the diplomatic relationships in-
volved. This form of foreign assistance began long before the Soviet
foreign assistance activities; it should be continued on its merits re-
gardless of Soviet policies and moves in the foreign assistance field.
In some countries it might be wise to expand this aid as a counter to
Soviet activity; it might be broadened to provide local employment
in such cases. But the basic program should be independent of bloc
activities.


B. Military assistance
This type of assistance is obviously and directly concerned with
United States national interest and security. It represents United
States reaction to the cold war. This aspect of United States foreign
assistance should be kept separate from the welfare assistance described
above, and from the economic assistance to be described in C below.
However, the military-related economic assistance activities such as
rehabilitation or economic support to sustain armed forces should be
included in the general category of military assistance for they serve
a military or defense purpose. The volume of such aid and the coun-
tries helped depend on the assessment of the military threat involved,
and the diplomatic issues raised by such assistance.
680 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
C. Economic assistance
The United States has provided large sums to foreign governments
for economic assistance: the Marshall plan accounts for the bulk of
such assistance. In recent years, attention has shifted to economic
development assistance to the less developed countries.
Should the United States decide to continue such assistance, it
should do so in light of its own national interest. Assistance should
go to those countries whose economic growth is considered important
to the long-run interest of the United States. This should be clearly
understood by both sides to avoid misunderstanding of motives.
A United States policy for economic development should incorpor-
ate the following points:
1. Financial assistance should be mainly, or entirely, on a loan
basis, including Public Law 480 loans.
2. Special efforts should be made to foster financial institutions
in recipient countries, such as development banks, to aid private
development projects. Every effort should be made to secure
private capital and participation in such institutions.
3. Technical assistance in the business and industrial arts needs.
promotion.
4. United States private investment should get further encour-
agement to participate in development work.
5. Policy should be on a long-term basis.
A policy of economic assistance might advantageously be broader
than the promotion of economic development. At times the United
States may find it expedient to purchase foreign products (e. g., Ice-
landic fish) to head off a Soviet move; or at times special assistance
may be required to avoid a balance of payments problem which other-
wise would be exploited by the bloc.
On the assumption that the Communist bloc will expand its eco-
nomic assistance activities, this third element in United States foreign
assistance economic assistance-is most directly affected. The fol-
lowing discussion of possible courses of action is confined to United
States economic assistance policy. There are a number of possibilities.
The United States might follow a competitive policy to wear down
the bloc. Or United States economic aid could be drastically reduced,
or withdrawn entirely, in the face of bloc aid. Or, the United States
could follow a policy independent of Communist bloc assistance activi-
ties. Finally, the United States might undertake a counteroffensive
against the Soviet Union by offering economic assistance to the satel-
lite countries.
These possible courses of action will now be reviewed.
A. Competitive expansion of economic assistance
The essence of the competitive strategy is the belief that if it is the
sheer magnitude of a foreign-aid effort that governs the attainment
of foreign policy objectives, then the productive superiority of the
United States over the Soviet Union gives the United States an obvi-
ous advantage, and that, in any case, a competitive race here would
impair the rate of growth of the Soviet Union more than that of the
United States. It is argued that since the United States can provide
more aid-to individual countries and in total-it can, so to speak,
simply overwhelm the Soviet program whenever and wherever it ap-
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 681
pears.
An open challenge to match what is, for them, an impossible
or extremely damaging program, is a variant of this scheme.
The competitive position has its appeal. It challenges the Union
of Soviet Socialist Republics on grounds which appear comfortably
in favor of the United States-relative economic capability. But
there is much to be said against such a policy, in spite of the produc-
tive advantage of the United States. Undoubtedly, in the countries
in which the Union of Soviet Socialist Republics can launch a sizable
aid program, the United States has the economic capability of better-
ing the Soviets in extending credits, and providing the variety of
capital goods required. There might, however, be more to the com-
petitive process than the amount of aid involved.
First, taking a practical view of what a country can reasonably
absorb, the Union of Soviet Socialist Republics could match the
United States in any particular country. And if the contest got out
of hand, the giving of aid may so overcommit the economy on the in-
vestment side that the threat of withdrawal of Soviet aid may also
prove a potent political weapon. Second, the Union of Soviet Socialist
Republics uses loans as its vehicle and is willing to take agricultural
commodities in payment. Such aid is therefore no great cost. The
United States loan policy involves no commodity repayment; many
of its loans are simply repayable in local currency, which in the end
may involve a net cost. Thus a competitive race would not slow
down the Communist rate of growth as much as it might the United
States rate. Undoubtedly, if we embarked on a competitive policy
we would have to move the Soviet from its loan basis. Even if the
Union of Soviet Socialist Republics adopted a grant policy it is un-
likely that they would be drawn into a more massive contest than they
feel is in their interest.
The version which suggests challenging the Union of Soviet Socialist
Republics to match United States aid runs the risk of being forced
to meet reciprocal challenges. It would not require much ingenuity
on the part of the Soviets to come up with specific counter-challenges
embarrassing to the United States. For instance, if they offered to
trade capital goods for Burmese rice, would the United States wish
to meet the challenge? Both sides could end by throwing out chal-
lenges the other would not accept. Moreover, competitive proposals
could lead to an unstable helter-skelter program of economic assistance
to the recipient countries, who, if they so desired could play one com-
petitor off against the other. There would, in fact, be great danger
that in this process we would reduce our diplomatic relations with all
non-Communist countries to the same level as the Soviet's. Further-
more, on its part, the Union of Soviet Socialist Republics could play
at the competitive game, making offers with no substance behind
them, merely to draw the United States into dubious projects at great
cost. Of course, the United States could attempt the same game, but
the duplicity required seems more congenial to, and plentiful in, the
Union of Soviet Socialist Republics. In short, they could perhaps play
it better.
Undoubtedly there are other aspects to the competitive strategy.
Consideration of the strategy in detail, however, has an air of unreality
about it. In the realm of policy, a proposal to be significant must be
politically practicable. Out-and-out competitive foreign aid seems
to lack this quality.
682 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
B. Drastic reduction in United States economic aid
A policy of reduction may take three forms: (1) reduction in aid
to a country because of its growing association with bloc economic
policy, or for larger diplomatic reasons; (2) a general policy of
withdrawing an equal or greater amount of aid from a country if
any is accepted from the bloc, with the idea of discouraging ac-
ceptance of such aid; or (3) a general reduction or withdrawal from
foreign economic assistance activities.
In the first two instances, it is obviously dangerous for the United
States to imply that it is seeking to prevent all increase of trade
with the Soviet bloc, even in nonstrategic goods. Besides having the
appearance of wishing to impose a worldwide embargo on all ex-
ports to the bloc, it implies a willingness to sacrifice the interests of
the rest of the free world wherever such nonstrategic trade would
benefit both sides. The less developed countries need more capital
and know-how than the United States can supply. In the course of
time, the bloc may be expected to become a growing exporter of
capital, and to increase its trade with underdeveloped countries.
This type of trade in itself is no cause for undue United States con-
cern, but bloc credits and trade which capitalize on day-to-day poli-
tical and economic disputes, or threaten to tie up the underdeveloped
country in future years are cause for concern. The problem is, how
to distinguish bloc trade that is genuine from trade that has political
objectives. In other words, to implement such policies presents grave
problems, and attempts to do so might actually lead to damaging
disputes with allies and friends as to the justification of trade with
the bloc in individual instances. Moreover, once this kind of policy
is adopted it makes United States actions dependent on only one
factor, which is to a high degree under the control of the bloc; the
opportunities for Communist exploitation of this policy against the
United States by the selection of target countries for concentrated
attention are obvious.
Withdrawal of aid for larger diplomatic reasons is beyond the
scope of this report.
A general reduction of United States foreign economic aid because
of a growth in bloc economic assistance is not easy to explain or to
justify. In fact, its only rationale seems to be that the rest of
the world needs a certain amount of aid, and that if the Union of
Soviet Socialist Republics takes on more of the burden the United
States should take less. Since the bloc can, if its policy prescribes,
increase its trade and credits to the less developed countries, a gen-
eral United States withdrawal for this reason would give the field-
and such benefits in good will as accrue-to the bloc if it wanted it.
This seems clearly not in the United States national interest. The
assumption might be that the bloc could not rise to the opportunity;
by not taking the field it would reveal its weaknesses. If so, the con-
sequent setback in the economic growth of India, Burma, Indonesia,
and other countries could properly be blamed on the United States,
with adverse diplomatic results. Rather than hurt its chances, com-
munism would probably strengthen its position, since economic pov-
erty and unemployment are its breeding grounds.
The general withdrawal policy might rest on the belief that de-
velopmental policy is destined to fail in any case. This obviously
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 683
has not been the United States policy position, and the facts thus
far do not support it. Economic progress is being made, helped
by United States economic assistance.
Given the probable growth in bloc economic capability, a general
withdrawal by the United States would simply increase the chances
of Communist influence in, and possible eventual domination of, the
less developed countries of Ásia and the Middle East.
C. An independent policy of economic assistance
United States economic assistance independent in size of the aid
efforts of the bloc is, of course, the third possibility. This policy will
be discussed on the assumption of a large-scale United States foreign-
assistance program-as large or larger than the present effort. This
position is based on the assumption that the Communist bloc will
increase its activities in the years ahead. The magnitude of the
program, however, does not affect the policy position. The point is
that this part of United States economic assistance-mainly in the
form of loans and possibly some grants-would be used to pursue
United States national policy objectives and would employ its own
techniques. It is assumed, of course, that United States economic
assistance would take account both of the economic development objec-
tives of the recipient countries and of the United States national
interest. This means it would be consistent with and part of current
diplomatic relations-not, as some seem to suggest, above and beyond
and therefore independent of these relations.
There is much to be said for United States assistance being inde-
pendent of Soviet actions in the sense that United States efforts and
activities are not specific reactions to specific Soviet actions per se, but
are based upon longer run foreign policy objectives. In the first place,
such a policy permits a rational, steady approach to the economic
development requirements of the recipient country. In many of the
underdeveloped countries, such an approach is essential for the orderly,
long-run development of power, transportation, and basic industry,
as worked out jointly by the United States and the recipient country.
It is obviously desirable that such an approach be combined with
power to undertake long-run commitments for some portion of the
assistance program-year-to-year operations do not fit adequately
the long-term needs of economic growth. Nevertheless, such commit-
ments would obviously be contingent upon continued favorable rela-
tionships between the two countries.
This type of program has the merit of providing a relatively steady
flow of capital, and of avoiding massive fluctuations that could easily
disrupt the recipient countries. It has the merit of being dependable;
the recipient government would know what to expect. And the recipi-
ent government, even if it wished, would not find ready at hand the
opportunity to bargain by playing one supplier off against the other.
This type of economic-assistance program also has the advantage
of being outside the undignified game of competing point-by-point
with what in business is inelegantly referred to as a "gyp outfit.'
Moreover, the Soviet program could not overshadow United States
assistance. If national interest so dictates, a United States assistance
program in any country could easily neutralize conceivable future
bloc efforts both for capital and probably for technical assistance as
well.
99
684
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Most of all, the laying out of a longer range economic development
program would clearly tend to create a long-term foreign policy out-
look on the part of the foreign recipient favorable to the United States.
The importance of relationships with the United States for the coun-
try's development programs would be much greater and more obvious.
Since, in fact, United States economic aid tends to be continuous
anyway, we might just as well reap all the advantages of such a situa-
tion.
In addition to this type of program, however, there is much to be
said for a new type of foreign economic assistance activity. The for-
eign-assistance activities of the bloc which are designed to exploit
economic and political difficulties in the free world have injected a new
factor. We should frankly recognize that they constitute a type of
cold warfare which cannot be answered by an economic development
program as outlined here. Some part of United States economic-
assistance funds might well be devoted to preventing or neutralizing
these bloc excursions. At present, however, the legislation and the
execution of United States foreign assistance activities are ill-fitted
for such frontline action. More freedom of action by the executive,
and the simplification of administration are obviously essential to the
achievement of this purpose. Every ingenuity and every type of
foreign economic activity might have to be employed to achieve the
ends of such a program. All moves of the Communist bloc would
have to be taken into account in operating in this manner, and, as far
as possible, action taken in advance to remove the possibility of a
damaging bloc excursion.
One example is the Iceland-United Kingdom dispute. If the United
States had preempted surplus Icelandic fish and shipped it as aid
in the form of food to an underdeveloped country not an important
customer of either Iceland or the United Kingdom, the opportunity
for Soviet exploitation of this situation could have been removed; two
countries would have been helped, yet the European fish market would
not have been affected. The move, therefore, would probably not
have aroused much objection from the British trawler industry. This
move would have cost relatively little-only a fraction of the cost of
the airbase jeopardized by not buying the fish. Obviously, it could
not be hoped that every bloc move could be prevented or neutralized by
such devices, but at least every effort could be made to achieve such
an outcome wherever it would advance United States foreign policy
objectives and at the same time not create new problems.
D. United States aid to satellites
In principle, any effective countermeasure to bloc influence is to be
welcomed. But United States aid to the satellites encounters some
obvious difficulties. The bloc is essentially a closed system organized
specifically against penetration. On the other hand, the free world
is an open system; through normal diplomatic processes the bloc
has access to it for trade, technical assistance, and economic develop-
ment. United States aid under the Marshall plan had been offered
to the satellites, and the offer had been accepted by Poland and
Czechoslovakia. The Union of Soviet Socialist Republics forced their
rejection of such assistance.
Economic and military aid to Yugoslavia after the Belgrade-Moscow
rift helped Yugoslavia maintain its independent position. This was
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 685
a short-term advantage to the West; its long-term significance is yet
to be seen.
Aid offered to Poland and Hungary in recent months, if accepted,
might have strengthened prowestern sentiment. If rejected, the posi-
tion of the Union of Soviet Socialist Republics and the satellite Com-
munist parties and governments might have been further weakened.
The offer of surplus food in such instances costs the United States little
or nothing, and might gain a considerable psychological advantage.
But the policy of offering aid in these circumstances is two edged.
Any substantial economic aid merely serves to strengthen the total
economic system the Communist bloc is able to administer and exploit.
If United States aid in the form of food, raw materials, and possibly
capital goods were allowed to flow into the satellites, there is no assur-
ance even that the satellite peoples will gain a net benefit, since equal
amounts might be diverted elsewhere from normal sources. More-
over, such aid might merely strengthen these Communist countries
without making them any less Communist at the top.
The popular disaffection in the satellites has its roots deep in tradi-
tional, national sources. This disaffection needed no nourishment in
the form of United States aid, and it probably would not be increased
much if aid were forthcoming. Economic ties as such are not deci-
sive-whether they be ties with the West or the Union of Soviet So-
cialist Republics. If economic aid were offered in expectation of draw-
ing the satellites away from the Union of Soviet Socialist Republics,
such expectations are likely to be disappointed. The bond between
the satellites and the Union of Soviet Socialist Republics is the Com-
munist control mechanism-a political fact. As long as this political
control mechanism holds together, United States economic assistance
would have relatively little effect as a means of detachment. Never-
theless, the psychological encouragement to the satellite peoples re-
sulting from United States aid is an important consideration. Their
strength and well-being is important to the free world. Consequently
a program of offering help for food, general education, medical care,
and similar activities seems to have many advantages. The odds are,
however, that the Union of Soviet Socialist Republics would find rea-
sons to reject such offers.
E. Some additional courses of action
The courses of action described above refer to possible approaches
to be taken by United States economic assistance policy. There are
a number of other possible actions that merit consideration:
1. The United States and the West generally should become
more alert to actual or potential crises which give or would give
the Union of Soviet Socialist Republics opportunity for exploita-
tion. Some situations can be prevented by appropriate diploma-
tic moves. A repetition of a problem such as the British-Icelandic
fishing rights controversy should be prevented if at all possible
whatever side had the better case; the consequences of a rup-
ture such as this must be the governing consideration. Such
actions as tariff increases by the United States might be similarly
considered. Now that the Soviet Union seems to be in the business
of exploiting such situations, it is imperative that such situations
not be permitted to reach a crisis stage. Concert among the prin-
cipal western powers is essential on this general point.
686 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
2. In part, the effectiveness of the bloc offensive arose from
particular difficulties facing underdeveloped countries as ex-
porters of food and raw materials. An expansion of multilateral-
ism, by providing free world markets for agricultural products,
would diminish these difficulties and thereby deny the bloc any
special advantage. This is not to deny them access to the exports
of these countries, but to make the bloc no better an alternative
than any other importer of these commodities. Continued and
further efforts directed towards convertibility and multilateral-
ism are therefore desirable supplemental activities.
3. With bloc competition there is further need for the United
States to assess again its aid policies, its administrative arrange-
ments, and its methods of operation, from the point of view of
their diplomatic impacts in the recipient country. Frequently,
policies or procedures which make sense in terms of, say, United
States accounting conventions or internal performance standards,
are excessively troublesome abroad. Public Law 480 sales and
loan programs, for example, need review on the same grounds.
4. The United States should separate military assistance from
other forms of aid financially and administratively. Each should
stand on its own, and the size and type should be judged by the
purposes to be served by each of these programs.
G. Concluding comment
The Soviet economic offensive is the newest development to face
United States foreign assistance policy. The future course of this
economic offensive is, of course, a matter of uncertainty. Its future,
whatever that turns out to be, is a matter to be decided by Soviet
international political policy. The bloc offensive can grow. United
States foreign policy must take heavy account of present Communist
aid activity and be prepared for future growth in this direction.
Being ready costs little if the threat fails. But not being ready would
cost much if the threat grows.
American Aviation
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nomic Relations, 1945–55
The World Today, London, June 1956; Soviet Bloc and Underdeveloped Countries
The World Today, London, September 1956, pages 355-361; Soviet Interest in
Africa.
United States Department of Commerce unpublished files on bloc technical assist-
ance, credits, and grants
United States Government agency published documents (various), 1952-56
688 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
CONSULTATION WITH UNITED STATES AND INTERNATIONAL AGENCY PERSONNEL
Department of Agriculture
Department of Commerce
Department of Defense
Department of State
International Bank
International Cooperation Administration
Library of Congress
United Nations Secretariat
APPENDIXES
689
94413 0-57-
-45
APPENDIX A
North
Ad- Viet- North
Korea
Estimated Expenditures on International Trade Fairs by Members of the Sino-Soviet Bloc by Host Country, 1955
(thousands US $)
Host Country
Bloo
Total USSR
ommunist
Czecho- East
Bul-
China
slovakia Germany Hungary Poland garia Rumania bania
North America
206
United States
Canada
4
202
202
2
200
~/N
Latin America
514 502
~|
2
2
2
2
2
IN
|N
2
Argentina
500
500
Bolivia
2
2
Ecuador
12
2
2
2
2
2
2
Burope
7961
2718
420
2598
1741
384
70
6
ام
24
Austria
909 202
290
266
162
Belgium
568
2
366
172
24
2
2
Denmark
202
200
2
Finland
250
250
France
764
400
158
152
28
20
2
4
Iceland
320
150
20
150
Italy
482
22
236
192
8
22
Netherlands
1186 1000
156
24
4
~ ~
2
2
Sweden
840 350
300
170
20
Switzerland
8
4
2
2
U.K.
348
44
300
2
West Germany
534
2
24
442
64
22
Yugoslavia
1550
990
420
20
80
20
20
20
691
692
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
}
Bloc
Host Country_____
Middle East and Africa
Total USSR
Communist Czecho-
China
East
Bul-
slovakia Germany Hungary
Hungary Poland garia Rumania
North
Viet- North
Al-
bania
nam
Korea
3536
320
1572
500
322
352
320
150
Belgian Congo
20
20
Egypt
520
20
500
Ethiopia
200
200
French Morocco
152
152
Greece
620
150
300
20
150
Syria
1120
300
250
200
150
200
350
20
Tunisia
4
2
2
Turkey
900
300
150
150
150
150
South Asia and Far East 5726 1172
1912
1400
550
170
252
270
Burma
150
150
India
2882
770
542
650
400
Indonesia
1072
450
300
150
150
2330
250
250
2
20
Pakistan
1172 402
470
300
Japan
450
450
Oceania
-
Australia
200
200
TOTAL FREE WORLD
18143 4392
2654
5976
2791
880
678
326
446
Sino-Soviet Bloc
Bulgaria
2800
500
Communist China
6092 5002
ខ្លួន
200
300
370
270
370
520 250
20
20
900
170
Czechoslovakia
310
250
40
20
East Germany
4408 522
152
620
2020
420
272
152 170
Hungary
1270 200
170
190
650
20
North Vietnam
190
20
150
20
Poland
3028 522
400
247
227
220
1152
200
222228
20
22
40
20
20
20
20
Rumania
USSR
242
242
1340 300
1020
20
TOTAL INTRA-BLOC
19680 7296
792
3447
3089 1750
1814
872
460
GRAND TOTAL
37823 11688
3446
9423
5880 2630
2492
1198 906
91190
100
100
2ll 2
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
693

;
APPENDIX B-1
Imports of Selected Free World Countries from the Sino-Soviet Bloc, 1938, 1948, 1950, 1952-1956
(value in millions of US $
Imports from
Sino-Soviet Bloc
Free World
Total Bloc
Importing
Total
Free
% of Total
Region Country
Period
World
World
Value
Imports
U.S.S.R.
European
Satellites
Communist
China
United States
1938
1,960.4
1,836.9 123.5
6.3
26.7
48.0
48.8
1948
7,123.8
6,890.3 233.5
3.3
86.8
26.4
120.3
1950
8,852.2
8,625.1
227.1
2.6
38.3
42.3
146.5
1952
10,716.8
10,649.5
67.3
0.6
16.8
22.8
24.6
1953
10,873.8
10,828.1
45.7
0.4
10.8
25.6
.6
1954
10,206.7
10,157.4
49.3
0.5
11.8
30.5
.2
1955
11,375.0
11,309.8
65.2
0.6
16.9
38.7
.2
(Jan-Aug Annual rate) 1956
12,658.1
12,582.8
75.3
0.6
22.5
52.6
.2
Canada
· 1938
677.3
671.7
5.6
0.8
.2
3.0
2.4
1948
2,636.9
2,628.0
8.9
0.3
.1
4.9
3.9
1950
2,925.7
2,914.8
10.9
0.4
.1
5.9
4.9
1952
4,120.3
4,111.6
8.7
0.2
204
5.0
1.3
1953
4,449.4
4,443.4
6.0
0.1
.9
4.0
1.1
1954
4,221.4
4,215.8
5.6
0.1
.7
3.2
1.7
1955
4,773.7 4,765.7
8.0
0.2
.6
4.2
3.2
(Jan-June Annual rate) 1956
5,720.6
5,704.8
15.8
0.3
1.0
6.2
8.6
Europe
France
1938
1,317.4
1,257.7
59.7
405
21.1
31.4
7.2
1948
3,448.3
3,372.9
75.4
2.2
11.1
56.5
7.8
1950
3,066.0
3,027.1
38.9
1.3
4.9
28.5
5.5
1952
.. 4,432.1
4,369.1
63.0
1.4
18.7
38.7
5.6
1953
4,006.7
3,955.3 51.4
1.3
16.9
23.5
11.0
1954
4,215.3
4,139.1
76.2
1.8
40.2
26.6
9.4
1955
4,688.1
4,592.4
95.7
2.0
48.9
35.0
11.8
(Jan-Aug Annual rate) 1956
5,454.3
5,335.5 118.8
2.2
58.0
45.7
15.1
694
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC

Imports from
Sino-Soviet Bloc
Free World
Total Bloc
Importing
Total
Free
% of Total
Region Country
Period
World
World
Value
Imports
U.S.S.R.
European
Satellites
Communist
China
Germany, Fed. Republic
19389
2.430.3
2,011.1
419.2
17.2
59.5
316.9
42.8
1948
1,314.2 1,288.7
25.5
1.9
1.5
20.6
3.4
1950
2,805.7 2,620.0
185.7
6.6
0.2
170.8
14.7
1952
3,884.8 3.779.3 105.5
2.7
4.0
83.9
17.6
1953
3,877.8 3,709.9 167.9
4.3
15.6
119.1
33.2
1954
4,708.8
4,482.4
226.4
4.8
22.2
168.1
36.1
1955
5,931.6
5,619.9 311.7
5.2
35.9
229.8
45.9
(Jan-Aug Annual rate) 1956
6.509.5
6,115.3 394.2
6.1
40.0
301.7
52.5
Iceland
1938
11.1
10.9
.2
1.8
n.r.
.2
n.r.
1948
70.6
64.6
6.0
8.6
0.1
5.9
1950
38.4
34.7
3.7
9.6
b/
3.7
1952
55.9
52.2
3.7
6.7
3.7
1953
67.8
62.0
5.8
8.6
1.6
4.2
1954
69.4
56.7
12.7
18.3
8.1
4.6
1955
77.6
60.3
17.3
22.2
10.6
6.7
(Jan-July Annual rate) 1956
88.1
64.4
23.7
26.7
14.4
9.3
'નોનો'
United Kingdom
1938
4,496.3
4,208.6
287.7
6.4
142.7
113.7
31.3
1948
8,374.5
8,131.7 242.8
2.9
109.3
100.4
33.1
1950
7,303.1
7,097.5 205.6
2.8
95.9
81.7
28.9
1952
9.741.3
9,498.0 243.3
2.5
162.7
72.2
8.4
1953
9,365.7
9,130.1 235.6
2.5
111.7
95.1
28.8
1954
9,461.0
9,229.3 231.7
2.4
116.9
89.6
25.2
1955
10,881.1
10,551.9 329.2
3.0
175.8
118.8
34.6
(Jan-Aug Annual rate) 1956
11,000.0
10,691.6 307.9
2.8
138.7
133.1
36.1
Finland
1938
184.6
169.0 15.6
8.5
4.8
10.7
.1
1948
488.0
395.2
92.8
19.0
51.2
41.4
.2
1950
387.6
317.6
70.0
18.0
23.7
46.1
.2
1952
791.7
638.2
153.5
19.4
81.6
71.6
.3
1953
529.8
347.5
182.3
34.4
89.6
91.1
1.6
1954
656.5
471.5
185.0
28.2
83.4
98.8
2.8
1955
769.4
561.3
208.1
27.0
87.0
117.0
4.1
(Jan-July Annual rate) 1956
830.4
632.7
197.7
23.8
103.7
92.5
1.5
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
695
Imports from
Free World
Total Bloc
Importing
Total
Free
Region Country
Period
World
World
Value
% of Total
Imports
Sino-Soviet Bloc
U.S.S.R.
European
Satellites
Communist
China
Yugoslavia
1938
114.5
94.3
20.2
1948
314.2
171.0
143.2
17.6
45.6
n.r.
34.1
20.2
109.1
n.r.
0.2
1950
235.8
235.8
1952
373.0
373.0
1953
395.3
395.3
1
1954
339.4
335.4
4.0
1.2
1.1
2.9
1955
440.9
407.9
33.0
7.5
14.4
18.6
(Jan-Aug Annual rate)
1956
481.6
407.1
74.5
15.5
39.7
29.6
5.2
Middle East and Africa
Egypt
1938
185.2
167.2
18.0
9.7
2.4
14.9
7
1948
7.14.5
650.6
63.9
8.9
46.2
16.9
8
1950
610.8
578.3
32.5
5.3
16.8
14.8
.9
1952
628.3
582.0
46.3
7.4
31.1
14.5
1953
503.2
464.6
38.6
7.7
14.1
23.8
7
1954
458.9
432.0
26.9
5.9
6.7
19.4
8
1955
523.5
487.7
35.8
6.8
6.6
28.3
.9
(Jan-Aug Annual rate)
1956
607.6
534.7
72.9
12.0
12.6
46.1
14.2
Greece
1938
131.0
107.5
23.5
17.9
20.3
1948
364.5
356.9
7.6
2.1
1950
428.2
426.9
1.3
0.3
1952
346.2
345.6
.6
0.2
1953
294.3
290.5
3.8
1.3
1954
330.0
320.7
9.3
2.8
1955
382.1
368.9
13.2
3.5
(Jan-June Annual rate) 1956
431.0
411.6
19.4
4.5
ྂརྦྦ ཛྭ་C་C
n.a.
1.3
.6
3.6
7.8
11.3
3.0
16.4
le, LEEL
.1
Iran
1938
57.9
36.8
21.1
36.4
194,80
167.1
161.2
5.9
3.5
1950€/
264.1
247.5
16.6
6.3
453
18.8
2.3
n.r.
1.8
3.6
10.2
6.3
.1
1952
165.2
137.8
27.4
16.6
23.9
3.4
.1
19530
168.2
151.8
16.4
9.7
9.2
5.3
1.9
1951
223.0
201.8
21.2
9.5
13.5
7.7
·
19559/
272.9
247.1
25.8
9.4
20.3
5.5
1
(Jan-June Annual rate) 1956
259.2
234.2
25.0
9.6
18.6
n.a.
n.r.
696
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC

Imports from
Sino-Soviet Bloc
Free World
Total Bloc
Importing
Total
Free
% of Total
Region Country
Period
World
World
Value
Imports
U.S.S.R.
European
Satellites
Communist
China
Iraq
1938
45.7
44.3
1.4
3.1
.1
1.3
n.r.
1948
183.5
173.5
10.0
5.4
.1
4.7
1950
105.3
102.8
2.5
2.3
2.4
1952
173.2
169.1
4.1
2.3
4.0
1953
192.3
186.3
6.0
3.1
2.9
1954
207.6
203.9
3.7
1.8
n.a.
5.2
.1
.1
3.1
n.r.
1955
265.4
260.2
5.2
1.9
.1
5.1
(Jan-Mar Annual rate)
1956
315.6
310.8
4.8
1.5
4.8
Israelh/
1948
96.2
90.2
6.0
6.2
1950
287.3
271.0
16.3
5.7
27
.1
5.9
.2
16.0
1952
321.J.
316.1
5.0
.6
4.9
1953
286.9
284.5
2.4
0.8
2.4
1954
289.7
282.7
1955
325.6
320.1
(Jan-June Annual rate) 1956
366.2
357.6
758
7.0
2.4
1.7
5.3
5.58/
2.3
3.25/
2.38
8.6
2.3
5.2
304
સપનાનો નાનો
Sudan
1938
31.5
31.5
n.r.
n.r.
n.r.
n.r.
1948
91.6
90.2
1.4
1.6
.5
1950
77.7
75.9
1.8
2.4
.1
1952
177.2
171.7
5.5
3.1
.1
1953
145.5
141.9
3.6
2.4
1954
139.3
128.1
11.2
8.0
1955
140.2
136.0
4.2
(Jan-July Annual rate) 1956
134.4
124.5
9.9
32
3.0
7.4
Syria-Lebanonh
1948
220.6
214.1
6.5
2.9
1950
310.2
302.8
7.4
2.4
1952
341.1
331.7
9.4
2.8
1953
324.0
315.8
8.2
2.5
1954
407.6
398.7
8.9
2.2
1955.
437.9
426.1
11.8
(Jan-Mar Annual rate)
19561/
2.7
218.0
211.2
6.8
3.1
1.2
བམས ཨཏྠུཊྛ78
Hn^ཌཟ
1.6
n.r
.1
5.3
1
3.2
a/
11.0
4.0
9.4
.1
.1
d]
i in
5.9
5.5
1.4
8.7
.6
6.9
1.2
8.5
10.5
.2
.4
n.a.
n.r.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
697
Imports from
Sino-Soviet Bloc
Free World
Total Bloc
Importing
Total
Free
% of Total
Region Country
Period
World
World
Value
Imports
U.S.S.R.
European
Satellites
Communist
China
Turkey
1938
118.9
104.6
14.3
12.0
4.7
9.6
1948
275.0
251.0
24.0
8.7
22.9
n.r.
1.1
1950
285.6
263.2
22.4
7.9
22.4
1952
555.9
535.3
20.6
3.7
1953
532.6
503.1
29.5
5.5
20.6
29.5
1954
478.3
433.3 45.0
9.4
1955
497.6
406.3
91.3
18.4
(Jan-July Annual rate) 1956
448.8
392.2
56.6
12.6
waw
3.4
41.6
નાનો નો ના
8.3
83.0
3.8
52.8
negl.
South Asia and Far East
Burma
1948/
180.1
174.6
5.5
3.1
.5
5.0
1950
111.2
109.1
2.1
1.9
.1
2.0
19521
192.5
189.8
2.7
1.4
19531
178.4
176.2
2.2
1.3
1954
તાનોના
.3
2.4
.6
1.6
203.5
200.5
3.0
1.5
.1
2.4
.5
1955/k/
108.6
104.5
4.1
2.3
.1
1.7
2.3
(Jan-Sept Annual rate) 1956-
177.6
n.a.
33.2
18.7
3.9
10.5
18.8
Ceylon
1938
86.0
85.4
.6
· 0.7
.2
.2
.2
1948
297.3
296.1
1.2
0.4
.9
1950
245.0
243.5
1.5
0.6
1952
357.5
349.5
8.0
2.2
ཕུམྦྷ
.6
8
6.9
1953
337.6
292.1
45.5
13.5
a/
1.6
43.9
1954
293.4
260.3
33.1
11.3
.4
.7
32.0
1955
306.5
288.1
18.4
6.0
.1
1.5
16.8
(Jan-Aug Annual rate)
1956
330.3
305.6
24.8
7.5
3
1.2
23.3
India
1938
566.5
552.7
13.8
2.4
1.2
6.3
6.3
1948
1,474.6
1,452.5 22.1
1.5
11.1
5.9
5.1
1950
1,173.7
1,161.5
12.2
1.0
3.6
7.6
1.0
1952
1,688.0
1,647.6
40.4
2.4
1.8
4.6
34.0
1953
1,186.0
1,178.1
7.9
0.7
.9
3.5
3.5
1954
1,231.3
1,220.1
11.2
0.9
2.4
4.0
4.8
1955
1,356.8 1,333.6
23.2
1.7
6.0
9.1
8.1
(Jan-June Annual rate) 1956
1,657.8
1,590.0
67.8
4.1
31.4
17.0
19.4
698
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Imports from
Free World
Total Bloc
Importing
Total
Free
% of Total
Sino-Soviet Bloc
European Communist
Region Country
Period
World
World
Value
Imports
U.S.S.R.
Satellites
China
Indonesia
1938
267.3
258.8
8.5
3.2
3
3.7
1948
463.7
448.0
15.7
3.4
4.0
4.5
11.7
1950
440.2
435.5
4.7
1.1
2.2
2.5
1952
924.0
918.7
5.3
0.6
1953
753.0
746.0
7.0
0.9
1954
629.1
613.8
15.3
2.4
1955
604.2
563.8
40.4
6.7
(Jan-May Annual rate)
1956
859.7
812.9
46.8
5.4
29474
65
n.r.
304
1.9
.1
4.8
2.1
.6
11.2
3.5
30.3
9.9
13.4
33.4
Japan
1938
1,072.1
909.7
162.4
15.1
.2
1.7
160.5
1948
684.2
656.0
28.2
4.1
2.7
.7
24.8
1950
974.3
931.3
43.0
4.4
•7
3.0
39.3
1952
2,028.8
2,010.9
17.9
0.9
.5
2.5
14.9
1953
2,409.6
2,371.8
37.8
1.6
2.1
6.0
29.7
1954
2,399.4
2,351.0 48.4
2.0
2.3
5.3
1955
2,471.4 2,382.3 89.1
3.6
3.1
(Jan-Aug Annual rate)
1956
3,098.3
2,998.4 99.9
3.2
2.1
Pakistan/n/
1.948
357.8
333.3
24.5
6.8
1950
405.0
378.9
26.1
6.5
1952
609.7
601.1
8.6
1.4
1953
350.2
346.0
4.2
1.2
1954
324.7
318.2
1955
289.6
286.2
63
6.5
2.0
3.4
1.2
1956
n.a.
n.a.
.8
n.a.
PLLEN NU
5.2
13.5
1.0
6.2
4.6
2.5
2.9
གམཕུ ༠ས༠༥༠/
40.8
80.8
84.3
20.8
18.5
2.6
3.0
3.7
.4
བཤ
Oceania
Australia and
1948
1,667.9
1,644.1
23.8
2.3
.2
14.6
9.0
New Zealand/
1950
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
1952
2,379.0
2,362.7
16.3
1.2
1.3
10.8
4.2
1953
1,747.1
1,734.5 12.6
1.2
1.8
6.0
4.8
1954
2,289.5
2,274.2
15.3
1.2
1.9
8.8
4.6
1955 2,641.2
2,625.0
16.2
1.0
2.2
8.7
5.3
1956
n.r.
n.r.
n.r.
n.a.
n.r.
n.r.
n.r.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
699

Imports from
Free World
Total Bloc
Importing
Total
Free
% of Total
Sino-Soviet Bloc
Region Country
Period
World
World
Value
Imports
U.S.S.R.
European
Satellites
Communtst
China
Latin America
Argentina
1938
416.0
402.3
13.7
3.3
13.1
.2
1948
1,513.4
1,494.5
18.9
1.2
17.4
1950
1,083.3
1,050.4
32.9
3.0
32.9
1952
1,177.3
1,160.2
17.1
1.5
16.8
1953
861.6
846.3
15.3
1.8
1
15.3
1954
1,081.8
991.1
82.7
7.6
36.7
46.0
negl.
1955
1,087.0
983.4
103.6
9.5
32.2
71.4
n.r.
(Jan-Aug Annual rate)
1956
1,114.8
1,074.8
40.0
3.6
32.4
n.a.
n.r.
Brazil
1938
294.8
289.6
5.2
1.8
n.r.
5.2
n.r.
1948
1,134.2
1,122.1
12.1
1.1
11.9
.2
1950
1,097.9
1,088.8
9.1
0.8
9.1
1952
2,009.5
2,003.6
5.9
0.3
5.9
ม
1953
1,319.9 1,310.0
9.9
0.8
n.r.
n.a.
n.r.
1954
1,633.5
1,614.7
18.8
1.1
n.r.
n.a.
n.r.
1955
1,306.8
1,268.7
38.1
2.9
n.r.
n.a.
n.r.
(Jan-July Annual rate) 1956
1,092.3
1,043.7
48.6
4.5
48.6
Columbia
h/
1948
336.6
335.8
0.2
.1
1950
364.7
363.9
8
0.2
1952
415.4
41.8
.6
0.1
1953
475.4
474.1
1.3
0.3
1954
650.6
649.4
1.2
0.2
1955
671.3
670.1
1.2
0.2
n.r.
(Jan-June Annual rate) 1956
713.8
712.0
1.8
0.3
Cubah
1948
527.5
527.0
.5
0.1
1950
515.1
514.3
.8
0.2
1952
618.3
617.3
1.0
0.2
'बोलो बोलोलो
.1
.6
1.0
.3
.8
n.a.
n.
.5
n.r.
1953
489.7
488.9
.8
0.2
1954
487.9
487.1
.8
0.2
.8
1.0
.8
.8
1955
495.5
494.2
1.3
0.3
1956
n.r.
n.r.
п.г.
n.r.
n.r.
.1.3
n.r.
n.r.
700
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Imports from
Sino-Soviet Bloc
Free World
Total Bloc
Importing
Total
Free
% of Total
Region Country
Period
World
World
Value
Imports
U.S.S.R.
European
Satellites
Communist
China
Uruguay
1938
48.0
46.4
1.6
3.3
n.r.
1.6
n.r.
1948
200.L
198.8
1.6
0.8
1.6
1950
200.8
198.7
2.1
1.0
2.1
1952
257.3
256.2
1.1
0.4
1.1
1953
195.2
194.4
.8
0.4
n.a.
n.r.
1954
274.5
271.9
2.6
0.9
n.a.
1955
226.0
223.5
2.5
1.1
.1
(Jan-Apr Annual rate)
1956
192.9
186.6
6.3
3.3
.9
Venezuela h/
1948
838.7
836.3
2.4
0.3
.1
1950
536.8
535.0
1.8
0.3
n.r.
2.4
n.a.
2.1
n.a.
n.r.
a
n.r.
.2
n.r.
1952
722.6
721.4
1.2
0.2
1.1
.1
1953
739.0
737.5
1.5
0.2
1.4
.1
1954
819.6
817.8
1.8
0.2
.1
1.6
.1
1955
883.5
881.4
2.1
0.2
.1
1.9
.1
(Jan-May Anual rate)
1956
984.0
981.6
2.4
0.2
2.4
Source:
Based on data from United States Department of Commerce, Bureau of Foreign Commerce, International Economic
Analysis Division
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
701
1
FOOTNOTES
n.r.- no report
a Less than $50,000.00
b/ Less than $500.00
negl. negligible
n.a. not available
c/ Less than 0.05 per cent
d/ Includes Austria
Year ended December 21 of stated year
f/July-December only
g/Partly estimated
h/ 1938 not available
1/ Lebanon only
Fiscal year ending September 30
k/ Port of Rangoon only July-December
1/ Port of Rangoon only
m/ Includes Pakistan. Excludes land trade
n/ Fiscal year ending March 31 of subsequent year.
Excludes land trade for 1948 and 1950
Port of Bangkok only. Data unavailable except for 1954
p/ Includes imports from Outer. Mongolia, not covered in geographic area detail as follows: 1952, $3.1 million; 1953, $8.7
million; 1954, $6.8 million, 1955, $9.4 million.
"
702
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC

APPENDIX B-2
Exports of Selected Free World Countries to the Sino-Soviet Bloc 1938, 1948, 1950, 1952-1956
(millions of Us §)
viet.
Exports to
Sino-Soviet Bloc
Free World
Total Bloc
Exporting
Region Country
Period
Total
World
Free
World
Value
% of Total
Exports
U.S.S.R.
European
Satellites
Communist
China
United States
1938
3,094.4
2,908.1
186.3
6.0
73.3
61.3
1948
12,653.1
12,256.5
396.6
3.1
28.0
95.2
51.7
273.4
1950 10,275.0
10,201.8 73.2
0.7
25.9
46.5
1952
15,200.7
15,199.6
1.1
c
1.1
1953
15,766.8 15,765.0
1.8
1.8
1954
15,076.8 15,070.8
6.0
negl.
.2
5.8
1955
15,518.1 15,501.8
7.3
.2
7.1
(Jan-Aug Annual rate)
1956
18,381.0
18,368.!
12.6
0.1
4.5
4.5
1 નાનોનો
Canada
1938
837.5
828.5
9.0
1.1
2.0
4.2
2.8
1948
3,075.4
3,027.5
47.9
1.6
.1
18.7
29.1
1950
2,874.2
2,868.4
5.8
0.2
.2
3.7
1.9
1952
4,396.4
4,395.8
.6
.6
1953
4,184.8
4,184.3
.5
.5
1954
3,982.5
3,976.4
6.1
0.2
5.0
1.1
.1
1955
4,322.8
4,311.1
11.7
0.3
2.7
8.0
1.0
(Jan-Aug Annual rate)
1956
4,714.0
4,618.8
94.8
2.0
37.1
56.5
1.2
Europe
France
1938
874.8
827.0
47.8
5.5
7.5
34.8
5.5
1948
1,997.5
1,962.0
35.5
1.8
.2
31.7
3.6
1950
3,079.2
3,041.2
38.0
1.2
2.7
33.6
3.2
1952
3,889.4
3,847.4
42.0
1.1
6.5
32.3
3.2
1953
3,987.8 3,924.5 63.3
1.6
16.0
34.9
12.4
1954
4,320.7
4,237.9
82.8
1.9
30.9
43.2
8.7
1955
4,801.8
4,668.2 133.6
2.8
36.0
90.5
7.1
(Jan-Aug Annual rate) 1956
4,460.0
4,331.1 129.1
2.9
30.0
81.0
18.1
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
703

Exports to
Sino-Soviet Bloc
Free World
Total Bloc
Exporting
Total
Free
% of Total
Region Country
Period
World
World
Value
Exports
U.S.S.R.
European
Satellites
Communist
China
Germany,
19389 2.256.6
1,886.9
369.7
16.4
49.2
278.5
42.0
Federal Republic
1948
592.0
583.3
8.7
1.5
7.9
.8
1950 2,059.8
1,894.4
165.4
8.0
a
154.0
11.4
1952
4,077.0
3,984.1
92.9
2.3
.2
89.9
2.8
1953
4,483.2
4,342.9
140.3
3.1
1.7
113.6
25.0
1954
5,354.1
5,147.3 206.8
3.9
12.6
172.7
21.5
1955
6,261.2
5,985.7 275.5
4.4
26.7
222.6
26.2
(Jan-Aug Annual rate)
1956
7,133.0
6,739.9
393.4
5.5
64.2
301.6
27.6
Iceland
1938
12.9
12.8
.1
.8
n.r.
.1
n.r.
1948
61.0
53.8
7.2
11.9
.9
1950
30.7
27.2
3.5
11.4
1952
39.4
36.6
2.8
7.1
1953
43.3
34.7
8.6
19.8
5.5
1954
51.9
39.0
12.9
24.9
7.9
1955
52.1
37.6
14.4
27.8
9.6
(Jan-Aug Annual rate)
1956
55.5
39.3
16.2
29.2
10.6
632mnan
6.3
3.5
2.8
3.1
5.0
4.8
1
'alal'
5.6
United Kingdom
1938
2,602.8
2,410.1
192.7
7.4
110.2
62.3
20.2
1948
6,635.4
6,480.3 155.1
2.3
28.5
91.5
35.1
1950
6,317.0
6,220.0
97.0
1.5
39.8
47.J
10.1
1952
7,632.2
7,473.1 159.1
2.1
1.04.9
41.4
12.8
1953
7,524.7
7,432.0 92.7
1.2
34.3
40.9
17.5
1954
7,767.8 7,652.6 115.2
1.5
39.5
53.6
19.4
1955
8,467.6 8,303.2 164.4
1.9
89.4
52.8
22.2
(Jan-Aug Annual rate)
1956
9,276.0 9,034.9 241.2
2.6
162.6
52.1
26.5
Finland
1938
180.1
175.0
5.1
2.8
3.0
1.6
.5
1948
501.6
342.0
159.6
31.8
146.9
11.5
1.2
1950
392.0
310.8
81.2
20.7
64.8
16.1
.3
1952
717.6
533.8
183.8
25.6
155.3
21.9
6.6
1953
572.0
392.7 179.3
31.4
145.5
28.4
5.4
1954
681.0
490.9
190.1
27.9
146.4
37.1
6.6
1955
788.1
585.1 203.0
25.8
137.8
52.7
12.5
(Jan-Aug Annual rate)
1956
673.7
425.4
164.1
27.8
111.0
46.8
6.3
704
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Exports to
Sino-Soviet Bloc
Free World
Total Bloc
Exporting
Total
Free
% of Total
Region Country
Period
World
World
Value
Exports
U.S.S.R.
European
Satellites
Communist
China
Yugoslavia
1938
116.2
98.3
17.9
15.4
n.r.
1948
303.5
149.5
154.0
50.7
45.5
17.9
108.5
n.r.
1950
158.6
158.6
1952
246.5
246.5
1
1953
186.0
186.0
1954
240.4
234.2
6.2
2.6
1.5
n.a.
n.r.
1955
256.6
221.1
35.5
13.8
17.9
17.6
(Jan-Aug Annual rate)
1956
294.3
229.9
64.3
21.9
34.2
27.7
2.4
Middle East and Africa
Egypt
1938
151.0
136.4
14.6
9.7
.6
13.0
1.0
1948
591.4
519.9
71.5
12.1
49.9
21.6
a/
1950
503.8
456.7
47.1
9.3
25.2
18.4
3.5
1952
416.8
343.8
73.0
17.5
28.8
35.3
8.9
1953
394.5
346.3
48.2
12.2
11.9
25.9
10.4
1954
399.4
343.1
56.3
14.1
5.4
39.5
11.4
1955
397.4
291.3
106.1
26.7
20.2
60.4
25.5
(Jan-Aug Annual rate)
1956
470.0
296.7
173.4
36.9
19.3
120.5
33.6
Greece
1938
90.1
81.0
9.1
10.1
.4
8.7
n.r.
1948
94.0
85.6
8.4
9.0
8.4
n.r.
1950
90.3
89.8
.5
0.5
.5
n.r.
1952
119.9
119.5
.4
0.3
.4
1953
132.0
123.7
8.3
6.3
1.8
6.5
a/
1954
151.9
141.1
10.8
7.1
3.7
7.1
n.r.
1955
182.8
174.3
8.5
4.6
2.2
6.3
(Jan-June Annual rate) 1956
142.0
92.8
13.6
12.7
4.6
8.7
.3
*
Iran
1938
153.0
137.9
15.1
9.9
14.?
.2
.2
1948
490.9
485.0
5.9
1.2
4.0
1.9
1950
680.0
677.5
2.5
0.4
2.5
1
1952
151.1
126.8
24.3
16.1
23.3
1.0
1953
89.6
78.4
11.2
12.5
8.9
2.3
1954
111.0
90.7
20.3
18.3
18.6
1.7
1955
136.2
115.5
20.7
15.2
17.1
3.6
(Jan-June Annual rate) 1956
102.4
87.4
15.0
14.6
10.4
4.6
n.r.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
705

Exports to
Sino-Soviet Bloc
Free World
Total Bloc
Exporting
Total
Free
Region Country
Period World
World
Value
% of Total
Exports
U.S.S.R.
European
Satellites
Communist
China
Iraq://
1948
3409
34.9
n.a.
n.a.
n.a.
1950
60.5
60.5
Negl.
n.a.
n.a.
n.a.
1952
55.9
55.8
.1
0.2
.1
Negl.
a
1953
55.5
53.8
1.7
3.1
.1
1.3
1954
53.5
53.4
.1
0.2
.1
1955
507.8
507.7
.1
.1
1956
n.r.
n.r.
n.r.
1
n.r.
n.r.
n.r.
Israelf/
1948
n.a.
n.a.
n.a.
n.a.
in.a.
n.a.
1950
35.1
32.3
2.8
8.1
.1
2.7
1952
42.6
40.0
2.6
6.1
1.2
1.4
1953
57.5
55.5
2.0
3.4
1.1
.9
1954
85.0
80.6
4.4
5.2
3.1
1.3
1955
88.2
84.8
3.4
3.8
1.7
1.7
(Jan-June Annual rate) 1956
123.6
116.6
7.0
11.4
3.2
3.8
Sudan
1938
29.9
29.7
.2
0.7
n.r.
.2
n.r.
1948
98.7
97.1
1.6
1.6
1.5
.1
1950
95.1
95.0
.1
0.1
b/
.1
1952
122.8
122.0
.8
0.6
.8
1953
127.5
127.4
.1
0.1
.1
1954
116.2
115.3
.9
0.8
n.r.
.2
1955
147.5
143.4
4.1
2.8
3.2
.8
(Jan-July Annual rate) 1956
205.7
197.3
8.4
4.1
b
5.0
3.4
Syria
-
Lebanon£/
1948
35.8
35.5
0.8
.3
1950
181.2
180.4
.8
0.1
.8
1952
208.3
205.5
2.8
1.3
2.8
I
1953
227.5
226.4
1.1
0.1
.9
~
1954
260.7
258.5
2.2
0.8
1.1
1.
1955
169.5
166.2
3.3
1.9
1.0
2.1
1956
n.r.
n.r.
n. r.
n.a.
n.r.
n.r.
n.r.
:
706
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC

Exports to
Sino-Soviet Bloc
Free World
Total Bloc
Lixporting
Total
Free
s of Total
Region Country
Period
World
World
Value
Exports
U.S.S.R.
European
Satellites
Communist
China
Turkey
1938
115.0
101.2
13.8
12.0
4.2
9.6
n.r.
1948
196.8
178.2
18.6
9.5
.2
18.4
1950
263.4
245.3
18.1
6.9
.4
17.7
.1
1952
362.9
342.6
20.3
5.6
2.4
17.9
.1
1953
396.0
366.7
29.3
7.4
204
26.9
1954
334.9
279.8
55.1
16.5
5.2
49.9
1955
313.3
244.6
68.7
21.9
5.2
63.5
(Jan-July Annual rate) 1956
324.5
244.5
80.1
24.7
3.3
76.8
a
South Asia and the Far East
Burma-/K/
1948
228.9
215.5
13.4
5.9
1950
157.5
156.1
1.4
0.9
13.4
1.4
1952
266.1
266.0
.1
1953
224.3
221.4
2.9
1.3
.1
.1
2.8
1954
240.5
239.8
.7
0.3
.6
.1
1955,
190.9
160.1
30.8
16.1
5.9
9.2
(Jan-Sept Annual rate) 1956h/
15.6
148.9
119.2
29.7
20.0
4.9
7.5
17.3
Ceylon
1938
103.7
102.8
.9
1948
305.6
305.1
1950
328.2
328.1
.1
1952
315.5
286.6
28.9
1953
329.3
277.8
51.5
95795
0.9
n.r.
0.2
.2
8/2
9.2
15.6
1954
380.0
333.1 46.9
12.3
1955
407.4
381.6
25.8
6.3
(Jan-Aug Annual rate)
1956
360.7
322.8
38.3
10.5
swfäftüb
n.r.
50.9
46.5
25.5
37.6
India
19381/
616.7
598.8
17.9
2.9
1.3
7.7
8.9
1948
1,310.4
1,265.6
44.8
3.4
11.5
11.4
21.9
1950
1,178.1
1,167.5 10.6
0.9
3.0
2.4
5.2
1952
1,303.3
1,286.9 16.4
1.3
4.2
2.0
10.2
1953
1,114.3
1,099.7
14.6
1.3
.8
6.5
7.3
1954
1,179.9
1,160.6
19.3
1.6
5.3
5.4
8.6
1955
1,254.3 1,226.7
27.6
2.2
5.2
304
19.0
(Jan-June Annual rate) 1956
1,214.8
1,178.6 36.2
3.0
18.8
4.4
13.0£/
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
707
Exports to
Sino-Soviet Bloc
Free World
Exporting
Region Country
Total Bloc
Total
Free
% of Total
Period World
World
Value
Exports
U.S.S.R.
European
Satellites
Communist
China
Indonesia
1938
379.0
369.2
9.8
2.6
2.4
2.0
504
1948
393.9
390.9
3.0
0.8
1.4
1.6
1950
799.5
799.1
.4
0.1
1952
907.5
897.7
9.8
1.1
n.r.
9.8
1953
819.6
815.1
4.5
0.5
n.r.
4.5
1954
856.1
847.0
9.1
1.1
.4
6.4
.3
1955
931.4
897.5
33.9
(Jan-May Annual rate)
1956
820.3
788.6
31.7
Japan
1938
1,113.0
779.6
333.4
y ww
3.6
n.r.
27.7
6.2
3.9
n.r.
n.a.
30.0
1.4
1948
258.3
249.8
8.5
3.3
4.4
1
1950
820.1
800.1
20.0
2.4
.4
1952
1,272.9
1,272.1
.8
0.1
1953
1,274.8
1,270.2
406
0.4
1954
1,629.3
1,605.2
24.1
1.5
1955
2,010.6
1,971.1
39.5
2.0
2.1
(Jan-Aug Annual rate) 1956
2,360.7
2,303.7
57.0
2.4
1.0
Pakistani
1948
304.9
275.8 29.1
9.5
13.4
5.8
14000
non n
.4
.1
5.0
8.9
8.9
331.6
4.1
19.6
.6
19.1
4.5
28.5
5.8
50.2
9.9
1950
495.0
463.3
31.7
6.4
11.4
12.5
7.8
1952
532.5
412.9
119.6
22.5
15.4
20.3
83.9
1953
438.9
419.1
19.8
4.5
7.4
5.1
7.3
1954
358.9
325.3
33.6
9.4
3.6
3.9
26.1
1955
400.7
363.7
37.0
9.2
5.3
31.7
(Jan-June Annual rate) 1956
n.r.
n.r.
n.2.
?:.9.
1
n.r.
24.4
Thailandi
1954
216.1
216.0
.1
0.1
.1
1955
220.5
220.4
.1
0.1
.1
1956
n.r.
n.r.
n.r.
n.a.
r.r
n.r.
n.r.
94413 0—57-
-46
708
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST - BLOC
Exports to
Sino-Soviet Bloc
Free World
Total Bloc
Exporting
Total
Free
% of Total
Region Country
Period
World
World
Value
Exports
U.S.S.R.
European
Satellites
Communist
China
Oceania
Australia and New Zealand
1938
843.4
826.1
17.3
2.1
4.5
10.3
2.5
1948
2,145.0
2,085.4
59.6
2.8
34.5
17.8
7.3
1950
2,182.5
2,111.7
70.8
3.2
26.1
42.8
1.9
1952
2,389.8
2,370.9
18.9
0.8
a/
18.3
.6
1953
2,681.2
2,607.9
73.3
2.7
33.1
34.9
5.3
1954
2,372.5
2,299.3
73.2
3.1
40.5
29.5
3.2
1955
2,521.5
2,464.3
57.2
2.3
6.4
44.2
6.7
(Jan-June Annual rate) 1956
n.r.
n.r.
66.0
n.a.
n.a.
n.a.
n.a.
Latin America
Argentina
1938
409.2
396.8
12.4
3.0
1.0
11.3
.1
1948
1,650.3
1,600.8
49.5
3.0
1.7
47.5
.3
1950
1,439.3
1,389.6
49.7
3.5
48.9
1952
709.5
696.6
12.9
1.8
12.9
1953
1,147.8
1,123.4
24.4
2.1
11..3
13.1
a/
1954
1,078.8
988.3
90.5
8.4
36.4
n.a.
n.r.
1955
1,026.0
941.1
84.9
8.3
29.7
54.2
1.0
(Jan-Aug Annual rate)
1956
894.1
864.4
29.7
3.3
14.7
13.7
1.3
Brazil
1938
289.2
283.4
5.8
2.0
.1
4.3
1.4
1948
1,172.7
1,149.5
23.2
2.0
20.3
2.9
1950
1,346.6 1,334.4
12.2
0.9
n.r.
n.a.
2.6
1952
1,408.8
1,402.3
6.5
0.5
n.r.
6.5
1953
1,539.3 1,528.0
11.3
0.7
n.r.
10.4
.9
1954
1,561.8
1,537.8
24.0
1.5
21.4
2.6
1955
1,423.2
1,376.6
46.6
3.3
.7
41.3
4.6
(Jan-July Annual rate) 1956
1,454.6
1,410.5
44.1
3.0
43.6
.5
9665
Columbiaf
1948
288.5
288.5
1950
395.6
395.6
1952
473.3
473.3
101010
1953
587.4
587.2
.2
1954
657.1
657.1
Negl.
1955
583.9
583.5
.4
જેનેમેળેગેન્ડ
n.r.
b/
n.r.
n.r.
n. r.
n.r.
n.r.
n.r.
n.r.
n.r.
1
(Jan-June Annual rate) 1956
100.0
100.0
n.r.
n.a.
n.r.
n.r.
n.r.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
709
Exports to
Free World
Total Bloc
Exporting
Total
Free
Region Country
Period
World
World
Value
% of Total
Exports
Sino-Soviet Bloc
U.S.S.R.
European
Satellites
Communist
China
Cuba
1948
709.9
709.8
.1
.1
1950
642.0
636.4
5.6
0.9
.1
1952
675.3
675.2
.1
a/
.1
1953
640.3
639.4
.9
0.1
.1
1954
539.0
537.0
2.0
1955
594.2
556.0
38.2
1956
n.r.
n.r.
n.r.
n.a.
n.r.
.8
n.r.
36.4
n.r.
1.3
n.r.
n.r.
.4
n.r.
་Č་æངུ་་
Uruguay
1938
61.8
58.1
3.7
5.8
1948
178.9
176.0
2.9
1.6
1950
254.3
252.5
1.8
0.7
1952
208.9
207.6
1.3
0.6
1953
269.8
268.6
1.2
0.4
1954
249.0
225.3
23.7
1955
183.7
173.2
10.5
(Jan-Mar Annual rate)
Venezuelaf
1956
268.0
260.8
7.2
252
9.5
5.7
2.6
76
.1
3.6
n.r.
2.8
.1
1.8
1.3
.3
n.a.
19.9
4.6
.4
1
3.8
5.9
n.a.
n.r.
તો
n.r.
a/
1948
1,039.8
1,039.8
a/
c
1
n.a.
1950
1,163.0
1,163.0
n.a.
n.a.
n.a.
n.a.
n.a.
1952
1,528.4 1,528.4
n.a.
n.a.
n.a.
n.a.
n.a.
1953
1,413.6
1,413.6
n.a.
n.a.
n.a.
n.a.
n.a.
1954
1,697.9
1,697.9
Negl.
n.a.
n.a.
n.a.
n.a.
1955
n.r.
n.r.
n.r.
n.a.
n.a.
n.a.
n.a.
1956
n.r.
n.r.
n.r.
n.a.
n.a.
n.a.
n.a.
SOURCE:
Based on aata from United States Department of Commerce, Bureau of Foreign Commerce, International Economic
Analysis Division
710
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
FOOTNOTES
n.r.- no report
Negl.
negligible
/ Less than $50,000.00
b/ Less than $500.00
=
n.a. not available
Less than 0.05 per cent
d/ Includes Austria
/ Year ending December 21 of indicated year
£1938 not available
/ Fiscal year ending September 30
h/ Port of Rangoon only. Data unavailable prior to 1954
i/ Includes Pakistan
1/ Port of Bangkok only. Data unavailable prior to 1951,
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
711
NOTE:
APPENDIX C
Sino-Soviet Bloc Economic, Technical and Military Aid and Trade Agreements, Arrangements and Implementation with
Free World Underdeveloped Countries (Including Specific Offers under Current Consideration), 1953-1956
Credit and trade agreement provisions and related information in the detailed table on the following pages were gleaned from a wide variety
of open-source English and foreign language published materials, unpublished materials and compilations, and consultations with specialists in various
government agencies (see "Partial List of Sources" on pp. 122-125 of the text volume of this Report). Despite the widely dispersed, over-lapping, and
often fragmentary nature of these sources, this compilation, to the fullest extent permitted by data limitations, has attempted to fill in the gaps
and eliminate duplications.
The total of the known Bloc credits entered here undoubtedly represents a minimum figure, since for a sizeable number of specific credit
extensions or offers, no quantitative information on amount of credit was revealed. Though many of these unquantified credit arrangements appear to
cover fairly modest sized projects, in aggregate they may represent as much as $100-200 million additional Bloc credits to Free World countries.
Moreover, the sizeable military aid credits to Egypt, Syria and Afghanistan may be somewhat understated depending on the completeness of available
reports on their magnitude, and the valuation set on the military hard goods by the Bloc and the recipient nations.
The listed credit "offers," for which an "amount" is shown in the table, are limited to those where specific offers have been extended, and
(to the best knowledge based on available, open-source information) are currently under consideration or not definitely rejected.
SUMMARY TABLE
Summary of Sino-Soviet Bloc Credits and Grants to Free World Countries, 1953-1956
(millions of US $)
By Recipient Country
Recipient Country Amount of Credit Accepted or Offers under Consideration
Yugoslavia
India
Egypt
Afghanistan
Indonesia
Syria
Argentina
Other
Total
Accepted
Offers
444.0
444.0
368.4
346.3
22.1
253.5
250.6
2.9
138.8
138.8
110.8
110.8
60.0
60.0
45.0
45.0
35.1
35.0
0.1
1,455.6
1,430.5
25.1
36.5
1,492.1
36.5
1,467.0
25.1
By Bloc Donor
Bloc Donor
Amount of Credit Extended or Offered
Total
Accepted
Offers
USSR
807.0
786.9
20.1
Czechoslovakia-USSR
275.0
275.0
Czechoslovakia
174.3
172.2
2.1
E. Germany-USSR
175.0
175.0
#
E. Germany
15.5
15.5
Other (Hungary,
Poland, Rumania)
8.8
5.9
2.9
TOTAL Credits
1,455.6
1,430.5
25.1
Grants Com.. China
USSR
GRAND TOTAL
35.0
1.5
35.0
0
1.5
1
1,492.1
1,467.0
25.1
1/ Additional Bloc credits, for which no "amount" is given in available sources, were received by Afghanistan, Argentina, Burma, Ceylon, Egypt,
India, Indonesia, Lebanon, Sudan, Syria, Turkey, and Yemen. For particulars, see entries under recipient country in following detailed table.
2/ Covers only grants reported in value form, including $22.4 million and $12.6 million to Cambodia and Nepal respectively from Communist China,
and $1.5 million from USSR to India. Reported grants and gifts in kind are estimated at almost $10 million additional.
Grantagedits
TOTAL Credits
GRAND TOTAL
(Credits & Grants)
712
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Bloc Donor
or
Participant
USSR
APPENDIX C
Sino-Soviet Bloc Economic Technical and Military Aid and Trade Agreements, Arrangements and Implementations with
Free World Underdeveloped Countries (Including Specific Offers under Current Consideration), 1953-1956
Recipient Country:
AFGHANISTAN
Credit-Financial Terms
Amount
(US $)
Other
Type of
Assistance
Date
or Agreement
General Agreements
1947
Trade Agreement
7/50;
Trade Agreement
Amendments
signed 11/52,
11/53
1954
Trade Agreement
Signed:
1/27/54
Tech aid; Credit
$3.5
million
11/54
Trade Agreement
Signed:
Trade Agreement
8/27/55
Signed:
1/28/56
Econ, Tech, &
Military Aid;
Credit
Signed:
3/1/56
Supp. Agreement
to above credit
of 1/28/56
Project or Terms of Agreement; Development, Status and Implementation
From USSR: oil & other supplies. From Afghanı dried fruit, cotton,
karakul wool.
Duration - 4 years.
4 years. From USSR: machinery incl. oil drilling equip.,
transportation equip. From Afghan: minerals.
3% int. Re-
payable in 5
yrs. starting
1957, in
commodities.
From USSR: benzine, crude oil products, industrial equip., machines,
motor vehicles, metals, cotton fabrics, medical products, sugar, seeds.
From Afghans wool, cotton, raw leather, dried fruit, oilseeds.
2 grain elevators; 3 electric driven flour grinding mills; breadbaking
plant completion 1956. Soviet to supply technicians.
From Afghan: wool, hides, cotton, oil seeds. From USSR: petroleum,
sugar, textiles, chemicals, machinery.
$100
million
2% int. Re-
payment after
8 yrs. in 22
equal install-
ments in goods.
Initial offer of $250 million technical aid made in 1954.
Development of agricultural & industrial enterprises.
Military credit reported 8/25/56 (perhaps 40% of total credit in form of
arms). Delivery reported 10/28/56 of 11 jets & 2 helicopters. Soviet
pilots remain to fly planes.
2 hydro-elec. power stations; 3 vehicle repair factories; irrigation
works; physics & chem. lab.; reconstruction at Kabul airport; new airport
at Bagram; highway across Hindu Kush mountain range; Soviet technicians
to supervise & train laborers.

FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
713
Recipient Country: AFGHANISTAN (continued)
Credit-Financial Terms
Amount
Other
Project or Terms of Agreement; Development, Status and Implementation
Bloc Donor
or
Type of
Assistance
Participant
USSR
Date
cr Agreement
(US $)
Specific Arrangements
7/54
Econ. & Tech.
aid; Credit
$1.2
million
Repayment in
cotton & other
products.
8/22/54
Tech aid; Credit $2.0
million
n.a.
12/54
Tech aid; Credit n.a.
n.a.
1955
Economic aid
Signed:
Econ. & Tech
5/20/55
aid; Credit
$2.1
million
no interest
charged.
12/18/55
Gift from USSR
(Bulganin &
Khrushchev visit)
1956
Gift
CZECHO-
Signed:
Tech aid; Credit
SLOVAKIA
8/22/54
$5
million
8/22/54
Trade Agreement
1/56
Technical aid
Reported:
3/56
Technical Aid
n.a.
Oil storage tanks at Kabul; Soviet equip. & services of technicians.
Construction of 60-mile gasoline pipeline from Termez (Uzbek SSR) to
Mazar-i-Sharif. Capacity 30 million gallons. Construction beguns
11/55.
Road building equipment.
Cotton refinery equipment.
USSR trucked in gasoline for engines, and shipped cement for construction
upon closing of Khyber Pass between Pakistan and Afghanistan, 3/31/55.
Soviet equip. for asphalt factory, concrete mixing plant; paving project
in Kabul; services of Soviet technicians.
Equipping of 100-bed hospital & 15-16 buses. Delivered: 3/28/56.
3% int; 8 yr.
loan; repayable
in goods over 5
yrs, starting
1957
11-14 transport plane.
3 cement plants with daily capacity of 100 tons or 30,000 tons yearly.
$1.5 million used in 2/55 for new cement plant equipment; balance for
cotton textile mill & leather processing factory equip., road building
equip. & ag. machinery. Delivery of equip. underway in 1956, and
technicians reported at cement plant.
4 year agreement. From Afghans cotton, wool, dried fruit, oil seeds,
etc. From Czech: manufactured goods, ag. & road building machinery.
Industrial advisory office to be set up.
Arrangements made for technical assistance in construction of meat
processing plant & sugar refinery.
714
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Recipient Country: AFGHANISTAN (continued)
Credit-Financial Terms
Other
Project cr Terms of Agreement; Development. Status and Implementation
Small arms, artillery & aircraft.
Initial Czech offer in November 1955.
Reported delivery of 1st consignment: 10/56.
From Poland: mainly machinery, finished products. From Afghan: raw
products including cotton, skins, furs.
Bloc Donor
ON
Participant
USSR &
CZECHO
Type of
Assistance
Date
or Agreement
Amount.
(US $)
SLOVAKIA
Summer
1956
Military aid
Credit
$25 D.a.
million
(approx.)
POLAND
Reported:
8/30/56
Trade Agreement
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
715
Bloc Doncr
OK
Participant
USSR.
Type of
Assistance
Recipient Country: ARGENTINA
Credit-Financial Terms
Date
cz Agreement
Amount
Signed:
Credit
$30
8/5/53
Trade Agreement million
Signed:
5/19/55
Trade Agreement
(protocol to
8/5/53 agreement)
6/56
Offer
6/56
Military Aid
Offer
CZECHO-
1952
Trade Agreement
SLOVAKIA
1952 or
Tech aid; Credit
1953
Signed:
1/27/55
Trade Agreement;
Credit Agreement
$15
million
Other
C+
Project or Terms of Agreement; Development Status and Implementation
Purchase of capital goods. Protocol of May 1955 provided $5 million of
credit for purchase of Soviet machinery. $75 million each way. Annual
renewal; clearing account in US dollars; balance in goods at end of
settlement. From USSR: coal, oil, metal products, chem. & pharmaceutical
products, oil equip. From Argentina: linseed oil, wool, cowhides, sheep-
skins, meat, lard, etc. Under $30 million credit for capital equip. USSR
pledged delivery of coal mining & oil drilling equip., transportation
equip., power plants & agricultural machinery. Deliveries received by
Argentina turned out to be negligible. In August 1954, at the end of the
first year, it was reported that the Soviets had delivered only 20% or
less of the quantity of petroleum originally pledged and coal deliveries
reached a similar low percentage of the 300,000 tons pledged.
1955 calendar year. $50 million each way. Main reason for scaling down
the over-all quantity of goods to be exchanged was that the USSR failed
to live up to its commitments under the original agreement. From USSR:
oil, metal products, chems. & pharmaceutical products, misc. capital
equip. From Argentina: linseed oil, wool, cowhides, meat.
New transportation turbo-jet Tu-104 for $1.2 million. Delivery: 1958.
Sale of undisclosed number of MIG-15 turbo-jet fighters and IL-28 turbo-
jet bombers at prices lower than production costs. Payment can be by
exchange of raw materials. USSR tries to switch Argentina from British
Hawker Hunter.
swing
9/2/52 - 2/31/54. $6.4 million/credit with balance in gold or $;
clearing account in Czech crowns.
1952/53
-
1954. Construction of distillery for production of corn
alcohol; 50 technicians. Completed end of 1954.
-
2/11/55 - 2/10/56; $ 32 million each way. Purchase of capital goods.
From Czech: iron & steel products, machine tools & replacement parts,
railway rails, seemless steel pipe, timber, tools, chems., pharmaceuticals,
newsprint. From Argentina: grain, meat, wool, fruit, rice, quebracho
extract, lentils, mica, ne, cheese, eggs, bones, Sausage casings,
canned fish.
July 8, 1955 Radio Prague announced that Czech had been awarded contract
for construction of a coal conveyor for a mine in Argentina, presumably
within the terms of the $15 million credit agreement. Construction of
coal washing plant arrangement reported March 1956.
716
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Bloc Donor
or
Participant
Type of
Assistance
Date
or Agreement
Amount
E. GERMANY
Signed:
Trade Agreement
Recipient Country: ARGENTINA (continued)
Credit-Financial Terms
Other
Project or Terms of Agreement; Development, Status and Implementation
$20.6 million
9/6/54
1955
Trade Agreement
1/56
Credit Offer
n.a.
1/56
Credit offer
n.a.
Long-term, low
interest rates.
5-yr. term
payment.
- e.g., coal mining, power stations, agricultural
Various enterprises
machinery, chem. equipment, road construction.
HUNGARY
Signed:
8/24/53
Trade Agreement;
Equipment for sugar industry.
9/8/53 - 9/7/56. $5 million swing credit. Balance over $5 million
payable in free $'s or gold.
Signed:
4/26/54
Trade Agreement
Trade Agreement
From Argentina - $3.5 million. From Hungary $4.75 million.
The $1.25 million balance is to be utilized in the amortization of
Hungary's debt to Argentina, which reportedly stood at $9.1 million at
the end of 1953. From Hungary: machinery, machine tools, aluminum,
steel pipe, electrodes. From Argentina: wheat, corn, linseed oil,
This agreement is well below the level originally envisaged,
hides.
which provided for a total exchange of $30 million during 1953, the
first year.
10/29/52 - 12/31/54. Clearing account in US $.
$24.7 million; 1955.
POLAND
Signed:
1/24/55
Trade Agreement
RUMANIA
Signed:
Trade Agreement
7/24/51
Signed:
Trade Agreement
From Rumania:
timber & wood products.
4/15/54
From Argentina: raw hides, quebracho, linseed & edible oils, etc.
Clearing account in US $; balance in goods. 7/25/51 - 7/24/52
$0.92 million each way.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
717
Bloc Donor
or
Participant
Date
or Agreement
CZECHO-
1953
SLOVAK IA
1955
Trade Agreement
E. GERMANY
Signed:
Trade Agreement
Type of
Assistance
Trade Agreement
Recipient Country: BRAZIL
Credit-Financial Terms
Amount
Other
Project or Terms of Agreement; Development, Status and Implementation
9/53 - 9/54; From Brazil: $15-16 million. From Czech: $16-18 million.
Account in Bank at Brazil.
5/17/55 - 5/16/56
2/13/54 - 11/12/54
2/13/54
Negotiated: Trade Agreement
5/10/56
HUNGARY
Signed:
4/20/54
Trade Agreement
$20 million each way.
1st postwar agreement;
POLAND
1952
Trade Agreement
$6.6 million each way.
4/26/54 - 4/25/55. $ account in Bank at Brazil.
tacit renewal.
$ account in Bank of Brazil. 10/24/52
-
10/23/53
Signed:
11/23/54
Trade Agreement
1955
Trade Agreement
$14 million each way.
4/1/55 - 4/1/56
11/23/54 - 11/22/55
718
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Bloc Donor
or
Participant
USSR
Type of
Assistance
Date
or Agreement
Signed:
4/55
Trade Agreement
Signed:
7/1/55
Trade Agreement
12/6/55
Technical Aid
12/6/55
Gift Exchange
Reported:
12/55
Reported:
4/1/50
Gift & Tech. Aid
Gift Exchange
4/1/56
Trade Agreement
Recipient Country: BURMA
Credit-Financial Terms
Amount
Reported:
4/24/56
Tech. Aid; Credit;
offer
n.a.
Signed:
Tech. Aid; Credit
n.a
6/13/56
BULGARIA
Signed:
Trade Agreement
5/16/56
Other
Project or Terms of Agreement; Development, Status and Implementation
40,000 MT Burmese rice in next 4 years for Soviet machinery & technical
services.
7/1/55 - 6/30/58: From Barma: during 1955, 150,000-200,000 tons rice,
rice products, beans, oil cake, non-ferrous metals, hardwood, rubber.
From USSR: industrial equipment for rice mills, cotton & textile mills,
machines for hydro-alec. power stations, tractors, other agricultural
machinery, cement. Payment in pounds sterling.
General agreement on industrial enterprises; irrigation projects; agri-
cultural development, rice to be accepted in return as payment in kind
spread out over mumber of years.
USSR to build and equip Tech. Institute in Rangoon as gift, and receive
in return as gift Burmese rice and other goods.
Soviet twin-engined IL-1 transport. Technicians for operation &
maintenance.
Hospital, hotel, sports center, exhibition hall. Burma repayment in rice
Supplementary to trade agreement of 7/1/55 extending 400,000 latter from
3 to 5 years. Protocol calls for delivery by Burma of 400,000 tons of
rice annually for remaining 4 years of agreement against Soviet shipments
of machinery, other goods and technical services. Settlement of accounts
on sterling basis.
Steel plant; development of iron ore resources, metallurgical & machine
tool industries, agriculture, housing.
Specific agreement signed in USSR under terms of previous general agree-
ment of 12/6/55. Agreement on development of industry & agriculture,
building of several factories.
Duration: one year.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
719
Bloc Donor
or
Type of
Assistance
Participant
Date
or Agreement
COMMUNIST Signed:
Trade Agreement
CHINA
4/22/54
Signed:
3/28/55
Trade Agreement
Recipient Country:
Credit-Financial Terms
Amount
Other
BURMA (continued)
Project or Terms of Agreement; Development, Status and Implementation
General agreement for period 1955-57: 150,000-200,000 tons Burmese rice
per year for Chinese industrial equip., machinery. consumer goods.
For 1955 $16.8 million each way. Burma: 150,000 tons of rice at
$112/ton. China: $5.3 million of steel, iron pipes, construction
materials, sanitary equip., newsprint, cotton & silk textiles, cotton
yarn, woolen blankets, glass, glazed tiles, hospital beds. Payment for
rice by goods 60% Chinese origin, 20% Russian and E. European origin, and
20% in pounds sterling.
From Burma :
rice, fodder, rubber, wolfram, lead concentrates.
From Czechoslovakia: machinery.
Czechoslovak
industrial products for 50,000 long tons Burmese rice.
CZECHO-
SLOVAKIA
Signed:
Trade Agreement
2/14/55
Signed:
11/17/55
Trade Agreement
11/20/56
Tech aid; trade;
offer
E. GERMANY
Signed:
3/1/55
Trade Agreement
HUNGARY
Reported:
Trade Agreement
5/30/56
POLAND
Signed:
11/1/55
Trade Agreement
RUMANIA
Signed:
2/17/56
Trade Agreement
From Burma: rice, cotton, spices, teak wood, rubber, wood oil, wolfram.
From E. Germany: machinery, machine tools, optical instruments.
Rice for machines and equipment.
Covers the period 1956-58. From Burma : rice & other agricultural
products, minerals, ores, timber & rubber. From Poland: consumer goods,
machinery, ships & other capital equipment.
A separate one-year protocol provides for 1956: from Burma : 50,000-
60,000 long tons of rice; from Poland: equivalent value of consumer
goods, machinery, ships, river craft, motor vehicles, etc.
on sterling basis.
Settlement
rice & other agricultural products,
From Rumania: oil-drilling
3-year trade agreement. From Burma :
mineral products, timber, rubber, etc.
machinery, mining & electrical equip., machine tools, other capital
equip., oil products & certain consumer goods.
720
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Type of
Assistance
Recipient Country: CAMBODIA
Credit-Financial Terms
Other
Bloc Donor
or
Participant
Date
or Agreement
Amount
COMMUNIST
CHINA
Reported:
Trade Agreement
5/56
Signed:
Grant
6/16/56
$22.4 over 2 year
million period
USSR
Signed:
7/8/56
Technical aid
Reported:
7/8/56
Gift
CZECHO-
SLOVAKIA
10/6/56
Trade & payment
agreement
10/6/56
Scientific &
technical aid
Development, Status and Implementation
Project or Terms of Agreement
$14.0 million for period 6/16/56 - 6/16/57
Industrial equip., construction material & merchandise for construction
of textile mills & cement, paper, & plywood plants; universities,
hospitals, youth & sport centers, roads, bridges, power plants.
Committees in both capitals to be established to implement agreement.
Reported in East German source, 7/17/56, that approximately $16.8
million of goods would be supplied during 1956 along with technical
experts.
9 Soviet technical experts arrive 12/1/56 making total of 16 experts
surveying possibilities of industrial and agricultural investments.
500-bed hospital for Cambodia.
From Czech: machines & equipment, autos, trucks, food products, consumer
goods. From Cambodia: rubber, corn, pepper, rice, leather.
Provision of Czech technicians, special training scholarships and
deliveries of scientific and technical equipment.
{
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
721
Bloc Donor
or
Type of
Assistance
Participant
Date
or Agreement
Amount
USSR
9/56
Econ. & Tech.
aid; offer
10/1/56
Trade Agreement
BULGARIA
Signed:
Trade Agreement
6/19/56
Recipient Country: CEYLON
Credit-Financial Terms
Other
Project or Terms of Agreement; Development, Status and Implementation
General offer.
COMMUNIST
CHINA
Signed:
12/18/52
Trade Agreement
Signed:
Trade Agreement
10/8/54
1955
Trade Agreement
Signed:
Gen. diplomatic,
9/16/56
trade, economic &
cultural agreement.
CZECHO-
SLOVAKIA
Signed:
Trade Agreement
12/16/55
2/56
Credit offer
n.a.
long-term
12,000 tons Burmese rice to be delivered by USSR to Ceylon in Oct. 1956,
to be repaid in early 1957.
Duration: 1 year. From Ceylon: tea, rubber, coconut oil & products,
graphite, spices. From Bulgaria: machinery, plate glass, sugar, flour,
chemicals & other commodities. Extension of most-favored nation treat-
ment on tariffs.
5 year agreement. Annual shipment of 270,000 metric tons rice to Ceylon
in exchange for 50,000 tons of rubber.
3rd contract under 12/18/52 rubber-rice exchange agreement. From Ceylon:
50,000 tons rubber, also copra, coconut oil. From China: 270,000 tons
rice.
Duration: 1/1/55 - 12/31/55
Agree to negotiate a technical cooperation agreement. Plan to expand
trade relations, and negotiate new trade and payments agreement. Ceylon
reports (12/28/56) China unable to meet Ceylon request for economic
aid for industrial development.
Duration: 1 year. 1st postwar agreement.
Locomotives and railway equipment.
Signed:
8/16/56
Gen. economic
aid agreement
n. a.
3% int; 8 yrs.
1st projects
separate contracts.
-
sugar & cement factories.
Details to be worked out in
HUNGARY
Reported:
Trade Agreement
6/27/56
From Ceylon: tea, rubber, coconut oil. From Hungary: machines,
electrical equip., diesel locomotives.
POLAND
Reported:
2/56
Trade Agreement
722
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLÓC
Recipient Country: CHILE
Type of
Assistance
Bloc Donor
or
Participant
Date
or Agreement
E. GERMANY
Signed:
1955
Trade Agreement
HUNGARY
Signed:
10/53
Trade Agreement
Credit-Financial Terms
Amount
Other
Project or Terms of Agreement; Development, Status and Implementation
$10 million each way. 1955- 12/21/56. From Chile: wool, grain, wine,
fodder, and other agricultural products. From E. Germany:
electrical products and optical instruments.
$725,000 of Chilean wines for Hungarian consumer goods.
chemical and
Colombian
$7 million. 2/14/55 - 3/31/56. 1st postwar agreement.
coffee and tobacco for agricultural machinery, fertilisers, etc.
Recipient Country: COLOMBIA
E. GERMANY
Signed:
Trade Agreement
2/55
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
723
94413 0-57
-47
Bloc Donor
or
Participant
USSR
Type of
Assistance
Recipient Country: EGYPT
Credit-Financial Terms
Other
Project or Terms of Agreement; Development, Status and Implementation
Date
or Agreement
Amount
Signed:
3/3/52
Trade Agreement
Signed:
Trade Agreement
8/10/53
Signed:
Trade Agreement
3/27/54
Signed:
5/12/55
Trade Agreement
Signed:
Trade Agreement
8/55
Signed:
Trade Agreement
9/29/56
Signed:
2/10/56
Tech aid; Credit
n.a.
n.a.
3/56
Economic aid
offer (on cash or
barter basis)*
3/56
Technical aid
Signed:
7/2/56
Technical Aid
Reported:
Technical Aid
8/56
* See next page.
11/26/56
Technical Aid
3/27/55 - 3/26/56. From Egypt: rice, cotton, textiles, hides, leather.
From USSR: grain, petroleum, lumber, agricultural machinery, tractors,
autos, medical supplies. Shipment of machinery from Kharkov Tractor
Plant reported 8/56.
Cotton and rice for petroleum.
- 1st
From USSR: 200,000 tons wheat at $82.52/ton. 2nd such purchase
was 3 weeks earlier on same basis. From Egypt:
From Egypt: cotton, rice & other
products - to be delivered 1st quarter, 1957.
Nuclear physics lab. USSR to provide equip. (incl. 1 nuclear reactor),
technicians, atomic specialists. Offer of uranium. Egyptian scientists
to go to Moscow for training. USSR to supply instruments & equip. for
4
geological research. 3/28/56 - ↳ Soviet experts arrive in Egypt.
Establishment of various industries (chem., food, railway, engineering,
mechanical workshops, petroleum extraction, petroleum refining, plants
for pumps & turbines).
Egypt. scientists in training in Moscow.
Construction of labs; equip. & instruments; training & exchange of
specialists; joint research. Agreement extends coop. relations fostered
by signing of contract to build nuclear physics lab. in Cairo with
accelerator of up to 3,000,000 electron volts. Construction of experi-
mental atomic reactor equipped with scientific labs. now in progress
be completed by mid-1958 & to be the largest in the Middle East.
Group of Egyptian scientists go to Moscow.
21 Egyptian students arrived in Moscow to study nuclear physics.
-
724
FOREIGN ASSISTANCE ACTIVITIES OF CƠMMUNIST BLOC
Bloc Donor
or
Type of
Assistance
or Agreement
Military &
Technical Aid
Recipient Country: EGYPT (continued)
Credit-Financial Terms
Amount
-
Other
$225-250 million (esti-
mates of total may vary
depending on valuation
ascribed to military
goods estimated in
some quarters as total-
ling over $400 million)
mainly credit against
future cotton ship-
ments; weapons to be
priced at a fraction
of their real value;
repayment reported
spread over 7-10 yrs.
Project or Terms of Agreement; Development, Status and Implementation
Original plan: 200 MIG jet fighters; 100 tanks, 6 submarines; artillery,
ammunition. Deliveries, etc. 10/20/55 - shipment of 133 cases of
Czech arms arrived only 10 days after announcement of agreement.
Up to May, 1956 - Egypt ordered 200 MIG-15, of which actual deliveries
were 180 fighters & 20 trainers (UMIG-15), & 40 bombers (IL-28). Planes
produced by AVIA in Czech according to Soviet models, shipped from Odessa,
USSR.
1956 - 300 T-34 tanks & 6 submarines of 250 tons each ordered from USSR.
Arrived in Alexandria 4/19/56 - 19 Czech motor torpedo boats for Egyptian
navy; 4/28/56-4
4 Soviet minesweepers. 4/56 - 6 USSR submarines.
6/6/56 - USSR sale of warships; 2 enroute to Alexandria (destroyer
minelayers of the 2200 ton Skory class, max. speed of 38 knots, a main
armament of four 5.1 inch guns & carrying 80 mines.
-
Up to 11/1/56, Egypt reported to have received additionally, 10 IL-14
transports; several MIG-17 fighters; about 300 medium & heavy tanks
(inc. T-34's); more than 100 self-propelled guns; about 200 armored
personnel carriers; "a substantial assortment" of rocket launchers &
bazookas, radar & wireless equip; over 100 artillery pieces of various
types.
-
Technical Aid: 3/56 - Egyptian officers, n.c.o.'s & troops being trained
at Soviet bases in Poland & Czech. 3/23/56 Czech military personnel are
training military forces in Egypt. 6/56 - 500 Egyptian air & naval
officers to arrive in Poland for training. By 11/56 over 1,000 Soviet
& Czech technicians (air crews & air mechanics), & instructors working
with Egyptian forces. 1956 Egyptian pilots for jet fighters being
-
-
trained in Odessa, USSR & some on Egyptian airfields by Russian experts.
Participant
Date
CZECHO-
SLOVAKIA
& USSR
Signed:
9/55
From previous page: Previously in Jan. 1956 Egypt announced that Soviet Ambassador in Cairo had submitted offer for financing Aswan Dam
$300 million, 50 year credit repayable in cotton and rice. Announcement proven unfounded by subsequent statements
and events.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
725
Recipient Country:
EGYPT (continued)
Project or Terms of Agreement; Development, Status and Implementation
Duration 1 year; automatic renewal.
-
Egyptian cotton for automotive vehicles.
$5.7 million cotton purchase proposed for Czech machinery & equipment.
$20 million each way. 7/19/55 - 7/31/56. From Egypt:
7/31/56. From Egypt: cotton & raw
materials for metallurgical industry. From Czech.:
From Czech.: iron, machines &
other products.
Construction of shoe factory & rubber. processing plant.
Construction of ceramics plant equip; production to begin in 1957.
Construction of cement plant at Helwand 700 tons capacity; production
to start in 1958.
Exchange of students.
Bloc Donor
or
Type of
Assistance
Credit-Financial Terms
Participant
Date
or Agreement
Amount
Other
CZECHO-
SLOVAKIA
Signed:
10/24/51
Trade Agreement
5/30/55
Trade Agreement
Offer
6/14/55
Trade Agreement
Offer
1955
Trade Agreement
6/27/55
Econ Aid; Credit n.a.
Offer
n.a.
12/55
3/25/56
Econ Aid; Credit $560,000 n.a.
Econ Aid; Credit n.a.
n.a.
Reported:
7/17/56
Technical Aid
BULGARIA
1950
Trade Agreement
3/56
Econ Aid; Offer
COMMUNIST
CHINA
Signed:
Trade Agreement
8/22/55
4/6/50 - 4/6/51; 1st postwar agreement; annual tacit renewal.
Construction of oil-processing & preserved food plants.
-
In 1st year of agreement
Duration 3 years. 1st postwar agreement
reportedly exchanged $17.5 million worth of Egyptian cotton for rolled
steel & machinery.
4/56
Gift
Reported:
5/9/56
Trade Agreement
$11.2 million volume. From Egypt: cotton, etc. From China:
steel, machines, vegetable oil.
Machinery (part of the machinery shown at Chinese export exhibition in
Cairo).
rolled
7/9/56
Econ Aid; Offer
Coal mining equipment.
726
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Alec Donor
or
Type of
Assistance
Participant
Date
or Agreement
E. GERMANY
Signed:
Trade Agreement
3/7/53
3/55
Econ Aid; Credit
offer
n.a.
Signed:
11/10/55
Trade Agreement
2/56
Econ & Tech Aid;
Offer
Reported:
Technical Aid
2/56
3/56
Economic Aid
Credit--
Amount
Recipient Country: EGYPT (continued)
inancial Terms
Other
Project or Terms of Agreement; Development, Status and Implementation
$11 million mutual exchange. 3/7/53 - 5/31/55. From Egypt: cotton,
manganese ore, phosphates, foodstuffs. From E. Germany: chemicals, auto
vehicles, optical instruments, agricultural machinery, various industrial
machinery.
Construction of motor vehicle factory.
$33 million. 11/10/55 - 12/31/56. From Egypt: cotton, rice, textiles.
From E. Germany: technical & engineering services, machinery & electrical
equipment.
Construction and equipping of shipyards in Alexandria. German engineers
reported in Alexandría preparing for project.
Plans reported for setting up chemical labs and sugar refinery.
Construction of power plant. Order reported placed.
HUNGARY
6/25/55
Trade Agreement
Offer
Hungarian heavy industries goods for 20,000 bales of cotton.
Reported:
6/55
Econ Aid; Credit
n.a.
Construction & equipment of 7 bridges with revolving mechanism.
in progres8,
Reported
Reported:
12/55
Econ Aid; Credit
Offer
$2.87
million
Repayment in
cotton &
Construction of electric power plant (45,000 Kw).
Reported:
Technical Aid;
8/30/56
Credit
Egyptian
currency.
Iron works
-
40 Hungarian experts to build 800 m. bridge across Nile, to
be ready in 1957. To be used for raw material transport to iron works.
To supply iron works with electric power, Hungary to build power station
in El Tabin, also ready in 1957. Hungary delivered 100 Diesel locomotives
(400 HP each).

FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
727
Bloc Donor
or
Participant
POLAND
Type of
Assistance
Date
or Agreement
3/31/55
Trade Agreement
Reported:
11/21/55
Trade Agreement
Offer
Signed:
12/55
Econ Aid; Credit
Recipient Country: EGYPT (continued)
Credit-Financial Terms
Amount
Other
Project or Terms of Agreement; Development, Status and Implementation
Duration: 4/1/55 - 3/31/56. From Egypt: iron & manganese ore, phos-
phates, cotton. From Poland: machinery, industrial installations, coal,
railway rolling stock, tractors, bicycles, autos & trucks, replacement
parts, rolled metals, chemicals, dyes, paints, glass, cement, nails &
electrodes.
Egyptian cotton for complete factory installations.
Enamelware Factory
construction, equipment, supervision, initiation of
production, training of personnel in Alexandria; to begin production first
half of 1957.
RUMANIA
Signed:
1/18/54
Trade Agreement
Signed:
3/9/54
Trade Agreement
Signed:
4/28/55
Trade Agreement
Signed:
Trade Agreement
7/16/56
1/18/54 - 1/17/55. 1st postwar agreement. From Egypt: cotton, phos-
phates, flax, manganese ore. From Rumania: livestock, meat, fruit,
petroleum, chemicals, dyes, glass, wood.
$8.65 million. Tripartite agreement between Egypt, Rumania & USSR for
delivery of 350,000 tons of petroleum products at prices 15% below world
market, for Egyptian cotton (reports indicate that delivery of kerosene
was poor & required reprocessing at cost exceeding 15% price saving).
$9 million. Tripartite agreement between Egypt, USSR & Rumania.
From USSR: $5.75 million petroleum products (incl. 150,000 tons of kero-
sene & 100,000 tons of crude oil). From Rumania: $3.2 million of crude
14,000 bales of cotton ($4.9 million) &
oil & kerosene, From Egypt.
cotton yarn ($870,000).
3 years: From Egypt: cotton, rice, fruit. .From Rumania: petroleum
products, industrial installations, agricultural machinery.
728
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Recipient Country: ETHIOPIA
Credit-Financial Terms
Other
Project or Terms of Agreement; Development, Status and Implementation
n.a.
Credit, Offer
Tech. Aid
Tech. aid &
equip. Offer
Sugar factory & alcohol distillery.
Hospital reported in operation February 1956.
-
Locust control program.
Date
Type of
Assistance
or Agreement
Amount
Reported:
5/30/56
Trade Agreement
1950
Economic Aid:
Bloc Donor
or
Participant
CZECHO
SLOVAKIA
POLAND
1956
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
729
Participant
USSR
Type of
Assistance
or Agreement
Recipient Country: FINLAND*
Credit-Financial Terms
Other
Bloc Donor
or
Date
Amount
Signed:
2/54
Credit
$10
million
2% int.; 10
years.
Signed:
7/17/54
Trade Agreement
(General)
BULGARIA
Signed:
1/24/55
Trade Agreement
Signed:
1/24/55
Credit
$10
2% int.; 10
million years
Signed:
8/16/55
Tech. aid
1954
Trade Agreement
Project or Terms of Agreement; Development, Status and Implementation
Gold or free exchange loan.
1956-1960 duration: The USSR has contracted to pay part of Finnish ex-
ports in freely-converted currencies. This will amount to some $10
million annually. Finland will export to the USSR $148 million of goods
in 1956 gradually increasing to $164 million in 1960, while USSR will
advance from $108 million to $120 million. Finnish exports in ship-
building and engineering with specified ships, and 750,000 sq. meters of
prefab. houses in 1956 which will decline to 670,000 in 1960. The USSR
pledged to deliver 250,000 tons of grain in first year, which will drop
to 220,000 in 1960; rice 10,000/yr.; sugar 80,000 tons/yr.; oil cake
45,000 tons/yr.; coal & coke 200,000 tons; fertilizers and chemicals in
value of $2.5 million; petroleum products $20.5-23.0 million; scrap iron
120,000 tons; cotton 9,000 tons; automotive vehicles & replacement parts
in value of $10 million/yr.
$140 million in Finnish exports. $102 million in Soviet exports.
1/1/55 - 12/31/55. The trade deficit will be met by triangular deals in-
volving shipments from various satellites. Soviets made concession to
the Finns by settling a part of their trade deficit ($10 million) in gold
or in Western currencies. Principal items of Finnish exports; two 4,000-
ton tankers, five 1,100-ton tankers, one 8,500 T motor vessel, one 10,500
HP ice breaker, and other ships, tugs, barges, trawlers, floating cranes;
all ships worth about $50 million. In addition water turbines, steam
boilers, mach., rayon, paper, etc. Only 250,000 sq. meters of prefab.
houses instead 750,000 sq. meters due to high Finnish prices. The USSR
will deliver grain (313,000 tons), rice (14,000 tons),, sugar (110,000
tons), oil cake (45,000 tons), gasoline (290,000 tons), diesel fuel oil
(220,000 tons), petroleum products (33,000 tons), anthracite (100,000
tons), coal (300,000 tons), cotton (9,000 tons), automotive vehicles &
miscellaneous articles.
Gold or free exchange loan.
Agreement on scientific and technical cooperation
Calendar year 1954. From Bulgaria 3,000 tons wheat & 300 tons vetch.
*Though not an underdeveloped country, Finland was included here due to extremely close foreign trade relations with the USSR and Soviet
European Satellites
730
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Bloc Donor
or
Participant Date
BULGARIA
Type of
Assistance
or Agreement,
Signed:
1/19/55
Trade Agreement
COMMUNIST
CHINA
1955
Trade Agreement
CZECHO-
SLOVAKIA
1954
Trade Agreement
Signed:
2/14/55
Trade Agreement
E. GERMANY
1954
Trade Agreement
Signed:
5/55
Trade Agreement
MUNGARY
Signed:
12/2/53
Trade Agreement
Recipient Country: FINLAND (continued)
Credit-Financial Terms
Amount
Other
Project or Terms of Agreement; Development. Status and Implementation
1/1/55 - 12/31/55: $1.9 million each way. From Finland: machinery,
metal products, elec. engineering equipment, pulp, cellulose. From
Bulgaria: fruits & vegetables, medicinal plants, carpets, etc. (it is
characteristic that Bulgaria has not agreed to ship grain as in 1954
because she is short in grain & fodder is encouraging export of fruit,
vegetables, spices & rice.)
Covers period 5/1/55 - 4/30/56.
G
cheese
For 1954: somewhat under $38.5 million each way. From Finland:
(1,200 tons), rayon, staple fiber (1,000 tons), paper, mach. & equip. for
wood & paper industries. From Czech: automotive vehicles ($1.4 mill.),
motorcycles ($0.5 mill.), tractors ($1.1 mill.), steel tubing ($0.8 mill.)
etc.
1/1/55
-
cheese
12/31/55: About $38.5 million each way. From Finland:
(2,000 tons), rayon, staple fiber (6,500 tons), pork, wild fowl (1,500
tons). From Czech: automotive vehicles ($2.8 mill.), motorcycles
($1.1 mill.), tractors ($1.9 mill.), rolled & drawn steel tubing ($2.1
mill.), etc.
For 1954: about $1.3 million Finnish exports and $1.65 million E. German
exports.
For 1955: About $1.3 million Finnish exports and $1.65 million E. German
exports. From Finland: paper, cardboard, seeds, pyrite, metal products,
hides, butter, cheese. From E. Germany: chem. & pharmaceutical products,
potash fertilizers (50,000 tons), plastic raw materials, photo paper,
lignite (30,000 tons).
12/53 - 2/21/55: $6 million Finnish exports, $7 million Hungarian exports.
From Finland: paper, cellulose, rayon, staple fibers, wood & wood pro-
ducts, mach. & metal products. From Hungary: medicines & medical herbs,
petroleum products, bulbs, radio equip., optical. & medical insts., tex-
tiles, etc. Finland balances her trade deficit by shipment to the USSR
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
731
Recipient Country: FINLAND (continued)
Credit-Financial Terms
Other
Project or Terms of Agreement; Development, Status and Implementation
For 1954: $14 million Finnish exports; $26 million Polish exports. From
Finland: iron ore (30,000 ton), felspar (4,000 ton), radio products
($75,000), machinery ($1.5 million). From Poland: same as for 1955 (see
below). This agreement tripartite witn USSR.
For 1955: $16 million Finnish exports, $30 million Polish exports. From
Finland: iron ore (150,000 ton), felspar (1,000 ton), radio products
(35,000), mach. ($1.7 million), etc. From Poland: coal (1,350,000 ton),
sugar (12,000 ton), textiles ($2 million), tractors, trucks, automotive
vehicles ($0.5 million). Finland's balance in trade will be covered by
shipment to the USSR.
From
For 1955: $5.6 million Finnish exports; $10.0 Rumanian exports.
Finland: paper, cellulose, rayon, staple fibers, steel, asbestos, mach.
From Rumania: fuel oil (300,000 ton), gasoline (60,000 ton), gas-oil
(50,000 ton), chems., machinery, etc. Tripartite agreement with USSR.
For 1956: About the same size as for 1955.
Type of
Assistance
Date
or Agreement
Amount
1953
Trade Agreement
Bloc Donor
or
Participant
POLAND
Signed:
12/17/54
Trade Agreement
RUMANIA
Signed:
10/29/54
Trade Agreement
1955
Trade Agreement
732
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
{
Bloc Donor
or
Participant
USSR
Type of
Assistance
Date
or Agreement
Amount
Signed:
7/28/53
Trade Agreement
Recipient Country: GREECE
Credit-Financial Terms
Other
Project or Terms of Agreement; Development, Status and Implementation
7/53-7/548 $10 million each way. From Greece:
cotton (1,000 ton), rice (500 ton), wine, spices.
products (300,000 ton), coal (10,000 ton), lumber
vehicles, etc.
tobacco (5,000 ton),
From USSR: petroleum
(45,000 m³), automotive
W
Greece
Difficulties encountered with Soviet deliveries. 3/9/54
announced no more licenses would be granted for Greek shipments until
Soviets caught up with their deliveries. Ban was lifted on protest of
Soviet ambassador.
7/54-7/55: $10 million each way. Same commodities as in agreement of
1953-1954.
7/28/55 - 12/31/56
Development of tobacco & wine industries.
For 1954: $1.8 million each way. From Greece: citrus fruit, olives,
olive oil, cotton, rayon, staple fiber, valonia for tanning, textiles,
superphosphates, pyrites, manganese ore. From Bulgaria: nitrate fert-
ilizers ($600,000), wood & paper products, meat, eggs, cotton seed, coal,
vetch. 1st postwar agreement. Annual tacit renewal.
For 1955: $1.8 million each way.
For 1956: $3.5 million each way.
1/1/54 - 12/31/54: $3.8 million Greek exports; $4.9 million Czech.
exports.
1/1/55 - 12/31/55: $5.0 million Greek exports; $5.7 million Czech.
exports. Renewal of Trade agreement. From Greece: tobacco, citrus
fruit, dried figs, wine, cotton, iron ore (30,000 ton), bauxite, cotton
yarn. From Czech.: machinery, autos, textiles, sugar, timber, news-
print, Chinaware, hops, footwear.
1954
Trade Agreement
1955
Trade Agreement
&
7/56
Econ. & Tech.
Aid; Offer
BULGARIA
Signed:
12/2/53
Trade Agreement
1954
Trade Agreement
Signed:
5/56
Trade Agreement
CZECHO-
SLOVAKIA
Signed:
Trade Agreement
2/1/54
Signed:
Trade Agreement
3/9/55
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
733
Recipient Country: GREECE (continued)
Credit-Financial Terms
Other
Project or Terms of Agreement; Development, Status and Implementation
1/1/54 - 12/31/54: $6.3 million each way. From Greece: tobacco (2,000
ton), dried fruit (9,000 ton), citrus fruit (5,000 ton), also valonia,
wine, leather & hides, olives & olive oil, magnesite, pyrites.
pyrites. From
ammonium sulphate (10,000 ton), potash fertilizers (5,000
E. Germany:
ton), also sugar, machinery, autos, paper, textiles.
For 1955: About the same volume as for 1954.
6/53 - 6/54 duration. Smaller quantities than in trade agreement con-
cluded in 1954.
6/5/54 - 6/4/55: $2.2 million each way. From Greece: tobacco ($1.1
million), citrus fruit, wine, hides, skins, olives, olive oil, etc.
From Hungary: machinery & elec. installations ($1.0 million), radio
equip,, textiles, sugar, meat, livestock, chem., pharmaceuticals.
For 1954: $4.1 million Greek exports; $3.9 million Polish exports.
Exchange of commodities, same as in agreement of 1/55.
coal
From Greece:
For 1955: $4 million each way.
tobacco ($1 million),
pyrites ($780,000), also cotton, rice, fruit. From Poland:
($700,000), also machinery, textiles, sugar, lumber, newsprint, eggs,
chemicals.
olives & olive oil
6/1/54 - 6/30/55: $3 million each way. From Greece:
($800,000), tobacco ($300,000), citrus fruit, cotton yarn, dried fruit,
cotton textiles, etc. From Rumania : timber ($1.4 million), petroleum
products ($1 million), newsprint, chemicals and pharmaceuticals. A con-
siderable quantity of the timber was credited to the account of USSR.
Bloc Donor
or
Participant
Type of
Assistance
Date
or Agreement
Amount
E. GERMANY
Signed:
12/8/53
Trade Agreement
Trade Agreement
HUNGARY
1953
Trade Agreement
Signed:
6/6/54
Trade Agreement
POLAND
1954
Trade Agreement
Signed:
1/55
Trade Agreement
RUMANTA
Signed:
5/19/54
Trade Agreement
734
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Bloc Donor
or
Type of
Assistance
Date
or Agreement
Amount
Trade Agreement
Participant
USSR
Signed:
8/1/53
1954
Trade Agreement
Signed:
9/28/56
Trade Agreement
E. GERMANY
Signed:
9/9/54
Trade Agreement
HUNGARY
n.a
Trade Agreement
POLAND
n.a.
Trade Agreement
RUMANIA
Signed:
4/13/54
CZECHO-
Signed:
SLOVAKIA
8/31/54
Trade Agreement
Recipient Country: ICELAND
Credit-Financial Terms
Other
Project or Terms of Agreement; Development, Status and Implementation
Mid 53 - mid 55: $10 million/year each way. Provided exchange of
Icelandic fish for Soviet petroleum, which covered Iceland's requirements
completely. Annual quota for oil was 200,000 MT. USSR agreed to take
10% of total fish catch in Iceland.
7/1/54 - 12/31/55
Agreement specification shows considerable increase of trade for 1957.
From Iceland:
frozen fish
salted herring
frozen herring
1956
20,000 MT
1957
32,000 MT
15,000
15,000 MT
1,000
2 million kroner in both years.
150,000 MT
120,000 MT
110,000 MT
45,000 MT
50,000 MT
30,000 M3
300
10,000 MT
other goods
From USSR:
gas oil
fuel oil
motor gasoline
cement
timber
automobiles
wheat
Also pigments, potato starch, iron and steel products, etc.
110,000 MT
40,000 MT
50,000 MT
40,000 M³
140
5,000 MT
10/1/54 - 12/31/55: From Iceland: fish. From E. Germany: industrial
products, sewing machines, musical instruments.
1/1/55 - 12/31/55
1/1/55 - 12/31/55
4/13/54 - 12/31/55: From Iceland: fish. From Rumania: petroleum pro-
ducts, grain, hardwood, cement, fruit, chemicals, wood pulp, etc.
9/16/54 - 8/31/57; $3.5 million. Iceland to ship fish. Czechoslovakia
to`ship textiles, asbestos, agricultural machines, automobiles, chemicals,
etc.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
735
Bloc Donor
or
Participant
USSR
Recipient Country:
Credit-Financial Terms
Type of
Assistance
Date
or Agreement
Amount
Other
Trade Agreements & Commodity Protocols
Signed:
12/2/53
Trade Agreement
& Tech Aid:
Offer
Trade Agreement
Signed:
12/24/54 & Tech Aid
12/24/51
Signed:
12/13/55
Trade Agreement
Signed:
4/6/56
Shipping
Agreement
5 yr. trade
agreement
INDIA
Project or Terms of Agreement; Development, Status and Implementation
This represents primary stage of development of trade relations between
both countries. From India:
From India: jute, tea, coffee, tobacco, shellac, hides,
skins, spices, vegetable oils, etc. From USSR: wheat, barley, crude oil,
petroleum, steel, paper, dyestuffs, optical instruments, tractors, ag.
machinery, industrial & electrical equip., etc. Settlement in rupees.
Technical aid offer made in letters exchanged between USSR & India.
Renewal and extension of agreement of 12/2/53.
Tech. assistance in connection with Soviet supplies of equip. to India, in
setting up & running industrial & agricultural equip. & in designing,
planning & building various projects. From USSR: tractors, agri. machi-
nery, machine tools, complete sets of equipment for various industrial
enterprises. From India: Goods India usually exports which she is now
having a hard time selling.
of 12/2/53
Protocal (concluded within framework of general trade agreement/) covers
the period 1956-58, and was agreed upon during the visit of Bulganin and
Khrushchev in India. Provides for shipment by USSR of 1 million tons of
rolled steel (300,000 in 1956 and 350,000 tons each in 1957 & 1958) valued
at approx. $147 million; and equip. for oil extraction, ore mining, etc.
Also agreed to discuss shipping agreements and to expand trade & exchange
of delegations.
Establishes direct cargo service connecting Indian Ocean & Black Sea
ports - 6 Indian & 6 Soviet ships with 50,000 ton aggregate carrying
capacity. Ships to enjoy most-favored-nation treatment in Indian & Soviet
ports. Corollary of bilateral trade agreement.
C
Within frame of trade agreement USSR buys 500 long tons Indian coffee
($800,000) & 2 mill. lbs. Indian wool.
15 broad-gauge steam locomotive boilers from USSR - $180,000.
Signed:
5/9/56
6/15/56
Trade Protocol
Trade Protocol
Reported:
6/19/56
Trade Protocol
Reported:
6/26/56
Trade Protocal
India purchases nine IL-14 transport planes.
Within frame of trade agreement - 2 million lbs. tea purchased by USSR in
partial exchange for steel; additional purchase of 15-20 million lbs.
expected.
736
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Recipient Country: INDIA (continued)
·Bloc Donor
or
Participant
USSR
Type of
Assistance
Date
or Agreement
Signed:
7/12/56
Credit-Financial Terms
Amount
Other
Project or Terms of Agreement; Development, Status and Implementation
Trade Agreements & Commodity Protocols (cont'd.)
Trade Protocol
12/10/56
Trade Protocol
Economic & Technical Aid
Credit Agreement
►
8/55
Tech. aid;
Offer
Signed:
Tech. aid;
n.a.
n.a
Within frame of trade agreement USSR orders 500,000 pair of Indian shoes
valued at $2,478,000; 500 tons coffee $861,000
Report of agreement of USSR purchase of 2,000 tons of Indian tobacco.
Establishment of rawfilm industry in India; credit of 12-15 years pro-
posed. Project taken over by E. Germany. See E. Germany agreement of 8/56.
Contract for equipment of a private Indian steel file & rasp plant.
10/24/55 (possible
credit)
11/30/55
Tech. aid;
Offer
Signed:
12/23/55
Tech. aid;
Credit
$0.45
million
1/12/56
Tech. aid;
Credit; Offer
$20.0
million
1/56
Tech. aid;
Credit; Offer
n.
Long term
Credit
2/2/56
Military &
Tech. aid;
Offer
Signed:
3/8/56
Tech. aid;
Credit
million interest
Experimental atomic reactors offered to India at USSR exhibition of
atomic energy in New Delhi. Will also supply atomic isotopes upon Indian
request.
20 Soviet drilling rigs for coal mining arrived 6/17/56.
Expansion by 100,000 kw. of Hydro-electric power plant in South India
now under construction. USSR would supply credit and technicians.
Construction of aluminum plant in South India.
Soviet jets.
$115.5 12 yrs, 21%
Signed:
5/26/56
Tech. aid;
Credit
$16.8 12 yrs; 21%
million interest
-
Construction and equipment of steel plant at Bhilai 1 million ton
ingot capacity (potential increase to 1.3 2.3 million tons) and 750,000
tons rolled products. Total ultimate cost est. at approx. $231 million.
USSR to provide equip. valued at $91.1 mill. and other construction materi-
als and engineering services detailed in subsequent agreements. Construc-
tion 1956 - Dec. 1959.
- Dec. 1959. Payment in rupee account for purchase of Indian
commodities (jute, tea, shoes, oilseeds, spices), and the balance con-
vertible to sterling.
Supplementary Agreement on Bhilai steel mill for USSR supply of 60,000 MT
structural steel.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
737
1
Type of
Assistance
Date
or Agreement
Signed:
6/4/56
Recipient Country: INDIA (continued)
Credit-Financial Terms
Amount
Other
Economic & Technical Aid
Credit Agreement (cont'd.)
Tech. aid
$1.554
million
Signed:
Credit
5/21/56
Signed:
5/31/56
Tech. aid;
Credit
$0.8
million
Signed:
6/19/56
Tech. aid;
Credit
Signed:
Tech. aid;
11/15/56 Credit
10/56
11/56
-
Tech. aid
Reported
to be
signed:
end of
11/56
$10 Payment in in-
million dustrial dia-
monds.
$126
21% int.; re-
million payable in 12
years.
Tech. aid;
(possible
credit)
$63
million
Specific Tech. Missions & Gifts
1952
Gift
8/54.
9/54
Tech. aid
Reported:
11/29/55
Tech. aid
Project or Terms of Agreement; Development, Status and Implementation
13 Soviet steel experts for preparing blueprints and detailed project
reports for the Bhilai steel plant. (5 million dollars)
India purchase of 2 Soviet oil drilling rigs with spare parts. Soviets
will train Indian personnel for a period of 6 months at a cost of $110,250
per drill.
1 Soviet petroleum drilling rig.
Equip. for diamond mine; survey of 3 Soviet experts and training of
Indian personnel without charge.
To buy mach., coal mining equip. & industrial equip. for a fertilizer-
plant and oil refinery from USSR. Repayment in Indian goods.
4 wk. survey of glass factories, oil refineries, fertilizer plants in
USSR by Indian Minister of Production.
Worth of project $63 million; search for oil with aid of 174 Soviet
technicians. Plants for mfg. of oil drilling equip. This agreement is
result of investigation of Soviet oil experts which started under con-
tract of 10/22/55, and recently turned in report indicating oil
possibilities in several Indian areas.
Wheat for famine relief.
Indian railway mission in the USSR.
Technological Institute in Bombay. USSR partial aid; technical personnel
to be provided and trained and equipment to be furnished ($1.5 million)
by USSR. Of this $1.2 million provided through UN Expanded Tech.
Assistance Program. Offer made in 10/55 and reported accepted 11/29/55.
Bloc Donor
or
Participant
USSR
་
#
738
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Bloc Donor
or
Participant
USSR
Type of
Assistance
Date
or Agreement,
Recipient Country: INDIA (continued)
Credit-Financial Terms
Amount
Other
Specific Tech. Missions & Gifts
12/13/55
Gift
(Bulganin &
Khrushchev)
12/13/55 Gift
$1.5
million
Project or Terms of Agreement; Development, Status and Implementation
Farm machinery for 30,000 acre mechanized Indian State farm; 7 Soviet
experts assembling material delivered in March 1956.
One II-14 transport plane.
Soviet experts study establishment of pharmaceutical, glass & electric
power plants in India.
Soviet experts studying the development of non-ferrous metal deposits.
720 Indian metal workers to be trained in USSR metallurgical plants, from
1956 to 1958.
4 Soviet experts study development for the manufacture of heavy machinery
in India.
Indian dairy farming and cattle breeding delegation in the USSR.
Indian educational mission in the USSR.
Indian broadcasting mission of members in the USSR. Studying multingual
broadcasting.
5 Indian agricultural delegates in the USSR; sponsored by Soviet
agriculture organizations.
1/1/55-31/12/55 Increase of trade, though exact amount not stipulated.
From India: iron ore, cotton, cotton, wool, textiles. From Bulgaria:
agric. mach., chems., elec. equip., food products.
-
(Bulganin &
Khrushchev)
From
Tech. aid
3/8/56 to
8/10/56
Reported:
3/56
Tech. aid
7/56
Tech. aid
7/9/56
Tech. aid
8/56.
9/56
-
Tech. aid
9/56
Tech. aid
9/19/56
Tech. aid
9/24/56
Tech. aid
BULGARIA
2/10/55
Trade Agreement
Signed:
Trade Agreement
3 years
4/18/56
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
7390
Bloc Donor
or
Type of
Assistance
or Agreement
Recipient Country: INDIA (continued)
Credit-Financial Terms
Participant
Date
Amount
COMMUNIST
CHINA
Signed:
10/14/54
Trade Agreement
8/56
Gift
$88,400
9/56
Trade Agreement
Signed:
Trade Agreement
10/14/56
CZECHO
SLOVAKIA
Signed:
5/49
Trade Agreement;
Tech. aid
Signed:
11/17/53
Trade Agreement
Signed:
6/6/55
Trade Agreement
Credit; Offer
1955
Gift
Signed:
Trade Agreement
1/25/56
5/10/56
Tech. aid
Signed:
6/10/56
Signed:
7/26/56
8/56
Trade Protocol
Tech. aid
Credit
Trade Agreement
Other
Project or Terms of Agreement; Development, Status and Implementation
→
2 year duration first trade agreement with Communist China. On the basis
of this agreement, subsequently: From India: 9 million lbs. tobacco
From China: 90 tons raw silk. This and other trade agreements carry
provisions covering Tibet.
Contribution to Indian Relief Fund.
Extension of original trade agreement
China to buy Indian commodities.
Expansion of 1954 trade agreement.
Payment in commodities.
Renewal of 1949 trade agreement.
India to buy 60,000 MT rice,
6/1/55 - 12/31/55. Total value not specified. From India:
From India: jute, jute
products, iron ore, mica, shellac, hides, coffee, spices. From Czech:
light engineering products, glass, textiles, paper, ceramics. Payment
in lbs. sterling.
Czech. trainer aircraft.
Agreement of 11/17/53 extended to 12/31/56.
Establishment of a steel mill. 1 million ton capacity; 25 years payment
with 2% interest; first offer made in November 1955.
Railway rolling equipment purchased by India (40 locomotives & 2050 rail-
way cars) in exchange for ores, mica, shellac, & tea, and the balance in
pounds sterling.
Sugar plant equipment for a private Indian company signed with Czech.
Skoda Works. Offer made initially in March 1955.
Within framework of trade agreement, a Czech order for Indian tea, coffee,
tobacco, jute, textiles, handicrafts & other goods. Will be partly
payed by 40,000 tons of Czech. steel.
94413 0-57.
-48
740
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Bloc Donor
or
Type of
Assistance
or Agreement
Participant
Date
CZECHO-
SLOVAKIA
8/20/56
Technical Aid
Credit; Offer
12/10/56
Trade Protocol
E.GERMANY
Signed:
Trade Agreement
11/17/53
Signed:
10/16/54
Trade Agreement
12/55
Tech. aid;
Offer
3/56
Tech. aid;
Offer
3/56
Tech. aid;
Offer
Reported:
8/56
Tech. aid;
Credit
6/15/56
Trade Protocol
Signed:
Trade Agreement
10/8/56
HUNGARY
Signed:
Trade Agreement
6/17/54
Tech. aid
11/54
Tech. aid;
Offer
12/55
Trade Agreement
Recipient Country: INDIA (continued)
Credit-Financial Terms
Amount
$2.1
million
$6.3
million
(approx.)
Other
Project or Terms of Agreement; Development, Status and Implementation
Cement making equip. for plant of 100 long tons daily capacity. First
offer on 12/2/55 was for 400 long ton cement plant capacity. Agreement
reported near on this offer.
Report of Czech. agreement to purchase 150 tons of Indian tobacco.
A preliminary trade agreement.
3 yrs; settlement in rupees. From India: tobacco, mica, jute manu-
ufacture, chrome, iron, and manganese ores, cashew nuts, shellac, vegetable
oils, textiles, coir & coir products, handicrafts, chem. & engr. products.
From E. Germany: various kinds of machy., incl. elec., diesel & steam
locomotives, cement & sugar production equip., optical insts., wireless
communications equip., newsprint & raw film.
Establishment of optical products factory; licensing rights and
technical assistance.
Factory for automobile & motorcycles & trucks.
Study of develop. of lignite deposits in Madras State.
Establishment of raw film mfg. plant by AGFA firm of E. Germany.
$200,000
17 freight cars for heavy mach. transport.
3 years. Replaces agreement of 1954; payment in rupees.
6/17/54 - 12/31/55. From India: tea, spices, tobacco, oilseeds, skins,
hides, iron & manganese ores, Jute, woolen textiles. From Hungary:
machinery, industrial plants, pharmaceuticals and tech. aid.
Capital goods; patents; services of ↳ experts.
From Hungary: equip. for elec. plants, mach. tools, rolling stock.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
741
Bloc Donor
or
Type of
Assistance
Recipient Country: INDIA (continued)
Credit-Financial Terms
Participant
Date
or Agreement
Amount
Other
POLAND
Signed:
Trade Agreement
3/3/55
6/23/55
Economic Aid;
$5
2500 railway cars.
Project or Terms of Agreement; Development, Status and Implementations
From India: ore, mica, leather, tea, coffee, etc. From Poland:
industrial equip., railway stock, chemicals, coal tar; etc.
mach..
Credit
million
1955
Gift
12/55
Tech. aid;
Offer
2/56
Tech. aid;
Offer
3/56
Tech. aid;
Glider aircraft.
Copper deposit development.
Construction and equipment of plants for manufacture of chemicals, rail-
way rolling stock & service equipment.
Textile mills.
Offer
Signed:
Trade Agreement
4/3/56
Scientific &
4/3/56 - 12/59. From Poland:
From Poland: machinery and cement.
tech. coop.
Signed:
Trade Agreement
4/11/56
Mid 1956
Trade Protocol
Signed:
5/16/56
ment
9/56
Tech. aid
RUMANIA
Signed:
Trade Agreement
3/23/54
Signed:
3/19/56
Tech. aid;
Credit
$900,000
Mid 1956
Trade Protocol
Shipping Agree-
1956-1958: From India: 300,000 tons iron ore. From Poland: 100,000
tons cement, 300,000 tons iron & steel products.
30 broad gauge locomotives.
India & Poland to form a shipping company with 3 Polish and 3 Indian
ships to carry goods between both countries. Negotiations started
4/3/56 and service begun on 11/1/56.
30 Polish divers to help raise 3 ships in Bombay harbour.
Valid for 1954 and renewable each year. From Rumania: petroleum, cement,
indust. products, elec. equip., newsprint, diesel engines, mining mach.
From India: cotton, wool, skins, coffee, textiles, ores.
1 petrol. drilling rig (10,000 ft. capacity; training of 22 techs. for
6 mos. for $114,954 additional payment.
Within frame of trade agreement; agri. implements incl. 37 HP diesel
tractors.
1
742
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Bloc Donor
or
Participant
USSR
Recipient Country: INDONESIA
Type of
Assistance
Credit-Financial Terms
Dete
or Agreement
Amount
Other
Signed:
8/12/56
Trade Agreement
Signed:
9/15/56
Econ. & Tech.
aid; Credit
$100
million
HULGARIA
Signed:
Trade Agreement
12/14/54
COMUNIST
CHINA
Signed:
11/30/53
Trade Agreement
Signed:
9/1/54
Trade Agreement
Announced:
6/10/55
Trade Agreement
24% int; re-
payable in 12
annual instal-
1ments start-
ing after 3
yrs, in U.S.
dollars, L
sterling, or
Indonesian
raw materials.
Project or Terms of Agreement; Development, Status and Implementation
1 year duration: From Indonesia: agri. products incl. rubber, raw hides,
coffee, spices, cocoa beans. From USSR: industrial equip., oil drilling
equip., motor cars, elec. goods, trucks, tractors, optical supplies,
cotton fabrics, newsprint, other industrial products. Permanent USSR
trade office established.
USSR will conduct research, provide equip. and render tech. aid in the
construction and organization of projects in the coal industry, ferrous
metallurgy, building materials industry power plants and other indus-
tries. Will also train Indonesian specialists.
Aid will also be provided in peaceful use of atomic energy (radio active
isotopes medical science and technology) and training of Indonesian
specialists in this. field.
Initial offer 10/25/54 - long term credit at 2% interest for construction
of industrial plants.
1 year. From Indonesia: rubber, tea, tin, coffee, spices. From
Bulgaria: fertilizers, electrical supplies.
11/30/53 - 12/31/54 duration: Exchange of 86 Indonesian for 38 Chinese
commodities; amounts not specified.
-
specifying quantities and
From
Seven month extension of 1953-54 trade pact
values of items to total of $16.8 million in each direction.
Indonesia: 20,000 tons copra ($3.5 million), coconut oil ($518,000),
palm oil ($238,000), cocoa butter (2,000 tons), also dried coconut,
coffee, sugar. From China: cotton & silk goods, glass, nails, paper &
chem. materials.
For 8/1/55 - 7/31/56 period.
each direction. From China:
Trade to be increased to $56 million in
$14 million of textiles & yarn.
Mention made of a contemplated purchase by Indonesia of capital goods
and hydro-power equip. from China under long-term credit arrangement.
10/7/56
Trade Agreement
(under negoti-
ation)
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC 743
Type of
Assistance
Recipient Country: INDONESIA (continued)
Credit-Financial Terms
Bloc Donor
or
Participant
Date
or Agreement
Amount
CZECHO-
SLOVAKIA
2/54
Econ. & Tech.
Aid; Offer
n.a
7/54
Reported
Econ. Aid
Signed:
Trade Agreement
7/8/54
Other
Signed:
7/14/55
Trade Agreement
Announced:
Economic Aid
5/56
Signed:
5/16/56
Economic Aid;
Credit
$1.6
million
4% interest
5 years.
E. GERMANY
Signed:
Trade Agreement
6/9/54
Project or Terms of Agreement; Development, Status and Implementation
Ceramics plant and rubber plant - offer of equipment and technical
assistance in training of Indonesian workers.
An order reported by Czech. Consul General for equipment for fully auto-
matic textile factory. Initially offered 1/54.
-
For 1 year period 7/15/54 - 7/14/55. Trade of $9.3 million each way.
From Indonesia: rubber, tin, pepper, copra, tapioca, spices. From Czech:
machy., textiles, etc. Rubber purchases at a price 10% higher than on
world market.
7/15/55 - 7/14/56 duration: $16.8 million each way. Czech. capital
goods and textiles for 18,000 tons of Indonesian rubber.
Contract for construction of enamel products factory at Jakarta
announced.
Various industrial projects, including tire & rubber factory.
Duration: 6/9/54 - 12/31/55; $2.4 million each way. A private barter
agreement between group of Indonesian business organizations and E.
German Chamber of Commerce, exchanging Indonesian products for German
automotive vehicles, bicycles and radios.
Signed:
Econ. & Tech.
2/3/55
Aid; Credit
$9.2 6yr. repay-
million ment in raw
materials
Equip. for sugar mill of 2,500 tons daily sugar capacity.
installed by 60 engineers & technicians. 1st consignment of machinery
arrived 10/55.
Equip. to be
HUNGARY
11/54
Tech. Aid
Signed:
6/22/54
Trade Agreement
1955
Trade Agreement
Delivery of 700 trucks; rail; & machinery for 15,000 liter daily capacity
spirits plant.
Technical assistance supplied for construction of hydro-elec. & diesel
stations.
Duration: 7/1/54 - 6/30/55; $5.7 million each way. Indonesian products
for Hungarian machinery.
Duration: 7/1/55 - 6/30/56.
744
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Bloc Donor
or
Type of
Assistance
Participant
Date
or Agreement
Amount
POLAND
Signed:
7/1/54
Trade Agreement
Recipient Country: INDONESIA (continued)
Credit-Financial Terms
n.a.
Other
Project or Terms of Agreement; Development, Status and Implementation
Duration: 5/1/54 - 4/30/55; From Indonesia: $5 million tin, rubber,
copra, tobacco, coffee, tea, cocoa, spices, pepper and forestry products.
From Poland: $4 million comprising textiles. ($1.24 million). paper ($.560
million), chemicals & pharmaceuticals ($.420 million), machinery ($.336
million), auto vehicles & lab. equip. plus $1.3 million of coal, grain
and timber for Indonesian re-exports.
Duration: 5/1/55 - 4/30/56.
General industrial equipment, ships, capital goods.
Construction of chemical factory.
Duration: 7/1/54 - 6/30/55; $4.8 million each way. Automatically re-
newable for 1 year. From Indonesia: rubber, copra, tea, coffee, cocoa,
spices, quinine, tin, hides, etc. From Rumania: machinery (incl. tex-
tile machinery), tractors, railroad equip., machine tools, chemicals,
paper, glass, cement, textiles, etc.
Rumania will assist in drilling of oil wells & construction of cement
plants.
May 1955
contract concluded for export of 100,000 tons cement to
Indonesia during 1955.
Duration: 7/1/55 - 12/30/56.
Equipment and technical assistance for installation of cement plant re-
ported in progress.
Oil well drilling.
1955
Trade Agreement
Reported:
7/55
Economic Aid:
Credit Offer
Reported:
Economic Aid:
10/29/56 Offer
RUMANIA
Signed:
7/4/54
Trade Agreement
1955
Trade Agreement
Reported:
3/55
Econ. & Tech.
Aid Credit
Reported:
4/55
Tech. Aid;
Offer
#
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
745
Bloc Donor
or
Participant
USSR
Recipient Country: IRAN
Credit-Financial Terms
Type of
Assistance
Date
or Agreement
Amount
1953
Tech. aid
6/17/54
Trade Agreement
2/16/55
In force:
5/4/55
Trade Protocol
(Supplementary)
Trade Agreement
Other
Project or Terms of Agreement; Development, Status and Implementation
Combatting locusts
-
Duration: 4/1/54 3/31/55; $25.5 million from Iran and $24.7 million
from USSR. From Iran: rice (30,000 tons), tobacco (3,000 tons), cotton
(7,000 tons), lead ore (50,000 tons), zinc ore (12,000 tons), oil seeds
(4,000 tons), dates (5,000 tons), wool (7,000 tons) also lamb skins,
fish, etc. From USSR: sugar (80,000 tons), iron and steel products,
(11,000 tons), cement (60,000 tons), paper (10,000 tons), chemicals
(1,000 tons), cotton textiles 55 million meters, agric. mach. elec.
equipment, etc.
From USSR: sale of 10,000 tons grain.
Duration: 4/1/55 - 3/31/56; Increase in exchange of goods, quantities
not specified. From Iran: rice, cotton, wool, hides, fish, dried fruit,
oil seeds, ore, etc. From USSR: cotton textiles, ferrous metals, cement.
machinery, automotive vehicles, timber, chemicals, etc.
General technical assistance.
Mid-1955
Tech. Aid;
Offer
Reported:
2/56
Econ. & Tech.
Aid; Offer
n.a.
n.a.
1956
Trade Agreement
6/56
Trade Agreement
Reported:
6/23/56
Econ. & Tech.
Aid; Offer
Trade Agreement
Construction planned of 8 sugar mills; 1 sugar refinery; 2 power plants;
1 refrigerator plant, bridges.
Į
4/1/56 - 3/31/57; barter arrangement. From Iran: lead ore (25,000 MT),
zinc (12,000 MT), sheep wool (10,000 MT), cotton (3,000 MT), rice
(20,000 MT), oilseeds (4,000 MT), dates (5,000 MT), raisins (8,000 MT),
fish & fish products in value - 65 mill Rials. From USSR:
sugar
(75,000 MT), iron & steel products (15,000 MT), cement (10,000 MT), paper
(10,000 MT), lumber,
machy. (100 mil Rials), trucks & cars (100
mil Rials), farm machy. (25 mil Rials), pharmaceuticals (10 mil Rials),
etc.
Fisheries agreement exchanging $797,000 of caviar & fish from Iran for
USSR fishing equipment. Within framework of 4/1/56 - 3/31/57 barter
agreement.
Development and Construction projects.
CZECHO-
1955
SLOVAKIA
•
746
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Bloc Donor
or
Type of
Assistance
Participant
Date
or Agreement
HUNGARY
Signed:
6/4/55
Trade Agreement
POLAND
Signed:
Trade Agreement
4/16/56
Recipient Country: IRAN (continued)
Credit-Financial Terms
Amount
Other
Project or Terms of Agreement; Development, Status and Implementation
Duration: 6/4/55 - 6/3/56; $4.5 million total trade. From Iran: oil-
seeds, vegs., grains, spices, wool, carpets, etc. From Hungary:
cement, fertilizers, agri. machy. & other industrial equipment.
sugar,
From Iran: cotton, zinc, lead ore, etc. From Poland: complete indus-
trial equip., rolling stock, trucks, autos, motorcycles, chems., pharma-
ceuticals, textiles.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
747
Recipient Country: ISRAEL
Credit-Financial Terms
Other
Project or Terms of Agreement; Development, Status and Implementation
$2.9 million each way. Shipment of 100,000 tons Soviet crude oil with an
option for Israel to buy 100,000 tons more. USSR to buy $2.7 million of
citrus fruits & $200,000 of bananas.
Taking up of option for additional 100,000 tons of crude oil by Israel.
Duration: 1 year; From USSR: 250,000 tons of fuel oil and crude oil
valued at $3,000,000. From Israel: oranges, lemons, bananas, same value.
Contract of additional 168,000 tons Soviet oil, incl. 118,000 tons fuel
oil & 50,000 tons crude oil.
Development of superphosphate production.
12/20/54 - 12/31/55; $1.5 million each way. From Israel: citrus fruits,
superphosphates, pharmaceuticals. From Bulgaria: timber, tobacco, rice,
anthracite coal, asbestos, penicillin. 1st postwar agreement.
Duration: 1 year; $2 million each way. From Israel: citrus fruit,
wristwatches, razor blades. From Hungary: Israel requested wheat, sugar,
horses - Hungary hedged on foodstuffs and offered machine tools instead,
but Israelis preferred W. German tools. Hungary offered rice, oil cake
and elec. equip.
From Israel: phosphates & other items.
metal products.
From Hungary: machines & other
Duration: 7/1/54 - 6/30/55. From Israel:
citrus fruits, shoes, watches,
nylon stockings, phosphates, false teeth. From Poland: wood crates for
citrus, chemicals, textiles, sugar and foodstuffs.
Duration: 1 year; $2.6 million each way. From Israel: citrus fruits,
shoes, watches, nylon stockings, phosphates, pharmaceuticals. From Poland:
machinery, wood crates for citrus fruit, chemicals, sugar, shoes.
Duration: 9/9/54 - 12/31/55; $2.5 million each way. From Israel: citrus
fruits, bananas, pharmaceutical products, textiles, razor blades, refriger-
ators, false teeth. From Rumania: sawn timber, fruit crates, petroleum
products, paper products, charcoal, chemicals. 1st postwar agreement.
Bloc Donor
or
Type of
Assistance
Participant
Date
or Agreement
Amount
USSR
Signed:
Trade Agreement
12/3/53
Signed:
2/54
Trade Agreement
Signed:
Trade Agreement
10/31/54
Signed:
Trade Agreement
5/8/55
4/4/56
Tech. aid;
Offer
BULGARIA
Signed:
12/20/54
Trade Agreement
HUNGARY
Signed:
3/5/54
Trade Agreement
Reported:
7/17/56
Trade Agreement
POLAND
Signed:
6/16/54
Trade Agreement
Signed:
10/13/56
Trade Agreement
RUMANIA
Signed:
9/9/54
Trade Agreement
748
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Bloc Donor
or
Participant
Date
Type of
Assistance
or Agreement
Credit-Financial Terms
Amount
Other
Project or Terms of Agreement; Development, Status and Implementation
Recipient Country: LAOS
COMMUNIST
CHINA
8/25/56
Trade Agreement
& Econ. Aid;
Offer
Duration: 1 year; $4.6 million each way. From Lebanon: dried fruit,
vegetable & olive oil, citrus fruits, apples, bananas. From USSR: machy,
chemicals, pharmaceutical products, newsprint, radios, etc.
Duration: 9/11/55 - 9/10/56
Development of Litani River Project
Highway construction; hydroelectric dams; irrigation projects; railway
improvements; seaports; nuclear reactor; communications development.
Metallurgical plant; prospecting & drilling iron ore; ink & printing
material factory; cement plant; canning factories; Soviet experts.
+
Modernization of spinning mills & looms.
Recipient Country: LEBANON
USSR
Signed:
4/30/54
Trade Agreement
1955
Trade Agreement
Reported:
11/55
Tech. aid;
Credit; Offer
$50,000
Reported:
2/23/56
Econ. aid;
n.a.
Credit; Offer
(large
scale)
Long term; pay-
able in Leba-
nese products
Reported:
4/56
Econ. & Tech.
Aid; Credit;
Offer
Reported:
4/12/56
Economic Aid;
Request by
Lebanon
Reported:
5/56
Tech. Aid;
Offer
Reported:
7/56
9/56
Military &
Econ. Aid;
Offer
Trade Agreement;
Negotiation
Free services of Russian engineers to rebuild the villages destroyed by
earthquake of 3/16/56.
Lebanese premier discloses Soviet offer of arms and economic aid.
Departure of Lebanese economic delegation for Moscow for talks on trade
expansion.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
749
Bloc Donor
or
Participant
COMMUNIST
CHINA
Date
Type of
Assistance
or Agreement
Trade Agreement
Signed:
2nd half
af 1955
CZECHO-
SLOVAKIA
Signed:
7/52
Trade Agreement
Recipient Country: LEBANON (continued)
Credit-Financial Terms
Amount
Signed:
11/11/54
Trade Agreement
9/55
Economic Aid;
Reported Offer
9/55
Economic Aid;
Reported Offer
Signed:
Trade Agreement
2nd half
of 1955
3/56
Economic Aid;
(Reported)
n.a.
Reported:
Trade Agreement
6/27/56
E. GERMANY
Signed:
Trade Agreement
12/14/53
Signed:
Trade Agreement
11/12/55
POLAND
Signed:
Trade Agreement
2nd half
of 1955
Other
Project or Terms of Agreement; Development, Status and Implementation
Lebanese tobacco, olive oil for Chinese iron & steel products, machine
tools, chemical raw materials, telecommunications equipment, cotton yarn
& cloth.
$2.3 million each way. From Lebanon: apples, bananas, nuts, onions,
oilcake, molasses, barley, crude rubber, iron ore, meat. Czech. pledged
to buy 5,000 tons of citrus fruits. From Czech:
From Czech: trucks, aircraft, re-
frigerators, glass & glassware, mirrors, porcelainware, etc.
11/20/54 - 11/19/55; $3.7 million each way.
Czech. pledged to buy 6,500
tons of citrus fruits annually and $137,000 worth of transit goods from
Levantine Free Trade Zone. Czech. to export machinery and glass.
Aid in construction work of Tripoli harbor project.
Establishment of plant for processing sugar & fruit juices.
Construction of auto repair shop and of cement plant.
Duration: 3 years
Valid for year 1954. Automatically renewable for an additional year.
From Lebanon: 60% citrus fruit, the rest hides & leather goods. From
E. Germany: machinery, chemicals, optical & precision instruments.
Duration: 5 years
750
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Bloc Donor
or
Participant
RUMANIA
Date
Type of
Assistance
or Agreement
Signed:
2nd half
of 1955
Trade Agreement
Signed:
1/6/56
Trade Agreement
Credit Financial Terms
Amount
Other
_Project or Terms of Agreement; Development, Status and Implementation
Recipient Country: LEBANON (continued)
Effective 8/20/56; From Lebanon:
citrus fruit & tob sco. From Rumania:
agricultural & electrical machinery and timber.
-
General offer only reported (no amount stated) to a vist Liberia in its
9 year ($74 million) development program.
Recipient Country: LIBERIA
USSR
1/56
Economic & Tech.
Aid; Credit Offer
USSR
3/7/56
Econ. & Tech Aid;
Credit Offer
Recipient Country: LIBYA
Rejected - 3/30/56; offer of $3.75 million, 20 years at 2% interest, 1st
payments at end of 5 years payable in goods.
·
MEXICO
11/9/49 - 12/31/55; annual tacit renewal. No trade targets established.
Recipient Country:
CZECHO
SLOVAKIA
Trade Agreement
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
751
Bloc Donor
or
Participant
Date
Type of
Assistance
or Agreement
USSR
Reported:
3/56
Economic Aid;
Offer
COMMUNIST
CHINA
2/56
Tech. & Finan-
cial Aid;
Offer
10/56
Grant
Credit-Financial Terms
Amount
Other
Project or Terms of Agreement; Development, Status and Implementation
Recipient Country: NEPAL
General developmental aid for five year plan
General development.
COMMUNIST
CHINA
8/56
Trade Agreement
(informal)
$12.6
million
USSR
1953
Trade Protocol
(Barter)
3/23/56
Econ. & Tech.
Aid; Offer
5/56
Gift
Signed
6/27/56
Trade Agreement
1/3 in money; 2/3 in machinery & capital goods.
Recipient Country: MALATA
Negotiated by an official Malayan trade mission in China. From China:
20,000 tons rice. From Malaya: 10,000 tons rubber.
Recipient Country: PAKISTAN
Pakistan cotton for USSR wheat.
Offer of economic aid and atomic know how. This offer was rejected.
20,000 tons wheat & 20,000 tons rice for East Pakistan.
·
Duration: 1 year providing for payments to be made in Pakistani rupees
& balance in sterling. Negotiations started on 2/8/56 when Pakistan's
cabinet accepted the Soviet bid for a commercial agreement. From
Pakistan: Jute and jute products, cotton, wool, raw hides, tanned
leather, tea and other products, cottage industry products, sports equip.
From USSR: various industrial equipment, machine tools, instruments,
tractors, agricultural machines, bearings, metals, chemical goods, oil,
oil products, lumber and other goods, autos, trucks, steel for railroads
and building.
752
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Bloc Donor
or
Type of
Assistance
Recipient Country: PAKISTAN (continued)
Credit-Financial Terms
Participant
Date
or Agreement
Amount
COMMUNIST
CHINA
1953/54
Trade Protocol
CZECHO
SLOVAKIA
6/54
Trade Protocol
1955
Trade Protocol
7/9/56
Trade Protocol
Reported:
12/27/56
1/56
7/26/56
Tech. Aid;
Offer
Econ. & Tech.
Aid; Offer
Trade Negoti-
ations;
(Implied Offer)
Trade Agreement
HUNGARY
Signed:
7/30/56
POLAND
Signed:
6/52
Trade Agreement
Other
Project or Terms of Agreement; Development, Status and Implementation
Coal-cotton exchange during 1954 as contracted for in 1953 when China
agreed to sell Pakistan 200,000 long tons of coal. In 1954, Pakistan
exported to China over 32,000 tons raw cotton.
Additional contract for shipment of 70,000 long tons coal to Pakistan
from Communist China.
Chinese purchase of 80,000 bales of jute from East Bengal.
Among other items provides shipment of 300,000 tons coal from China to
Pakistan.
Chou-En-lai on visit to Pakistan offers Chinese technicians to develop
Pakistan iron industry.
Large-scale economic and technical aid.
Statement by Czech. trade delegation in Karachi that it is interested in
cotton & jute from Pakistan in exchange for Czech. industrial equipment.
From Hungary machinery, electrical installations, automobiles, equip.
for hydro-power stations. From Pakistan: cotton, wool, tea, tobacco,
hides, etc.
Duration: 1/1/52 - 6/30/53. From Poland: coal, textiles, chemicals,
cement, sugar and industrial goods. From Pakistan: jute, cotton, tea,
hides, leather.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
753
Bloc Donor
or
Participant
Date
Type of
Assistance
or Agreement
Credit-Financial Terms
Amount
Other
Project or Terms of Agreement; Development, Status and Implementation
Recipient Country: PARAGUAY
From Paraguay: hides, tannin, corn and other agricultural products.
From Czech: agricultural machinery, malt, light industrial products, etc.
For purchase of capital goods.
Flour mill capacity of 60 tons grain per 24 hours.
-
Duration: 11/1/53 - 10/31/54; 1st post-war agreement. Annual tacit
renewal.
Duration: 1 year
СЧЕСНО-
SLOVAKIA
Reported:
3/17/54
Trade Agreement
1955
Credit
$15
million
4/56
Tech. Aid
HUNGARY
12/7/53
Trade Agreement
POLAND
Signed:
11/23/55
Trade Agreement
USSR
Reported:
1955
Military Aid
Offer
POLAND
Reported:
1956
Tech. Aid
BLOC
Recipient Country: SAUDI ARABIA
Arms
Polish engineers to rebuild Hejaz railway.
Trade Re-
lations
Recipient Country: SPAIN
-
1954-55 Commercial missions and exchanges, especially with Poland,
Hungary, Czech. Poland purchased 30,000 tons of mineral ore and sold
200,000 tons of coal.
754
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Recipient Country: SUDAN
Credit-Financial Terms
Other
Long term
credit, repay-
able in Suda-
nese products
Project or Terms of Agreement; Development, Status and Implementation
General economic and technical aid. Initial offer in 6/55.
Bloc Donor
or
Type of
Assistance
Participant
Date
or Agreement
Amount
USSR
4/56
Econ. & Tech.
Aid & Credit
n.a.
Trade & Pay-
ment Agree-
ment
1st postwar agreement. Duration:
Duration: indefinite, starting 5/20/55.
Reported:
7/56
Military Aid;
Offer
B. GERMANY
1955-56
Tech. Aid
1955
Trade Agreement
Offer to sell heavy tanks and jets by. Czech.
Surveying water resources; construction of waterworks & water systems.
Duration: 6/10/55 - 12/31/56; 1st postwar agreement.
HUNGARY
1955
Trade Agreement
POLAND
1955
Trade Agreement
Duration: 5/20/55 - 5/19/56; 1st postwar agreement.
Duration: 5/20/55 - 5/19/56; 1st postwar agreement.
CZECHO-
SLOVAKIA
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
755
Bloc Donor
or
Type of
Assistance
Recipient Country: SYRIA
Credit-Financial Terms
Date
or Agreement
Amount
Trade Agreement
Participant
USSR
Signed:
11/18/55
BULGARIA
1/1/56 &
12/6/55
Other
Economic Aid;
Offer
3/15/56
Econ. & Tech.
Aid; Offer
n.a.
n.a.
Reported:
3/28/56
Economic Aid
Trade Agreement
Reported:
6/27/56
Trade Agreement
COMMUNIST
CHINA
Signed:
11/30/55
CZECHO-
1953
Trade Agreement;
SLOVAKIA
Economic Aid
Reported:
2/28/56
Economic Aid
Reported:
3/56
Economic Aid
Signed:
Military Aid
3/56
$56-60
million
Project or Terms of Agreement; Development, Status and Implementation
From Syria: cotton, oilseeds, veg. oil, dry fruits, beans, tobacco, wool,
leather, silks. From USSR: machines, industrial installations, autos,
trucks, tractors, rolled ferrous metals, agricultural machy., chemical
products, medicines, lumber, paper.
Oil refinery - capacity of 750,000 tons/yr. Offered at price consider-
ably below world market. Offer repeated 6/56
Petroleum refinery (apparently the same as above); cement factory; tex-
tile mill equipment; Rastan Dam for Electric power; utilization of natu-
ral gas. Payment in cash or products.
Grain stores; oil reservoirs; cement factory.
From Syria: cotton, tanning agents, other products. From Bulgaria:
textiles, chemicals, machines, motors, iron, cement, timber, glass pro-
ducts, medical products.
Duration: 1 year; 1st postwar agreement.
3/27/53 - 3/26/54; 1st postwar agreement; annual tacit renewal.
Aid in constructing international airport (in Damascus) and oil re-
finery.
Sugar refinery; starch, alcohol & glucose factories. Arrangements re-
ported completed.
50 light tanks of a German model. 50 heavy Stalin tanks of Soviet type.
25 MIG-15 fighters. 50 pieces heavy artillery. 100 armored vehicles,
field artillery, 10,000 submachine guns, ammunition
250 Sov. advisors (50 officers, 200 technicians).
Since mid-'56, shipments incl. at least 100 medium tanks, 100 armored
vehicles, 50-100 self-propelled guns, 100 SU-100 long barreled artillery
pieces, 14 T-34 tanks, substantial quantities of radar & radio equip.,
ammunition & other vehicles. Syria & USSR officials acknowledge re-
ceipt by Syria of small amount of arms & vehicles.
94413 0-57——————49
756
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Type of
Assistance
Trade Agreement;
Bloc Donor
or
Participant
Date
or Agreement
E. GERMANY
Signed:
1/56
Tech. Aid
Reported:
Trade Negoti-
5/30/56
ation
HUNGARY
Signed:
5/8/56
Trade Agreement
POLAND
1/56
Tech. Aid;
Offer
Reported:
7/56
Trade Agreement
Recipient Country:
Credit-Financial Terms
Amount
Other
SYRIA (continued)
Project or Terms of Agreement; Development, Status and Implementation
Technical assistance provision made in trade agreement; also offer by
E. Germans, of scholarships for study in E. Germany of technical and
scientific courses.
E. German trade delegation visits Syria.
From Syria: cotton, grain, hemp, vegetable oil, tobacco, raw leather,
etc. From Hungary: industrial equipment, equipment for electric power
plants, machines, motorcycles, transportation equipment, products of the
electrical & chemical industries.
-
Damascus Medina. Bid
Polish bid on engineering surveys for railroad
accepted but later cancelled and new bids called for.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
757
Bloc Donor
or
Participant
USSR
Type of
Assistance
Date
or Agreement
Amount
11/12/54
Trade Agreement
End of
'54
Special Protocol
Under Trade
Agreement
1955
Economic Aid
n.a.
Credit Offer
Recipient Country: TURKEY
Credit-Financial Terms
Other
Payable over
30 years
Project or Terms of Agreement; Development, Status and Implementation
Expansion of limited trade treaty of 1937. From Turkey: tobacco, fruit,
livestock, wool. From USSR: construction materials, cotton textiles.
Agreement reached earlier in 1954 called for $840,000 trade each way.
From USSR: 450,000 meters of cotton textile material. From Turkey:
100,000 head of sheep & 15,000 head of beef cattle.
Soviet commodity offer of petroleum, cement, glass, caustic soda;
establishment of 3 cotton-thread factories at lower prices than
offered by British.
100-120,000 head of sheep & 30,000 head of longhorn cattle to be
exported to USSR.
-
1st postwar agreement: $2.5 million each way. Duration: 3/10/55
3/10/56. From Turkey: mainly fish & marine oil, valonia for tanning,
citrus fruit, dried fruit, olives, olive oil, textiles. From Bulgaria:
chemicals, cement, machinery, fertilizers, steel, porcelain, etc.
Duration: 7/11/49 - 6/30/50. Annual tacit renewal.
Purchase by Turkey of complete installations and equipment for cotton
textile factory.
Purchase by Turkey of 150 railroad coaches, value $5 million. Possible
credit.
$26.3 million each way. Protocol between German & Turkish Chambers of
Commerce.
$26.15 million each way. Duration: 4/1/55 - 3/30/56; From Turkey:
wheat, animal products, leather, hides, furs, fruit, oilseeds, cotton,
etc. From Germany: Machinery, fertilizers, paints, chemicals.
formal agreement between Turkey and East Germany.
First
6/55
Trade protocol
BULGARIA
Signed:
2/23/55
Trade Agreement
n.a.
CZECHO-
SLOVAKIA
1949
Trade Agreement
Reported:
3/55
Economic Aid
Reported:
4/55
Economic Aid
EAST
GERMANY
1954
Trade Protocol
Signed:
4/28/55
Trade Agreement
હું
758
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Recipient Country: TURKEY (continued)
Credit-Financial Terms
Bloc Donor
or
Type of
Assistance
Participant
Date
or Agreement
Amount
HUNGARY
1949
Trade Agreement
POLAND
1948
Trade Agreement
Economic Aid
& Offer
1955
RUMANTA
Signed:
Trade Agreement
2/6/54
Signed:
4/5/54
Trade Agreement
Other
Project or Terms of Agreement; Development, Status and Implementation
Duration: 6/1/49 - 5/31/50; 1st postwar agreement; annual tacit renewal.
Duration: 7/1/48 - 6/30/49; 1st postwar agreement; annual tacit renewal.
Note on Polish implementation: In 1955 Poland refused to grant export
permit for 100,000 tons of cement contracted by Turkish trade officials
due to scarcity of cement.
Production of telephones for Turkey and offer to produce Polish type
trucks in Turkey.
$1 million each way. From Turkey: fish, olives, fruit, barley.
From Rumania: lumber, cement, glass, chemicals.
Replaces agreement of 2/6/54 by a permanent ore, valid for one year
and automatically renewable for an additional year.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
759
Recipient Country: URUGUAY
Credit-Financial Terms
Other
Project or Terms of Agreement; Development, Status and Implementation
$19 million each way. Duration year 1954. Uruguay's shipment of
frozen meat and wool nearly reached the target in 1954, but Soviet
shipments were only $22,000.
Duration: 7/28/54 - 7/27/56.
$22.4 million each way.
through respective Central Banks.
Settlement in
From Uruguay: Wheat, hides, skins, canned and frozen meat.
From USSR: Oil, petroleum products, coal, newsprint, chemicals
agricultural and industrial machinery, iron and steel products and
timber.
Duration: 3 years.
Bloc Donor
or
Type of
Assistance
Participant
Date
or Agreement
Amount
USSR
Signed:
12/53
Trade Agreement
Signed:
7/28/54
Trade Agreement
Signed:
8/12/56
Trade & Shipping
Agreement
Reported:
8/30/56
Trade & Payments
Agreement
COMMUNIST
CHINA
Reported:
11/7/56
Trade Agreement
Offer
CZECHO
SLOVAKTA
EAST
GERMANY
Signed:
6/20/54
POLAND
Trade & Payment
Agreement
Trade Agreement
Trade & Payment
Agreement
Trade Agreement
Duration: 2 years.
$14 million each way. Talks deadlocked.
Duration: 8/54 - 8/55;
$2.5 million each way. Payment agreement
made with Bank of Uruguay.
Duration: 9/12/55 - 9/11/58/
Duration: 6/29/54 - 6/28/55. Agreement between respective central
banks.
From Uruguay: food stuffs, wool, linseed oil, hides, meat.
From East Germany: Machinery, machine tools, chemicals, precision
and optical instruments, cement, glassware, ceramics, etc.
Duration: 4/24/53 - 4/23/54. Annual tacit renewal.
7600
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Bloc Donor
or
Participant
USSR
Date
Reported:
1/14/56
Type of
Assistance
or Agreement
Technical Aid
Offer
Trade Agreement
Signed:
3/8/50
Offer of Tech.
& Mil. Aid
Recipient Country: YEMEN
Credit-Financial Terms
Amount
Other
10 yrs; no
interest
charged
Project or Terms of Agreement; Development, Status and Implementation
Erection of factories, supply of agricultural machinery & road-building
equipment.
From Yemen: coffee, dried fruit, hides. From USSR: Machinery, building
equipment, oil products, wheat, flour, sugar, rice.
USSR offered to build complete factories and to give technical assistance
also report of USSR offer of arms to Yemen.
Construction of roads, ports, factories; prices are 30% below world
prices. USSR to receive coffee in payment.
Reported:
6/25/50
Tech. Aid:
Credit
n.a.
CZECHO-
SLOVAKIA
Reported:
Tech. Aid
6/20/56
Signed:
2 Friendship
7/5/56
& Trade
EAST
Signed
Agreements
Technical Aid
GERMANY
6/30/56
& Trade Agres-
ment
Cement factory
-
200 tons daily; 30 mechanical units for drawing
water and digging small canals.
3 factories
cement, glass & plastic leather; to be paid for entirely
in Yemen's agricultural products.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
761
Bloc Donor
or
Participant
USSR
Type of
Recipient Country: YUGOSLAVIA
Credit-Financial Terms
Assistance
Date
or Agreement Amount
Other
Trade Agreements & Protocols
Signed:
Trade Agreement
10/1/54
Signed:
Trade Agreement
1/5/55
Signed:
6/30/55
Trade Protocol
Signed:
2/2/56
Trade Agreement
Signed:
Trade Protocol
6/6/50
10/29/56
Trade Protocol
7/55
Grant
General Credit Agreements
Signed:
1/13/56
Economic &
Technical Aid;
$110
million
2% int; 10
years
Credit
Signed:
2/2/56
Credit Agree-
ment
Signed:
2/2/56
$54 2% int;
million repayable
in 10 yrs.
beginning
1/1/59
Credit Agree-
ment
$30
million
2% int;
repayable
in 10 yrs.
beginning
1/1/59
Project or Terms of Agreement; Development, Status and Implementation
1st trade agreement after the 1948 break; Duration: 3 months. Trade
during 1954 totalled $5 million
Duration: 1 year; $20 million each way; From Yugoslavia: meat, sheep
guts, tobacco, calcium carbide, caustic soda, calcined soda, plywood,
cigarettes, paper, etc. From USSR: cotton, crude oil, aviation
gasoline, anthracite, manganese ore, chemicals.
$12 million each way: Complementary protocol to original trade
agreement of 1/5/55, increasing original value 60% with Yugoslavia
adding barite & USSR adding tin, nickel & synthetic rubber in exchange.
$35 million each way.
Supplemental to trade agreement of 2/2/56.
6 Пyushin - 14 type planes for domestic service. Bought by state
owned Yugoslav Airline heretofore had used U.S. built planes only.
USSR cancelled Yugoslav debt of $90 million from pre-1948 credits because
Yugoslavia claimed that "Stalin" policy was responsible for interruption
of original economic plans.
Construction & equipping nitrogen plant (360,000 MT ammonium nitrate)
Superphosphate plant (250,000 MT superphosphates), Sulphuric acid
plant (120,000 MT H₂SO), Thermo-power station (100,00 Kw), Equip-
ment for 2 lead-zinc mines, and mercury plant.
Commodity credit to be used during 1956-58 to buy Russian goods.
Gold loan for use during 1956-58.
-
762
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Bloc Donor
or
Participant
USSR
Type of
Assistance
or Agreement
Date
Signed:
8/3/56
Technical Aid
Credit
Signed:
Technical Ald
1/28/50
5/56
3/50
Technical Aid
Recipient Country: YUGOSLAVIA (continued)
Credit-Financial Terms
Amount
Other
Specific
Specific Technical Aid
Signed:
5/18/56
Reported:
Technical Aid
Military Aid
Military Aid
2/50
3/56
Economic &
Military Aid
Offer
USSR &
EAST
GERMANY
Signed:
8/3/50
Economic &
Technical Aid,
Credit
$175 2% int. part
million of repayment
will be in
aluminum from
the new plant
ALBANIA
Signed:
5/17/55
Trade Agree-
ment
BULGARIA
Signed:
11/12/54
Trade Agree-
ment
Signed:
Trade Agree-
3/10/55
ment
Project or Terms of Agreement; Development, Status and Implementation
Use of $40 million of the $110 million general credit extended under
agreement of 1/13/56 for industrial development in coal mining, ship
building, oil and gas extraction, and agricultural development.
Agreement to cooperate in research and peaceful use of atomic energy.
5/56 implementation agreement on atomic energy reactor - 6,500-10,000 kw
to be completed by 1958.
Soviet experts investigate production of coke, and exploitation of
lignite in Yugoslavia. Yugoslavia delegation of chemical experts
will study in USSR.
Signing of protocol by Soviet-Yugoslav committee concerning exchange of
industrial and agricultural technical data.
Yugoslav Air Force received 35 MIG-15 & MIG-17 jet fighters (British
source).
Offer of tractors, wheat and licenses to build latest MIG jet fighters.
-
contributing equally.
Aluminum industry development to increase aluminum capacity by 100,000
metric tons per yr. USSR to deliver wheat profit from wheat
sale in Yugoslavia will help finance USSR expenditures.
USSR & E. Germany
Construction to be started
1956 must be finished by 1961. In addition to machinery, Yugoslavia
will also receive technical and scientific support from USSR and
East Germany. USSR is using German survey experience and plans for
Yugoslav bauxite resources and aluminum production.
-
Duration: $1.5 million each way, 5/17/55 - 12/31/55. 1st postwar trade
agreement. From Yugoslavia: paper, leather products, textiles, chemicals
From Albania: crude oil, hides, pelts, wool, cotton textiles.
Short term agreement to end of 1954. $0.5 million each way.
Duration: $5 million each way, 4/1/55 - 3/31/56. From Yugoslavia:
pyrite concentrates (10,000 tons), caustic soda (1,500 tons),
cigarette paper, oakwood, cellulose, agricultural machinery, etc.
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
763
Recipient Country: YUGOSLAVIA (continued)
Credit-Financial Terms
Amount
Other
Project or Terms of Agreement; Development, Status and Implementation
From Bulgaria: nitrogenous fertilizers (3,500 tons), manganese ore
(4,000 tons), sunflower seed (3,000 tons), kaolin, felspar, fruits,
vegetables, etc.
Protocol in the trade agreement of same date provides for settlement
of $3 million Bulgarian railway transit debt.
Renewal of trade agreement (3/56 - 3/57) and provision for
scientific & cultural exchange.
$14 million each way. From Yugoslavia: tobacco, textiles, chemical
products, agricultural machinery From China: tea, graphite, oil
seeds, leather, linseed oil, etc.
$3 million each way.
Duration: $27 million each way, 1/1/55 - 12/31/55
From Yugoslavia: meat, tobacco, wine, tannin, chemicals. From
Czechoslovakia: rolled metals, railway equipment, machinery,
chemicals.
Investment credit for construction of electric powerplants and plants
for the production of chemicals, paper and woodworking machinery.
Commodity credit for purchase of steel & ferrous products, kaolin,
special paper; to be used 1956 1958.
-
Agreement signed in Belgrade for scientific-technical cooperation.
Commission set up for implementation of agreement.
Duration: 8/54 - 12/54 $4 million each way. From Yugoslavia:
tobacco, sulphur, food products. From East Germany: potash
fertilizers, machinery, textiles, etc. Extended several times
subsequently to 6/30/56.
Duration: 7/1/56 - 7/1/57- larger volume aggregating $10 million
in second half 1956. From Yugoslavia: food, tobacco, lead, chemicals,
timber, metallurgical products, books, journals, etc. From East Germany:
chemicals, roto-paper, electrical products, glass products, machines,
books, journals, etc.
Bloc Donor
or
Participant
BULGARIA
Date
Type of
Assistance
or Agreement
3/16/55 (cont'd.)
Signed:
2/10/50
Trade Agreement
& Technical Aid
COMMUNIST
CHINA
Signed:
2/56
Trade Agreement
CZECHO-
SLOVAKIA
Signed:
8/54
Trade Agreement
Signed:
Trade Agreement
2/19/55
Reported:
2/56
Economic Aid;
Credit
$50
million
Reported:
2/56
Economic Aid;
Credit
$25
million
Signed:
Technical Aid
7/3/50
EAST
Signed:
GERMANY
8/3/54
Trade Agree-
ment
Signed:
8/4/50
Trade Agree-
ment
::
764
FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
Bloc Donor
or
Type of
Assistance
Recipient Country: YUGOSLAVIA (continued)
Credit-Financial Terms
Other
n.a.
2% interest
Project or Terms of Agreement; Development, Status and Implementation
$2.5 million each way.
1st trade agreement after the break.
Duration: 1/1/55 - 12/31/55; $14 million each way. From Yugoslavia:
lumber, cellulose, chemicals, tannin, tobacco. From Hungary:
machinery, chemicals.
$18 million each way. From Yugoslavia: lumber, plywood, chemicals.
From Hungary: fertilizer, aluminum articles, sugar.
Includes clause for scientific-cultural exchange.
Duration: Year 1955. $15 million each way. From Yugoslavia:
bauxite, zinc, pyrites, cellulose, tobacco. From Poland: coke,
coal, steel, machinery, chemicals.
To buy equipment for food factories, mine facilities & railroad
car plants.
Duration: 4/1/55 - 3/31/56; $6 million each way; From Yugoslavia:
rolled wire, steel pipe calcium carbide, tannin, DDT, cellulose,
paper, etc. From Rumania: petroleum products, carbon black, oil
equipment, dyes, etc.
Duration: 1957-1960. Exchange each way to increase from $7 million
in 1957 to $9 million in 1960.
Participant
Date
or Agreement
Amount
HUNGARY
Signed:
Trade Agreement
5/6/54
Signed:
Trade Agreement
1/4/55
Signed:
Trade Agreement
5/29/56
Technical Aid
POLAND
Signed:
Trade Agreement
2/12/55
Reported:
11/55
Credit
Offer
RUMANTA
Signed:
Trade Agreement
3/24/55
Signed:
10/27/56
Trade & Payment
Agreement
APPENDIX D
(This outline was prepared by the staff of the special committee to
serve as a guide for the Council for Economic and Industry Research,
Inc., in preparation of its report to cover subjects of interest to the
committee.)
FOREIGN ASSISTANCE ACTIVITIES OF THE COMMUNIST BLOC AND THEIR
IMPLICATIONS FOR THE UNITED STATES
Purpose. The project will examine the objectives, extent, methods,
and effectiveness of the aid programs (military, economic, and techni-
cal) of the Soviet Union and other Communist countries. It will
assay these programs in terms of their implications for United States
interests generally and the conduct of United States foreign assist-
ance programs specifically. The project is designed to assist the
Committee in making recommendations as to the manner and extent,
if any, in which Communist aid activities should be taken into con-
sideration in formulating our national policies, particularly foreign
aid policies.
Scope. The study will seek to answer the following questions:
I. What have the Soviet Union and other Communist countries been
doing in the way of foreign aid and since when? A brief historical
résumé covering:
(a) Communist attitudes of foreign aid before and after the
death of Stalin.
(b) Attitudes toward United Nations aid programs.
8
(c) Résumé of Soviet Russian and European satellite offers,
grants, deliveries, of military, economic and technical assistance.
(d) Résumé of foreign assistance activities of Communist
China.
II. What do the Communist nations hope to achieve by foreign as-
sistance? An examination of the possible objectives of Communist
foreign aid. The analysis is to take into account but not be limited
to the following:
(a) Objectives which may arise from economic and political
developments within the Soviet orbit.
(b) Objectives as stated by present leaders and indicated by
Communist propaganda toward other nations.
(c) Objectives as indicated by the nature and timing of mili-
tary and economic assistance offered and granted and the capacity
of the Soviet bloc to provide such assistance.
(d) Objectives in terms of response to United States assistance
programs.
(e) Objectives in terms of response to military, economic and
political policies of the United States and other free countries.
765
766 FOREIGN ASSISTANCE ACTIVITIES OF COMMUNIST BLOC
(f) Objectives as related to the political and economic motiva-
tions of the lesser developed areas.
(g) Objectives as indicated or implied in Communist bloc
foreign policy and activity.
(h) Relationship between Soviet and Chinese Communist
objectives.
III. How do the Communist foreign aid programs compare with
those of the United States? A comparison of the techniques employed
in the programs of both (i. e., loans, grants, barter, technical assist-
ance, strategic buying, etc.) and an evaluation of the relative effective-
ness of the programs in these and any other significant terms:
(a) Costs.
(b) Desires of the recipient countries.
(c) Economic needs of recipient countries.
d) Capacity to deliver, actual delivery, and followup main-
tenance.
(e) Administrative relationships within recipient countries.
(f) Appeal to recipient governments.
(g) Mass appeal in recipient countries.
IV. What effect is the Communist aid program having on United
States relations with other countries and what effect is it likely to
have in the future? An estimate of the implications of the Commu-
nist aid programs for United States economic, political and defense
relationships with allied and neutral countries.
V. What, if anything, ought the United States to do in response
to the Soviet aid programs, in order to safeguard and advance our
national interests? An examination and evaluation of possible alter-
native courses of action which will deal with but need not be limited
to the following:
(a) Implications of a competitive aid policy built on the expec-
tation of forcing the Communist bloc into everincreasing aid
activity.
(b) Implications of proceeding with the United States aid pro-
gram independent of consideration for what the Communist na-
tions may or may not do.
(c) Implications of a United States aid program which seeks
to penetrate the Communist satellite nations.
(d) Implications of a drastic reduction in United States aid,
in the light of Soviet aid policies.
STUDY NO. 9
THE FOREIGN AID PROGRAMS AND THE
UNITED STATES ECONOMY
BY
THE NATIONAL PLANNING ASSOCIATION
MARCH 1957
767
CONTENTS
Page
Letter of transmittal.
Section I. Summary
Section II. General introduction...
771
775
778
Section III. Foreign aid and its costs to the United States____.
Section IV. Foreign aid and foreign trade of the United States.
Section V. Foreign aid and domestic consumption--
Section VI. Foreign aid and United States production...
783
787
790
793
Section VII. Foreign aid and the United States shipping industry
798
Section VIII. Foreign aid and natural resources_
807
Section IX. Foreign aid and United States agriculture_
815
Section X. Foreign aid and United States labor.
818
Appendix I: Tables..
827
Appendix II: Committee staff outline.
878
769
LETTER OF TRANSMITTAL
The CHAIRMAN,
NATIONAL PLANNING ASSOCIATION,
Washington, D. C., December 19, 1956.
Special Committee to Study the Foreign Aid Program,
United States Senate, Washington, D. O.
DEAR Mr. CHAIRMAN: In response to your request of September 27,
1956, I am submitting to you a staff report of the National Planning
Association on The Foreign Aid Programs and the United States
Economy, which has been reviewed by the steering committee of the
association. This report covers, in general, the topics listed in the
tentative outline prepared by your committee's staff. The study de-
fines as foreign aid those programs which are financed directly by the
United States Government, including the military aid programs which
constituted about 46 percent of foreign aid in 1955. The United
States contributions to the aid programs of the various United Nations
agencies are not included in this report, nor are private investments
abroad and the foreign aid contributions made by private United
States organizations and citizens.
This staff report does not cover point IX of your tentative outline,
which reads as follows:
In the event of a continuance of the aid program at the same
level as at present, a reduction in the amount expended, or a
substantial increase, what measures may be desirable to
decrease the adverse effects and increase the beneficial effects
of foreign aid to the American economy?
Having participated in the review of the report, I should like to
present a few thoughts with respect to this last question which are
based on the findings of the study. However, before discussing meas-
ures which might be desirable, I would like to state the elementary
fact that the merits of any foreign aid program must be judged
primarily on foreign economic policy grounds. When we review a
road construction program, for example, we think of the beneficial
effects on the road construction equipment industry, or the contractors,
workers, and so on. We also think of the adverse effects on those
who have to pay higher taxes for financing the construction programs,
or on some of those whose property might be condemned against
their wishes. However, all these beneficial and adverse effects can be
seen in perspective only if we consider what the program will con-
tribute to the speed of transportation and safety of our citizens. A
judgment of the beneficial and adverse effects of foreign aid requires
the same type of consideration.
The report states that in the calendar year 1956 about 1 percent of
total production of goods and services (gross national product) was

94413 0—57– -50
771
772
LETTER OF TRANSMITTAL
devoted to foreign aid, and that about 6 percent of Federal tax receipts
was used to finance these programs. The sacrifices measured by these
figures could be considered relatively small if these programs add
significantly to the political and economic strength of the free nations.
Studies assigned to other organizations by your committee are examin-
ing the results of foreign aid programs in terms of their impact on
foreign countries. Here, I should like to state clearly that the foreign
aid program is not without cost and that these costs must be justified
by the benefits which accrue to the recipient countries and the indirect
advantage which we, as part of the free world, derive from these
benefits.
I may now turn to the question of how benefits may be increased
and adverse effects lessened. Basically, foreign aid is an export of
goods and services for which the recipient country either need not
pay, or need not pay immediately, as in the case of loans. In general,
the effect of a shipment of grain or of a tractor on foreign aid account
is the same as its shipment as an ordinary commercial export. There
are, however, differences in certain respects. First, the receiving
country must acquire dollars to pay for ordinary exports. This is
done by exporting its own goods and services, or by borrowing in
private capital markets. If the countries in need of foreign aid have
to increase their own exports sufficiently to pay for all of the goods
and services they urgently need, they probably will have to force or
subsidize exports. This could have disruptive influences on world
trade and on competitive conditions within United States industry.
Second, the United States Government influences the type of goods
and services which are included in the foreign aid program. Some-
times, the foreign aid program has been viewed as a support measure
for depressed United States industries. Indeed, it is conceivable that
the United States Government could insist upon shipping as foreign
aid only those goods which are in surplus in the United States or
which are produced by industries suffering from a slack domestic mar-
ket. The report points out that in some instances it has been possible
to meet the real needs of the recipient countries while aiding dis-
tressed domestic industries, or using domestic surpluses, such as agri-
cultural commodities or military equipment. It is desirable to seek
out opportunities for giving genuine aid in a manner which imposes
the least sacrifice on the domestic economy. However, if the desire to
include goods which need domestic support is made a rigid rule of
foreign aid operations, it is inevitable that the objective of effective
aid to other countries will suffer. A program which is used primarily
as a measure for the domestic support of slack industries in all likeli-
hood will fail as a foreign aid measure.
The disposal of agricultural surpluses is an example of aiding
domestic industry and at the same time promoting United States for-
eign aid objectives. This agricultural surplus disposal program in its
relationship to foreign aid is treated in a separate report which has
been prepared by the National Planning Association for your
committee.
It is also conceivable that the Government might exclude certain
goods from the program because they are scarce at home. The ship-
ment of new weapons under the mutual defense aid program certainly
means that we are supplying equipment which not only contains
valuable raw materials but might delay the delivery of needed equip-
LETTER OF TRANSMITTAL
773
ment to our own Armed Forces. Nevertheless, I am sure that the
agencies concerned have satisfied themselves that increasing the mili-
tary strength of our allies contributes more to the total strength of
the free world-of which we are a part-than if the same weapons
had been added to the equipment of our own forces. This is another
example demonstrating that shipment only of surplus materials would
not give the desired results. Again, we are making high quality
technical assistance available to other countries by sending them
scientists, engineers, and other experts, although many of these same
types of technicians are scarce in this country. I am convinced that
the adverse effects resulting from possible increases of domestic short-
ages are amply offset by the rewarding results of the technical assist-
ance program. It would be a foolish policy to send abroad only the
"surplus" experts who cannot find employment at home.
In this connection, I would like to raise a question with respect to
the legislation which requires that 50 percent of foreign aid goods be
shipped in United States bottoms provided shipping space is avail-
able at reasonable rates. There is no question in my mind that keep-
ing an effective United States merchant fleet in operation and addi-
tional ships in reserve is a necessary national security measure. I am
also convinced that the differences in costs of operating United States
and foreign shipping make it necessary for the United States to
subsidize American shipping in one form or another if the objective of
keeping an adequate merchant fleet afloat is to be achieved. The 50-
percent preference legislation, however, must be viewed as a temporary
measure rather than a means of solving the long-range problem of the
United States shipping industry. Leaving aside all political con-
siderations, I would favor fuller implementation of present legisla-
tion which directly assists in solving the basic problems of the United
States shipping industry, and less reliance on the temporary relief
afforded by cargo-preference legislation.
Another question relates to the export of surplus agricultural com-
modities under foreign aid. Surplus commodity shipments, for the
most part, are not foreign aid but are in the nature of a sale of United
States farm surpluses for foreign currencies. However, a large part
of this currency is used eventually for foreign aid. The two pro-
grams-foreign aid and disposal of surplus commodities-are separate
but interrelated. In fact, the quantity of agricultural commodities
shipped abroad under the surplus disposal program is much greater
than that shipped directly under the foreign aid program.
A final question relates to measures for reducing the adverse effects
and increasing the beneficial effects in the event of an increase or
decrease in foreign aid programs. In an economy with a potential
growth in production of $15 billion per year (measured in constant
dollars), some increases in foreign aid programs could be made with-
out causing problems of a serious nature. If in future years the
present coincidence of business expansion, rising consumer expendi-
tures, and increasing Government expenditures should be replaced
by conditions in which demand grows more slowly or not at all, an
increased foreign aid program could have a stabilizing effect. Never-
theless, I would not recommend increasing the foreign aid program as
a kind of public works undertaking. There are other useful programs
which could be expanded within the United States if a slack in the
economy should develop.
774
CONTENTS
A sudden termination of foreign aid programs could create difficul-
ties for some of the industries which are now shipping a substantial
proportion of their production as foreign aid. This would be a par-
ticularly serious blow to the United States shipping industry under
present arrangements. Nevertheless, if foreign policy and humani-
tarian considerations lead to the conclusion that the benefits to foreign
countries do not justify the costs of foreign aid-or that better alter-
natives have been developed-I would favor a prompt termination
of the program. In that case, we would need a tax or expenditures
policy which would be best calculated to maintain high employment
and economic stability despite the termination of the program.
If your committee's review of the foreign aid program leads to
the conclusion that it is useful for attaining our international objec-
tives, I believe that the program should be continued at the present
or an expanded rate irrespective of the relatively minor effects on the
domestic economy. My main recommendation, I repeat, is that foreign
aid programs should be viewed primarily in terms of their effectiveness
in implementing the foreign policy of the United States, rather than
in terms of the direct effects on the domestic economy.
The staff report which I am submitting herewith has been pre-
pared under the supervision of Gerhard Colm, National Planning
Association's chief economist, with the assistance of Herbert Striner
and Sidney Sonenblum, and in consultation with Harold De Veau
(shipping), William Stead (raw materials and labor), and Howard
Tolley (agriculture).
Respectfully yours,
H. CHRISTIAN SONNE,
Chairman, Board of Trustees.
THE FOREIGN AID PROGRAMS AND THE UNITED
STATES ECONOMY
SECTION 1
SUMMARY
During the period 1948-55, the United States provided approxi-
mately $43 billion of economic and military aid to numerous countries
throughout the world. In recent years, approximately one-half of
foreign aid has been for military assistance, one-third for defense
support assistance, 7 percent for development assistance, 5 percent
for technical cooperation, and the remaining 4 to 5 percent for various
other uses, including the President's contingency fund. The purpose
of this report is to indicate the impact of these aid programs on the
economy of the United States.
Before summarizing these effects, it should be emphasized that the
beneficial and adverse impact of the foreign aid programs on the
United States economy should be viewed in the light of their effec-
tiveness in helping to attain the objectives of the United States foreign
economic policy. The objectives of the foreign aid programs have
been the restoration and reconstruction of war ravaged areas, help-
ing underdeveloped areas to help themselves, and strengthening the
defenses of the free world. It is not the purpose of this report to
appraise the extent to which these objectives have been achieved. No
Government program is without cost. However, in evaluating the
costs of the foreign aid programs, their major objectives should be
kept in mind.
The major conclusion of this report is that the costs of the foreign
aid programs seen in the perspective of the economy as a whole have
been relatively small. Since 1948, the average share of our gross
national product which has gone for foreign aid has been 1.7 percent.
In 1956, this share has dropped to around 1.1 percent. During this
latter year, the United States per capita cost of foreign aid pro-
grams, after deducting repayments from foreign countries, has been
$23.07. Foreign aid, in 1956, accounted for about 6.4 percent of total
United States Government expenditures. The average for the period
1948-55 has been 9.4 percent of total United States Government ex-
penditures.
Foreign aid has taken about 1.5 percent of this country's total
industrial, agricultural, and mining production during the last 9
years. In the absence of foreign aid, production in these sectors of
the economy would not necessarily have diminished by this amount.
Tax reductions in the amount needed to support the foreign_aid
programs, or other Government programs which might have been
increased, especially in defense, could well have offset any drop in the
775
776
THE FOREIGN AID PROGRAMS
demand for United States commodities resulting from abandonment
of foreign aid. It is fair to say, however, that during a period of
inflation, such as mid-1950 to mid-1951, the increase in foreign aid
programs tended to aggravate, though very slightly, the inflationary
situation. In contrast, during periods of recession, such as 1948 and
1954, the maintenance of foreign aid purchases tended to act as a
stabilizing force. Once again, however, the importance of foreign aid
as a factor of stability should not be exaggerated.
In the early years of the foreign aid program, agricultural com-
modities were quite important in that more than 5 percent of total
United States production of certain types of farm goods were shipped
as foreign aid. Such commodities included bread grains, coarse
grains, rice, cotton, and tobacco. In recent years of the foreign aid
program, agricultural commodities tended to diminish in relative
importance and manufactured items came to the fore. Some of these
manufactured items were also of importance during the earlier years.
of the program. The foreign aid items which account for a relatively
important share of their industry's total production are tractors;
conveying, mining, and construction equipment; machine tools; and
engines and turbines. Since 1952, the foreign aid shipments of air-
craft, engines, and parts have been of great importance, quite probably
as a result of increasing military aid shipments. There are, however,
many more items shown in the body of the report, with respect to
which 2 to 5 percent of total United States production was shipped
as foreign aid.
Assuming a gross national production level by 1965 of $565 billion
(in 1955 prices), the United States could double the present size of
the foreign aid program by then with little additional impact on the
United States economy. The commodities most likely to be affected
by such an increased level of foreign aid would be primarily agri-
cultural.
Since on the average about 1.5 percent of United States production
has been involved in foreign aid, it is difficult to claim that domestic
employment, prices, or consumption as a whole could have been seri-
ously affected, for better or worse, by foreign aid expenditures. The
impact on employment varies from one region to another, depending
upon the commodity, as shown in the body of this report, and the
effects differ during periods of inflation and recession. On the whole,
however, the inflationary or stabilizing effects have been very slight.
The data found in the appended tables indicate that the foreign aid
programs have not been used generally to aid distressed industries.
Indeed, in some instances foreign aid expenditures for certain com-
modities have decreased during periods of recession or of distress for
those industries.
For agricultural products, the inclusion of these items served the
dual purpose of providing foreign aid and helping to support domestic
industries.
In the case of the United States shipping industry, preference legis-
lation calling for the shipping of a minimum of 50 percent of foreign
aid commodities in United States ships-has been of some help. The
basic ills of this industry remain, however, and tramp ships are being
lost at a rapid rate to foreign registry. Only fuller utilization of
existing subsidy legislation would be capable of maintaining an ade-
quate United States merchant marine.
THE FOREIGN AID PROGRAMS
777
In addition to the direct effects of foreign aid, there are also indirect
effects which enter into an analysis of the costs and benefits of these
programs to the United States. Those industries which produce items.
for foreign aid utilize the products and services of other industries
in order to make their finished goods. Moving the aid from this
country to its destination in turn utilizes the services and products
of still other industries. It is estimated that approximately 600,000
workers have been employed each year in the United States directly
and indirectly as a result of foreign aid expenditures.
Foreign aid, both in terms of goods and services, has helped to in-
crease the flow of necessary commodities and raw materials to the
United States. Some of these items are critical to our stockpile and
defense needs. Others tend to raise standards of living and cut costs
of consumer goods. At the same time, foreign aid has in some cases
aided in the reconstruction or modernization of industries abroad
which compete with similar industries in the United States. How-
ever, foreign aid has also brought about the development of industries
and of stabilized economies abroad. Thereby, it has created an in-
creasing demand for goods and services produced in the United States,
which these countries were better able to purchase with their own for-
eign exchange earnings. (Such indirect effects on the United States
economy and on United States foreign trade of the aid program have
not been analyzed in this report.)

SECTION II
GENERAL INTRODUCTION
The benefits and costs of a governmental program are usually meas-
ured in terms of the dollar income created or the expenditures incurred
through the programs. In reality, benefits and costs of such programs
often are not adequately reflected in the income and expenditures fig-
ures. We have such an example in the foreign aid programs of the
United States. The income created by foreign aid production, and
the expenditures incurred by the Government, hardly indicate the
benefits which are likely to accrue to every citizen of the United States
when the foreign aid programs are successful-that is, when the pro-
grams contribute to the development of more peaceful and prosperous
conditions in the world.
The present report does not deal in detail with these important,
although intangible, benefits. Nevertheless, in appraising benefits
and costs in a narrower definition, it may be well to keep these broader
effects in mind.
The foreign aid programs of the United States may be classified
broadly as military assistance, defense support assistance, develop-
ment assistance, technical cooperation, and other aid funds, including
the President's contingency fund.
Military assistance is for the purpose of providing military hard-
ware and training, and also for "infrastructure"-that is, construction
of joint military facilities in the North Atlantic Treaty Organization
(NATO) area.
Defense support assistance essentially helps to provide the supple-
mental economic resources which countries receiving United States
military aid require to maintain a healthy rate of economic growth.
A substantial part of this program was financed in 1956 by the local
currency proceeds from sales of United States surplus agricultural
products.
Development assistance is aid made available to countries which need
our help în promoting economic growth in order to maintain economic
and political stability.
Technical cooperation, known also as Point 4, consists largely of
teaching, training, and the exchange of information. It includes
provision of supplies and equipment only to the extent necessary for
effective educational and demonstration purposes.
The remaining "other programs" included, in 1956, the special fund
appropriated to the President for use under broad authority to further
any of the purposes of the Mutual Security Act; the United States
contribution to the United Nations Children's Fund; aid to be used
by the Intergovernmental Committee for European Migration; assist-
ance to West Berlin for continuing postwar problems; funds for help-
ing free nations to develop the peaceful uses of atomic energy; and
other small appropriations for administering the mutual security pro-
gram, providing ocean transportation for relief shipments of volun-

778
THE FOREIGN AID PROGRAMS
779
tary agencies, and the United States refugee program. Other pro-
grams were included in this category in previous years.
The specific programs whose foreign aid grants and credits are
covered by this report are lend-lease, Army civilian supply, post-
United Nations Relief and Rehabilitation Administration (UNRRA),
surplus property disposal, the British loan of 1946, Export-Import
Bank, inter-American aid, Philippine rehabilitation, Chinese aid,
Greek-Turkish aid, interim aid, European recovery, International
Civil Emergency Fund, Korean aid, mutual security (including the
operations of the Office of the Director for Mutual Security, the For-
eign Operations Administration, and the International Cooperation
Administration) and the applicable parts of Public Law 480 which
relate to agricultural aid. Expenditures for certain years for these
programs are shown in table A, below.
TABLE A.—United States foreign aid, by program, for 1945–48 and 1955

1. Lend-lease…….
2. Civilian supply.
3. UNRRA
4. Greek-Turkish aid
5. Philippine rehabilitation…….
6. China aid…….
7. Technical assistance.
8. Surplus property.
9. British loan..
10. Export-Import Bank.
11. Others...
1. Mutual security.
2. Civilian supply.----
3. Inter-American program.
4. Aid through private agencies.
Program
Program
[In millions of dollars]
5. Military equipment.
6. Export-Import Bank.
7. Others..
NOTE.-See appendix table 2 for greater detail, additional years, and sources.
1945-48
Gross grants Gross credits
1, 957
2,360
3,172
165
130
120
66
1, 234
3,750
2,087
80
299
1955

Gross grants | Gross credits
3, 978
11
4
180
52
21
207
10
Total grants and credits utilized do not include the foreign aid ac-
tivities of such organizations as the International Monetary Fund,
the International Bank for Reconstruction and Development (World
Bank), or most of the United Nations agencies. This omission results
from the opinion that the interests of the Special Committee to Study
the Foreign Aid Program are best served if the analysis relates prima-
rily to those activities directly regulated by the United States Congress.
Though United States participation in the activities of the Interna-
tional Monetary Fund, the World Bank, and the United Nations is
subject to close congressional scrutiny, and the United States pay-
ments to these organizations result from actions of Congress, yet their
operations are not subject to direct congressional control. These are
programs of independent international organizations to which the
780
THE FOREIGN AID PROGRAMS
United States belongs, with ours but one voice among their many in-
ternational members. Nor does this report cover the activities of
private domestic organizations engaged in foreign aid activities. Such
groups as CARE and the American Red Cross operate independently
of the United States Government. However, where United States
governmental agencies incurred a cost in cooperating with these
organizations, the amount of such aid is included under the appropriate
agency program covered in this report.
If the International Monetary Fund and the World Bank are
omitted, an estimated total expenditure of approximately $87 million
was made in 1956 by the United Nations agencies, the Pan American
Union, the Pan American Sanitary Bureau, the Inter-American In-
stitute of Agriculture, and the Carribbean Commission. This ex-
penditure covered all activities of these organizations, and is the
equivalent of about 1.7 percent of the average annual United States
foreign aid bill. The United States assessment to support these or-
ganizations has been about 33 percent of their budgeted expenditures,
which in 1956 amounted to about $29 million. Assuming that two-
thirds of this contribution was spent for purposes similar to those
of United States foreign aid, then approximately $17.5 million of
United States money was used for such activities by these inter-
national organizations. This amounts to about three-tenths of 1
percent of the average yearly direct foreign aid expenditures of the
United States. The United States contribution to the International
Monetary Fund and the World Bank totals approximately $3.4
billion for the period 1946-56. This contribution was not given on
an annual basis, but in 3 payments $317 million each year in 1946
and 1947 to the World Bank, and $2,750 million to the International
Monetary Fund in 1947. These organizations use the funds as needed
for various loans, foreign exchange purchases, etc. Again, the
amounts are relatively slight when compared with the direct United
States foreign aid program. If the $3.4 billion is allocated on a 10-
year basis, it is the equivalent of about 7 percent of the average an-
nual United States foreign aid program. However, the bulk of the
International Monetary Fund contribution is not used as foreign aid,
and indeed is more in the nature of a bank's reserve fund.
In recent years, the total United States foreign aid expenditures
have been allocated on the following basis: about 50 percent for mili-
tary assistance, 33 percent for defense support, 7 percent for develop-
ment assistance, 4 percent for technical cooperation, and the re-
mainder, about 5 percent, for the President's contingency fund and
"all other" funds. In this report, all foreign aid except military as-
sistance has been termed "economic aid." This division is based on
the nature of the items shipped. It is felt that this twofold definition
permits a simpler and clearer handling of commodity data than would
be the case if commodities were distributed on a program-by-program
basis.
For the purposes of this study, foreign aid by the United States
has been measured in terms of the gross dollar grants and credits uti-
lized under the various foreign aid programs. It is felt that grants
and credits utilized most nearly relate foreign aid dollars spent to
that period during which the effects on the economy are felt. The
term is further defined in the appended tables. A brief recapitulation
of these data is shown in table B.
THE FOREIGN AID PROGRAMS
781
TABLE B.—United States foreign aid—Gross grants and credits, 1946–55
[In millions of dollars]


Year
Gross
grants
Gross
credits
Total
Year
Gross
grants
Gross
credits
Total
1946...
1947.
1948..
1949...
1950...
2,289
3,245
5, 534
1951...
2,049
4, 586
428
4, 183
5, 014
6, 232
1952...
4,794
825
4,078
1, 444
5, 619
5, 522
1953..
5, 363
6, 317
712
690
6, 053
6, 029
1954.
4, 173
4,929
387
453
5, 316
4, 626
1955...
4, 247
401
4, 648
NOTE.-See appendix table 2 for detailed data and sources.
Foreign aid programs have both a direct impact and an indirect
impact on the United States economy, the latter being the far more
difficult type of effect to measure. The direct impact on the manufac-
turing, agricultural, mining, and service sectors of the economy con-
sists of the effects of the foreign aid program on production levels.
Here, the main concern is with the increases or decreases in production
and/or prices which are directly related to the grants and credits of
the foreign aid program. There is, also, a direct impact on the con-
sumer and taxpayer in the form of price effects, consumption changes,
and tax burdens, which can be ascribed to foreign aid programs.¹
The major indirect impact on United States industry results from
the fact that all industries are interrelated, and these effects are de-
scribed and analyzed in a later section of this report.
A second type of indirect impact on the United States economy
results from the fact that foreign aid is designed to help in building
up production and productivity in foreign countries. If the promo-
tion of foreign production is successful it may help foreign countries to
increase their exports of raw materials to the United States, and thus
help American industry. Conversely, United States aid may help in
the development of an industry which could compete with an Ameri-
can industry. A third indirect impact would consist of the genera-
tion of foreign demands for United States exports as the foreign
economies recover, partially as a result of the United States aid.
The foreign aid programs of the United States have helped the
recipient countries promote their own objectives of economic recon-
struction or economic development although there is the possibility
that some of these supported industries might in the long run become
more competitive with American industries. The philosophy of for-
eign aid has been that all free nations will gain if productivity and
standards of living are raised throughout the world.
In compliance with the request of the Special Committee to
Study the Foreign Aid Program, this report is concerned with
the effects on the United States economy of a change in the
level of foreign aid over a period of years. Six different levels
of foreign aid programs are examined in the light of their
probable effects on this projected production. The assumptions
were formulated merely as an aid in the analysis. None of them rep-
resents in any way a suggestion for policy. Three programs allow for
various increases in total foreign aid, assuming different proportions
1 With respect to foreign aid expenditures, the grants and credits utilized are considered
on a gross basis in this study, because of our desire to equate these amounts to goods and
services purchased. When per capita financial costs of foreign aid are considered, it is
more proper to use a net concept-that is, the dollar expense of a foreign aid program
should allow for interest and principal payments made by countries receiving aid.

782
THE FOREIGN AID PROGRAMS
allocated to the military component and the economic component. Two
programs maintain the present dollar level of foreign aid, but change
the amounts allocated to the military and economic components. The
sixth program assumes that in 1965 there is no longer any foreign aid
program.
Total production of goods and services in 1948-measured in 1955
dollars-was $296 billion; it was approximately $412.4 billion in 1956.
If full employment is maintained, this figure should rise to $565 bil-
lion in 1965. It is obvious that a $5 billion aid program will have a
different impact on economies of such different levels of activity.
Therefore, only within the frame of reference of a growing economy
do we obtain the perspective for appraising the significance of a for-
eign aid program for the domestic economy, past and future.
SECTION III
FOREIGN AID AND ITS COSTS TO THE UNITED STATES
Looking at foreign aid in the perspective of the domestic economy
as a whole, it would seem that the overall impact can only be minor.
Total foreign aid as a percentage of total production of goods and
services (gross national product) has been running between 2.7 percent
and 1.1 percent during the years 1946 to 1956. On the average, it has
been 1.8 percent. Assuming continuation of foreign aid at the
present level, it would amount to 0.7 percent of the projected full-
employment production of $565 billion for 1965. If the absolute size
of foreign aid were doubled, it would still amount to only about 1.5
percent of the projected gross national product in that year.
In the early years foreign aid had a much more significant relation-
ship to total Federal expenditures than it did to the national economy
as a whole. Expenditures for aid purposes declined from 16.8 percent
of total Federal expenditures in 1946 to only 6.4 percent in 1956. On
the average, it has been 10.9 percent. These ratios, as well as other
related data, are shown below in table C.
TABLE C.—United States foreign aid grants and credits and various aid ratios,


1948-56

1948 1949 1950 1951 1952 1953 1954 1955
1956
(1st
quar-
ter)
1. Foreign aid. Gross grants and
credits utilized (in billions)..
2. Gross grants and credits utilized
as a percent of United States
Government expenditures.
3. Gross grants and credits utilized
as a percent of United States
gross national product....
4. Gross grants and credits utilized
on a United States per capita
basis..
5. Gross returns from foreign coun-
tries, on a United States per
capita basis..
$5.5
$6. 1
$4.6
$5.0
$5.6 $6.0 $5.3
$4.7
$1.1
14.9
14.3 11.0 8.6 7.7 7.9 7.6
6.5
6.4
2.1
2. 4 1.6 1.5 1.6 1.7
1.5
1.2
1.1
$37.51 $40.88 $30.32 $32.38 $35.67 $37.59 $32.64 $28.43 $26.31
$3.27 $3.15 $3.14 $2.94 $3.66 $4.04 $3.52
NOTE.-See appendix table 1 for greater detail, additional years, and sources.
$3.45 $3.24
If we speculate as to what would have happened if there had not
been a foreign aid program, two considerations come to mind. First,
it is likely that the international situation would have been worse and
that larger domestic defense expenditures would have been necessary.
Second, some United States products were of such importance to for-
eign countries that these countries could have tried to obtain scarce
dollars in ways which may have been detrimental to this country.
Such ways could include currency devaluation and forcing or subsidiz-
ing exports competitive with products of the United States. Consid-
783
784
THE FOREIGN AID PROGRAMS
ering these possibilities, it may be said that one impact of foreign aid
was that it helped to reduce the level of defense expenditures in the
United States. Another was that it eased somewhat the pressure on
foreign countries to earn dollars by means which could have been
disadvantageous to the United States.
The effect on United States defense expenditures is the most im-
portant. Since 1951, a major part of United States foreign aid has
been of a military nature. Though it is difficult to state exactly, there
is little doubt that these expenditures are an extension of our military
posture, and perhaps should be viewed more as a part of our defense
budget than as a part of foreign aid. Be that as it may, aid in the
form of aircraft, ordnance, etc., undoubtedly increases our national
security and lessens the degree to which defense expenditures must
be made at home.
We believe that, without foreign aid programs, the postwar recon-
struction and economic development of recipient countries would have
been slower, and such countries might have been significantly less
resistant to Communist penetration. It is likely that in the absence
of foreign aid some other Federal expenditure programs would have
been instituted. Despite this, our analysis assumes that, without
foreign aid, government expenditures and tax needs would have been
correspondingly lower and that the production of the goods which
were financed by foreign aid would not have taken place.
What would have been the effect if budget expenditures had been
lower by the amount of foreign aid during the years from 1946 to
1956? What would be the effect if the budget of the future were to
reflect a discontinuation or a doubling of foreign aid during the
coming years?
The answer to these questions depends in large part on the state of
the economy during these years. In the past decade several were
years of inflationary pressure. If, during such years, some reduction
in Federal expenditures had been possible, it would probably have
been desirable, instead of reducing taxes, to reduce the budget deficit
or increase the surplus used for debt redemption. The effect, in either
case, would have been some reduction of inflationary pressure and
probably less increase in prices than actually took place.
The effects of a termination of foreign aid during a period of eco-
nomic stability would be somewhat different. In such a situation, the
Government could reduce taxes by the amount of the foreign aid pro-
gram. The additional income received in the form of lower taxes
would go back into the economy in the form of consumer purchases,
or the saved portions might balance with increased investment.
Hence, a transfer of purchases from foreign aid to the domestic con-
sumer and investor would be likely to take place.
When the domestic economy is undergoing a recession, shrinking
domestic demand is, to some degree, offset by stable foreign demands
for goods. In this situation, the foreign aid program, as a part of
foreign demand, acts as a stabilizing influence on employment and
prices. The more severe the recession, the more important would this
stabilizing factor become.
Nonetheless, considering the present magnitude of foreign aid, it
is doubtful that its differing influences on inflation, stability, and
recession would actually be of major proportions.
THE FOREIGN AID PROGRAMS
785
In the fiscal year 1955, the Federal budget had a deficit of $4.2 bil-
lion, which could have been virtually eliminated if no allowance for
foreign aid had been made. However, this overlooks the fact that,
without the production for foreign aid, tax revenues would also have
been somewhat less than with the foreign aid program. No estimate of
the difference is possible without considering in detail the extent to
which production for domestic consumption would have been increased
if production for foreign aid export had been curtailed.
In summary, it may suffice to say that, without foreign aid pro-
grams, the budget deficit and inflationary pressure would have been
somewhat less during these years. Assuming in future years a state
of the economy without inflationary or deflationary pressure, then an
elimination of the foreign aid program would make a tax reduction
of approximately equal size possible. In years of recession, such as
1949 and 1954, or in possible future slack years, a termination of
foreign aid without compensating increases in other Government pro-
grams or private activities would aggravate the deflationary forces.
In reality, it is more likely that in such a situation private demand
would be stimulated by tax reduction or by stepping up other Govern-
ment programs.
At present levels of national income, a reduction in personal income
tax rates of about 3.5 percentage points would reduce tax revenue by
about $4.4 billion, the approximate equivalent of the foreign aid pro-
grams.
As an alternative to tax reduction, other Government programs
could be increased in the event that the foreign aid program were to
be terminated. For comparison, there are listed below a few Federal
programs with an indication of how much they could be increased if
the amounts now spent for foreign aid were added to each of them.



Expenditure program
Expenditures
in fiscal year
1957 (billions)
Percent of
increase if
$4.4 billion
were added
National security (exclusive of AEC).
Atomic Energy..
Road construction..
$38.8
11
2.0
220
1.2
366
Thus it can be said that the costs of foreign aid programs could
be measured by the tax reduction and/or the increase in other Govern-
ment programs which would be possible if these programs were re-
duced or terminated. An appraisal of the costs of continued or
expanded foreign aid expenditures should be related to prospective
budgets. If total production should rise by the expected $15 billion
per year (neglecting the possibility of further price rises), Federal
revenue should rise without a change in tax rates by about $3 to $4
billion per year. This means, for example, that almost a doubling of
foreign aid could be financed by the automatic revenue rise in one
single year.
Looking at the foreign aid program in the perspective of the budget,
the following conclusions may be suggested. Production for foreign
aid amounts only to approximately 1 percent of total production of
goods and services in the United States. However, in budgetary
terms, discontinuing a program even of that size could contribute to

786
THE FOREIGN AID PROGRAMS
the
the abatement of inflationary pressure; a corresponding increase in
other programs of the Government could permit attainment of other
desirable objectives more speedily; a tax reduction of that size could
bring some relief to the public. While the budgetary effect of the pro-
gram is not disastrous in any way, and even a substantial increase in
the program would not be disastrous, there are desirable alternative
uses for the funds. In other words, the program is not without cost,
and it is up to the Congress to evaluate whether or not the contribu-
tion the program makes to United States humanitarian and political
objectives is worth these costs. From an economic point of view, the
effect on overall indexes of activity—that is, total foreign aid produc-
tion in relation to total United States production of goods and serv-
ices-is too small to allow any meaningful conclusions. If there are
favorable or harmful effects, they must be sought in an analysis of
the effects on specific industries, which will be found in section VI of
this report.
SECTION IV
FOREIGN AID AND FOREIGN TRADE OF THE UNITED
STATES
FOREIGN AID SHIPMENTS AND TOTAL UNITED STATES EXPORTS
Exports of goods resulting from foreign aid expenditures during the
period 1948-55 have accounted in various years for as much as 46
percent and as little as 25 percent of total United States exports.
The important role of foreign aid shipments in United States export
trade, particularly at the beginning of the period, is indicated by fig-
ures given in appendix table 8. Of greater importance, however, is
the relationship between the types of commodities shipped under the
foreign aid program and total exports of these commodities.
The estimate of total United States exports used in this connec-
tion excludes services or transportation. În essence, then, the ratios
In
in table 8 relate estimated foreign aid commodity shipments (for com-
modities being currently produced) to United States exports for all
commodities.
In table 8 two interesting situations are apparent. The first is the
decline in the ratio of foreign aid shipments to total United States
exports. The second is the shift in ratios by the different types of
commodities. The first shift is summarized in table D.
TABLE D.—Foreign aid products shipments as a percent of the total United
States exports, 1948-55
Year
1948____
1949
1950__.
Percent
38.3
Year
Percent
31.7
34. 3
31. 1
25.0
1951-
1952.
46. 0 | 1953----
38.4 | 1954.
27.7 | 1955_-_.
NOTE.-See appendix table 8 for product detail.
During the period 1948-50, the average ratio of foreign aid ship-
ments to total commodity exports was 41 percent, while for the period
1951-55 the ratio was about 30 percent, with the ratio for 1955 at 25
percent. Several factors account for this change. As the aided
countries improved their economic positions, increasing production
and exports, they were able to increase imports from this country
without a corresponding increase in aid. The aid program for the
years 1948-50 averaged $5.4 billion as compared with $5.3 billion
for the period 1951-55. Thus, no substantial change took place in the
absolute amount. An additional factor is that along with greater
ability of foreign countries to pay for imports from the United States,
was the impact of increasing United States production on the price
of United States exports. With increased production, greater price
stability, and a curtailment of inflation in this country, foreign-held
dollars were able to command a steady quantity of goods.
94413—57———-51
787
788
THE FOREIGN AID PROGRAMS
During the period 1948-55, a radical shift occurred in the ratios
of foreign aid shipments of specific items to total United States ex-
ports. As can be seen in table 8, many high-ratio items early in this
period were agricultural products, or product combinations where
the agricultural component was the major one; later in the period the
high-ratio items were almost entirely manufactured products. The
following brief table indicates those instances where agricultural and
manufactured items accounted for 30 percent or more of United States
exports of each item, during 1948-55.
Number of industries with high aid/export ratios


1948
1949
1950
1951
1952
1953
1954
1955
Number of agricultural commodity
groups (6).
LO
5
6
6
4
0
1
1
0
Number of manufactured commod-
ity groups (42).
22
41
24
9
8
8
12
5
During the period 1948-51, most of the six agricultural commodity
groups were in this high percentage category; this included bread
grains, coarse grains, seeds, cotton, and tobacco. The sixth agricul-
tural commodity was wool. By 1955 none of these commodities ap-
peared in the high percentage category. In 1948, more than one-half
of the manufactured commodity groups had ratios of 30 percent or
over, while in 1955 about 11 percent was still in this group.
In 1948, there were 4 agricultural commodity groups where more
exports were financed by the aid programs than privately financed.
This group was composed of bread grains; coarse grains; seeds; and
cotton. The year 1950 marked the last time when the ratio of any
agricultural commodity group was 50 percent or higher. In the 1948
exports of manufactured commodities there were eight commodity
groups where aid-financed shipments were greater than those pri-
vately financed. This group was composed of zinc and zinc products;
lead and lead products; ordnance items; fats and oils; feeds and
fodder; eggs; fruits and nuts; and vegetables and preparations. In
1955, aid shipments in 3 product groups still accounted for 50 percent
or more of total exports. But the items were now construction, min-
ing, and conveying equipment; aircraft engines and parts; and other
transportation equipment. All of these items contain amounts of
military components.
For the entire period of 1948 through 1951, 4 agricultural com-
modity groups could be viewed as having accounted for a generally
high ratio of aid to total exports. These groups included bread
grains; seeds; cotton; and tobacco and tobacco products. During the
same period 16 manufactured commodity groups could be considered
to fall in the same category. These groups are coal and related prod-
ucts; copper and copper products (including brass and bronze); zinc
and zinc products; other nonferrous metals and products; metallic
ores and concentrates; ordnance; metal working machinery; machine
tools; generators and motors; aircraft engines and parts; other trans-
portation equipment; fertilizers; naval stores; fats and oils; feeds and
fodder; and eggs.
During the period 1952-55 the manufactured commodity groups
which had generally high ratios of aid to exports were ordnance,
THE FOREIGN AID PROGRAMS
789
metalworking machinery, machine tools, electric equipment, aircraft
engines and parts, construction, mining and conveying equipment,
and motor vehicles, engines and parts. For this same period, only in
1953 and 1954 were there agricultural commodity groups with high
ratios of aid to exports; these were cotton in 1953 and 1954, and sugar
in 1954.
FOREIGN AID AND UNITED STATES IMPORTS
The extent of the success of foreign aid in helping a country in its
postwar recovery or economic development affected both the exports
and imports of the recipient countries. As we have seen, during the
last decade exports from this country have risen while foreign aid
expenditures have declined slightly. During the same period, United
States imports have also risen. In the case of imports as well as of
exports, trade has increased since 1946, both with countries which have
and have not received aid from the United States.
There are cases where one can trace a direct relationship between
United States foreign aid to a country and United States imports from
that particular country, which could only be the result of the foreign
aid program. Foreign aid funds have aided in the development of
mining operations which were later to yield valuable mineral exports
to this country. In many cases, detailed in the section of this report
on United States Aid and Natural Resources, such operations have
contributed to our stockpile needs.
It has been contended that in some instances foreign aid has helped
to build up industries in foreign countries where such industries have
later become competitive with United States producers. This com-
petition, it is held, takes place in our home market and/or those of
other countries. It may be that foreign aid has been of help in the
reconstruction of industries which compete with similar ones in this
country. This result would be expected from a successful, nondis-
criminating foreign aid program. It does not necessarily mean, how-
ever, that the foreign producer has obtained a competitive advantage
over United States producers as a result of foreign aid. The equip-
ment and technical advice obtained by foreign industries is, presum-
ably, also available to United States producers. In addition, the for-
eign industries have to pay for obtaining foreign aid equipment, the
amount going into counterpart funds. Finally, it also may be that
without United States foreign aid, foreign industries could have de-
veloped, though more slowly, as a result of their own more limited
recovery programs.
Though not a specific aspect of this paper, an item which should be
mentioned relates to the effect of the foreign aid program on the price
of imports. The extension of foreign aid through interest-bearing
loans may in time affect the prices of various currencies. The repay-
ment of sizable loans, along with interest, in part with foreign ex-
change of the country, may tend to affect rates of exchange thus
affecting import prices. A study of this question would be of interest.
SECTION V
FOREIGN AID AND DOMESTIC CONSUMPTION
CURTAILMENT OF CONSUMPTION
Under conditions of full employment, the addition of any Govern-
ment program means that less resources are available for private or
other public purposes than would be available without such a pro-
gram. If we assume-for discussion's sake that other defense
and nondefense programs would have been the same with or without
foreign aid, it follows that under conditions of full employment less
goods and services are available for private use as a result of the for-
eign aid program. Under such circumstances, the curtailment would
take place primarily in private consumption and probably to only a
minor extent in business investment.
For purposes of simplification, let us assume that the whole im-
pact would be on private consumption. In the year 1946, total per-
sonal consumption was $146.6 billion. Total foreign aid (net) was
$5.1 billion. That is assuming a full employment level of pro-
duction-total foreign aid might have reduced potential personal con-
sumption by about 3 percent. In the first quarter of 1956, foreign
aid was 1.5 percent of private consumption. Thus, when we speak
of curtailment of consumption by foreign aid, we mean that without
foreign aid, under the assumptions made, the increase in consumption
over those years would have been just a bit larger. No actual curtail-
ment took place because the level of consumption, both in monetary
and real terms, has been rising during this whole period. Even if
foreign aid programs should be doubled in terms of constant dollars.
by 1965, it still would be only 3.8 percent of projected personal
consumption. The doubling of foreign aid by 1965 would not reduce
the level of private consumption but slow down the increase.
However, our previous statement with respect to per capita costs
of foreign aid should be reemphasized. The impact on consumption
would not affect everyone to the same degree, because of the effects
which Government programs have on distribution of incomes.
If we assume that the program is tax financed, the impact could be
conceived as a burden on those taxpayers whose taxes could be re-
duced if the program were terminated. On this basis, we would
obtain a different distribution of the burden and the curtailment in
consumption, depending on the type of tax reduction one envisages
in case of a curtailment in Government expenditures. In this respect,
equal percentage reduction in the personal income tax, or a reduction
in the taxes imposed on the lowest income bracket, or a reduction in
excise or corporate taxes would have different effects.
790
THE FOREIGN AID PROGRAMS
791
EFFECT ON PRICES
During part of the last 10-year period, there was a budget deficit
and inflationary pressure. Only a fractional part of the price rise
which took place between 1946 and 1956 may be attributed to the
foreign aid program. Here, we are again making the rather unrealistic
assumption that the purchases of foreign aid goods were additional
purchases, and that without these purchases total demand would have
been further reduced.
We further make the arbitrary assumption that, on the average, a
purchase of goods for foreign aid equal to a specified percent of pro-
duction of these goods would increase the prices for these goods by the
same percent (i. e., a price demand elasticity of unity). This assump-
tion is an extreme oversimplification, since some items will have a
greater than unity elasticity while others will have less than unity.
This assumption of an average elasticity of one will serve the purpose
of giving an approximate estimate of the impact on prices of foreign
aid shipments. In the case of agricultural commodities which are sup-
ported by Government loans, however, this generalization does not
hold true at all times. If, during any period when foreign aid ship-
ments of agricultural goods are being made, Government loan pro-
grams are responsible for maintaining the current price levels of these
same goods, then the price effects of the foreign aid shipments are
zero. This is based on the assumption that the Government aid pro-
gram is buying from its own surplus stocks. The price impact is thus
only felt once, when the Government loan program is used to maintain
a specific price level.
Also, an assumption that there would be no substitute demand for
foreign aid shipments is not realistic. The assumption that, in the
absence of foreign aid programs, there would be no demand for these
commodities and services is not necessarily accurate. Some gold or
dollar reserves which are held for emergencies by foreign countries
might be committed for United States purchases in the absence of
United States foreign aid. Or, as indicated earlier, a foreign aid
program could be replaced by any number of other types of Govern-
ment programs, all of which have effects upon many industries which
are "foreign aid industries."
All of these assumptions tend to limit the general validity of an
unqualified statement of the price rise which can be attributed to
foreign aid purchases. There are indications that for most commodi-
ties included in the "foreign aid basket," elasticity is less than unity;
also the exclusion of all substitutes is an unrealistic assumption.
Therefore we regard an estimate of the price effect of foreign aid
purchases on the basis of our assumptions as an indication of the upper
limit of plausibility. In 1955, 90 percent of foreign aid industry items
accounted for less than 3 percent of total sales of these industries.
Only a small portion of nonagricultural foreign aid purchases is
included among those products for which foreign aid purchases
amounted to a high percentage of total sales. Therefore, the maxi-
mum effect of aid on prices of goods in the foreign aid basket may
be estimated at 2 to 3 percent. This 2 to 3 percent increase which
may be the upper limit of the price rise attributable to foreign aid
demand compares with a total price rise of about 37 percent during
the period for 1946 to 1956. Thus, it might be said that a maximum
792
THE FOREIGN AID PROGRAMS
of one-twelfth of the total price rise during this 10-year period could
be attributed to foreign aid purchases.
During periods of recession, as 1949 and 1954, any price effects of
maintaining the level of foreign aid purchases are not inflationary, but
stabilizing factors.
To the extent that foreign aid programs contributed to a price rise,
the burden resulting from these programs fell on those who always
bear the main burden of a price rise-the people with fixed incomes
or with incomes which follow price developments only with a con-
siderable time lag.
SECTION VI
FOREIGN AID AND UNITED STATES PRODUCTION
Discussion under this section centers around the purchases of goods,
manufactured as well as nonmanufactured, resulting from the grants
and credits utilized under the various United States foreign aid pro-
grams. Prior to any discussion, however, there should be an explana-
tion of the manner in which total foreign aid dollars are equated to
specific commodities or groups of commodities. Data on foreign aid
given directly in the form of commodity purchases have been gathered
from the agencies responsible for the various aid programs since 1948.
Commodities directly purchased from the United States account for
about 60 percent, on the average, of the total foreign aid programs
during the period 1948-55. The remaining 40 percent, on the aver-
age, is made up of cash credits and offshore procurement. Of the
United States aid given in the form of commodities we were able to
identify, on a commodity by commodity basis, about 95 percent of the
total value of such commodities. The remainder, about 5 percent of
the value of the direct commodity aid, was added to the dollar volume
of cash aid and offshore procurement. This total was then allocated
among United States producing industries on the basis of the total
export pattern for each year during the period 1948-55. This makes
the reasonable assumption that the aid given as dollars was spent in
the markets of the world and returned to this country through pay-
ments for United States exports.
Appendix table 6 presents a breakdown of all foreign aid by com-
modities and certain services. This breakdown is based on agency rec-
ords where available. Hypothetical allocation to commodities and
service groups had to be made in the case of three categories men-
tioned above the small amount of funds directly used for United
States commodities for which no agency records of the commodity al-
locations were available; foreign aid funds granted in the form of
cash credits; and offshore procurement. Thus, the total of com-
modity and service purchases made in the United States as a result
of foreign aid grants and credits utilized is the combination of these
three categories and the direct United States commodity purchases
revealed by agency data.
In addition to the goods and services directly purchased as a result
of grants and credits utilized, there are additional purchases of goods
and services in the United States as a result of these direct foreign
aid purchases. The shipment of a foreign aid tractor, for example, in-
volves numerous purchases made of such items as wood products, rail
transportation, insurance, trucking, and so forth. Bulk items such as
wheat also require purchases from many industries before the newly
harvested United States grain reaches the recipient country. These
indirect purchases resulting from foreign aid shipments are estimated
later on a specific industry basis.
793
794
THE FOREIGN AID PROGRAMS
During the period 1948-55, foreign aid shipments accounted for
approximately 1.7 percent of total agricultural, mining, and man-
ufacturing commodities produced in the United States. As can be
seen in appendix table 10, this average is a poor indicator of the
range of the ratios for particular types of commodities. The ratio
for the total of all commodities varied between a high of 2.4 percent
in 1949, and a low of 1.1 percent in 1955. If the output of construc-
tion, trade, services and government sectors are included in total
United States production, it is estimated that foreign aid shipments
constitute about 1 percent of United States production. These ratios
are shown below in table E. Again, it is evident that the foreign aid
program represents but a slight magnitude when compared with the
output of the United States economy as a whole.
The importance of the foreign aid program to specific sectors of
the economy is to be found in the commodity breakdowns shown in
Table 10.
TABLE E.-Foreign aid products shipments as a percent of total United States
production, 1948-55.
Year
1948___
1949.
1950__
1951___
Percent Year
2.1 1952-
2.4 1953--
1.5 1954.
1.4 1955.
NOTE.-See appendix table 10 for product detail.
Percent
1.5
1.6
1.5
1.1
For the purpose of this report, it is assumed that if foreign aid
shipments have accounted for 5 percent or more of the total do-
mestic production of a commodity, the effects of foreign aid on
United States producers of that commodity are of significant im-
portance. In 1948, only a relatively small percent of those items
shown in table 10 were in this category. At that time, aid shipments
accounting for at least 5 percent of total domestic production of that
specific item included bread grains (23 percent); coarse grains (6.8
percent); rice (5.4 percent); cotton 9.8 percent); tobacco (9.7 per-
cent); construction, mining, and conveying equipment (5.8 percent);
engines and turbines (6.9 percent); and tractors (7.8 percent).
By 1955, a much smaller number of items was in this 5 percent or
over category. These items were construction, mining, and conveying
equipment (15.4 percent); tractors (5.9 percent); and aircraft, en-
gines, and parts (8.8 percent).
An analysis of the entire period 1948-55 indicates two interesting
trends. First, during this period, those items which were in the
category of 5 percent or more for a number of years were bread grains;
coarse grains; rice; cotton; tobacco; construction, mining, and con-
veying equipment; machine tools; engines and turbines; and tractors.
Since 1952, the aircraft, engines, and parts group has been in this
category as a result of the increased importance of military aid. Sec-
ond, there were more agricultural commodities in the category of 5
percent or more in the early part of the aid program than there were
in the later years. Manufactured items became predominant in this
category after 1951, with the exception of 1954. This can be seen
in table F below:
THE FOREIGN AID PROGRAMS
795
TABLE F.-Number of items in the category of 5 percent or more of production,
1948-55

Agricultural (6)
Manufactured (42)…….
Total...
1948
1949
1950
1951
1952
1953
1954
1955
LO3
5
6
6
LO LO
5
5
COP
4
3
24
24
C forsk
1
1
5
2
3
O♡
0
8
12
10
7
6
6
3
3
The 5-percent level was assumed for the sake of simplicity and
generalization. As can be seen in table 10, there are a large number
of items where foreign aid shipments constituted 3 and 4 percent of
total domestic production of specific commodities. In some indus-
tries this percentage of production could be important. Hence, an
industry-by-industry analysis of those products involved in foreign
aid would indicate the extent to which the industries are more or less
affected by the foreign aid program. In any event, even the total
number of industries affected decreases during the period under study.
During the periods of recession (1948-49, and 1954) a further drop
of 3 or 4 percent of domestic production would have been serious
for many industries. In contrast, during the period when resources
were fully employed it would be difficult to state that a curtailment
of 3 or 4 percent-or possibly more-in demand would have seriously
affected production or employment.
EFFECTS OF SUBSTANTIAL INCREASES OR REDUCTION OF FOREIGN AID ON
THE UNITED STATES ECONOMY
As indicated by the tentative outline of the Senate committee staff
this report is expected to indicate effects on United States production
of possible future changes in the size of the foreign aid program.
Since there is, at present, no stated policy on the length of time
during which a foreign aid program will continue, the period which
we choose must be arbitrary, though reasonable when viewed in terms
of usual lengths of time of long-term legislative programs. For our
purposes, the year 1965 has been chosen as the point for which foreign
aid projections should be estimated. The estimated level of economic
activity is set at approximately $565 billion, in 1955 prices.
Six possible models for the foreign aid program-five of them de-
tailed in appendix table 19-will be considered:
In Model 1, the total foreign aid program is increased on a straight-
line basis between 1955 and 1965. The economic aid segment doubles
by 1965, while the military aid segment remains at the 1955 level.
Thus, total foreign aid in 1965 would be $7.1 billion, of which $5
billion would be economic aid and $2.1 billion military aid.
In Model 2, total aid is increased on a straight-line basis between
1955 and 1965, to the same level indicated in Model 1, that is $7.1 bil-
lion. The economic and military aid sectors, however, account for the
same proportion of the total as in the 1955 program. Thus, economic
aid would be $3.8 billion, and military aid would be $3.3 billion in
1965.
In Model 3, total foreign aid, as well as the economic and military
component, increases each year in proportion to the increase in gross
national product. Thus, with an estimated increase in the gross
796
THE FOREIGN AID PROGRAMS
national product of 45 percent, total foreign aid would be $6.7 billion.
The economic aid component is then $3.6 billion, while the military
aid component is $3.1 billion.
In Model 4, the 1965 volume of foreign aid, with the same com-
ponent relationship, is maintained at the 1955 level.
In Model 5, the 1965 foreign aid program is kept at the 1955 dollar
level, but by that time all foreign aid is assumed to be in the form of
economic aid.
In Model 6, the foreign aid program is assumed to be nonexistent by
1965.
In all models, the distribution of the specific commodities within the
economic and military components is assumed to follow the 1955
pattern.
On the basis of Model 1, total foreign aid in 1965 would account for
about 1.3 percent of gross national product. The economic aid com-
ponent alone would account for about 0.9 percent of gross national
product, with the remaining 0.4 percent for military aid. Though
the ratio of foreign aid to gross national product would be fairly close
to the 1955 situation, when foreign aid was 1.2 percent of gross na-
tional product, the distribution of the commodity purchases in 1965
would be quite different. Given the conditions of Model 1, the items
which are considered to be importantly affected by foreign aid are
bread grains; milled and polished rice; fats and oils; fertilizers;
cotton; tobacco; and engines and turbines. Although the purchase
of aircraft, engines, and parts would be reduced relatively-as a result
of holding the military component of foreign aid at the 1955 level-
the ratio of such purchases to total United States production would
still be high.
In Model 2, foreign aid would, as in Model 1, account for about 1.3
percent of gross national product in 1965. The military and economic
components would maintain the same proportions in the foreign aid
program as in 1955. In the economic component the impact of foreign
aid would be most pronounced on mining, construction, and conveying
equipment and tractors; as well as on milled and polished rice, and
tobacco. In the military component, only aircraft, engines, and
parts would be affected in any serious degree by the foreign aid
purchases.
In Model 3, total foreign aid, as well as the economic and military
components, would be increased in proportion to the increase in gross
national product since 1955. With no change in the composition of the
foreign aid basket, the same impacts would prevail in 1965 which were
evident in 1955.
On the basis of the Model 4 projection, where foreign aid remains at
the 1955 level without any changes in the components, only two items
would appear to be importantly affected by foreign aid shipments.
Those items are mining, construction, and conveying equipment; and
aircraft, engines, and parts.
In Model 5, the foreign aid program is again assumed to remain at
the 1955 level, but in this instance all foreign aid expenditures would
be for economic aid. Thus, the level of economic aid is set at $4.7
billion, just $300 million below the level of economic aid obtained in
Model 1. The effects would be about the same. That is, the items
importantly affected by this increased level of foreign aid expendi-
tures would include bread grains; tobacco; milled and polished rice:
THE FOREIGN AID PROGRAMS
797
cotton; and fats and oils; but probably not engines and turbines or
fertilizers.
Model 6 assumes no foreign aid program in 1965. In the absence
of any offsetting Government program or increase in private demand,
those items which would feel the drop in demand most severely are
tobacco; tractors; aircraft, engines, and parts; and mining, construc-
tion, and conveying equipment.
INDIRECT EFFECTS OF FOREIGN AID ON THE UNITED STATES ECONOMY
As was indicated earlier, an attempt has been made to measure the
indirect effects of foreign aid purchases. For each purchase of a
commodity or service made with foreign aid funds additional pur-
chases and employment are needed. An example would be the pur-
chase of aircraft engines. In order to produce and place the aircraft
engines in the recipient country, these engines have to be manufac-
tured from raw materials and/or component parts, assembled, crated,
shipped by rail, truck, and sea, loaded and unloaded by dock and
shipping personnel, insured, and so forth. These effects of the foreign
aid program should not be overlooked.
Our estimates of these additional purchases are derived from tables
which were prepared under the Federal Government's interindustry
analysis program during the period 1942-53. Since the bulk of the
interindustry relationships applies to the year 1947, our indirect impact
analysis has been based primarily upon 1947 relationships. Some
adjustments relating to 1952 foreign trade patterns, however, are in-
cluded in the interindustry table and have been used for this section.
Appendix table 13 indicates the number of people who, in 1955,
were directly employed in the production of foreign aid goods and
services and those people who were employed as an indirect conse-
quence of the foreign aid program. The text accompanying appendix
tables 12 and 13 indicates the assumptions made in their construction.
Based on the commodity coverage in table 13, it is estimated that in
1955 there were about 335,000 people employed directly in the produc-
tion of the various foreign aid commodities and services shown. Also
in 1955, on the basis of table 13 estimates, indirect employment ac-
counted for about 240,000 people.
STATE EMPLOYMENT EFFECTS OF THE FOREIGN AID PROGRAM
An attempt has been made to determine the effects of the foreign
aid program on the employment in each State. Appendix table 15
shows the large variation among States in the amounts of direct plus
indirect employment which can be attributed to the production of
foreign aid commodities. California, Illinois, Massachusetts, Mich-
igan, New York, Ohio, and Pennsylvania receive the greatest employ-
ment benefits, in absolute amounts. There are, however, undoubtedly
a number of other States where there is appreciable employment for
the production of aid commodities when expressed as a percent of
total employment. The effects of the foreign aid programs on State
employment are treated in greater detail in section X of this report.
SECTION VII
FOREIGN AID AND THE UNITED STATES SHIPPING
INDUSTRY
COMPETITIVE STATUS OF THE UNITED STATES SHIPPING INDUSTRY
The United States shipping industry's share of oceanborne trade
is approximately one-fifth of dry-cargo exports and one-third of im-
ports. These relatively low amounts are related to the competitive
advantage enjoyed by foreign companies in their lower cost of build-
ing and operating ships. The Merchant Marine Act of 1936 was de-
signed to ensure that the United States would have a merchant marine
sufficient to maintain the flow of its essential trade at all times and a
naval and military auxiliary in wartime. The act provided for the
payment of construction-differential subsidies and operating-differ-
ential subsidies to American operators in essential trade routes in
regular liner service. There are also a number of other Government
programs designed to support the United States shipping industry.
The freight rates conferences, in which most operators of United
States and foreign lines participate, have helped the United States
fleet meet the increasing competition of lower-cost foreign fleets. Since
rate cutting is precluded for conference members, United States op-
erators have been enabled to compete with foreign operators, despite
their lower costs of operation. Although these conferences set the
freight rates, competition continues from operators who are not con-
ference members, from the introduction of newer and faster ships,
and from the provision of service on new routes and more frequent
sailings by the conference operators. In this competition, foreign
countries have an advantage since a large part of their fleets were built
after the war, while most of the United States fleet is of an earlier
design.
Another support for United States shipping companies derives from
the provisions of Public Law 664, which require that 50 percent of
almost all Government-financed cargoes be shipped on United States
owned and operated flag vessels. This law permits United States ship-
ping firms to bid, with a "reasonable rate" limit on the first half of
Government-financed cargoes. The remaining 50 percent is bid on
an open basis, with foreign shipping firms participating.
1
The available data indicate that approximately one-fourth of the
exports carried by United States lines and three-fourths of the
United States tramp business consists of foreign aid cargo; tanker
participation has been relatively small. The United States liner com-
panies (including United States-operated foreign-flag vessels) carried
about 39 percent of liner exports and almost 48 percent of liner
imports in 1954. Both figures are declines from the approximately
1 "Reasonable rates" are now interpreted to be "rates compensatory for United States
shipping."
798
THE FOREIGN AID PROGRAMS
799
50 percent of exports and over 60 percent of imports carried in the
1946-48 period.
No support of the kind supplied to liner companies other than the
50-50 Preference Act is provided to American tramp-vessel owners.
As a result, the competition from lower-cost foreign vessels limited
exports carried by United States tramp ships almost exclusively to
aid cargoes. In 1954 United States tramp ships handled only 11 per-
cent (2.4 million tons) of the total United States exports carried by
tramp vessels; only 9 percent (1.8 million tons) of the imports
brought in by tramp vessels was carried by United States tramp ships.
An additional 7.6 million tons of imports were carried by United
States-flag and United States-operated foreign-flag vessels in indus-
trial type operations.
The competitive position of the United States shipping industry
has shown sharp fluctuations since 1946. The reduction in demand for
coal and grain, following the winter of 1946-47, reduced the demand.
for bulk-cargo shipping space and the resulting decline in freight rates
persisted through 1950. In addition, foreign fleets were augmented by
more than 1,000 ships sold abroad by the United States under the
Ship Sales Act of 1946 as well as by new construction. As a result
of these factors, United States tramp carriage of exports in 1950 was
reduced to about 20 percent of the total in 1946. The lack of demand
for shipping space resulted in the return by 1949 of almost 1,500 gov-
ernment-owned ships under charter to private operators to the Na-
tional Defense Reserve Fleet.
A sharp increase in the active fleet, from 3.7 million gross tons at the
end of 1950 to 7.9 million gross tons at the end of 1951, consisted almost
wholly of a breakout of ships from the reserve fleet. The increased
fleet was needed to meet military requirements in Korea, greatly ex-
panded shipments of coal and grain to Europe and the Far East, and
a mounting demand for ships arising from heightened economic activ-
ity throughout the world. However, when the demand for bulk com-
modities, principally coal, fell off early in 1952, the demand for ships
was lessened and a return to lay-up was begun.
With the decline of cargoes, freight rates which had temporarily
increased after 1950 fell again to the 1949 level and remained at this
level until the latter part of 1954. Except for a few vessels carrying
military and some economic aid cargoes, all vessels from the reserve
fleet were returned by 1954. Also, even though total trade was higher
in 1954 than in 1953, some privately owned vessels were laid up because
of the low world shipping rates, while a substantial number of such
vessels were transferred or sold for service under foreign flags. The
active fleet continued to decline during 1954, until the increase in
shipping activity in the fourth quarter brought most of the privately
owned vessels out of lay-up and resulted in a year-end total of ships
in service slightly higher than at the previous year's end. Increased
carriage of government-financed exports was the principal factor in
the continued increase in the active United States fleet in 1955.
Seafaring employment has followed a slightly different pattern
from that of the size of the active United States fleet. Employment
dropped from a high of 158,860 in July 1945, to around 55,000 at the
end of 1955. Despite the fact that tonnages for the European recov-
ery program were very large in 1948, employment dropped from
100,000 at the beginning of the year to 72,000 at the end of the year.
800
THE FOREIGN AID PROGRAMS
It dropped another 10,000 the following year. This loss in American
seagoing employment took place in spite of the fact that during the
27 months of 1948-49 and early 1950, 46 million tons of goods were
shipped abroad. Seafaring employment continued to decline until
mid-1950, when the Korean war called for heavy shipments and an
increase in the American merchant marine. Employment rose to al-
most 100,000 in early 1952, only to fall off steadily from then on to
its present level.
It will be noted that before the war seafaring employment was
usually around 50,000. If there were no foreign aid programs and
cargo preference legislation or no other alternative support program
acting as a brake on the decline of the American merchant marine, it
is probable that seafaring employment now would be much below
prewar levels.
CARGO PREFERENCE LEGISLATION AND UNITED STATES SHIPPING
Cargo preference legislation in foreign aid programs has been in
existence since 1934, when the President approved Public Resolution
17. This provided that export programs resulting from Government
loans "*** shall be carried exclusively in vessels of the United
States when available at reasonable rates."
The intent of this resolution has been carried over to recent pro-
grams with the restriction "exclusively" being changed to "50 per-
cent." There was little adverse reaction to the resolution until after
World War II, when heavy Export-Import Bank loans and other
foreign aid programs sharply increased foreign shipments and when
foreign shipping again became a potent factor in the world market.
Pressures developing for its relaxation never were satisfied. The
first postwar cargo preference legislation was enacted in section 111
(a) (2) of the original Foreign Assistance Act of 1948. It provided
that at least 50 percent of the traffic created by Government-sponsored
aid programs be allocated to vessels of United States registry. Simi-
lar provisions were included in subsequent extensions of the legisla-
tion and in other similar acts.
Public Law 664, enacted August 26, 1954, made cargo preference
legislation permanent and extended the scope of previous provisions
by applying preference to (1) inbound cargoes purchased for the
account of the United States Government, (2) surplus agricultural
commodities which are exchanged for foreign currencies, and (3)
offshore purchases of foreign aid goods and commodities. Cargo
preference legislation has resulted in making available millions of
tons of cargo which would not have been available to American
operators if the competition for the cargo were strictly on a basis
of price or availability.
This preference provision was not without additional direct cost
as it often resulted in higher costs for shipping foreign aid goods
than would have been paid in the absence of the legislation. It was
not possible in the time allowed for this study and on the basis of
available data to estimate the additional direct costs resulting from
this provision and to compare them with the costs of alternative pro-
grams, such as direct subsidies.
In testimony before the House Merchant Marine and Fisheries
Committee on February 3, 1956, Mr. Clarence Morse, Administrator
THE FOREIGN AID PROGRAMS
801
of the Maritime Administration, stated that "Public Law 664 is criti-
cally important to the American Merchant Marine." He said, "I am
personally satisfied * * *" that repeal of Public Law 664 "would
cause the elimination of the so-called tramp fleet. It would have a
very substantial and direct effect on the profit position of all the berth
operators." Mr. Louis Rothschild, Under Secretary of Commerce
for Transportation, verified Mr. Morse's position in testimony April
20, 1956, before the Senate Committee on Interstate and Foreign
Commerce, Subcommittee on Merchant Marine and Fisheries.
While the preference legislation has aided the United States ship-
ping industry, there have been aspects of the foreign aid program
which have assisted foreign shippers. At the end of World War II,
foreign fleets were depleted because heavy losses during the war were
not replaced. To assist our allies in rehabilitating their shipbuilding
and shipping industries, the Economic Cooperation Administration
made large sums available for reconstruction of European shipbuild-
ing industries, and the United States Government made attractive
terms available to foreign ship operators for the purchase of surplus
American vessels. Under the Ship Sales Act of 1946, the Government
sold 1,113 vessels to foreign interests under the same conditions and
terms granted American purchasers.
In early 1948 and mid-1948, heavy movements of bulk cargoes to
Europe under the Economic Cooperation Administration financed
and other aid programs created such a tight charter rate that the
market rate for some tonnage remained well above the cost of opera-
tion by some United States shippers. When the market fell in late
1948, competing foreign-flag rates went below the level which Amer-
ican operators could accept without losing money.
The discrepancies in United States costs and foreign rates became so
large that the Economic Cooperation Administration Administrator,
in late 1948, advised Congress that beginning January 1, 1949, he in-
tended to require the use of no more United States flagships than were
required to supplement foreign vessels carrying aid shipments unless
the United States ships were available at competitive rates. As United
States costs were running three times or more those of their foreign
competitors, the introduction of such a program could well have driven
the tramp fleet off the ocean and severely affected other American op-
erators. Because of a temporary increase in the demand for coal, this
action was postponed, but it was recognized that a serious look must
be taken at the 50-percent provision and its effect on the aid programs.
FOREIGN AID IMPACTS ON THE TRAMP FLEET
The tramp ship industry relies primarily on the movement of bulk
commodities. As the shipment of bulk commodities has increased or
decreased, the prosperity of the tramp industry has responded ac-
cordingly. The composition of the foreign aid program therefore has
had a direct influence on the activity of the United States tramp fleet.
Although the tramp ship industry has been very prosperous at times
since the war, there has been a severe reduction in the size of the tramp
fleet. From 1948 to 1956, the American-owned tramp fleet has been
reduced from around 200 to 70 vessels-around 130 vessels having been
transferred to foreign registry where they could operate at lower costs.
Of the remaining 70 vessels, there are over 40 for which applications
802
THE FOREIGN AID PROGRAMS
for transfer abroad have been made with the Maritime Administra-
tion. The long-range difficulties of the tramp fleet are caused by the
obsolescence of the Liberty ships which compose the fleet and their
inability to compete with foreign-flag ships. The industry contends
that it needs Government assistance, at both the operating and con-
struction stages, if it is to survive. It appears clear that the foreign
aid program-regardless of its size cannot guarantee this survival,
while a reduction of the program would only accelerate the decline.
It does not appear likely that the problems facing the American-
owned tramp ship industry will be solved by the size of the foreign aid
program over the next 10 years unless the other basic problems are
solved. Indeed, at the present pace, it would appear that the United
States tramp fleet will disappear much before 1965. If foreign aid is
severely reduced or eliminated, the decline of the tramp ship indus-
try in all probability would be accelerated.
FOREIGN AID IMPACTS ON THE LINER OR BERTH OPERATORS
There are both subsidized and unsubsidized liner or berth operators.
Because of the relatively high costs of construction and operations, it
has become necessary for most large American-flag operators who are
competing internationally and who are not subsidized to apply for
subsidy. The size, nature, and direction of foreign aid have been im-
portant factors which have permitted some unsubsidized operators to
remain in business. It has not, however, always assured them of a
profit and there is little likelihood that future foreign aid, regardless
of its size or nature, can keep many unsubsidized American operators
in international operations. Even the requirements of our 50-50
legislation do not assure them of the continuing type of profitable
cargoes that they will require. As in the case of the tramp industry,
all operators, whether subsidized or unsubsidized, if they are to com-
pete, must embark upon programs to replace vessels.
Few, if any, unsubsidized operators can hope to build up the neces-
sary reserves or generate sufficient profits annually to replace their
war-built ships. Their problem goes beyond the size or nature of
foreign aid, or the assistance the industry received from cargo prefer-
ence legislation.
To the subsidized operators, however, foreign aid has been of vital
importance. Under the Merchant Marine Act of 1936, as amended,
subsidized operators receive in subsidies from the Government the
differences between their own operating and construction costs and
those of their foreign shipping competitors. The subsidies, although
guaranteeing neither business nor profit, do put the operators in a
better competitive position for the foreign aid business in excess of
the 50 percent. Since subsidized operators travel designated "essen-
tial trade routes," they are directly affected by the amount, type, and
direction of foreign aid. As programs shift into or away from their
areas of operation, or change in nature, there are changes in the amount
of cargo carried and the profits resulting from the business. In gen-
eral, foreign aid has amounted to approximately 25 to 30 percent of
their business. In most cases, foreign aid cargoes have made the dif-
ference between profit and loss. This, in turn, can affect their replace-
ment programs, their future ability to compete successfully, and the
amount of Federal subsidies paid to the operators. If the tramp or
THE FOREIGN AID PROGRAMS
803
unsubsidized industries are further curtailed or disappear, shipments
under the cargo preference legislation will have to be taken up by the
berth or liner companies, by ships chartered from the Government,
by United States-flag operators, or by foreign-flag operators. There
are three alternatives in any case:
If the foreign aid programs continue at their present levels or in-
crease, additional ships may have to be chartered from the Govern-
ment, from other operators, or constructed with Government assist-
ance. An effort may be made to revive the Ship Sales Act of 1946, in
spite of its questionable implications.
If foreign aid is completely or severely restricted, that part of those
foreign aid cargoes which would otherwise have been taken over from
the tramp or unsubsidized fleet would disappear, American registry
fleets would be further reduced, and the profits of the operators heavily
affected.
If the nature or the direction of foreign aid programs change radi-
cally, there can be important changes in the size and the type of fleets
affected, particularly if a reduction takes place in the type of com-
modities which were formerly handled by the tramp ship operators.
FOREIGN AID PROGRAMS AND THE TANKER FLEET
The foreign aid programs had important effects on segments of
the American tanker fleets shortly after the war when there was a
shortage of tankers. However, future changes in foreign aid pro-
grams should not be a major factor in the United States tanker indus-
try because of the sale and breakout of tankers from the Reserve fleet,
new construction since the aid programs started, and the fact that
much of the American tanker fleet is owned by oil companies. In the
recent past, cargo preference legislation has been of relatively little
importance for this kind of shipping and little change is expected in
the future.
CHANGING LEVELS OF FOREIGN AID AND THE UNITED STATES SHIPPING
INDUSTRY
In the past 10 years, the amount of foreign aid has remained at
approximately the same level. If this level continues in the future,
the shipping industry will benefit from the aid program and the pref-
erence legislation. If, in addition, the industry were to introduce
more modern ships, it could conceivably obtain a greater share of the
cargoes in excess of the 50 percent granted by the preference legis-
lation. The nature and direction of the flow of aid commodities have
shifted frequently since 1948. This has not only affected the pros-
perity of segments of the shipping industry in different periods but
has made overall industry planning difficult.
It should be noted that onshore shipping industries are little af-
fected by preference legislation, since both American and foreign ship-
ping operators expend around 75 percent of the dollar revenue in
American ports. Whether domestic or foreign, the same onshore
facilities will be used. Onshore port industries that feed from United
States and foreign shipping in the United States fall into six general
categories: marine transportation, auxiliary marine transportation,
marine construction and repair, land transportation, port trade and
94413-57-52
804
THE FOREIGN AID PROGRAMS
finance, port industries. Based on a movement of 140 million tons
of commerce into and out of the New York-New Jersey Port District
each year, the Port of New York Authority, in a recent study, found
that such a movement gave around 430,000 jobs in an average year
with a total payroll of around $2.1 billion. Since the International
Cooperation Administration program alone has amounted to over
100 million tons, it can be seen that hundreds of thousands of onshore
jobs and payrolls of around $1.5 billion have resulted from foreign
aid programs.
Under the military defense assistance program, ocean shipments
have amounted to 42.5 million measurement tons since 1948, of which
around 70 percent or 33.3 million measurement tons were carried in
United States-flag vessels. When fitted into the New York onshore
work pattern, it can be estimated that around 150,000 jobs have been
created and corresponding amounts of money spent.
Any substantial increase in foreign aid would help both the onshore
and offshore American shipping industry. Being assured of 50 per-
cent participation in the traffic, the American operators can possibly
improve their position by competing for the additional 50 percent.
Again, Government subsidy and the construction of new competitive
ships would in this respect be more important than the cargo prefer-
ence legislation.
As we have seen, the American shipping industry participation in
total foreign trade has been steadily decreasing even though foreign
trade has steadily increased. Should foreign trade level off, compe-
tition for increased amounts of foreign aid would become severe, as
it was several times during the past 10 years. At those times, even
an increase in foreign aid did not assure a healthier or busier American
merchant marine. The same can be true in the future.
Severe reduction or elimination of foreign aid would have a further
depressing effect on the American merchant marine-creating serious
unemployment with the virtual elimination of the tramp fleet, curtail-
ing profitable subsidized operations, and virtually eliminating unsub-
sidized operators. Unless other Government aid were forthcoming,
there could not possibly be any replacement of ships in either the
tramp or the unsubsidized fleet, even if the 1946 Ship Sales Act were re-
opened under favorable terms. Only Government-subsidized opera-
tion would be possible if foreign aid were greatly reduced, which
means that the American merchant marine actively engaged in foreign
trade would be reduced to less than 500 ships. This, in the opinion
of the Defense Department officials, would endanger the national
security. Not only would the United States lack the nucleus of an
operating merchant marine in time of national emergency, but we
would lose trained shipboard and shipbuilding personnel. Just as
for the foreign aid program as a whole, its impact on the shipping
industry should not be considered apart from the problem of national
security.
TRANSPORTATION OF FOREIGN AID BY AIR
Air transportation has not been a major factor in the foreign aid
programs and such programs have not had a major effect in the de-
velopment of the American air transportation industry. In times of
emergency, there have been heavy shipments of men and material
by air under military foreign aid programs. The use of air trans-
THE FOREIGN AID PROGRAMS
805
portation by the International Cooperation Administration and its
predecessor agencies has been restricted almost solely to the movement
of personnel, either of the agency, of foreign participating countries,
or of hired specialists or technicians. The total amounts expended
on air transportation under such programs have amounted to approxi-
mately $10 million. In some isolated cases, material and equipment
have been flown into areas where other means of transportation were
not adequate. But again, the contribution has been small.
Probably the greatest contribution made by the International Co-
operation Administration and its predecessors, the Export-Import
Bank, and similar agencies, has been in improving airports and other
airline facilities abroad. American carriers have benefited from such
improvements.
On the other hand, United States foreign aid, according to testi-
mony given before congressional committeees, has assisted the de-
velopment of foreign air transportation facilities by loaning money
to foreign governments or airlines for use in the purchase of modern
aircraft and equipment which in turn competed against American
carriers. However, the United States Government has used the facili-
ties and knowledge of American international airlines to advantage
in extending foreign aid to airlines of other countries. For example,
Trans World Airlines has assisted in establishing and operating local
airlines financed under foreign aid programs in Ethiopia and Saudi
Arabia. Pan American World Airways has assisted in Turkey, Iran,
and Pakistan. In each case the program has been a success.
As a result of emergency conditions growing out of international
tension, and in part because of the existence and need to continue a
substantial defense airline, the Defense Department has moved large
quantities of military personnel and material via the Military Air
Transport Service. When unable to move adequately with their own
fleet, which is responsible for the largest air movement of military
material and personnel, the Department of Defense has hired com-
mercial carriers. The amount of transportation, both military and
commercial, handled by the Military Air Transport Service has been
substantial in some areas during certain periods.
FUTURE CHANGES IN FOREIGN AID AND AIR TRANSPORTATION
Since relatively small amounts of commercial air transportation
have been used in handling foreign aid commodities, even a large
change in foreign aid would have only a small effect on the industry.
This would continue to be so unless Government policies were ma-
terially changed or the cost of air transportation became more competi-
tive with surface transportation. If an emergency should arise and
speed in delivery should become a major factor, there undoubtedly
would be pressure to increase substantially the use of international
air transportation. However, such an increase would be seriously
limited by the size of the existing air fleets. These fleets are not now,
nor can they be expected to be for some time in the future, capable
of absorbing major increases in shipping.
In the handling of Defense Department programs, the announce-
ment of a new logistics concept that calls for the reduction in the size
of foreign depots, their dispersal, and an increased reliance on fast
air and sea transportation from forward depots in the United States,
806
THE FOREIGN AID PROGRAMS
could conceivably have a major future influence on the American
commercial air transportation industry. In addition, the Defense
Department is reviewing its own air transportation program. If
the Military Air Transport Service and other air transportation fa-
cilities in the Defense Department are put on a funded, pay-as-service-
is-rendered basis, and a further study is made of the relationship
between Government air transportation and the commercial fleet
potential, there may be a change in the amount of participation of
commercial carriers in any future foreign aid programs. However, it
is unlikely that foreign aid shipments abroad, whether military or
civilian, will be a major or even serious contributor to the American
air transportation industry within the next 10 years, unless strategic
considerations necessitate drastic changes in methods of transporta-
tion.
SECTION VIII
FOREIGN AID AND NATURAL RESOURCES
FOREIGN AND DOMESTIC RESOURCES
Foreign aid programs as they have been carried out since World
War II, in general, have had very limited effects-either favorable or
unfavorable on the supply of natural resources available to the
United States.
Aside from agricultural resources (which are discussed elsewhere
in this report), our basic natural resources include forest products,
animals, fish and wildlife, fuels and energy resources, and minerals and
other raw materials. With good management the renewable re-
sources—including agricultural products, animal, fish, wildlife, and
forest resources-are capable of being maintained without depletion.
Unless foreign aid programs placed an extremely heavy demand upon
them for a series of years no present or future shortages would be
anticipated. Our foreign aid exports, as shown in appendix tables
3, 8, and 10, involve relatively small quantities of these renewable
resources, except for agricultural crops which are in surplus
production.
For example, with the exception of 1949 foreign aid, shipments of
fish and fish products comprised less than 1 percent of total production.
Similarly, foreign aid shipments of such animal products as meats,
hides, skins, leather, and wool, have been very small in recent years-
less than 1 percent of total production. In no case did shipments of
lumber and wood products or paper and paper products amount to
as much as 1 percent of total domestic production. Textile products
shipments in foreign aid accounted for 2 percent of domestic pro-
duction in 1948 and 1949 and less than 1 percent since.
Thus, foreign aid exports do not appear to have involved any serious
drain on our renewable natural resources. Not only are the shipments
relatively small but they have created no shortages in any of these
supplies in this country.
The natural resources in which the United States supplies are limited
include some of the energy resources (particularly natural gas and
petroleum), and other raw materials. These are exhaustible resources,
in the sense that the supplies of fuels, minerals, and other materials
cannot be renewed; there is just so much available in the earth's
crust. New reserves may be discovered but they cannot be created
or renewed. No natural gas exports are involved in foreign aid.
Petroleum is a potential shortage fuel since the United States no
longer produces all of our requirements. Up until the late 1940's,
United States demand for petroleum and petroleum products was
supplied from domestic production. Beginning in 1947, our imports
began to exceed exports, as shown below:
807
808
THE FOREIGN AID PROGRAMS
TABLE G.-Salient statistics of crude petroleum, 1948-54
[In thousands of 42-gallon barrels]

1948
1949
1950
1951
1952
1954
Domestic production.
World production……….
United States proportion of
world production, percent...
Imports..
Proportion of United States im-
2,020, 185
1,841, 940
1, 973, 574
2,247, 711
3, 433, 234
3, 404, 025
3,802, 843
4,286, 443
2, 291.997
4,498, 057
2,316, 323
4, 990, 899
59
54
52
52
51
47
129,003
153, 686
177, 714
179, 073
209, 591
239, 479
ports to domestic production,
percent..
6.4
8.6
8.9
8.0
9.1
Exports..
39, 736
33, 069
34, 823
28, 604
26, 727
10.8
n. a. 1
Proportion of United States ex-
ports to domestic production,
percent.
1.9
1.8
1.8
1.3
1.2
1 Not available.
Source: Bureau of Mines. Data for 1953 and 1955 are not available.
The excess of imports over exports has steadily increased in recent
years. During these same years, the United States proportion of total
world production of crude petroleum declined steadily. This shift
in the import position has taken place during years when the expan-
sion of proved domestic petroleum reserves has kept pace with increas-
ing United States production (reserves averaging 12 to 13 times annual
production).
Part of the increased demand in 1950-52 was caused by the Korean
war, but the general situation is not likely to change. Indeed, the
Suez crisis makes it clear that in the immediate future our position
may deteriorate. How significant have foreign aid programs been
in petroleum? Appendix table 8 shows that foreign aid exports of
petroleum and petroleum products comprised about 40 percent of
total petroleum exports in 1948-49, and have since declined to 15 to
20 percent. Total exports declined from 1.9 percent of domestic pro-
duction in 1948 to 1.16 percent in 1952. Since imports were increas-
ing from a ratio of 6.4 percent of domestic production in 1948, to 9.1
percent in 1952, and 10.3 percent in 1954, it is apparent that foreign
aid export shipments have had a very limited measurable impact on
the industry-especially since 1951.
Coal presents a different picture. United States reserves of coal are
tremendous. The economic problems of the industry do not involve
potential shortages of supply, but rather the maintenance of produc-
tion at high enough volume to provide reasonable employment and
profit levels. Thus, while production of domestic crude oil and petro-
leum product was expanding steadily from a value of $13.9 billion
in 1948 to $17.4 billion in 1951 and $20 billion in 1955, production
of bituminous, anthracite, and coal chemicals varied from $5.1 billion
in 1948 to $3.8 billion in 1950, $6.1 billion in 1951, $4.4 billion in
1952, and $5.8 billion in 1955 (see appendix table 9).
Immediately following World War II, there were great shortages
of coal in Europe as a result of destruction of production facilities
and shortages of manpower. The United States greatly increased
exports of coal to Europe, primarily bituminous coal, but including
anthracite, coke, and coal chemicals. These shipments increased most
rapidly in the immediate postwar years of 1946-47. For example, in
1946 bituminous coal exports were 7.7 percent of domestic production
and in 1947 10.8 percent, most of it going to Europe. How much
THE FOREIGN AID PROGRAMS
809
of this increase was in foreign aid is difficult to identify, but it is
estimated that more than half was in the form of foreign aid. More-
over, larger exports of coal to European countries have continued
since, though at a declining rate as Europe recovered and increased
production. Thus, we find (table 10) that foreign aid shipments
of coal declined from 3.9 percent of United States production in
1948 to 1 percent in 1953 and 1954 and 1.8 percent in 1955.
Particularly during the years 1948-53, the Economic Cooperation
Administration and the Mutual Security Agency had a major pro-
gram for the rehabilitation, modernization, and expansion of heavy
industry in Europe, and this included some coal mining and process-
ing facilities. This phase of foreign aid, therefore, aided in restor-
ing European production and helped to reduce the exports of United
States coal to Europe in recent years.
The United States is the world's greatest consumer of minerals
and materials, and we must supplement our production of many min-
erals with substantial imports. Our strategic and supplemental stock-
piles contain supplies of over 75 of these relatively short materials.
Therefore, foreign aid programs which substantially increase the
consumption of these strategic minerals may contribute to a rise in
their costs and, ultimately, to worldwide shortagés. On the other
hand, programs which would develop new foreign sources of these
materials or increase their flow to the United States would be advan-
tageous.
Foreign aid programs have little measurable impact on the non-
metallic minerals. Foreign aid shipments of these nonmetallic min-
erals comprised 1.2 percent of total United States production in 1948,
and 1.5 percent in 1949, and have averaged around 0.5 percent in
recent years (table 8).
Looking at the other side of the picture—that of foreign develop-
ment and materials-purchase programs-we see that some strategic
materials loans from foreign aid funds were used to develop foreign
properties producing asbestos, mica, diamonds, fluorspar, and mullite.
The amounts have been small, however, and the net addition to world
production has not been a substantial percentage. Purchases for the
United States stockpile, using foreign aid funds, did not involve non-
metallic minerals in any significant amount.
There has been some impact of foreign aid activities on the supply
of the essential and strategic metallic minerals, many of which are in
continuing short supply. It is clear that an increase in armaments here
or abroad increases the requirements for these resources. So far as
economic foreign aid is concerned, the impact cuts two ways. Foreign
aid exports which comprise products drawing heavily on the metallic
minerals make additional imports necessary. The development of
foreign production facilities for these metals, on the other hand, fa-
cilitates the importation of strategic minerals. These effects are diffi-
cult to measure quantitatively because most metallic minerals are
exported in the form of metal-using manufactures and the exact net
increase or decrease of mineral supplies is not identifiable.
In looking at the effect of foreign aid export shipments on our
metallic mineral supplies, the first point to note is that actual foreign
aid shipments of metallic ores and concentrates, as might be expected,
were extremely small, amounting to a small fraction of 1 percent of
domestic production (table 10).
810
THE FOREIGN AID PROGRAMS
The second point is that foreign aid shipments of metal-consum-
ing products (other than military items), while substantial, com-
prised but a minor proportion of total exports of these items. In
terms of domestic production, foreign aid shipments of materials and
products from iron and steel mills have accounted for from 0.3 percent
to 1.7 percent, averaging one-half of 1 percent in recent years. Other
industries which are heavy users of ferrous metals include construc-
tion, mining and conveying equipment, metal working machinery,
machine tools, engines and turbines, industrial machinery, tractors,
agricultural machinery, and miscellaneous industrial products. From
1948 through 1950, foreign aid shipments of these products averaged
about 35 percent of the total exports of these industries. Since 1951,
the percentage of these foreign aid exports has declined to an average
of 22 percent of total exports in the industries.
Since total exports of these industries have not declined, it is appar-
ent that the foreign aid shipments were not considered to be a serious
drain on our ferrous metal supplies. When examined in relation to
domestic production, foreign aid shipments were an important frac-
tion of the total for these industries, particularly from 1948 to 1951,
amounting to from 5 to 10 percent of production. The percentages of
total production involved have since declined below the 5 percent level
for all of these industries except construction, mining and conveying
equipment (15 percent in 1953), and tractors (8.2 percent in 1954 and
5.9 percent in 1955).
No serious problem in the supply of iron ores, either from domestic
production or import, is foreseeable in the next decade. When it comes
to the ferroalloys or additive metals essential in our steel industries,
the situation is quite different. We produce a surplus of only one-
molybdenum. For all the others, we are dependent on imports for
most of our supplies. In 1954, imports as a percent of consumption
were:
Manganese..
Chromite_
Cobalt___
Nickel
Percent
98 Columbite and tantalite_
91
Vanadium__.
85 Tungsten-
95
Percent
99
60
65
All of these items have been included in the strategic stockpiles
throughout the years under consideration. In the case of several of
these metals, it is likely that the rise in demand will exceed that of
supply. Tables 3, 8, and 10 show, however, that the size of these non-
military foreign aid shipments of ferrous metal-using products,
while real, is not large. Much the same can be said of the nonferrous
metal-using industries. Of the major nonferrous metals, we produce
the bulk of our needs in copper, lead, antimony, magnesium, and tita-
nium; the others show an import balance. In 1954, imports as a
percent of consumption were:
Copper.
Lead__.
Zinc__.
Aluminum (equivalent)
Tin---
Antimony-
Percent
32 Cadmium.
37 Mercury‒‒‒‒‒
50 Platinum metals.
73 Titanium__
84 | Magnesium_
30
Percent
61
78
87
39
1
Again we find that to the extent that these nonferrous metals are
exported (largely in manufactured products) our imports for strate-
gic stockpiles will continue.
THE FOREIGN AID PROGRAMS
811
Table 10 indicates that shipments of copper and copper products in
foreign aid amounted to from 0.7 to 2.2 percent of total domestic
production, averaging 1 percent in the last 6 years. Zinc and zinc
products in foreign aid at first comprised a larger proportion of total
exports in the industry. They accounted for 2 percent of production
in 1948, 3.3 in 1949, and less than one-half of 1 percent since then.
Foreign aid shipments of lead and lead products were significant only
in 1948, and have otherwise been a minor fraction of exports in the in-
dustry. Aluminum and aluminum products in foreign aid have aver-
aged 25 percent of the industry's exports, and less than 1 percent of
domestic production-except for 1949 when the percentage was 1.9.
Foreign aid shipments of other nonferrous metals and products ran
about 30-40 percent of total exports from 1948 through 1950 (and
2.5 percent of production), and have since declined to 15 percent of
exports and to 1.6 percent of domestic production.
Other industries using nonferrous metals extensively include the
nonmilitary component of electrical equipment and generators and
motors. The foreign aid proportion of exports (and of domestic pro-
duction) in these industries conforms to the picture for other nonfer-
rous metal industries.
The effect of nonmilitary foreign aid shipments on the metal-using
industries can be summed up by saying that the proportion of domestic
production which went into foreign aid shipments was not large. The
strategic materials out of stockpile embodied in these foreign aid
shipments have had to be replaced by additional domestic production
or by imports.
However, when we include the military equipment and supplies
which were shipped as part of foreign aid, we find a much larger
impact on our metallic mineral resources.
A glance at tables 3 and 8 will reveal that whereas in the earlier
years, 1948 through 1951, the largest foreign aid shipments were made
up of agricultural products, from 1952 to date the heaviest shipments
were of military items-ordnance and military components of electric
equipment; motor vehicles, engines, and parts; aircraft, engines, and
parts; military ships and military equipment and supplies. More-
over, foreign aid shipments account for the bulk of the total exports
of those commodities. This is particularly true of ordnance, military
aircraft, and military ships. Production figures for military ordnance
are not available, but since 1952 foreign aid shipments have amounted
to 1.1 to 3.6 percent of production for other transportation equipment
(military ships); 1.8 to 2.5 percent for electric equipment; 0.9 to 4.2
percent for motor vehicles, engines, and parts; and 6.3 to 9.9 percent
for aircraft, engines, and parts. This is a significant proportion of
production in these industries which are heavy users of strategic
materials.
Before concluding that these shipments constitute a substantial de-
mand on the mineral resources which are so heavily consumed in these
industries, however, the question arises whether, in the absence of this
military aid, a roughly equivalent supply of these materials would not
have been needed to strengthen our own military structure. Another
factor to consider is that during the years 1950, 1951, and 1952, sub-
stantial amounts of ordnance were shipped from United States surplus
stocks (table 4). This was also true of aircraft and military ships from
812
THE FOREIGN AID PROGRAMS
1950 through 1953. In 1954 and 1955, almost all of the foreign aid
shipments of these military items was from new production, as was
the bulk of such shipments in the earlier years. It is apparent, there-
fore, that present shipments of these military items have added to the
burden on production and on strategic materials supplies.
The foreign aid shipment of goods which contain strategic mate-
rials does not mean that there is necessarily a drain on a limited
domestic supply. In many instances, it only means that domestic
consumption of these materials is increased and, therefore, that more
is imported. This would not alter the amounts of these materials
available either under the ground or in the stockpile in the United
States. However, with respect to several of these materials, supply
here or abroad is limited and the necessity for maintaining adequate
supplies over a long period of time gives reason for concern.
FOREIGN AID AND WORLD SUPPLIES OF STRATEGIC MATERIALS
How much has foreign aid contributed to easing the supply of these
metallic minerals, either by developing foreign mineral production or
by purchasing foreign supplies of strategic minerals with foreign aid
funds? The answer seems to be that the direct contributions are
small, but indirectly the foreign aid programs have been very helpful.
With the inauguration of the Marshall Plan, the Economic Coopera-
tion Administration (and later the Mutual Security Agency) began
to make loans designed to develop production facilities for strategic
materials needed for our stockpiles and for other basic materials, such
as iron ore. At the same time, foreign aid local currency and counter-
part funds were used to purchase supplies of these materials for our
use. Actually, this program of loans for the development of strategic
materials production was largely terminated in November 1951, when
the responsibility for development and procurement of these foreign
strategic materials was taken over by the Defense Materials Procure-
ment Agency. The personnel of the Mutual Security Agency's Stra-
tegic Materials Division together with the responsibilities for imple-
menting existing contracts were transferred from the Mutual Security
Agency to the Defense Materials Procurement Agency. Although the
Defense Materials Procurement Agency no longer had access to the
dollar funds in the Mutual Security Agency's programs, that agency
was authorized to use United States-owned 10-percent counterpart
currencies for financing development projects and purchases of stra-
tegic commodities in addition to its own appropriated dollars. Deci-
sions regarding funds to be used for this purpose were determined
through advance programing and negotiations with the Mutual
Security Agency.
This use of counterpart funds was terminated June 30, 1953. Sub-
sequently, the Defense Materials Procurement Agency was disbanded
and the foreign activity unit was transferred to the General Services
Administration, where it supervises the fulfillment of the various
contracts.
During the period of April 1948 through June 1953, $23.7 million
of Economic Cooperation Administration and Mutual Security
Agency dollar funds and the equivalent of $98.7 million in United
States-owned counterpart funds were obligated for minerals develop-
ment projects under the strategic materials program. At the same
THE FOREIGN AID PROGRAMS
813
time, direct purchases of materials for the United States strategic
stockpile were made with counterpart funds in an amount equivalent
to $115 million.
In all, a total of $237.4 million in both dollars and United States-
owned counterpart funds were channeled into the strategic materials
program.
The second method whereby minerals and related projects received
assistance was under the basic materials program. This program was
authorized under section 514 of the Mutual Security Act of 1951, as
amended.
A considerable number of projects were submitted and reviewed
by the Foreign Operations Administration. Eight proposals were
financed in fiscal years 1953 and 1954 at a total cost of $28 million, on a
loan basis repayable in local currency or, in some cases, at the option
of the United States Government, in materials. The basic materials
program was discontinued June 30, 1954.
During the Economic Cooperation Administration and Mutual
Security Agency industrial capital project program, which amounted
to approximately $600 million, for the rehabilitation, modernization,
and expansion of heavy industry in Europe, several projects in the
mineral field were financed to the extent of $13 million. Unfortunately
the Defense Materials Procurement Agency and General Services
Administration records are not available to indicate the spread of
these purchases as between different minerals.
Since 1954 under authority of Public Law 480, funds derived
from barter or sale of agricultural surplus commodities have been
used to secure some of these strategic minerals. In fiscal 1955, deliv-
eries of strategic and other materials secured by barter totaled $82.4
million. In fiscal 1956, the figure was $177.3 million, and it was $34.9
million from July to September 1956.
While the strategic and other materials acquired by the United
States from foreign sources in recent years were largely in the form of
direct purchases by the Defense Materials Procurement Agency and the
General Services Administration or by barter of agricultural com-
modities, they were not a part of foreign aid as here defined. Never-
theless, early development of these programs resulted from the foreign
aid program and some of the counterpart funds have continued to be
used for these purposes. In a real sense then, the foreign aid pro-
grams helped increase the world supply of these materials, both di-
rectly through the use of foreign aid funds and indirectly by initiating
programs which have provided a continuing flow of these materials to
the United States-even though largely paid for from other than for-
eign aid funds.
Still another contribution to making these minerals and materials
available was made by the Economic Cooperation Administration and
the Mutual Security Agency, from 1948 to 1951, in the form of foreign
aid funds expended in foreign countries for materials which were in
turn made available to other countries receiving foreign aid. While
the United States furnished more of these materials than any other
single nation to the 17 participating European nations, Canada and
Latin America combined to provide over half the total. These ma-
terials were purchased by the 17 nations using our foreign aid funds
under the Economic Cooperation Administration and the Mutual
Security Agency.
814
THE FOREIGN AID PROGRAMS
In summary, it would appear that foreign aid has made contribu-
tions toward increasing both United States and world supplies of
our natural resource materials, both through developing foreign pro-
duction and through use of foreign aid funds to purchase strategic
materials abroad. Despite this, the net effect since 1946 has been to
create an additional demand on our relatively limited mineral re-
sources and on the mineral and material resources of other countries.
This is particularly true of military aid shipments.
As has been indicated, military foreign aid consumes greater quanti-
ties of minerals than does economic, or nonmilitary, aid. This is due
to the very nature of the two components. Military aid is almost en-
tirely ordnance, machinery, and equipment, while economic aid con-
tains large amounts of agricultural commodities and other food
products. Hence, the effects of a decrease or increase of foreign aid on
natural resources depend on the magnitudes of military and economic
aid involved. Given a gross national product of $565 billion in 1965,
however, it is difficult to see how foreign aid, even if doubled, could
have a serious impact on the availability or price of natural resources.
One must assume a dynamic economy, not only in the United States
but elsewhere. Production of critical materials is increasing, in part
as a result of United States foreign aid programs. Such resources
as copper, lead, zinc, and iron are in plentiful supply-if not in this
country then in such nearby areas as South America, Mexico, and
Canada. This is also true of petroleum. Coal is plentiful and, it is
believed, will remain in ample supply for a considerable period.
Though all of these minerals are exhaustible, new recovery techniques
are increasing yields at the mine and at the wellhead, although in some
instances at rising costs of production. On the basis of historical
precedent, it can fairly be assumed that between now and 1965 such
innovations will continue.
In conclusion, there is no doubt that certain military goods which
are shipped as foreign aid utilize scarce mineral resources. The use
of such resources is small relative to the domestic consumption rate
for them. It might also be argued that in many cases if the United
States did not provide such aid, our own military establishment would
have to be enlarged, thus limiting any "saving effect" on the critical
materials.
Both in the case of military and economic aid, by 1965, the expanded
foreign aid program would still account for only a relatively slight de-
mand for our natural resources. The total impact on our natural re-
sources is not sufficiently large to base a decision on the future of for-
eign aid policies on the effect on our natural resource supplies. Other
considerations should be the basis for decisions either to continue, dis-
continue, or increase foreign aid.
SECTION IX
FOREIGN AID AND UNITED STATES AGRICULTURE
In the early years of Marshall Plan aid, large amounts of United
States agricultural commodities were purchased with aid funds and
transferred to Europe. Appendix table 3 shows that in the 4 years,
1948 to 1951, inclusive, more than $1,800 million of aid funds were
used directly to purchase bread grains and flour from the United
States; approximately $500 million to purchase coarse grains; nearly
$1,500 million to purchase cotton; nearly $450 million to purchase
tobacco and tobacco products; and quite significant sums to purchase
other agricultural commodities and products manufactured there-
from. In the 3 years, 1948-50, more than half of the total exports of
bread grains, coarse grains, cotton, and tobacco were foreign aid
shipments.
Agriculture in the United States had been geared to full production
during the war. This continued after the war, and large quantities
of agricultural commodities were available for export. These were
needed in the war-torn countries of Europe, but European countries
were unable to buy them. Burdensome surpluses would have accumu-
lated in the United States or agricultural price levels would have
fallen, if they had not been used as foreign aid. The extent to which
foreign aid purchases helped to increase or maintain prices cannot be
measured, since high price support legislation was in effect, and if
prices had declined to support levels, the Government-owned stocks
would have begun to accumulate. It seems certain that, had large
purchases for foreign aid not been made during these years, govern-
mental expenditures under the price-support legislation would have
increased markedly, and large stocks would have been acquired.
At the end of 1951, economic recovery in Europe had been suffi-
cient to enable most of the countries to begin expanding their regular
commercial imports of agricultural and other commodities, and the
amount of aid funds used to purchase United States agricultural
products was curtailed. For example, table 3 shows that in the 2
years, 1952 and 1953, expenditures of aid funds for bread grains and
flour equaled only 34 percent of the expenditures in the 2 preceding
years; and for cotton, only 35 percent. Other areas of demand did
not expand sufficiently to take up the slack. Agricultural production
remained at a high level; prices of a number of commodities declined
to the levels at which the Congress had directed they be supported by
purchases and loans by the Commodity Credit Corporation; and Gov-
ernment-owned stock began to accumulate.
In 1953, Government-owned stocks were mounting and the surplus
problem was becoming acute. Congress directed the Mutual Secu-
rity Administration (now International Cooperation Administra-
tion) to begin purchasing commodities in excess supply with funds
appropriated for foreign aid, sell them abroad for foreign currencies,
815
816
THE FOREIGN AID PROGRAMS
and use those currencies for foreign aid. This directive has been
continued in subsequent years. By June 30, 1956, sales with a total
value of more than $1 billion had been made. More than 95 percent
of the currencies have been earmarked for economic aid, and the
remainder for military aid.
In 1954, a more ambitious program of agricultural surplus disposal
abroad was launched, with the passage of the Agricultural Trade
Development and Assistance Act (Public Law 480, 83d Cong.). The
primary purpose was to increase the disposals of excess stocks abroad
through grants, barter, and sales for foreign currencies. The law
provides that the foreign currencies can be used for a number of pur-
poses, one of which is loans for economic aid. By June 30, 1956,
commodities with a total export value of more than $1 billion had
been sold for foreign currencies, and more than half of this was being
loaned to aid recipient countries in order to promote multilateral trade
and economic development. In addition, something like $200 million
worth of foreign currencies were being used for "procurement of
military equipment, materials and facilities"-primarily military aid.
A number of sales agreements and authorizations with a total value
of some hundreds of millions of dollars have been signed since July 1,
and negotiations concerning others are under way with foreign gov-
ernments. Under recent agreements, large portions of the foreign
currencies are to be used for economic aid. Thus, surplus disposal
under Public Law 480 is resulting in a significant increase in United ·
States foreign aid.
The disposals under Public Law 480 and the sales under the Mutual
Security Act have reduced materially the excess stocks of some com-
modities and prevented further accumulation of others. But heavy
surpluses of a number of commodities still remain, and the prospects
are that for several years, United States production of some commodi-
ties will be greater than the quantities which will move through com-
mercial channels into domestic consumption and international trade.
If, in line with the assumed projection, economic aid were increased
to twice its present volume, the role of agricultural commodities
could be increased materially, particularly in aid to underdeveloped
countries, where the supply of food and other agricultural commodi-
ties is inadequate. In such countries, properly planned and adminis-
tered programs could be mutually beneficial, both to the United States
and the recipient countries. In the recipient countries, they can serve
the dual purpose of improving nutrition and speeding development;
in the United States, they can provide an outlet for supplies which
will not move into ordinary channels of trade at reasonably satisfac-
tory prices.
In some countries receiving military aid, surplus food can be used
in the rations of the armed forces and local currencies can be used to
pay for labor and domestically produced materials used in military
construction. But potentialities of utilization for military aid appear
to be more limited than for economic aid. Most of the equipment and
material needed for direct military aid is not being produced in the
lesser developed countries, and must be imported. In most cases, such
imports cannot be paid for with local currency.
The quantities of agricultural commodities and the local curren-
cies accruing from their sale which can be used effectively as economic
aid will vary from country to country, depending on the size and
THE FOREIGN AID PROGRAMS
817
character of the development programs. Equipment, machinery, and
other items not now being produced in most of the underdeveloped
countries are required for all development projects. These must be
imported, and cannot be financed with local currencies. In projects,
such as the construction of dams and irrigation works, where the cost
of labor is high in relation to other costs, it is estimated that half, or
possibly more, of the cost can be covered by local currencies. But in
most industrial development projects, a smaller portion of the cost
is for labor and domestically produced materials. Thus, aid in the
form of machinery and equipment, or dollars with which to pay for
their import, is needed in varying amounts, in addition to aid in the
form of agricultural commodities or the local currency generated by
their sale.
Also there is a limit on the amounts of agricultural commodities
which a receiving country can use without detrimental effects on prices
received by local producers of the commodities, and on imports
through commercial channels from the United States and from other
exporting countries. Furthermore, it is necessary to insure that the
commodities will be consumed as an addition to, and not in lieu of,
supplies already available in the recipient country. To guard against
these possibilities, effective procedures governing the rate at which,
and the channels through which, the commodities move into consump-
tion usually will be needed.
Economic development is a continuing process. Many years may
be required to expand the economy of an underdeveloped country suf-
ficiently to enable it to import adequate supplies of food and other
agricultural commodities through commercial channels, or to produce
them domestically. Thus, our agricultural products will be needed
in underdeveloped areas on a continuing basis.
Limitations can be minimized by careful planning and effective ad-
ministration of aid programs, and the utilization in aid programs of
larger amounts of agricultural products than have thus far been made
available could be beneficial both to the United States and receiving
countries.
(For a more comprehensive analysis see the National Planning As-
sociation report entitled "Agricultural Surplus Disposal and Foreign
Aid," prepared for the Special Committee to Study the Foreign Aid
Program and shown as Report No. 5 in the Foreign Aid Studies
Series.)
SECTION X
FOREIGN AID AND UNITED STATES LABOR
THE EFFECT ON LEVELS OF EMPLOYMENT AND UNEMPLOYMENT
The effect of foreign aid on United States labor is appraised pri-
marily in terms of its possible impact on the levels of employment
and unemployment in the industries affected by foreign aid export
shipments. In 1955, approximately 600,000 people were employed,
directly and indirectly, in the production processes concerned with
foreign aid shipments. A breakdown by the major type of economic
activity is shown in table H below.
TABLE H.-Direct and indirect employment created by the 1955 United States
foreign aid program, in thousands of employees

Type of activity
Direct em- Indirect em-
ployment ployment
Total
1. Agriculture..
2. Manufacturing.
3. Transportation..
4. Trade..
5. Services..
6. Unallocated..
7.
Total.
88888888
នផ្ទួនដកដង្ហ
98
1
99
236
185
421
18
15
12
12
4
13
17
11
356
237
593
NOTE.-See appendix table 13 for employment by products. See appendix table 12 for the technique
used in this analysis.
It cannot be assumed that these jobs would not have existed in the
United States economy in the absence of the foreign aid programs.
Expansion of other Government programs, or increases in consumer
demand created by lower taxes, depending on which occurred, would
pick up part or all of the slack created by the absence of foreign aid.
During an inflationary period, the impact of reducing foreign aid
would be one of lower prices rather than of lower employment.
Imports of competitive products may tend to depress domestic
employment. However, the United States Department of Labor esti-
mated in 1955 that competitive imports involved an offset of only
about one-fourth of the employment created by exports. It should
be noted further that imports encouraged by foreign aid include a
substantial amount of strategic materials which we are unable to pro-
duce and hence do not reduce United States employment.
In periods of recession, such as 1949 and 1954, where unemployment
reached 3.5 to 4 million, the employment provided by foreign aid
shipments was a distinct support to the labor market.
In years of full employment and production with little unemploy-
ment (as in 1948, 1951-53, and 1956), the foreign aid program has
undoubtedly contributed to some labor shortages in certain industries.
For example, since 1951 some heavy industries, including producers of
military goods, have experienced labor shortages, and these industries
are heavily represented in foreign aid shipments. In no case, how-
818
THE FOREIGN AID PROGRAMS
819
ever, is the pressure very severe or the number of jobs a significant
portion of the total in the industry.
Support for these estimates of the amount of employment attribu-
table to exports of the items involved in foreign aid shipments is
found in two recent studies. The staff papers of the President's Com-
mission on Foreign Economic Policy (Randall Commission), pub-
lished in 1954, contained an estimate of employment attributable to
foreign trade based on two recent studies done by the Department of
Labor and Department of Agriculture.
In 1952 approximately 7 percent of United States employment was
attributable to foreign trade either directly or indirectly. The indi-
rect effects were calculated on the basis of the Labor Department's
interindustry studies. The assumptions of these Department of Labor
and Department of Agriculture studies differ somewhat from ours,
in that they apply the employment pattern of exports to foreign aid.
This report does not make that assumption, but works directly from
the foreign aid pattern. As a result, our direct and indirect aid em-
ployment figures are about 25 percent lower than those of the Depart-
ment of Labor.
TABLE I.—Employment attributable to foreign trade, 1952
1. Total exports---
Nonagricultural employees__.
Agricultural workers..
2. Total imports__-.
Transportation and distribution.
Manufacturing
3. Total employment in foreign trade_---
4. Total United States employment (1952 monthly average) –
5. Percentage of United States employment in foreign trade.
Sources: U. S. Department of Labor and U. S. Department of Agriculture.
Number of
employees
3, 126, 000
2,150,000
976, 000
1,250,000
450, 000
800, 000
4,376, 000
61, 293, 000
7
Since table 8 shows that foreign aid shipments in 1952 were 31.7
percent of total exports, if total export employment was 3,126,000—
foreign aid employment on this basis would be somewhat below 1
million.
In hearings before the House Ways and Means Committee in March
1956, Secretary of Labor Mitchell indicated that in 1955 approximately
7 percent of the Nation's labor force-about 4.75 million workers-
was engaged in the production of goods for export, processing im-
ports, and in related services.¹ He stated that "it would take about 2
million persons to turn out products equivalent in value to all 1955
United States imports at our present level of national productivity."
He pointed out that "this calculation gives some idea of magnitude but
it is, of course, academic because all imports do not cause displace-
ment."
Many commodities which are imported are not produced in this
country. It appears from Secretary Mitchell's estimates that net em-
ployment from foreign exports was close to 4 million persons in 1955.
1 Hearings before the House Ways and Means Committee, March 1-16, 1956, on the
Organization for Trade Cooperation, H. R. 5650, pp. 167–178.
94413-57-53
820
THE FOREIGN AID PROGRAMS
Since foreign aid accounted for 25 percent of the exports in 1955
(appendix table 8), on the basis of Secretary Mitchell's estimate
approximately 1 million persons were employed in the production of
foreign aid shipments, or some 1.5 percent of the labor force. An
indeterminate proportion of these foreign aid shipments would have
been exported in the absence of foreign aid, and it is therefore probable
that net employment attributable to foreign aid shipments in 1955
was near 1 percent of the labor force.
On the other hand, the impact on employment in the United States
of foreign aid programs which developed competing foreign industries
and increased foreign imports into the United States was not of meas-
urable significance. It is true, the Economic Cooperation Administra-
tion and the Mutual Security Agency program for the years 1948–51
included $600 million for rebuilding basic industries in Western
Europe. The recovery of Western Europe helped to restore the com-
petitive ability of West European industries. More significant, as was
pointed out previously, it helped to restore world trade in which all
participating countries gain.
One other point should be made with respect to the overall effect
of foreign aid on United States employment. In the early years, 1948–
50, foreign aid shipments from the United States were a larger pro-
portion of total exports and were larger in actual amounts than in
recent years (see appendix tables 6 and 8), but about half of the
foreign aid shipments were agricultural commodities in these early
years. Agricultural production involves a lower direct employment
ratio than the output of industrial and military goods. Therefore,
the amount of employment represented in these larger foreign aid
shipments was less than suggested by the amounts of the shipments.
For example, in 1948 and 1949, the two largest foreign aid shipments
in value were bread grains and cotton, whereas in 1954 and 1955 the two
largest (aside from military ordnance) were motor vehicles, engines,
and parts and aircraft, engines, and parts (table 6).
More employment is represented in $1 million of motor vehicle or
aircraft production than in an equivalent value of cotton or bread
grains. While foreign aid exports have supplied a net increase in
United States employment over the 8-year period, ranging from about
one-half a million to about 1 million, the amount is not substantial and
certainly the provision of employment would not be adequate grounds
for justifying foreign aid programs. Without foreign aid produc-
tion there might have been some increase in other kinds of production
either for the domestic or foreign markets.
A closer look at some of the industries most affected by foreign aid
shipments will indicate the size of the impact on employment and
unemployment levels.
With respect to the agricultural commodities and related products
which made up half of the foreign aid shipments in 1948-50-but have
since declined to a small proportion of the total employment data is
not adequate to provide a detailed appraisal of the number of jobs
affected. It may be pointed out, however, that throughout the 8-year
period, 1948–55, the largest shipments of agricultural commodities in
foreign aid were grains, raw cotton, and raw tobacco-items which
were in surplus and therefore did not afford a major source of employ-
ment.
THE FOREIGN AID PROGRAMS
821
If we turn to some of the industries that have provided the bulk of
foreign aid shipments since 1951, we note that most of them are in-
dustries which have been functioning at high employment levels
throughout the period and they are largely concentrated in the heavily
industrialized areas.
This is true of chemicals and related products; iron and steel ma-
terials and products (including ferroalloys); copper and copper prod-
ucts; other nonferrous metals and products; ordnance; construction,
mining, and conveying equipment; metal working machinery; machine
tools; electric equipment; generators and motors; engines and tur-
bines; industrial machinery; motor vehicles, engines and parts; air-
craft, engines and parts; and other transportation equipment, largely
ships. (See appendix tables 10, 11, and 12).
Thus we find that foreign aid shipments of iron and steel products
accounted for some 7,000 jobs in the industry in 1955, with two-thirds
of them concentrated in the industrial centers of Illinois, Indiana,
Ohio, and Pennsylvania. (See table 12.) Shipments of electrical
equipment are estimated to have provided 23,000 jobs in 1955, concen-
trated in 8 States with Illinois, New Jersey, New York, and Pennsyl-
vania accounting for one-half of them. Foreign aid shipments of
motor vehicles, engines, and parts in 1953 provided 39,000 jobs, con-
centrated in 7 States, with 51 percent in Michigan, 9 percent in In-
diana, and 11 percent in Ohio.
Shipments of aircraft, engines, and parts accounted for some 77,000
jobs in 1955, spread over 13 States but with 26 percent in California.
Since there was a continuing high level of employment in each of
these industries throughout the period 1948-55, with marked expan-
sion in electric equipment, motor vehicles, and aircraft, it is apparent
that the employment provided by foreign aid shipments merely added
to the already high level of demand for labor. Indeed, in the electric
equipment and aircraft industries labor shortages were accentuated
by the foreign aid program.
For many of the industries listed above, foreign aid did not pro-
vide a large increase in the number of jobs. But where scarce skills
were involved, as in machine tools, copper and copper products, and
generators and motors, a tight labor market was made more stringent
by this additional employment.
All of these industries are centered in industrial areas which have
consistently been classified by the Department of Labor as having
less unemployment than the national average, except on occasions
where strikes or changes of models have caused temporary unem-
ployment-in the automobile or steel industries, for example.
When we try to trace instances where unemployment in depressed
areas of the United States has been relieved by provision of employ-
ment through foreign aid shipments, the results are very minor.
Department of Labor studies show that the industries most responsible
for chronic unemployment conditions in recent years are coal mining,
in such areas as Scranton, Wilkes-Barre, Hazelton, and other centers
in Pennsylvania, and sections of West Virginia, Kentucky, and south-
ern Illinois; textiles, particularly in New England; some metallic
mining areas such as the lead-zinc center near Joplin, Missouri; and
lumber and lumber products areas scattered throughout the country.
Unfortunately, foreign aid shipments of the products of these indus-
tries were small and did not provide substantial relief for the unem-

822
THE FOREIGN AID PROGRAMS
ployment conditions, although any such employment was a net gain.
Coal shipments in foreign aid are estimated to have provided about
4 percent of total domestic production and employment in 1948 and
1949 (22,000 and 20,000 jobs). This dropped off to 6,500 jobs in 1950,
moved up to 11,000 in 1951 and 1952, went down to 3,000 or 4,000 in
1953 and 1954, and back up to around 5,200 in 1955. While this in-
creased employment was welcome in all of these years in the depressed
coal mining and processing areas, unfortunately foreign aid provided
more additional employment in the years of highest general employ-
ment in the industry-1948-52, and the least support in the last 3
years when employment in the industry was slack.
In the zinc and lead industries foreign aid shipments have been so
small as to provide no significant employment.
In lumber and lumber products, while foreign aid shipments ac-
counted for 6,000 to 7,000 jobs in 1948-49-ranging down to 2,000 or
3,000 in recent years these are scattered over 22 or more States and
could afford little relief to some of the depressed lumber areas such as
northern Michigan or western Washington.
The textile industry, like the coal industry, has secured some em-
ployment benefits from foreign aid shipments-limited as they are.
Estimated employment created was 25,000 to 27,000 in 1948-49, drop-
ping off to 11,000 or 12,000 in 1950-51 and 8,000 to 9,000 in 1954-55.
Even this limited employment was a help in the textile areas of the
United States-particularly in New England and the South. Again,
as in the case of coal, the least amount of help came in the last few
years when employment in the textile industry was declining. (See
table 11).
In summary, it is evident that foreign aid has not provided an im-
portant employment prop for industries which were undergoing slack
employment conditions. Rather, its impact on employment has been
largely in those industries which were fully employed and in some
cases were facing labor-shortage situations.
During most of the years under consideration, the workers who pro-
duced the goods going into foreign aid shipments would have been
easily absorbed in other work opportunities.
The largest foreign aid shipments and the largest resulting em-
ployment occurred in 1949-when we were undergoing a recession and
unemployment crept up from 2 million to 3.5 million. Consequently,
the employment thus created was of real assistance. Unfortunately,
when the recession came along in 1954 and unemployment increased
from 1.5 million to 3.5 million, foreign aid shipments and derivative
employment declined. (See table 6.)
THE EFFECTS OF FOREIGN AID ON WAGE LEVELS
Labor incomes, as measured by weekly earnings, vary generally in
proportion with production and employment. Hence, during periods
of full employment, labor incomes resulting from foreign aid ship-
ments would contribute to inflationary pressures, and, conversely,
would constitute sustaining forces in recession periods. Since wage
rates change slowly at collective bargaining intervals, the effects of
the relatively small employment created by foreign aid are not sig-
nificant in changing wage rates. A glance at appendix table 13 will
show that while average weekly earnings in the nonagricultural indus-
THE FOREIGN AID PROGRAMS
823
tries which are involved in foreign aid shipments showed some slight
declines in the recession years of 1949 and 1954, the decline in employ-
ment in these industries was more significant (table 11). Neverthe-
less, this means that in these two years total earnings of workers
declined more than did employment. Conversely, in the years of full
employment, average weekly earnings increased more rapidly than
employment-revealing the inflationary pressure of full employment
in these industries. This is particularly noticeable in the last 3 or 4
years.
If we take the industries which have supplied the largest percentages
of foreign aid shipments in recent years we note the following facts:
Construction, mining, and conveying equipment showed a decline
in value of production from $2.9 billion in 1952 to $2.7 billion in 1955,
while employment continued at high levels (134,800 in 1952 and 133,300
in 1955), and average weekly earnings went up from $77.61 to $86.92
(tables 9, 11, and 13). From 1952 to 1954, foreign aid shipments ac-
counted for 5 percent of production, jumping to 15 percent in 1955.
The largest increase in weekly earnings was from 1954 ($77.60) to
1955 ($86.92)-suggesting that with the industry facing a relative
labor shortage, foreign aid contributed to the upward pressure on
workers' earnings.
Motor vehicles, engines, and parts increased production from $18.4
billion in 1952 to $23.3 billion in 1955; employment from 790,200 to
896,500; and average weekly earnings from $82.82 to $97.78. How-
ever, foreign aid shipments had declined from 1.9 percent of produc-
tion in 1952 to 1.6 percent in 1955-indicating that foreign aid was
a minor influence.
In the aircraft, engines, and parts industry, production increased
from $4.6 billion in 1952 to $5.8 billion in 1955; employment went up
from 660,700 to 738,400; and average weekly earnings from $81.70
to $89.62. This is another case where foreign aid-comprising 7.8
percent of production in 1952, 9.9 percent in 1953, 6.3 percent in 1954,
and 8.8 percent in 1955-was probably a factor in increasing both
employment and earnings. This sustaining effect is indicated in
1954, a recession year, when average weekly earnings continued to
increase. Some nine major manufacturing industries were showing
a decrease in the percentage of foreign aid shipments from 1952 to
1955 (copper and products, other nonferrous metals, metalworking
machinery, machine tools, electric equipment, generators and parts,
engines and turbines, tractors, and agricultural machinery).
At the same time, all of these industries, except tractors and agricul-
tural machinery, showed increases in production during these years.
Four (copper, other nonferrous metals, machine tools, and electric
equipment) showed increases in employment and substantial increases
in average weekly earnings. The other five industries (metal working
machinery, generators and motors, engines and turbines, tractors, and
agricultural machinery) all showed some decrease in employment;
they also showed small increases in average earnings.
It thus appears that in most of these heavy industries foreign aid
has been a minor influence on labor incomes.
Whenever foreign aid shipments account for less than one percent of
domestic production and employment-as is true of iron and steel
products, chemicals, paper products, leather products, aluminum
and many others the impact on average earnings is not of measurable
size.
824
THE FOREIGN AID PROGRAMS
If we look at those industries identified by the Department of Labor
as contributing to chronically depressed areas, it is clear that foreign
aid has offered little help in the way of supporting labor incomes.
Coal is the outstanding example. Despite the great year-to-year
variations in production and employment (tables 9 and 11), average
weekly earnings have gone up every year except 1949 and 1954-re-
flecting primarily the bargaining strength of the United Mine Work-
ers of America.
In the textile industry, total production has shown a small increase
from 1948 to 1955 (table 9), while employment was slowly decreasing
(table 11). There has been a slow increase in the average weekly
earnings in this typically low-wage industry. Foreign aid shipments
have been too small to have any appreciable influence.
Lead and zinc showed production increases from 1948 to 1951, and
have held about even since then. Employment has followed the same
patterns, and table 13 shows the same picture for average weekly
earnings.
For lumber and lumber products, there has been a slow increase in
production, but no measurable increase in employment. Average
earnings have slowly increased.
Table 13 indicates that the agricultural and related industries, which
contributed the largest shipments in foreign aid from 1948 through
1951, were low-wage industries (upper half of table); whereas the in-
dustries which have been accounting for the bulk of foreign aid ship-
ments since 1952 are high-wage industries (lower half of table).
As indicated above, however, with a few exceptions, foreign aid
has not been a major factor in creating or sustaining these higher
wage levels. It should be emphasized that foreign aid has not had
any important effect on wage rates as such. Many factors enter into
the periodic bargaining decisions with respect to wage rates and only
in exceptional cases has the provision of foreign aid been an influ-
ential factor.
One other point should be made with respect to the relationship of
foreign aid to labor income. As we have seen, the chief effect of foreign
aid has been to provide additional employment and earnings in some
export industries. Recent studies based on Department of Labor
data show that export industries tend to pay higher wages than the
national average and higher than import-competing industries. Mr.
Irving B. Kravis used Department of Labor figures to compare wage
rates in export industries and import-competing industries, as fol-
lows: 2

1947.
1952
¹ Not available.
Average hourly earnings weighted by
man-hours in—
46 leading
export
industries
$1.290
1.368
36 leading
import-
competing
industries
All manu-
facturing
industries
(328)
$1.245
1.272
$1.252
(1)
• Wages and Foreign Trade, by Irving B. Kravis, The Review of Economics and Statistics,
vol. XXXVIII, No. 1, February 1956, pp. 20.
THE FOREIGN AID PROGRAMS
825
It can be concluded, therefore, that the foreign aid shipments have
provided additional jobs primarily in high-wage industries and have
contributed somewhat to labor's prosperity, as well as some slight tend-
ency toward inflation.
THE EFFECT OF FOREIGN AID ON DOMESTIC SHORTAGES OF TECHNICAL AND
SKILLED WORKERS
It has been noted above, that in the years since 1951, foreign aid
shipments have been concentrated in the high-wage, high-employment
manufacturing industries producing machinery, equipment, ordnance,
motor vehicles, aircraft, and the like. Where foreign aid shipments
accounted for more than two percent of production and employment
in an industry which was operating under relatively full-employment
conditions, it is clear that it had some effect in increasing the shortages
of engineers, technicians, and highly skilled workers in those
industries.
Offices of the United States Employment Service have consistently
reported shortages of engineers, engineering technicians, and scien
tists-including physicists, chemists, mathematicians, ballistician
and natural scientists in these industries. Semiprofessional occupa
tions, such as airplane specification writers, tool planners, and trans
lators, have likewise been consistently short.
Such skilled workers as machinists, toolmakers, die sinkers_and
setters, patternmakers, tinsmiths, coppersmiths, sheetmetal workers
airplane mechanics and repairmen, electronics technicians, welders
and flame cutters, and machine shop and related occupations, appeared
regularly among the jobs listed for clearance-reflecting continuing
shortages of these workers.
It is probable, however, that except for the military items and for
such industries as aircraft, where foreign aid shipments hav
amounted to a substantial percentage of total production and employ
ment, the impact of foreign aid on labor shortages has been small.
Stated another way, when an industry faces a chronic shortage
scientists, engineers, technicians, and certain skilled workers, an a
tional production demand of 1 or 2 percent (or even 5 percent)
increase the difficulties of getting qualified workers, but it cannot
charged with creating the shortage.
Moreover, we find that these shortages have continued to increase in
recent years while foreign aid shipments have declined in ratio to
domestic production. Thus, the number of job openings placed in
clearance by the United States Employment Service (reflecting the
shortage occupations cited above) increased from 19,858 in July 1955,
to 30,279 in July 1956, while foreign aid shipments were declining
slightly.
Undoubtedly, the foreign aid programs have also drawn on some of
our scarce scientific, engineering, and technical workers to staff their
overseas operations, particularly technical assistance programs.
Since another one of the Senate Committee's studies is examining this
problem, it will not be discussed here in detail.
In relation to the domestic demand for these technicians and to the
size of the shortages, it is believed that the foreign aid programs
abroad can be charged with only a small share of responsibility. As
of December 31, 1955, there were a total of 3,881 United States tech-

826
THE FOREIGN AID PROGRAMS
nicians employed in all International Cooperation Administration
programs overseas. Of this total, 2,467 were regular Government
employees. The remainder were contract employees.
In conclusion, it may be said that foreign aid was not designed as a
prop for slacks in domestic employment or as support for inadequate
domestic wage incomes. The study indicates that, in fact, its effect on
employment and wages in either depressed areas or depressed indus-
tries has been slight. Also, no attempt has been made to step up for-
eign aid as a compensatory device when a recession developed in the
United States. On the other hand, foreign aid had also only a slight
effect in aggravating labor shortages.
The effects on employment and wages of increased or decreased
foreign aid programs depends on the general economic conditions
which are assumed to prevail during the coming years.
If there should develop a slack in employment, a rise in foreign aid
programs may act as a compensating force; a decline, as an aggravat-
ing factor. Conversely, if high employment and inflationary pressure
hould be assumed, an increase in foreign aid could aggravate, while
reduction would relieve, these conditions somewhat.
We should remember that the net increase in the labor force is about
700,000 workers per year and will be rising to about 1.4 million in the
future. Also productivity-that is, output per worker-is rising,
particularly in those industries in which there are shortages at the
present time. Thus, it appears that in all probability some increase in
oreign aid programs should be feasible without creating additional
shortages of labor.

THE FOREIGN AID PROGRAMS
827

APPENDIX I
TABLE 1.—Foreign aid grants and credits, gross returns from foreign countries, and various aid indexes, 1946–56
1956
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
(Jan.-
Mar.¹)
1. Foreign aid gross grants and credits utilized.
billions of dollars..
5.5
6. 2
5. 5
2. Gross returns by foreign countries.
millions of dollars.
390.0
394.0
479.0
6. 1
470.0
4.6
476.0
5.0
454.0
5.6
575.0
6.0
645.0
5.3
571.0
4.7
571.0
1.1
135. 0
3. Foreign aid gross grants and credits utilized minus gross returns by foreign
countries.
billions of dollars..
5. 1
5.8
5.0
5.6
4. 1
4.6
5.0
5. 4
4.7
4. 1
1.0
4. United States Government expenditures.
_do_---
61.7
36.9
36.9
42.6
42.0
58.0
73.0
76.2
69. 6
72.2
17.1
5. Gross grants and credits utilized as percent of United States expenditures.
6. United States gross national product..
8.9
16.8
14.9
14. 3
11.0
8.6
7.7
7.9
7.6
6. 5
6.4
billions of dollars..
209.3
232. 2
257.3
257.3
285.1
328. 2
345.2
363. 2
360.7
390.9
100.8
7. Gross grants and credits utilized as percent of gross national product..
8. United States national income….
9. Gross grants and credits utilized as percent of national income.
10. United States population.
2.6
2.7
2.1
2.4
1.6
1.5
1.6
1.7
1.5
1.2
1. 1
billions of dollars.. 179. 6
197.2
221.6
216. 2
239.9
277.0
289.5
303. 6
298. 3
324. 0
83.7
3.1
3.2
2.5
2.8
1.9
1.8
1.9
2.0
1.8
1.4
1.3
millions..
141.4
144. 1
146.6
149. 2
151.7
154. 4
157.0
159.6
162. 4
165.3
167.2
11. Gross grants and credits utilized on a United States per capita basis. _dollars..
12. Gross returns from foreign countries on a United States per capita basis.
38.89
43.03
37.51
40.88
30.32
32. 38
35. 67
37.59
32. 64
---
do..
2.76
2. 73
3.27
3. 15
3. 14
2.94
3.66
4.04
3.52
28.43
3.45
26. 31
3. 24
1 All 1956, 1st quarter, data are preliminary.
NOTES
Line 1. Source: Table 2. Definitions of the terms are contained in table 2.
Line 2. Ibid.
Line 3. Ibid.
Line 4. Source: Economic Indicators, President's Council of Economic Advisers.
Line 5. Source: Line 1 divided by line 4.
Line 6. Source: Survey of Current Business.
Line 7. Source: Line 1 divided by line 6. The gross national product excludes the
value of intermediate products used in production while implicit in gross grants and
credits are such values.
Data for the total value of United States production are not available for the indicated
years. Estimates of the ratio of aid to total value of production, industry by industry,
are given in table 10.
Line 8. Source: Survey of Current Business.
Line 9. Source: Line 1 divided by line 8. National income relates to factor payments
while gross grants and credits include, in addition, the cost of materials and supplies.
Therefore, these figures are slightly overestimated as indexes of income created by the aid
programs.
Line 10. Source: Statistical Abstract.
Line 11. Source: Line 1 divided by line 10. January-March 1956, data are on an
annual rate basis.
Line 12. Source: Line 2 divided by line 10. January-March 1956, data are on an
annual rate basis.
828
THE FOREIGN AID PROGRAMS
TABLE 2.-United States aid to foreign countries, 1945–56
TABLE 2A.—Gross aid
[In millions of dollars]
Prior
grants
Gross
aid
Gross
grants
+
Gross
credits
con-
verted
into
credits

July 1945 to April 1948 when ERP started ¹
1048.
15, 484
8,051
8, 686
1,253
1949.
5, 523
4, 078
1, 444
1950...
6, 053
5, 363
690
1951.
4, 623
4,173
453
2
1952..
5, 014
4, 586
428
0
1953_.
5, 619
4,794
825
0
1954
6, 029
6, 317
712
1,000
1955
5,316
4,929
387
1956 (January to March)…….
4, 648
4, 247
401
1, 114
1,009
105
1 For the individual years 1945-47 the figures are as follows:

Gross
aid
Gross
grants
Gross
credits
1945 (July to December).
1946..
1947..
2,697
2, 015
681
5, 535
2,289
3,245
6, 233
2,049
4, 183
NOTE.-Table 2A: Gross aid comprises grants and credits utilized in each calendar year. Grants are
largely gifts for which no payment is expected while credits require repayment, usually with interest. In
some cases aid has been extended under indeterminate conditions subject to future settlement. Aid, on
this basis, is included with grants in the period rendered and also included in credits, if repayment conditions
are decided upon, in the period when the repayment agreement is made. Therefore, such prior grants
converted into credits are subtracted from the sum of gross grants and gross credits to obtain gross aid.
Gross aid includes all economic, technical, and military assistance provided by all participating Govern-
ment departments; it includes relief assistance provided by Government through international and na
tional agencies; it includes loans by the Export-Import Bank as well as Government departments; it
includes shipments from stockpiles as well as current products.
In preparing the tables figures for each calendar year include those aid commodities which were shipped
that year or purchased with aid funds that year. It was not always possible to exactly achieve this result
so that there is probably some slight error in each year's figures resulting from inconsistencies between the
time period and the transaction.
Source: Foreign Transactions of the United States Covernment, Bureau of Foreign and Domestic Com-
merce, Department of Commerce. A slight discrepancy between the table 2 figures and the original source
is due to the inclusion of that part of sales of surplus commodities for local currency (Public Law 480) which
was used for aid purposes in the table 2 totals.
TABLE B.-Returns by foreign countries
[In millions of dollars]

Gross
return
Reverse
grant
Principal
returned
Gross
return
Reverse Principal
+
grant returned

July 1945-April
1952..
1948....
947
423
524
1953..
575
645
152
166
1948..
479
23
456
1954
571
1949_..
470
230
240
1955.
571
1950....
476
157
319
1951...
454
140
314
1956 (January-
March)..
135
2888 2
423
479
70
501
69
502
22
113
NOTE.-Table 2B: Gross returns include the sum of reverse grants (including returns of United States
grants) and principal collected on credits extended.
THE FOREIGN AID PROGRAMS
829
TABLE 20.—Net grants and credits
[In millions of dollars]

Net
grants
Gross
grants
Credit Reverse
offsets grants
Net
credits
Credits Principal
A
returned
1945-48....
6,375
8,051
1,253
423
1948..
8, 162
8,686
524
4, 055
4, 078
0
23
988
1949.
1,444
456
5, 133
5,363
0
230
450
690
240
1950...
4, 014
4,173
2
157
133
453
319
1951.
4, 446
4, 586
140
0
114
428
314
1952_...
4, 642
4,794
0
152
402
825
423
1953..
5, 151
6, 317
1,000
166
233
712
1954
479
4,859
4,929
0
70
-113
387
501
1955__..
4, 178
4,247
0
69
-101
401
1956 (January to March)..
502
986
1,009
22
-8
105
113
NOTE.-Table 20: Net grants are the difference between gross grants (after adjustments for prior grants
converted into credits) and reverse grants. Net credits are gross credits less principal collected.
TABLE 2D.-Net aid
[In millions of dollars]

Net aids - Gross aid
Gross
return
Prior grants
converted-Net grants +
into credit
Net
credits
1945-48......
1948
14, 537
15, 484
947
0
5,044
5, 523
479
1949
6, 375
4,055
8, 162
5, 583
988
6, 053
470
1950....
5, 133
4, 147
450
4, 623
476
1951.
4,560
5, 014
454
1952.
5, 044
5, 619
575
1953.
5, 384
6, 029
645
1954
1,000
4, 745
5, 316
571
1955.
4,077
4, 648
571
..8...
4,014
133
4, 446
114
4, 642
402
5, 151
1,233
4,859
-113
1956 (January to
4,178
-101
March).
978
1,114
135
0
986
-8
NOTE.—Table 2D: Net aid can be viewed as either gross aid (after adjustment for prior grants converted
into credits) less gross returns, or as net grants plus net credits.
830
THE FOREIGN AID PROGRAMS
TABLE 2E.-Foreign aid by program
[In millions of dollars]
Prior
grant
Net
aid
Gross Gross
+
grants credit
con-
verted
into
credit
Princi-
Reverse pal
grant
re-
turned

1945-48:
Lend-lease-
Civilian supply---
UNRRA.
1,957
63
133
10
2,360
3, 172
Greek-Turkish aid.
Philippine rehabilitation..-.
Chinese aid..
Technical assistance.
165
130
120
66
Other...
80
299
279
Surplus property.
1,234
173
29
Cash settlement.
117
British loan…….
Credit offsets..
Total------
1945 (July-December):
Lend-lease.
Civilian supply....
3,750
Export-Import Bank.
2,087
196
1,253
10
14, 537
8,050
8, 686
1, 253
423
524
1,082
623
339
UNRRA.
479
Chinese aid….
105
Inter-American aid..
6
American Red Cross.
5
Export-Import Bank.
58
Total..
2, 015
681
1946:
Lend-lease-.
131
593
Civilian supply.
637
UNRRA..
1, 458
Chinese aid..
Inter-American aid..
American Red Cross…….
British loan…….
Export-Import Bank.
Surplus property.
Other..
Philippine rehabilitation.
Refugee assistance…….
15
8
5
600
1,036
878
139
32
2
Total...
1947:
2,289
3, 245
Lend-lease.
Civilian supply.
UNRRA..
109
965
----
640
Post-UNRRA……….
230
Interim aid.
12
Greek-Turkish aid.
74
Philippine rehabilitation..
87
Refugee assistance..
34
Inter-American aid….
7
British loan..
2,850
Export-Import Bank.
824
Surplus property.
Other.
245
156
Total..
2,049
4, 183
1948:
Lend-Lease.
18
1
12
Civilian supply.
1,300
European recovery..
Post-UNRRA..
Interim aid.
---
1,397
476
1 22
68
545
Chinese aid..
168
Greek-Turkish aid…..
349
Philippine rehabilitation..
130
Refugee assistance.
89
International civil emergency fund-
27
Inter-American aid….
6
British loan..
300
Export-Import Bank.
429
260
See footnote at end of table, p. 832.
THE FOREIGN AID PROGRAMS
831
TABLE 2E.-Foreign aid by program-Continued
[In millions of dollars]

Prior
grant
Princi-
Net
aid
Gross Gross
+
grants credit
con-
verted
into
credit
Reverse
grant
pal
re-
turned
1948-Continued
Surplus property.
212
37
Other..
9
146
Total..
5,044
4, 078
1, 444
23
456
1949:
Lend-Lease.
Civilian supply'
European recovery.
Post-UNRRA.
5
7
985
3, 735
425
1 230
- - - - -
2
Other..
Chinese aid..
Greek-Turkish aid..
Philippine rehabilitation..
Korean aid..
Refugee assistance.
British loan..
Export-Import Bank.
Surplus property..
Total...
1950:
Mutual security.
109
172
203
29
86
International civil emergency-----
Inter-American aid…….
18
4
185
29
143
44
45
20
47
5,583
5,363
690
230
239
3,296
164
(Military aid)..
(Economic and technical aid).
Civilian supplies...
Philippine rehabilitation.
Greek-Turkish aid...
(468)
1 148
1 (4)
(2, 828)
1 (144)
506
166
59
Other..
Chinese stabilization…..
Lend-Lease..
Export-Import Bank.
Surplus property.
5
1
9
141
84
200
160
2
Credit offsets.
Total...
2
ចគ្ន។
6
107
42
4
4, 147
4, 173
453
2
157
319
1951:
Mutual security
4, 115
209
1 116
(Military aid).
(Economic and technical aid).
Civilian supplies...
Philippine rehabilitation..
Greek-Turkish aid..
(1, 569)
(2, 546)
1 (6)
1 (110)
333
12
9
Chinese stabilization.
Lend-Lease.
Other...
Export-Import Bank.
Surplus property...
3
23
7
114
13
49
204
134
2
58
British loan.
Credit offsets.
44
21
Total..
1952:
4,560
4,586
428
140
314
Mutual security...
(Military supplies and service).
(Construction program).
(Other aid).
Civilian supplies...
Military equipment loans.
Other..
Export-Import Bank.
British loan..
Surplus property.
Credit offset.
4, 612
334
1.90
(2, 673)
(6)
(73)
(1, 866)
(84)
167
1
1
1
11
12
12
478
271
45
70
19
Lend-Lease_
2
60
6
Philippine rehabilitation
4
Total...
5, 044
4, 794
825
152
423
See footnote at end of table,fp. 832.
832
THE FOREIGN AID PROGRAMS
TABLE 2E.-Foreign aid by program-Continued
(In millions of dollars]

1953:
1954:
Mutual security
(Military supplies and service)
(Construction program).
(Other aid).
Civilian supplies.
Military equipment loans.
Other.
Export-Import Bank..
British loan..
Surplus property.
Credit offset..
Lend-Lease.
Total.....
Mutual security..
(Military supplies and services)_.
(Construction program).
(Other aid).
Civilian supplies...
Inter-American program..
Surplus agriculture.
Committed through private agencies..
Military equipment loans.
Other.
Export-Import Bank.
British loan...
Surplus property.
Credit offsets.
Lend-Lease….
Total.....
1955
Mutual security
(Military supplies and services)…….
Construction program)…….
(Other aid)..
Civilian supplies.
Inter-American program..
Committed through private agencies..
Military equipment loans……---
Other...
Export-Import Bank..
British loan…….
Surplus property.
Credit offsets.
Lend-Lease…….
Total......
1956 (January-March):
Mutual security..
(Military supplies and services)..
(Other aid).
(Construction program).
Civilian supply---
Inter-American program.
Surplus agriculture.
Military equipment loans..
Other
Export-Import Bank.
Surplus property.
Credit offsets.
Lend-Lease…….
---
Total..
1 Counterpart funds.
Prior
grant
Net
aid
Gross Gross
+
grants credit
Princi-
con- Reverse pal
verted grant
into
credit
re-
turned
5,937
54
1 111
14
(4, 140)
1 (8)
(91)
(1, 712)
1 (103)
137
174
3
62
11
12
647
311
46
73
17
53
6
5,384
6, 317
712
1,000
166
479
4,784
94
1 69
10
(3, 100)
1 (8)
(69)
(1,615)
1 (61)
41
6
21
69
1
17
276
20
346
47
46
18
14
4,745
4,929
387
70
501
3,978
184
1 60
11
(2, 090)
(9)
(84)
(1,804)
(60)
11
4
180
52
21
10
207
18
308
48
85
19
13
4,077
4, 247
401
69
502
933
46
(561)
19
1 (5)
(13)
(359)
1 (14)
1
1
82-
50
20
3
4
5
2
54
87
11
1
7
978
1,009
105
22
113
NOTE.-Table 2E shows, for each year, the specific foreign aid program source of each component of net
aid. For the years 1945, 1946, 1947, data were available for gross grants and credits only.
THE FOREIGN AID PROGRAMS
833

TABLE 3.-Foreign aid program by calendar years, 1948–55
[In millions of dollars]
1948
1949
1950
1951
1952
1953
1954
1955
5, 523.0
6, 053. 0
4, 623.0
5, 014. 0
5, 619.0
6, 029. 0
5, 316. 0
978. 1
1, 204. 4
814. 1
524.4
621.9
586.8
732.9
4, 648. 0
960. 4
448. 5
441. 4
221.7
87.0
47.0
18.0
27.7
54. 2
472.8
677.4
544.0
393.4
445.0
253. 5
149.5
174. 2
93. 5
288.8
531.7
674.4
1. 1
1.3
.1
3.7
30.2
.7
.4
5. 4
5.0
12.9
15.9
10.9
56. 1
84. 1
43.0
37.0
23.4
10.6
9.4
8.3
19. 1
2, 163.7
1, 012. 2
902.4
1, 349. 3
1, 269.5
661.6
1, 405. 2
1, 518. 0
1,300.0
800.0
580.0
425.0
825.0
650.0
400.0
520.0
270.0
240.0
787.0
377.0
9.0
805.0
343.7
92.2
82.4
137.3
67.5
2.6
200. 2
400.0
840.0
278.0
2, 381. 2
3,836. 4
2,906. 5
3, 140. 3
3, 727.6
4, 780. 6
3, 177.9
2, 169. 6
843.8
390.2
253.1
358. 2
137.1
69.8
42.3
40.5
548. 5
327.8
207.5
318.8
123.4
60.0
34.7
32. 8
295.3
72. 4
45.6
39.4
13. 7
9.8
7.6
7.7
107.5
164. 1
129.3
107.4
35. 3
51.9
18. 9
18.9
17.2
16. 4
6.2
12.3
5.4
4.7
.5
.2
.5
.2
.3
15.9
6.0
11.8
5.2
.1
4. 4
.3
5.7
.2
.4
.2
107.3
130.6
85.4
35.5
18.8
21.6
29.0
77.6
45. 1
44. 4
20.5
7.5
4.9
11. 4
9.6
28.7
62. 2
86.2
64.9
28.0
13.9
10. 2
19. 4
48.9
6. 5
20.2
6.2
6.7
1.2
.1
.2
.4
.3
.4
.2
.2
6. 2
19.8
6.0
6.5
1.2
.1
.2
.4
1. Total aid (grants and credits).
2. Aid funds expended directly on purchases from outside United States.
(a) Food and agricultural commodities..
(b) Industrial commodities.
Military equipment..
Technical services..
(e) Ocean freight for military items (non-United States flag).
(f) Ocean freight for nomilitary items (non-United States flag)
3. Unidentified origin of direct purchases with aid funds.
(a) Estimated cash credits.
(b) Estimate of direct purchases from United States with aid funds.
(c) Estimate of offshore procurement with aid funds.
4. Aid funds expended directly on purchases from the United States.
(a) Bread grains...
(1) Agricultural (wheat, rye)
(2) Manufactured (wheat flour).
(b) Coarse grains (agricultural barley, corn, oats, buckwheat, sorghum)-
8
Rice.
(1) Agricultural (rough rice).
(2) Manufactured (milled, polished rice)-
(d) Other grain preparations (manufactured).
(e) Fats and oils.
(1) Agricultural (peanuts and oilseeds).
(2) Manufactured.
(f) Feeds and fodder.
(1) Agricultural (hay).
(2) Manufactured.
834
FOREIGN AID PROGRAMS
THE

1950
1951
1952
1953
1954
1955
TABLE 3.-Foreign aid program by calendar years, 1948-55-Continued
1948
1949
4. Aid funds expended directly on purchases from the United States-Con.
(g) Dairy products...
43.8
60. 1
23. 1
22.2
.7
15.3
29.7
126.5
(1) Agricultural (fresh milk).
(2) Manufactured.
43.8
60. 1
23. 1
22.2
.7
15.3
29.7
126. 5
(h) Eggs..
21.9
12. 7
9.5
15. 1
2. 1
(1) Agricultural (in shell).
(2) Manufactured.
21.9
12.7
9.5
15. 1
2.1
(1) Fruits and nuts..
51.0
13. 2
9.1
2.7
1.6
.3
1.2
9
(1) Agricultural (nuts, fresh fruits).
18.9
5.8
4.3
1.4
.8
.1
(2) Manufactured (canned, preserved, frozen).
32. 1
7.4
4.8
1.4
.8
12
.6
.4
.6
.5
44
(1) Vegetables and preparations.
53.2
8.1
.8
2.1
.1
1.8
.2
2.0
(1) Agricultural (fresh vegetables)..
(2) Manufactured (canned, frozen, etc.).
53. 2
8.1
.8
2.1
.1
1.8
.2
2.0
(k) Fish and products..
6.0
.3
.1
(1) Fish (fresh fish).
(2) Manufactured (canned, frozen, etc.).
6.0
.3
.1
(1) Meats (manufactured)
14. 4
12.6
2.2
3.9
(m) Sugar and related products (manufactured).
1.4
.1
21.5
5. 1
(n) Seeds, not oilseeds (agricultural).
8.3
2.6
2.5
1.6
.2
(0) Miscellaneous agricultural products..
22.2
4.8
2.2
22
.6
.4
1
5
LO
.4
3
(q) Raw cotton (agricultural)
(r) Raw wool (agricultural).
(1) Agricultural (livestock)
(2) Manufactured..
(p) Fertilizer (including fertilizer minerals).
Tobacco and tobacco products..
(2) Tobacco products (manufactured).
2.0
.7
.4
.1
.1
20. 2
4.1
1.8
.4
183
.1
.2
3.8
9.1
27.6
--
10.3
13. 2
5.4
7.2
22. 4
160. 1
477.4
483.3
340. 1
128.3
174.6
64.0
36. 4
4.1
1.4
.1
.0
.2
2
64.9
153.4
153.6
73.2
22.9
.3
7.1
7
(1) Raw tobacco (agricultural).
48.7
125.8
129.0
62.2
18. 5
.3
5.9
.6
16. 2
27.6
24. 6
11.0
4.4
1.2
.1
(t) Chemicals and related products (manufactured).
85.0
111. 8
81.9
51.3
31.1
30.2
24.6
20.9
(u) Lumber and wood products (manufactured).
8.4
18.9
16. 5
9.8
6. 2
3.3
2.0
4. 2
(v) Hides, skins, leather and leather products (manufactured).
.8
15.0
7.6
1.9
.7
3.6
2.8
2.0
THE FOREIGN AID PROGRAMS
835

(w) Paper and allied products (manufactured)-
4.2
11.2
5. 5
5. 6
7.1
6.3
4.8
1.5
(x) Textile products (manufactured).
29.1
62.2
43.0
37.2
22.0
24. 4
15. 9
14.9
(y) Crude oil and petroleum products.
84.2
103. 1
73.2
40.7
50.6
29. 1
27.1
24.9
Coal and related products.-
95. 1
85.6
2.2
65.8
66. 1
18.4
9.4
30.4
(aa) Iron and steel mill materials and products (including ferro alloys).
(bb) Copper and copper products (including brass and bronze).
24. 2
108.8
61. 1
37.6
107.9
37.1
23.6
22.6
9.6
43.2
28.8
21.2
18.8
20.9
12. 2
9.1
(cc) Zinc and zinc products.
9.0
15. 6
1.5
2. 2
.6
.9
.4
(dd) Lead and lead products.
(ee) Aluminum and aluminum products..
1.9
.1
.2
.1
.2
.1
.1
.5
1.9
.6
.2
1.3
9.2
1.4
(ff) Other nonferrous metals and products.
2.7
2.6
7.3
4.3
1.6
3.2
1.1
.6
(gg) Metallic ores and concentrates.
1.8
4.3
4.8
2.3
4.7
1.2
.1
(hh) Nonmetallic minerals (excluding fertilizer minerals) and products..
(ii) Ordnance.
12. 4
26. 6
24.7
10. 1
14.3
9.6
3. 1
2.4
29.4
18. 1
263.7
561.4
1, 193. 0
1,387.7
742.0
405. 4
(1) Artillery and weapons.
(6.4)
4.0)
(57.0)
(107.6)
(223.0)
(256.3)
(186. 3)
Ammunition..
(9.3)
(5.7)
(84. 6)
(233. 2)
(234.8)
(728.7)
(357.8)
(105. 0)
(237.2)
(2) Other
(3) Tanks..
(i) Construction, mining, conveying equipment..
(kk) Metal working machinery.
(11) Machine tools..
(mm) Electric 'equipment.
(1) Military.
$88
(13.7)
(8.4)
(122. 1)
(220.6)
(735. 2)
(402. 7)
(197.9)
(63. 2)
10. 2
54.8
61.4
43. 1
34.4
26. 7
30.2
2.9
36.3
65.9
55. 3
34.8
25.3
9.0
19. 4
4.8
.6
31.9
41.8
29. 1
54. 6
82.3
19.0
7.9
22. 1
62.5
81.0
202.5
236. 1
223.9
3.2
135.8
(4.3)
(2.7)
(39.8)
(62. 3)
(186. 5)
(226. 4)
(216.9)
(124.6)
(3.6)
(19.4)
(22.7)
(18.7)
(16.0)
(9.7)
(7.0)
(11.2)
(nn) Generators and motors.
4.7
19.3
22.1
12.3
2.0
5.0
5.6
(00) Engines and turbines.
4. 1
12.8
24.8
7.4
8.3
4.0
5.6
--
(pp) Industrial machinery not elsewhere classified.
9.2
108.3
125. 7
75.6
39.3
29.4
19.0
21. 7
(qq) Tractors.
6.3
35.5
39.7
11.7
8.6
10.0
7.0
8.8
(rr) Agricultural machinery (except tractors).
1.4
27.6
28. 1
16.0
19.7
18. 1
2.7
.5
(ss) Motor vehicles, engines, parts..
22.2
100.9
96.3
93. 5
246. 3
959. 6
476. 7
171.1
(1) Military.
88
(2) Other.
(tt) Aircraft, engines, and parts.
(1) Military.
8
Other...
(uu) Other transportation equipment.
(1) Military ships.
(4.3)
(2.7)
(37.1)
(66. 5)
(221.6)
(939. 5)
(461.8)
(17.9)
(98. 2)
(59.2)
(27.0)
(24.7)
(20. 1)
(14.9)
(147.3)
(23.8)
15.3
36.0
118. 1
157.0
357.6
626.4
306. 9
448.3
(9.3)
(5.7)
(84.0)
(142.9)
(346. 3)
(617. 1)
(300.0)
(447.8)
(6.0)
(30.3)
(34. 1)
(14. 1)
(11.3)
(9.3)
(6.9)
(.5)
13. 3
24.7
69. 2
171.3
136. 5
165.5
315.3
133.8
(6.4)
(4.0)
(60. 1)
(164. 9)
(133.0)
(156. 8)
(298. 8)
(91. 4)
Other nonmilitary.
(6.9)
(20.7)
(9.1)
(6.4)
(3.5)
(8.7)
(16.5)
(42. 4)
(vv) Miscellaneous industrial products.
4.8
17.3
25.9
16.4
20.7
20.7
18.9
20.8
(ww) Unspecified commodities.
3.6
986. 9
30.5
94. 1
227.3
283.5
274. 1
49. 2
(1) Military equipment and supplies..
(2) Nonmilitary.
(3.6)
(2.2)
(30.5)
(94. 1)
(227.3)
(283.5)
(242.3)
(49.2)
(984. 7)
(31.8)
94418-57-
-54
836
THE FOREIGN AID PROGRAMS

1950
1951
1952
1953
1954
1955
TABLE 3.-Foreign aid program by calendar years, 1948-55—Continued
4. Aid funds expended directly on purchases from the United States-Con.
(xx) Services..
(1) Packaging and handling (military).
(2) Repair (military).
(3) Training (military).
(4) Other services (military).
(5) Ocean freight (military).
(6) Inland freight (military).
(7) Ocean freight (nonmilitary).
(8) Technical services (nonmilitary)
(yy) Other sales or loans from surplus stocks.
1948
1949
144. 4
209.4
259.7
410. 9
435.6
359. 7
280.4
270.2
(1.4)
(.9)
(14.4)
(25.0)
(51.7)
(62. 2)
(47.4)
(40.5)
(5.0)
(3.1)
(43.7)
(51. 6)
29.7)
(20.3)
(7.5)
(3.5)
(.7)
(2.7)
(6.1)
(20.0)
48. 2)
73. 2)
(78. 6)
(61.3)
(4.3)
(.4)
(37.0)
(95.0)
(102. 7)
(65. 3)
43. 1)
(41.8)
(1.4)
9)
(12.6)
(28.3)
(50. 2)
(49.4)
(38.8)
(34.3)
(.7)
4)
(3.6)
(25.0)
(28. 7)
(31.9)
(24.3)
20.8)
(130. 8)
(196. 3)
(122. 3)
(147.8)
(106. 4)
42. 3)
(37.6)
(67.6)
(.1)
(4.7)
(20.0)
(18.2)
(18.0)
(14.4)
(3.1)
(.5)
217.1
33.4
3.2
2.3
1.6
.3
NOTES
Table 3 shows, for each year, the disbursement of total aid, as extended in the form of
commodities, services, and cash.
Line 1: Source: Table 2.
Line 2-4: Sources:
Operations report, International Cooperation Administration.
Special tabulation, Defense Department, Office of Programming and Control.
Special tabulation, Department of Agriculture, Foreign Agricultural Service.
Foreign Trade Statistics, Notes, April 1949, Bureau of Census, Department of
Commerce.
Foreign Transactions of the United States Government, op. cit.
DERIVATION OF TABLE 3
The International Cooperation Administration, Department of Defense, and Depart-
ment of Agriculture provided data showing the expenditures made with aid funds, whether
these expenditures were made in the United States or foreign countries, and the commodi-
ties purchased with aid funds. These data were supplemented with Foreign Trade
Statistics Notes to derive the 1948 estimates. Foreign Transactions of the United States
Government were used as a check on the Department data and to provide estimates for
some miscellaneous information missing in the Department data.
The data were first allocated to the proper year and then classified according to the
subgroupings, shown in lines 2 and 4. Table 3 maintains a distinction between military
and nonmilitary items.
Line 4 shows the aid funds specifically identified as being purchased from the indicated
industries in the United States. Line 2 shows the purchases specifically identified as
being made outside the United States. Line 4 (yy) represents withdrawals from surplus
stocks made by the Treasury Department, General Services Administration, Reconstruc-
tion Finance Corporation, and Maritime Commission. Withdrawals from Defense
Department excess stocks and surplus agricultural commodities are already included in
the other elements of line 4.
Line 3 is the difference between lines 1 and the sum of lines 2 and 4. It represents that
expenditure of aid funds which could not be identified with respect to the source of com-
modities or services purchased. It includes those expenditures made by the International
Cooperation Administration, Defense Department, and Department of Agriculture
which could not be specifically identified as well as aid funds expended by other agencies.
The total of line 3 consists of cash loans made with aid funds, commodities or services
purchased directly from the United States but unidentified as such, and commodities or
services purchased from outside the United States which were not identified. The totals
were distributed among these three components on the basis of data in Foreign Trans-
actions of the United States Government relating to cash credits, and ratios between the
identified direct purchases from the United States and outside the United States.

THE FOREIGN AID PROGRAMS
837

1949
1950
1951
1952
1953
1954
1955
TABLE 4.-Aid provided from United States surplus stocks, 1948–55
[In millions of dollars]
1948
4. Aid funds expended directly on purchases from United States:
(a) Bread grains.
(1) Agricultural (wheat, rye).
(2) Manufactured (wheat flour).
(b) Coarse grains (agricultural; barley, buckwheat, corn, oats, sorghum).
Rice...
8
(1) Agricultural (rough rice)-
(2) Manufactured (milled, polished rice).
(d) Fats and oils..
(1) Agricultural (peanuts and oilseeds).
(2) Manufactured.
(e) Dairy products..
(1) Agricultural (fresh milk).
88
(2) Manufactured
(f) Eggs-
(1) Agricultural (in shell)
(2) Manufactured.
(g) Vegetables and preparations...
(1) Agricultural (fresh vegetables).
88
(2) Manufactured (canned, frozen, etc.).
(h) Raw cotton.
(1) Ordnance (military)
(1) Artillery and weapons.
(2) Ammunition.
(3) Tanks.
(1) Electric equipment (military).
Motor vehicles, engines, parts (military).
Aircraft, engines and parts (military).
(m) Other transportation equipment (military, ships).
Unspecified commodities (military).
Other sales or loans from surplus stocks.
Total..
38.0
30.8
7.2
7.3
4.7
.2
4.5
46.7
17.0
29.7
15.0
27.4
126. 7
16. 7
16.8
16. 7
16.8
15.0
27.4
126. 7
6. 2
12.7
2.1
6.2
12.7
2.1
.2
2.0
.2
5. 4
62. 5
72.2
37.8
11.4
48.7
14.2
(23.7)
(28. 4)
(7.1)
(1.7)
(17.5)
(9.0)
(8.2)
(3.3)
(.1)
(5.6)
(28.0)
(30.6)
(40.5)
(30.6)
(4. 1)
(3.2)
23
(2.7)
1.8
.7
.1
1.1
9.2
12. 1
9.2
9.7
7.5
5.9
55. 5
63. 3
22.8
62.6
17.1
-17.8
54. 7
66.9
81.6
52.8
20.5
-.4
.3
1.7
1.5
3.6
23.9
3.7
217.1
33.4
3.2
2.3
1.6
.3
217.1
33.4
210.1
248.9
156.7
155. 4
146.2
236.5
NOTE.-Table 4 shows the withdrawals from surplus stocks paid for by aid funds.
Surplus agricultural commodities are included in lines 4 (a)-4 (j); military excess stock
items are in lines 4 (i)-4 (n); other purchases from surplus are in line 4 (o). Surplus agri-
cultural commodities include only the purchases made under Public Law 480, title 2, and
Public law 439. Surplus agricultural commodities sold for local currencies, title 1,
12
.1
Public Law 480, are not included in this table. Local currencies received from the sale
of surplus commodities and used for economic aid are expended on purchases other than
agricultural commodities. The value of such surplus sales (about $119 million in 1955)
is included in line 3 of table 3.
838
THE FOREIGN AID PROGRAMS

TABLE 5.-Aid funds to be distributed among United States goods and services, 1948–55
[In millions of dollars]
2. Aid funds expended directly on purchases from outside United States.
3. Unidentified origin of direct purchases with aid funds.
(a) Estimated cash credits.
(b) Estimate of direct purchases from United States with aid funds.
(c) Estimate of offshore procurement with aid funds.
4. (1) Unspecified commodities, military equipment and supplies.
(2) Unspecified commodities, nonmilitary..
Total.
Percent of total aid which is to be distributed.
1948
1949
1950
1951
1952
1953
1954
1955
978. 1
1, 204. 4
814. 1
524.4
621.9
586.8
732.9
960. 4
2, 163. 7
1,012. 2
902. 4
1, 349. 3
1, 259.5
661.6
1, 405. 2
1, 518. 0
300.0
800.0
580.0
425.0
825.0
650.0
400.0
400.0
520.0
270.0
240.0
787.0
377.0
9.0
805. 0
840.0
343.7
92. 2
82. 4
137.3
67.5
2.6
200. 2
278.0
3.6
2.2
30.5
94. 1
227.3
283. 5
242. 3
49.2
984. 7
31.8
3, 145. 4
57.0
3, 203. 5
1, 747.0
53.0
38.0
1, 967. 8
39.0
2, 118.7
38.0
1, 531.9
25.0
2,412. 2
45.0
2, 527.6
55.0
NOTE.-The total value of aid in each year eventually returns to the United States as
purchases from United States producing sectors. In table 3 it was seen that line 4 showed
aid funds expended directly on purchases from the United States. Lines 2 and 3 (c) of table
3 showed the aid funds expended directly on purchases from outside the United States.
The dollars for these expenditures initially made outside the United States enter into the
stream of international trade and eventually an equivalent value is spent on United States
goods and services. Similarly, the cash credits in line 3 (a) are either initially or even-
tually expended on United States goods and services.
It is desirable to describe the total value of aid in terms of the commodities and services
purchased from the United States. Table 5 shows the components of the aid bill which
must be allocated in some manner (see table 6) if the total of aid is to be distributed among
United States goods and services. These components are the value of the purchases ini-
tially made outside the United States which eventually become United States purchases
(lines 2, 3 (a), 3 (c)) and initial purchases from the United States which could not be
identified as being made from some specific producing sector (lines 3 (b), 4 (1), 4 (2).
THE FOREIGN AID PROGRAMS
839

TABLE 6.-Estimated foreign aid shipments from current production by United States industry
[In millions of dollars]
1948
1949
1950
1951
1952
1953
1954
1955
Total.
(a) Bread grains...
(1) Agricultural (wheat, rye).
(2) Manufactured (wheat flour).
5, 305. 9
6, 019. 6
4, 412. 9
4, 765. 1
5, 462. 3
5, 873.6
5, 169. 8
4, 411. 5
990.0
582.0
301.7
445. 1
248. 2
118. 7
102.0
74.8
643.5
488.9
247.4
396. 1
223. 3
102. 1
83.6
60.6
346.5
93.1
54.3
46.0
24.9
16.6
18.4
14.2
88
(b) Coarse grains (agricultural; oats, barley, buckwheat, corn, sorghum).
(c) Rice...
117.5
208.5
144.7
137.1
74.7
75.5
42. 1
60.3
35.7
32.0
26.4
16.9
21. 2
14.4
17.4
13. 1
(1) Agricultural (rough rice).
(2) Manufactured (polished, milled rice).
1. 1
1.3
1.1
34.6
30.7
25.3
16. 4
16.4
.4
.4
1.0
.7
20.8
14.0
16.4
12.4
(d) Other grain preparations (manufactured).
(e) Fats and oils..
(1) Agricultural (peanuts and oilseeds).
(2) Manufactured..
(f) Feeds and fodder.
(1) Agricultural (hay).
(2) Manufactured.
(g) Dairy products..
(1) Agricultural (fresh milk).
(2) Manufactured.
23.4
15.7
9.0
6.8
6.5
4.7
7.6
6.5
148.7
207.9
125.3
79.4
59.7
42.2
106. 1
105.4
62.5
70.7
30.1
16.7
15.5
22.4
35.0
39.0
86.2
137.2
95. 2
62.7
44.2
19.8
71.1
66.4
9.3
23.1
8.3
10.0
2.8
9.9
6.0
11.4
.4
.5
.2
.3
.1
.1
.1
.1
8.9
22.6
8.1
9.7
2.7
9.8
5.9
11.3
88.0
94.5
18.7
22.6
10.5
6.8
10.0
88.0
94.5
18.7
22.6
10.5
6.8
10.0
(h) Eggs..
27.4
15.6
4.6
16.5
3.3
2.2
3.9
4.4
(1) Agricultural (in shell).
(2) Manufactured..
27.4
15.6
4.6
16.5
3.3
2.2
3.9
4.4
(1) Fruits and nuts..
67.6
41.8
29.7
19.1
21.2
14.4
30.1
31.6
(1) Agricultural (nuts, fresh fruits).
25.0
18.4
14.0
9.9
10.0
6.9
14.7
14.5
(2) Manufactured (canned, preserved, frozen).
42.6
23.4
15.7
9.2
11. 2
7.5
15.4
17.1
() Vegetables and preparations....
80.8
33.9
12.3
13.6
14.8
10.5
15.6
17.5
(1) Agricultural (fresh vegetables).
Manufactured (canned, frozen, etc.).
80.8
33.9
12.3
13.6
14.8
10.5
15.6
17.5
840
THE FOREIGN AID PROGRAMS

TABLE 6.-Estimated foreign aid shipments from current production by United States industry-Continued
[In millions of dollars]
1948
1949
1950
1951
1952
1953
1954
1955
(k) Fish and products..
5.5
14.6
3.9
3.3
1.6
1.2
1.9
4.4
$8
(1) Agricultural (fresh fish).
Manufactured (canned, frozen, etc.).
5. 5
14.6
3.9
3.3
1.6
1.2
1.9
4.4
(1) Meats (manufactured).
25.4
26.9
8.9
10.4
8.2
10.4
9.6
13. 1
(m) Sugar and related products..
9.7
5.8
24.8
4.9
4.9
3.3
7.0
4.4
(n) Seeds, not oilseeds.
8.3
5.5
3.4
3.2
1.8
1.7
4.3
2.3
(0) Miscellaneous agricultural products.
(1) Agricultural (livestock).
(2) Manufactured...
(p) Fertilizer (including fertilizer minerals).
(q) Raw cotton (agricultural).
(r) Raw wool (agricultural).
Tobacco and tobacco products.
(1) Raw tobacco (agricultural).
(2) Tobacco products (manufactured).
Chemicals and related products.
Lumber and wood products (manufactured).
36.0
20.0
11.2
13.0
10.4
5.9
12.0
13.4
3.2
2.2
1.5
1.8
.9
1.2
2.4
5.2
32.8
17.8
9.7
11. 2
9.5
4.7
9.6
8.2
23. 1
34.9
37.2
15. 2
18. 1
8.7
14.9
33.4
251. 4
599.6
580.3
449.9
229.7
207.8
261.9
100. 5
.1
6.8
2.3
.1
0
.3
.6
1.4
122.8
202.1
181.6
114. 2
62. 1
38.3
63.0
68. 5
92. 1
165. 7
152. 5
97.1
50.3
32. 2
52.3
58. 2
30.7
36.4
29. 1
17.1
11.8
6. 1
10.7
10. 3
247.8
289.3
203.9
172.7
130.8
100.9
171.1
180.8
36.0
44.7
29.3
27.8
22.5
13. 1
19.3
30.5
(v) Hides, skins, leather, and leather products (manufactured).
20.1
35.0
15.9
8.5
8.9
11. 2
18. 2
19.5
(w) Paper and allied products (manufactured).
40.1
42.7
25.3
35. 1
33.2
20.4
39.5
47.5
(x) Textile products (manufactured).
208. 2
216. 1
121.8
124.6
94.0
72.4
92.8
100.0
(y) Crude oil and petroleum products.
236.0
243. 3
155.9
140. 7
153. 5
92.1
125. 4
123.5
(z) Coal and related products...
200.0
154. 2
55.7
138.0
126. 6
49.9
57.6
104.9
(aa) Iron and steel mill materials and products (including ferroalloys).
247.7
360. 6
170. 7
140.9
225. 6
113. 2
152.7
213. 1
(bb) Copper and copper products (including brass and bronze)….
42.7
60. 4
40.7
32.7
36. 8
29.6
46.9
44. 1
(cc) Zinc and zinc products.
11.8
18.5
2.8
3.3
5. 5
1.7
2.8
.4
(dd) Lead and lead products.
1.9
.1
.6
.2
.1
.2
.1
(ee) Aluminum and aluminum products.
11. 1
12.0
6. 1
3.9
1.8
2.4
9.2
3.6
(ff) Other nonferrous metals and products.
11.0
11. 2
10.8
9.2
4.9
6.5
8.8
9.4
(gg) Metallic ores and concentrates.
4.6
7.2
7.1
4.9
7.2
8.0
7.0
6.7
(hh) Nonmetallic minerals (excluding fertilizer minerals and products)-
67.6
83.9
56.4
42.8
43. 7
31.3
41.6
48. 4
(ii) Ordnance.
37.7
32. 4
204. 1
497.4
1, 171. 5
1, 450. 1
778.0
410.9
(JJ) Construction, mining, conveying equipment.
104.7
164. 1
119. 5
121.0
149.9
137.0
142. 1
113. 1
(kk) Metal working machinery.
22.3
59.3
80.5
67. 1
59.2
57.0
41. 2
24.9
(mm) Electric equipment.
(11) Machine tools..
(nn) Generators and motors.
(00) Engines and turbines...
(pp) Industrial machinery (not elsewhere classified).
22.9
57.8
48.0
42.6
79.0
92.0
39.2
18.3
107.2
125. 1
114.8
137.7
253. 1
285.0
301. 8
232.1
27.8
39.3
35. 7
42.4
51.6
34.7
39. 2
22.9
50. 1
64.5
44.0
57: 1
42.8
31. 1
43.0
35.6
181. 8
274.9
218. 1
187.3
214.8
203.1
214.3
173.5
THE FOREIGN AID PROGRAMS
841

(qq) Tractors.
(rr) Agricultural machinery (except tractors).
(ss) Motor vehicles, engines, and parts..
(tt) Aircraft, engines, and parts..
(uu) Other transportation equipment..
(vv) Miscellaneous industrial products..
(ww) Ocean freight...
(xx) Services..
75.8
161. 1
84.6
71. 2
92.7
89.4
92.5
72.2
31.8
59. 1
43.7
32. 2
36.0
29.0
22.0
20. 2
259.5
301.3
208.7
229.0
351.5
992.3
592. 5
362.3
51. 2
61.8
75.2
124.9
357.7
587.0
338.0
512. 1
98.8
101.9
30.0
112. 6
82.7
129.0
323.7
153.9
250. 2
263. 4
155.4
131. 2
131.8
104.3
169. 2
202.5
383. 5
410. 2
272.2
344.7
307.9
166.6
226. 1
275.3
138.0
242.9
300.0
385.0
354.8
29.3
283.1
143.3
NOTE.-In order to measure the impact of the foreign aid program on the United States
economy, industry by industry, it is necessary to distribute the unallocated components
of the aid bill found in table 5. It is also necessary to adjust for the sales of surplus com-
modities (table 4) under the aid program. The latter is necessary in order to arrive at the
impact on current production.
Total exports of goods and services for each of the specified industries in each of the
years were derived (see table 7). The goods and services identified as being exported
under the aid program (line 4, table 3) for each year were each subtracted from the total
annual United States exports of each industry. The ratios of these nonaid exports by each
industry to total nonaid exports were derived. The sum of lines 2, 3, and 4 (2) in table 5
was then distributed among supplying industries by multiplying this sum by the derived
ratios. Line 4 (1) was distributed in the pattern of machinery and equipment exports
alone, it being assumed that military equipment consists solely of such items.
These expenditures, as allocated, were added to the corresponding elements in line 4
of table 3. The surplus commodity expenditures (table 4) were then subtracted from
these totals to derive table 6. Line 4n (1) of table 4 was distributed among commodities
in the same proportion as was line 4 (1) of table 5.
842
THE FOREIGN AID PROGRAMS

TABLE 7.-United States exports by industry, 1948–55
[In millions of dollars]
1948
1949
1950
1951
1952
1953
1954
1955
Total.
12, 494.0
11, 885. 2
10, 142. 3
14, 867. 6
15,025. 7
15, 625. 8
14, 948. 1
15, 389. 7
a. Bread grains.
1, 396. 7
1,015. 9
494.6
1,008. 1
951. 1
589. 5
427.9
486. 4
88
(1) Agricultural (wheat, rye)
(2) Manufactured (wheat flour).
912.0
851.0
410.3
898.8
850.9
505.8
351.3
392. 6
484.7
164.9
84.3
109.3
100. 2
83.7
76. 6
93.8
b. Coarse grains (agricultural: barley, oats, buckwheat, sorghum).
c. Rice...
(1) Agricultural (rough rice).
88
(2) Manufactured (milled, polished rice)
d. Other grain preparations (manufactured).
e. Fats and oils.
(1) Agricultural (peanuts and oilseeds).
88
(2) Manufactured.
f. Feeds and fodder.
(1) Agricultural (hay).
$88
(2) Manufactured.
g. Dairy products...
(1) Agricultural (fresh milk).
(2) Manufactured.
138. 2
321.1
230.3
350.2
338.9
279. 2
177.3
335.0
85.9
90. 1
85.0
94.3
157.2
154.5
106. 3
81.3
2.9
3.7
3.0
2.5
3.7
4.7
5.9
4.1
83.0
86.4
82.0
91.8
153.5
149.8
100. 4
77.2
84.3
28.9
24. 1
30.6
33.6
36.0
37.1
36.0
263. 1
383.8
290.9
491.0
315. 4
243. 1
518. 4
534.7
110.7
131.3
71.0
104. 4
83.3
127.5
173. 2
195. 2
152.4
252.5
219.9
386.6
232. 1
115. 6
345. 2
339.5
14. 4
33.4
17.1
33.9
13.3
20.6
36. 3
67.5
.6
.7
.5
1.0
.4
.3
.6
1.0
13.8
32.7
16.6
32.9
12.9
19.3
35.7
66. 5
210.0
174. 2
86.4
120.9
72.4
79.5
81.2
113.6
1.5
1.8
.9
.6
.8
.8
.5
.6
208.5
172.4
85.5
120.3
71.6
78.7
80.7
113.0
h. Eggs.
46.3
26.3
16.3
32.2
21.7
21. 5
18.8
20.9
(1) Agricultural (in shell).
13.1
9.3
3.4
14.0
18.7
19.6
17.2
20. 1
(2) Manufactured...
33.2
17.0
7.9
18.2
3.0
1.9
11.6
20.8
1. Fruits and nuts.
116.5
105. 2
115.2
120.6
144. 4
148.9
180. 3
188. 3
(1) Agricultural (nuts, fresh fruits).
43.3
46.6
53.7
62.6
68. 1
72.2
89.2
87.2
(2) Manufactured (frozen, canned, preserved).
73.2
58. 6
61. 5
58.0
76.3
76.7
91. 1
101. 1
J. Vegetables and preparations..
155.7
87.8
60.0
83.8
106. 2
99.0
100.7
103.7
$$
Agricultural (fresh vegetables).
58.8
48.6
40. 1
54.9
73.3
59.8
61.6
59. 6
Manufactured (canned, frozen, etc.)
96. 9
39.2
19.9
32.9
39.2
39. 1
44. 1
k. Fish and products..
22.8
29.2
18.9
15.5
17.0
16. 2
24.9
(1) Agricultural (fresh fish).
.5
.7
.3
(2) Manufactured (canned, frozen, etc.).
22.3
28.5
18. 6
♡♡
.7
.5
1. 1
1.4
1.3
26. 4
15.0
15.9
14.8
23.6
THE FOREIGN AID PROGRAMS
843

1. Meats (manufactured)
60.4
54.9
46. 1
64.0
55. 1
75. 5
60.8
75. 1
m. Sugar and related products (manufactured).
28. 2
18.7
38.3
36. 5
31.3
29.2
19.5
21. 1
n. Seeds, not oilseeds (agricultural).
13.0
12.0
7.0
8.0
6.5
9.2
19.3
14. 3
o. Miscellaneous agricultural products.
77.9
61. 7
57.6
65.9
59.0
59.4
77.7
78.4
(1) Agricultural (livestock).
7.1
6.9
7.2
9.1
11.0
12. 6
15.9
30.4
(2) Manufactured.
p. Fertilizer (including fertilizer minerals).
q. Raw cotton (agricultural).
r. Raw wool (agricultural).
8. Tobacco and tobacco products..
(1) Raw tobacco (agricultural).
(2) Tobacco products (manufactured).
t. Chemicals and related products (manufactured).
u. Lumber and wood products (manufactured)
70.8
54.8
50.4
56.8
48.0
46.8
61.8
48.0
77.7
92. 2
76.9
50.7
43. 4
42. 1
61.9
91.3
510.9
874. 2
987.9
1, 146. 4
873.5
521.3
787.7
477.0
.5
11.7
6. 1
.4
.1
3. 1
3.7
6.4
287.0
308.6
297.7
382.3
304. 4
403.6
366.3
417.9
214.6
251.9
250.2
325. 6
245.5
339.5
303. 1
355.3
72.4
56. 7
47.5
56. 7
58.9
64. 1
63.2
62. 6
704. 3
694. 4
710.7
954. 5
765.4
784.5
961. 2
109.7
102.5
82.5
148.9
125.2
105. 1
116.3
v. Hides, skins, leather, and leather products (manufactured).
w. Paper and allied products (manufactured).
70. 1
77.4
50.6
53. 6
60. 1
84.7
99.2
138.6
112.0
107.3
231, 2
193.6
153. 1
228.3
x. Textile products (manufactured).
709. 2
557.0
429.8
691. 6
546.8
527.0
507.6
y. Crude oil and petroleum products.
656.9
561.4
499.5
783.0
799.9
690.9
657.6
z. Coal and related products.-
492.3
307.9
278.0
606. 2
509.8
346. 1
312. 1
1,017. 4
147.7
106. 7
291.7
539. 1
644.4
494. 6
aa. Iron and steel mill materials and products (including ferroalloys).
872.0
920.5
625.7
813. 4
968. 2
838.9
852. 1
1, 204. 7
bb. Copper and copper products (including brass and bronze).
134. 5
96.3
90.3
108.6
145.9
116. 5
240.3
cc. Zinc and zinc products..
20.9
23.9
8.3
22.4
27.0
8.0
8.3
219.6
7.0
dd. Lead and lead products--
2.6
2.7
3. 1
3.8
3.0
1.5
1. 1
1.5
ee. Aluminum and aluminum products..
44.4
33.4
23. 3
21.5
8. 1
13. 3
9.7
16.9
ff. Other nonferrous metals and products..
35. 1
30.9
25. 5
35.5
30.0
32.8
49.9
61.4
gg. Metallic ores and concentrates.
15. 1
15.8
16.4
31.9
39.9
36. 4
41. 4
47.5
hh. Nonmetallic minerals (excluding fertilizer minerals) and products_
218.9
212.2
187.8
250.8
235.5
235.9
244.9
284.2
11. Ordnance.
59.6
68.5
278.4
619.6
1, 313. 8
2, 165.0
1,287.9
531.3
jj. Construction, mining, conveying equipment.
367.2
408.9
327.0
455. 1
500.0
485. 6
443. 6
535, 0
kk. Metal working machinery.
76. 1
106. 1
132. 6
119.4
131.4
152.6
121.4
118.9
11. Machine tools.
81.0
115. 4
70. 1
103.0
150. 1
125.2
95.8
88.4
mm. Electric equipment.
390. 1
357.7
341.5
503.9
575.8
752.5
730.8
738.7
100.5
191.8
664.5
268.0
113.9
929. 3
153.6
341.9
nn. Generators and motors..
oo. Engines and turbines.
pp. Industrial machinery (not elsewhere classified).
qq. Tractors.
rr. Agricultural machinery (except tractors) –
ss. Motor vehicles, engines, parts..
tt. Aircraft engines and parts..
uu. Other transportation equipment..
vv. Miscellaneous industrial products..
942.5
Source: Quarterly Summary of Foreign Commerce of the United States, Foreign Trade
Division, Bureau of the Census.
NOTE.-The value of exports of domestic merchandise data in these Quarterly Sum-
mary reports was aggregated on the basis of the classification system shown in table 7.
A fairly important component of exports is designated "Special Category" in the Quar-
terly Summary reports. This refers to commodity exports which for security reasons
cannot be separately identified. A procedure for distributing the special category among
its commodity components was devised and used. Except for this problem, there was
little difficulty in maintaining classification consistency between the export statistics of
table 7 and the foreign aid statistics of tables 3 and 6.
112.5
94. 2
128.3
172.6
135.7
130.8
99. 4
196. 6
155. 1
196. 7
155.2
105. 2
144. 3
161.9
646.8
547. 1
674.8
750.7
740. 4
787.4
864.9
294. 1
244. 6
330. 2
342. 4
340.9
309.9
345.3
128.4
108.6
140.7
140.8
138.4
125.7
122.6
753.5
722.9
1, 198. 1
1,088. 4
1, 415. 7
1,265.9
1,394. 7
122.8
182.8
394. 1
527.6
880.6
619.4
728. 5
274.0
149.0
226.9
339.0
821.6
693. 2
873.4
836. 4
336. 2
998.9
501.8
260. 7
956. 1
1, 139. 9
844
THE FOREIGN AID PROGRAMS

TABLE 8.-Foreign aid shipments as percent of United States exports, by industry, 1948–55
[In percentages]
1948
1949
1950
1951
1952
1953
1954
1955
Total.
38.3
46. 0
38.4
27.7
31.7
34.3
31.1
25.0
a. Bread grains.
70.9
57.3
61.0
44. 2
26. 1
20.1
23.8
15.4
(1) Agricultural (wheat, rye).
70.6
57.5
60.3
44. 1
26.2
20.2
23.8
15.4
(2) Manufactured (wheat flour).
71.5
56. 5
64.4
44.8
24.9
19.8
24.0
15. 1
b. Coarse grains (agricultural; barley, buckwheat, corn, oats, sorghum).
c. Rice.
85.0
64.9
62.8
39. 1
22. 1
27.0
23.7
18.0
41.6
35.5
31. 1
17.9
13. 5
09.3
16. 4
16. 1
(1) Agricultural (rough rice).
37.9
35. 1
36.7
20.0
10.8
08. 5
16.9
17.1
(2) Manufactured (milled, polished rice).
41.7
35.5
30.9
17.9
13.6
09.3
16. 3
16. 1
d. Other grain preparations (manufactured).
e. Fats and oils..
(1) Agricultural (peanuts and oilseeds).
(2) Manufactured.
f. Feeds and fodder.
(1) Agricultural (hay).
$85
(2) Manufactured..
g. Dairy products..
(1) Agricultural (fresh milk).
(2) Manufactured.
27.0
54.3
37.3
22.2
19.3
13. 1
20.5
18. 1
56. 5
54. 2
43.1
16. 2
18.9
17.4
20.5
19. 7
56.5
53.8
42.4
16.0
18. 6
17.6
20.2
20.0
56. 6
54.3
43.3
16. 2
19.0
17.1
20.6
19.6
64.6
69.2
48.5
29.5
21. 1
48. 1
16. 5
16.9
66. 7
71.4
40.0
30.0
25.0
33.3
16.7
10.0
64.5
69. 1
48.8
29.5
20.9
50.8
16.5
17.0
41.9
54. 2
21.6
18.7
14.5
08.6
12.3
0
0
0
0
0
0
0
0
0
42.2
54.8
21.9
18.7
14.7
08.6
12.4
0
h. Eggs..
59.2
59.3
28. 2
51.2
15.2
10. 2
20.7
21.0
(1) Agricultural (in shell).
0
0
0
0
0
0
0
0
(2) Manufactured...
82.5
91.8
58.2
90.7
100.0
100.0
33.6
21.2
1. Fruits and nuts.
58.0
39.7
25.8
15.8
14.7
09. 7
16. 7
16.8
(1) Agricultural (nuts, fresh fruits).
57.7
39.5
26.1
15.8
14.7
09. 6
16. 5
16. 6
(2) Manufactured (frozen, canned, preserved).-
58.2
39.9
25.5
15.9
14.7
09.8
16.9
16.9
Vege tables and preparations..
51.9
38.6
20.5
16. 2
13.9
10.6
15. 5
16.9
(1) Agricultural (fresh vegetables).
0
0
0
(2) Manufactured (canned, frozen, etc.).
83.4
86.4
61.8
47.1
0
0
0
0
47.1
45.0
26.8
39.9
39.7
k. Fish and products..
24. 1
50.0
20.6
12.2
10.3
07.1
11.7
17.7
(1) Agricultural (fresh fish)
0
0
0
0
0
0
0
0
(2) Manufactured (canned, frozen, etc.).
24.7
51.2
21.0
12.5
10.7
07.5
12.8
18.6
THE FOREIGN AID PROGRAMS
845

1. Meats (manufactured).
42.1
49.0
19.3
16.3
14.9
13.8
15.8
17.4
m. Sugar and related products (manufactured).
34.4
31.0
64.8
13.4
15.7
11.3
35.9
20.9
n. Seeds, not oilseeds (agricultural)
63.8
45.8
48.6
40.0
27.7
18.5
22.3
16.1
o. Miscellaneous agricultural products.
46.2
32.4
19.4
19.7
17.6
09.9
15.4
17.1
(1) Agricultural..
45. 1
31.9
20.8
19.8
08.2
09.5
15. 1
17.1
(2) Manufactured.
46.3
32.5
19. 2
19.7
19.8
10.0
15. 5
17. 1
p. Fertilizer (including fertilizer minerals).
q. Raw cotton (agricultural).
r. Raw wool (agricultural..
8. Tobacco and tobacco products.
29.7
37.9
48.4
30.0
41.7
20.7
24.1
36.6
49.2
68.6
58.7
39.2
26.3
39.9
33.2
21.0
20.0
58.1
37.7
25.0
0
08. 1
16. 2
21.9
42.8
65. 5
61.0
29.9
20.4
09. 5
17.2
16.4
(1) Agricultural..
(2) Manufactured.
t. Chemicals and related products (manufactured).
u. Lumber and wood products (manufactured)
42.9
65.8
61.0
29.8
20.5
09.5
17.3
16.4
42. 4
64.2
61.3
30.2
20.0
09.5
16.9
16.4
35.2
41.7
28.7
18. 1
17.1
12.9
17.8
17.8
32.8
43.6
35. 5
18.7
18.0
12.5
16.6
20.6
v. Hides, skins, leather, and leather products (manufactured).
w. Paper and allied products...
28.7
45.2
31.4
15.9
14.8
13.2
18.3
18.3
28.9
38. 1
23.6
15.2
17.1
13.3
17.3
16. 3
x. Textile products (manufactured).
29.3
38.8
28.3
18.0
17.2
14.3
18.3
18. 5
y. Crude oil and petroleum products..
35.9
43.3
31.2
18.0
19.2
13.3
19.1
19.2
z. Coal and related products..
40.6
50.1
20.0
22.8
24.8
14.4
18.5
21.2
aa. Iron and steel mill materials and products (including ferroalloys).
28.4
39.2
27.3
17.3
23.3
13.5
17.9
17.7
bb. Copper and copper products.
31.7
62.7
45. 1
30.1
25.2
25.4
19.5
20.1
cc. Zinc and zinc products.
56.5
77.4
33.7
14.7
20.4
21. 3
33.7
05. 7
dd. Lead and lead products.
73.1
03.7
19.4
0
06. 7
06.7
18.2
06. 7
ee. Aluminum and aluminum products.
25.0
35.9
26.2
18. 1
22.2
18.0
94.8
21.3
ff. Other nonferrous metals and products.
31.3
36.2
42.4
25.9
16.3
19.8
17.6
15.3
gg. Metallic ores and concentrates.
30.5
45.6
43.3
15.4
18.0
22.0
16.9
14. 1
hh. Nonmetallic minerals (excluding fertilizer minerals), and products.
30.9
39.5
30.0
17.1
18.6
13.3
17.0
17.0
ii. Ordnance.
63.3
47.3
73.3
80.3
89.2
67.0
60.4
21.3
jj. Construction, mining, conveying equipment.
28.5
40. 1
36. 5
26. 5
30.0
28. 2
32.0
76.8
kk. Metalworking machinery..
29.3
55.9
60.7
56.2
45. 1
37.4
33.9
20.9
mm. Electric equipment.
11. Machine tools..
nn. Generators and motors….
oo. Engines and turbines.
pp. Industrial machinery (not elsewhere classified).
qq. Tractors..
rr. Agricultural machinery (except tractors).
ss. Motor vehicles, engines, parts.
tt. Aircraft engines and parts...
28.3
50. 1
68. 5
41. 4
52.6
73.5
41.6
20.7
27.5
35.0
33.6
27.3
44.0
37.9
41.3
31. 4
27.7
34.9
37.9
33.0
29.9
25. 6
30.0
31.4
26. 1
32.8
28.4
29.0
27.6
29.6
29.8
22.0
27.4
42.5
39.9
27.8
28.6
27.4
27.2
20. 1
28.3
39.5
34.6
21.6
27.1
26. 2
29.8
20.9
27.9
46.0
40.2
23.0
25. 6
21.0
17.5
16. 5
27.9
40.0
28.9
19. 1
32.3
70.2
46. 8
26.0
33.3
50.3
41.1
31.7
67.8
66. 7
54. 6
70.3
uu. Other transportation equipment.
vv. Miscellaneous industrial products.
28.9
37.2
20. 1
49.6
24. 4
38.4
64. 5
59. 0
26.5
32. 1
22.4
15.0
15.8
10. 4
17.7
17.8
NOTE.-Table 8 shows for each industry, in each year, the ratio of each commodity
exported under the aid program to the total of that commodity exported. It was derived
by dividing each element in table 6 by the corresponding element in table 7. The ratios
for the total of all commodities were derived by excluding both services and transportation
from both total aid and total exports.
The data on foreign-aid shipments used in computing their ratio to total exports exclude
those shipments which were from stocks or surplus commodities. The total United
States exports figure, however, does include the surplus commodities which were excluded
from foreign-aid shipments. If the ratio of total foreign-aid shipments including those
items drawn from surplus stocks is to be compared to total exports, then appendix table 4
can be used in combination with table 8. Actually, the differences between the two
methods of computation is only slight.
846
THE FOREIGN AID PROGRAMS

TABLE 9.-Value of United States production by industry 1948-55
[In millions of dollars]
1948
1949
1950
1951
1952
1953
1954
1955
Total ¹
232, 093. 6
224, 682.7
258, 543. 9
302, 942. 4
310, 596. 4
a. Bread grains...
4, 244. 0
3, 876. 1
3, 875. 1
3, 959. 7
4, 482. 3
336, 894. 1
4,340. 2
320, 291. 2
345, 080. 6
4, 525. 2
4, 388. 6
(1) Agricultural (wheat, rye).
(2) Manufactured (wheat flour).
b. Coarse grains (agricultural; barley, oats, buckwheat, sorghum).
c. Rice.
(1) Agricultural (rough rice)
Manufactured (milled, polished rice).
d. Other grain preparations (manufactured).
2, 213.0
1,881.0
1,755.0
1, 792.0
2,031. 0
1, 995. 1
2, 120. 1
2, 167. 7
2,242.0
2, 240. 3
2, 179.0
2,050.0
1, 708. 0
2, 161. 2
2, 475.2
2, 680.6
1, 704. 0
1, 894. 0
1,822. 0
1,655.0
1, 732. 0
1, 902.0
651.5
2,017.0
610.3
429.2
1, 991.0
463. 5
571.6
508. 5
566.3
576. 6
413.0
376.0
183.0
198.0
290.0
243.0
238.5
261.0
234.3
246. 2
265. 5
281.6
265. 5
305.3
246.0
330.6
e. Fats and oils.
3, 274. 4
4,846. 5
3,216.5
3, 555. 2
5, 059.8
5, 223. 8
5, 248. 2
4, 565. 5
5, 011. 3
5, 595. 0
5, 938. 8
5, 781. 6
6, 035. 4
5, 644. 4
6, 536. 3
6, 261. 2
(1) Agricultural (peanuts and oilseeds).
(2) Manufactured.
1,057.0
843.0
934.0
983.0
1,080.0
958.0
3,789. 5
3, 722.5
4,077.3
4, 612. 0
4,858. 8
4,823. 6
912.0
4, 732. 4
1, 136. 0
5, 125. 2
f. Feeds and fodder,
2, 497.6
2, 415. 2
2, 641.0
3, 102. 2
3,570.6
3, 153. 6
3, 584. 0
3, 881.9
(1) Agricultural (hay).
(2) Manufactured.
324.0
2, 173. 6
280.0
284.0
2, 135. 2
2, 357.0
339.0
2,763. 2
393.0
304.0
3, 177.6
2,849.6
307.0
3, 277.0
333.0
3, 548.9
g. Dairy products......
7,351. 4
6, 658. 0
6, 665. 7
7, 188. 2
7, 679.8
7, 454. 5
7,665. 8
8, 059. 6
(1) Agricultural (fresh milk).
(2) Manufactured...
4,389.0
3, 748.0
3,719.0
4, 250.0
4, 567.0
4,366. 0
2,962.4
4, 114. 0
2, 910. 0
4, 213. 0
2, 946. 7
2, 938. 2
3, 112. 8
3,088. 5
3, 551. 8
3, 846. 6
h. Eggs.
(1) Agricultural (in shell).
(2) Manufactured..
1. Fruits and nuts.
2, 187.5
2, 155. 1
1, 916. 5
2,287.4
1, 964. 7
2,266. 3
1, 849. 3
1,986. 8
1, 884. 0
303.5
1,857.0
298. 1
1, 564. 0
352.5
2,093. 0
1, 801.0
2,073.0
194. 4
163.7
193. 3
1, 627.0
222.3
1, 746.0
240.8
1, 867. 8
1, 813. 4
2,040.8
2, 133. 8
2,074.8
2, 140. 4
2, 307.5
2, 408. 4
(1) Agricultural (nuts, fresh fruits).
Manufactured (canned, preserved fruits).
Vegetables and preparations...
(1) Agricultural (fresh vegetables).
88
(2) Manufactured (canned, frozen, etc.).
1,053.0
814.8
1,013. 0
800.4
1, 209.0
831.8
1, 209. 0
924.8
1, 138. 0
936. 8
1, 240.0
900.4
1, 272. 0
1,035. 5
1,287.0
1, 121. 4
3, 519. 6
3, 278. 5
3, 130.9
3, 811. 3
4, 119. 2
3, 783. 0
3, 964. 3
4, 295. 5
1, 876. 0
1, 664. 0
1, 501.0
1, 801. 0
2,098. 0
1, 748. 0
1, 624.0
1, 643. 6
1, 614. 5
1,629.9
2, 010. 3
2, 021. 2
2, 035. 0
2, 340.3
1,761. 0
2, 534.5
THE FOREIGN AID PROGRAMS
847

Meats (manufactured)
o. Miscellaneous agricultural products.
k. Fish and products..
(1) Fishing-
(2) Manufactured (canned, frozen, etc.)
m. Sugar and related products.
(1) Agricultural.
(2) Manufactured..
n. Seeds, not oilseeds (agricultural)
591.1
559. 1
610.8
639.2
632.0
611. 5
658. 1
647.8
367.0
339.0
343.9
360.8
360. 1
352.3
224. 1
220. 1
266.9
278. 4
271.9
259.2
360.0
298. 1
325.0
322.8
11, 109. 5
10, 913. 1
11, 355. 0
13, 082. 3
12, 923.9
11, 969. 2
13, 764. 6
14, 907.1
3,064. 3
3,018. 8
3, 296. 8
3, 223. 4
3, 419. 5
3,490.0
3, 986. 5
4, 289.9
151.0
2, 913. 3
157.0
2, 861.8
205.0
3,091.8
183.0
3,040. 4
183.0
3, 236.5
207.0
3,283. 0
211.0
3, 775. 5
201.0
4, 088. 9
16, 862.9
15, 700. 5
17, 168. 6
20, 172. 4
19, 091. 6
18, 250.8
19, 034. 2
19, 102. 0
(1) Agricultural (livestock).
11, 581.0
(2) Manufactured.
10, 512. 0
11, 605. 0
14, 132. 0
12, 823. 0
11, 548. 0
11, 326.0
5, 281.9
5, 188. 5
5, 563.6
6, 040. 4
6, 268. 6
6, 702. 8
7, 708. 2
p. Fertilizer (including fertilizer minerals).
798. 2
q. Raw cotton (agricultural).
г. Raw wool (agricultural)
s. Tobacco and tobacco products.
2,553. 0
110.0
3, 884. 1
785.7
2,636. 0
100.0
3,790. 2
784.4
2, 434.0
129.0
876. 4
2, 852.0
231.0
973.6
2, 978. 0
123.0
4, 040. 6
4, 282. 2
4, 240. 1
4, 428. 2
1,060. 4
3, 178.0
129.0
1,062. 4
2, 703.0
129.0
4,346. 4
10, 754. 8
8, 348. 0
1, 130.9
2, 562. 0
101.0
4, 674. 7
w. Paper and allied products (manufactured).
(1) Raw tobacco (agricultural).
(2) Tobacco products (manufactured).
t. Chemicals and related products (manufactured).
u. Lumber and wood products (manufactured)
v. Hides, skins, leather, and leather products (manufactured).
945.0
903.0
1,061.0
1, 191. 0
1,090. 0
1,094.0
1, 161. 0
2, 939. 1
2,887. 2
2, 979. 6
3,091. 2
3, 150. 1
3, 334. 2
3, 185. 4
1, 225.0
3, 449. 7
8, 206. 4
8, 061.3
9, 838. 0
12, 007. 3
12, 286. 3
13, 261. 1
13, 048. 9
14, 132. 0
5, 857.7
5, 754. 1
8, 031. 2
8,901.4
8, 897.6
9, 123.4
8, 556. 2
3, 403. 8
3, 343.6
3, 555. 0
3, 810. 4
3, 554. 2
3, 671.6
3, 407.8
x. Textile products (manufactured).
6, 933. 0
6, 810. 4
8, 323.9
10, 526. 1
9, 763. 7
10, 924. 2
11, 158. 6
9, 266. 4
3, 690. 6
12, 084. 8
y. Crude oil and petroleum products.
11, 005. 6
10, 811.0
13, 424. 5
14, 580. 3
13, 290. 5
13, 526. 1
11, 727. 3
12, 700. 7
z. Coal and related products..
13, 988. 9
13, 233. 4
16, 204. 0
17, 430. 4
19, 134. 6
18, 942. 0
18,753.8
20, 029.0
bb. Copper and copper products (including brass and bronze).
aa. Iron and steel mill materials and products (including ferroalloys).
5, 100. 2
4, 111. 1
3, 898. 4
6, 107.0
4, 444. 8
5, 218.7
5,071.9
5, 827.5
22, 122. 2
21, 731. 0
26, 602. 5
34, 645. 7
32, 826. 5
38, 795.7
33, 124. 5
35, 873.8
cc. Zinc and zinc products..
2,806.7
2, 757. 1
3, 619. 3
3, 907. 6
3, 928. 4
4, 501. 7
3, 821.9
4, 139. 1
dd. Lead and lead products..
578.9
568.7
695.6
ee. Aluminum and aluminum products..
462. 2
454.0
ff. Other nonferrous metals and products..
1,756. 1
1,725. 1
gg. Metallic ores and concentrates.
ii. Ordnance.
hh. Nonmetallic minerals (excluding fertilizer minerals) and products.
kk. Metalworking machinery.
jj. Construction, mining, conveying equipment..
434.5
3, 632.7
5, 624. 6
1, 801. 6
426.8
3, 516.5
5, 551. 1
553. 7
2, 227.7
499.5
4,356. 4
6, 758. 8
895. 6
717.7
2, 507.8
875.3
696.9
2, 563. 4
588.6
578.9
1,011. 6
817.3
3,010. 1
651. 2
858.9
693.9
2, 616.9
552.9
5, 259. 2
4, 923. 7
5, 211.0
4, 457.0
7, 863. 7
7,859. 6
8, 354. 3
8, 684. 8
421.0
412.8
11. Machine tools..
1, 104. 7
402. 1
1, 769. 7
1,085. 2
395.0
771.6
1,815.8
1,359. 4
905. 6
3, 466. 8
5, 746. 3
3, 999. 2
930. 2
751.5
2, 834. 1
598.8
5,954. 0
9, 431. 1
4,378. 4
2, 616. 2
2, 929. 9
2, 762.8
2, 463. 0
2,667.4
2,008. 5
2, 473.9
2, 566. 4
2, 287.9
2, 477.8
mm. Electric equipment.
486. 6
698.6
1, 134. 7
1, 241. 2
1, 106. 5
nn. Generators and motors..
oo. Engines and turbines.
6, 260. 6
863.6
730.7
1, 198. 3
6, 149. 9
848.3
717.8
8, 255. 4
888. 1
787.4
9, 723. 2
1,210. 2
1,083. 3
11, 399. 2
13, 403. 6
12, 023. 0
13, 020. 9
1,307.9
1,428. 4
1, 287. 1
1, 393. 9
1, 193. 9
1, 236. 2
1, 102. 1
1, 193. 6
1 The totals include only mining, agriculture, and manufacturing. They therefore exclude construction, trade, services, and government.
848
THE FOREIGN AID PROGRAMS

1948
1949
1950
1951
1952
1953
1954
1955
7, 703. 3
975.0
7, 567. 1
957.8
9, 131. 9
11, 431. 4
12, 398. 7
13, 680. 1
12, 198. 1
1,098. 0
1, 417.0
1,293. 5
1, 271.8
1, 122. 1
1, 102. 3
1,049. 4
1, 261.8
1, 187.9
12, 623. 4
12, 400. 2
15, 032. 8
16, 651. 7
18,427.8
1, 157. 4
23, 777.2
1, 133. 8
1,031.8
13, 210. 5
1,227.9
1, 117. 4
21, 563. 8
3, 155.9
3, 100. 1
23, 353. 6
3,758. 2
4, 162. 9
4, 607.0
5, 944. 3
5, 259.8
5, 390. 9
5, 838. 3
5, 166. 8
6, 263.7
26, 168, 7
28, 350. 2
6, 938, 2
32, 470.3
7, 678. 2
33, 733. 4
9, 907. 2
8, 984.9
35, 991. 3
35, 430. 4
9, 730. 6
38, 226. 4
TABLE 9.-Value of United States production by industry 1948-55—Continued
[In millions of dollars]
26, 639.0
Sources: Census of Manufacturers, 1947, Bureau of Census; Census of Manufacturers,
1954, preliminary, Bureau of Census; Annual Survey of Manufacturers, 1948-55, Bureau
of Census; Minerals Yearbook, 1948-53, Bureau of Mines, Department of Interior; Fish-
eries of the United States and Alaska, 1948-55, Fish and Wildlife Service, Department of
Interior; Farm Income Situation, 1956, Agricultural Marketing Service, Department of
Agriculture.
Derivation: It was decided to obtain estimates of each industry's value of output in
each year in order to obtain estimates of the impact of the foreign aid program on that
year's production. Because of the source material used, the estimates in table 9 are a
closer approximation to the value of shipments by each industry than the value of output.
To the extent that there are large inventory changes in any given industry in any year,
these estimates are in error.
The first problem faced was to translate the industry classification system used in the
source materials to the classification system used in this report. Most output data are
classified on a standard industrial classification system basis while export and foreign
aid data are not. This process of aggregating and disaggregating the source materials
data required a number of more or less arbitrary decisions. Each industry was examined
individually and the necessary weights derived were based upon as much information
as was available.
For many industries value-of-shipments data were not available while value-added
data were available. In such cases, the relationship between value added and value of
shipments for other years or similar industries was used as a blow-up factor. In other
cases, it was necessary to allocate among specific industries the value-of-shipments infor-
mation for certain larger groupings which were available as control totals. In still other
cases, it was necessary to interpolate or extrapolate estimates made for different years.
While a full description of all the detailed operations necessary to estimate the value of
production data shown in table 9 cannot be given here, it should be pointed out that these
estimates are only approximate and subject to error.
qq. Tractors.
pp. Industrial machinery (not elsewhere classified).
rr. Agricultural machinery (except tractors)
BS. Motor vehicles, engines, parts..
tt. Aircraft engines and parts..
uu. Other transportation equipment..
vv. Miscellaneous industrial products...
THE FOREIGN AID PROGRAMS
849

TABLE 10.-United States aid as a percent of United States production, by industries, 1948–55
[In percentages]
1948
1949
1950
1951
1952
1953
1954
1955
Total..
a. Bread grains..
(1) Agricultural (wheat, rye).
(2) Manufactured (wheat flour).
2.1
2.4
1.5
1.4
1.5
1.6
1.5
1.1
23.3
15.0
7.8
11. 2
5. 5
2.7
2.3
1.7
29.1
26.0
14. 1
22. 1
10.0
4.7
3.5
17.1
4. 7
2.6
2.3
1.1
.8
.5
b. Coarse grains (agricultural; barley, buckwheat, corn, oats, sorghum).
o. Rice.
6.8
11.0
7.9
8.3
4.3
4.0
2.1
3.0
5. 5
5. 2
6.2
3.6
3.7
2.8
3.1
2.3
(1) Manufactured (rough rice).
(2) Manufactured (milled and polished rice) -
d. Other grain preparations (manufactured).
e. Fats and oils.
(1) Agricultural (peanuts and oilseeds).
.3
.3
14. 5
13. 1
♡ I
.6
10.3
6.2
6.2
.1
.2
.4
.3
7.4
5.3
5. 4
4. 1
.7
.5
3.1
4.6
2.5
2.8
.1
.1
1.4
1.0
17
.1
.1
1.9
1.7
5.9
8.4
3. 2
1.7
1.4
2.3
(2) Manufactured...
f. Feeds and fodder.
(1) Agricultural (hay).
(2) Manufactured..
g. Dairy products.---.
(1) Agricultural (fresh milk).
(2) Manufactured.
2.3
3.7
2.3
1.4
.9
.4
.4
1.6
.3
.3
.1
34 3
3.8
3. 4
1. 5
1.3
.2
.3
.1
.2
.4
1.1
.3
1:3
:4
.1
.4
14
.1
.3
.2
.3
1.2
1.4
.3
.3
.1
.1
.1
3.0
3.2
.6
.8
.3
.2
.3
h. Eggs..
(1) Agricultural (in shell).
1.3
.7
.2
.7
.2
.1
.2
.2
(2) Manufactured.
9.0
5.2
1.3
8.5
2.0
1. 1
1.8
1.8
1. Fruits and nuts.
3.6
2.3
1.5
.9
1.0
.7
1.3
1.3
(1) Agricultural (nuts, fresh fruits)
2.4
1.7
1.2
.8
.1
.6
1.2
1. 1
(2) Manufactured (canned, frozen, preserved).
5.2
2.9
1.9
1.0
.1
8
1.5
1.5
Vegetables and preparations…..
2.3
1.0
.4
.4
.4
.3
.4
.4
(1) Agricultural (fresh vegetables).
(2) Manufactured (canned, frozen, etc.).
4.9
2.1
.8
.7
.7
.5
.7
.7
850
THE FOREIGN AID PROGRAMS

TABLE 10.-United States aid as a percent of United States production, by industries, 1948-55—Continued
[In percentages]
1948
1949
1950
1951
1952
1953
1954
1955
k. Fish and products....
.9
2.6
.6
.5
.3
.2
.3
.7
(1) Agricultural (fresh fish)
(2) Manufactured (canned, frozen, etc.).
2.5
6.6
1.5
1.2
.6
.5
.6
1.4
1. Meats (manufactured).
.2
m. Sugar and related products.
23
.2
.2
22
.1
.1
1
9
1
.1
.8
.2
1
1
2
.1
(1) Agricultural..
Manufactured..
n. Seeds, not oilseeds (agricultural).
o. Miscellaneous agricultural products.
(1) Agricultural (livestock).
(2) Manufactured.
p. Fertilizer (including fertilizer minerals).
q. Raw cotton (agricultural)
r. Raw wool (agricultural).
s. Tobacco and tobacco products.
(1) Raw tobacco (agricultural).
(2) Tobacco products...
t. Chemicals and related products (manufactured).
u. Lumber and wood products (manufactured)
.3
.2
.8
.2
.2
.1
.2
.1
.2
.1
.1
.1
.1
.1
.1
.6
.3
.2
.2
.2
.1
.1
.1
2.8
4.4
4.7
1.7
1.9
.8
1.4
3.0
9.8
22.7
23.8
15.8
7.7
6.5
9.7
3.9
.1
6.8
1.8
2
3.2
5.3
4.5
2.7
1.5
.9
20
.5
1. 4
1.4
1.5
9.7
18.3
14. 4
8.1
4.6
2.9
4.5
4.8
1.0
1.3
1.0
.5
.4
.2
.3
.3
3.0
3.6
2.1
1. 4
1. 1
.8
v. Hides, skins, leather, and leather products (manufactured).
.4
1.0
w. Paper and allied products (manufactured).
x. Textile products (manufactured).
· 6
.6
1.9
y. Crude oil and petroleum products.....
2.0
9
9
- CD CD CDI
3
18
1.3
1.3
2
.3
3
2
5
8
1.7
1.8
z. Coal and related products.___.
1.0
5
7
.6
3.9
3.8
aa. Iron and steel mill materials and products (including ferroalloys).
1.4
2.8
1.1
1.8
1.1
1.7
.6
bb. Copper and copper products (including brass and bronze).
7
.5
.6
1.5
2.2
1. 1
cc. Zinc and zinc products..
.8
9
7
1.2
1.1
2.0
3.3
dd. Lead and lead products.
.4
.4
6
.2
.3
4
ee. Aluminum and aluminum products...
1
6
1.9
.2
ff. Other nonferrous metals and products.
.1
.1
.4
2.5
2.6
2.2
1.6
gg. Metallic ores and concentrates_
.8
1.0
1.6
jj. Construction, mining, conveying equipment..
hh. Nonmetallic minerals (excluding fertilizer minerals) and products...
ii. Ordnance (military)
.1
.2
.1
1
.2
.2
462
.1
1.6
.1
1.2
1.5
8
5
6
.4
.5
.5
9.0
7.8
26. 5
54.9
33.8
25. 2
19.5
9.4
5.8
9.3
6.6
kk. Metalworking machinery.
4. 6
5. 1
5.0
5.8
15.4
2.0
5.4
5.9
3.3
11. Machine tools.
2.4
2.2
1.8
1.0
5.7
14.6
9.9
6. 1
7.0
7.4
3.6
1. 5
THE FOREIGN AID PROGRAMS
851
mm. Electric equipment.
1. 7
2.0
1.4
1.4
2.2
21. 2
2.5
1.8
nn. Generators and motors.
3.2
4.6
4.0
8.5
3.9
2.4
3.0
1.6
oo. Engines and turbines.
6.9
9.0
5. 6
5.3
3.6
2.5
3.9
3.0
pp. Industrial machinery (not elsewhere classified).
qq. Tractors.
2.4
3.6
2.4
1.6
1.7
1.5
1.8
1.3
7.8
12. 1
7.7
5.0
7.2
7.0
8.2
5.9
rr. Agricultural machinery (except tractors).
2.8
5.4
4. 2
2.3
3.0
2.5
2. 1
1.8
88. Motor vehicles, engines, parts..
2.1
2.4
1. 4
1. 4
1.9
4. 2
2.7
1.6
tt. Aircraft, engines and parts..
1.6
2.0
2.0
3.0
7.8
9.9
6.3
8.8
uu. Other transportation equipment..
vv. Miscellaneous industrial products..
1.9
2.0
1.6
1. 1
1.3
.9
1.0
4
4
.3
3.6
5
1.6
.5
94413-57-
NOTE.-Table 10 shows for each industry, in each year, the ratio of aid to United States
production. It was derived by dividing each element in table 6 by the corresponding
element in table 9. The ratios for the total of all commodities were derived by excluding
both services and transportation from both total aid and total exports. These ratios
represent, therefore, the percent which aid is of agriculture, mining, and manufacturing
production alone. The producing sectors excluded-services, transportation, utilities,
construction, government, etc.-constitute at least one-third of total United States pro-
duction. Estimates of the stake which some of these producing sectors have in foreign aid
are given by their indirect effects shown in table 13.
-55
852
THE FOREIGN AID PROGRAMS

[In thousands]
1948
1949
1950
1951
1952
1953
1954
1955
TABLE 11.-United States employment by industry, 1948–55
a. Bread grains:
(1) Agricultural (wheat, rye)¹.
(2) Manufactured (wheat, flour)
1
b. Coarse grains ¹ (agricultural, barley, oats, buckwheat, sorghum).
c. Rice:
(1) Agricultural (rough rice)¹.
(2) Manufactured (milled, polished rice).
d. Other grain preparations (manufactured).
e. Fats and oils:
90.0
88.4
89.3
91.3
92.6
91.9
92.1
92.5
10.3
10.1
10.2
10.5
10.6
10.5
10.6
10. 6
187.2
183.9
185. 6
189.9
192.5
191.1
191.5
192. 4
(1) Agricultural (peanuts and oilseeds)¹.
(2) Manufactured.
f. Feeds and fodder:
(1) Agricultural (hay)¹.
(2) Manufactured.
g. Dairy products:
(1) Agricultural (fresh milk)¹.
(2) Manufactured.
49.8
49.0
47.0
46.8
44.3
43. 1
42. 4
41.5
109. 1
107.2
108.2
110.7
112. 2
111.3
111.6
112. 1
95. 6
89.6
86.2
103.3
101.9
96. 9
95.6
93.4
h. Eggs:
(1) Agricultural (in shell)¹.
(2) Manufactured...
d
35.4
38.4
38.7
21.2
18.0
21.3
21.0
20.5
Fruits and nuts:
(1) Agricultural (nuts, fresh fruits)¹.
(2) Manufactured (canned, preserved fruits).
72.0
68.7
68.8
67.2
66.0
67.2
66.4
68.3
J. Vegetables and preparations:
(1) Agricultural (fresh vegetables)¹_
(2) Manufactured (canned, frozen, etc.).
144.9
138.6
134.6
146.0
142.5
151.7
143.6
147.7
k. Fish and products:
(1) Fishing 2..
(2) Manufactured (canned, frozen, etc.).
21.5
19.0
22.1
20.3
19.1
19.3
15. 1
15. 5
1. Meats (manufactured)
271. 2
288.6
296. 4
308. 2
319.0
321.5
321.8
327.6
m. Sugar and related products (manufactured).
133. 4
125.9
127.9
122.8
119.6
118.8
114.8
112. 2
n. Seeds, not oilseeds (agricultural).
o. Miscellaneous agricultural products:
(1) Agricultural (livestock)¹.
(2) Manufactured.
371.3
357.7
355.3
356, 1
354, 3
355. 5
348.8
351.9
p. Fertilizer (including fertilizer minerals) and products..
41.9
39.4
39.6
41.4
42.8
43.7
43.1
42.6
q. Raw cotton (agricultural)¹
r. Raw wool (agricultural)¹.
8. Tobacco and tobacco products:
(1) Raw tobacco (agricultural)¹.
(2) Tobacco products (manufactured).
114.0
109.0
103.3
104. 1
105. 6
103.6
103.3
103.5
t. Chemicals and related products (manufactured).
564.3
529.7
550.5
615.0
638.4
675.6
661. 4
682.3
u. Lumber and wood products (manufactured)
985. 5
898.8
989. 1
1, 011. 9
960. 4
936.9
860.0
909.0
v. Hides, skins, leather and leather products (manufactured).
409.0
386.0
392.0
377.0
381.2
386. 2
370.0
381.1



THE FOREIGN AID PROGRAMS
853
w. Paper and allied products (manufactured).
x. Textile products (manufactured).
y. Crude oil and petroleum products.-----
z. Coal and related products...
242.8
1, 368.0
467.3
232.6
1, 223.0
485.1
1, 292. 0
1,271.6
453.4
471.3
511.2
488.4
503.7
1, 195. 6
530. 4
1, 185. 8
558. 5
511.6
463.9
477.0
511.5
423. 4
528.4
372.3
531.3
1,069. 6
516. 1
549.6
1,075. 4
523.8
309, 7
291.1
co. Zinc and zinc products..
dd. Lead and lead products..
aa. Iron and steel mill materials and products (including ferroalloys)_.
bb. Copper and copper products (including brass and bronze).
ee. Aluminum and aluminum products...
ff. Other nonferrous metals and products.
gg. Metallic ores and concentrates.
hh. Nonmetallic minerals (excluding fertilizer minerals).
ii. Ordnance…----
jj. Construction, mining, conveying equipment..
kk. Metalworking machinery.
ll.. Machine tools……….
mm Electric equipment.
nn. Generators and motors...
oo. Engines and turbines..
pp. Industrial machinery (not elsewhere classified)..
qq. Tractors.
rr. Agricultural machinery (except tractors).
ss. Motor vehicles, engines, parts………………….
tt. Aircraft, engines and parts.
uu. Other transportation equipment..
vv. Miscellaneous industrial products..
Agriculture (includes family and hired).
Forestry and fisheries.
2, 129. 3
1, 888. 1
2, 105.5
2,277.6
2, 183. 2
2, 373. 1
2, 141.0
2,295. 6
111.3
99.4
111. 1
121. 4
120.1
130. 4
119.5
126. 6
18.8
16.8
18.7
20.5
20.3
22.0
20.2
21.4
16. 1
14.4
16. 1
17.6
17.4
18.9
17.3
18.3
99.4
89.2
101.0
106.6
107.0
115.7
106. 1
112.6
14.7
13. 2
14.7
16. 1
15.9
17.3
15.8
16.8
104.2
97.7
96.9
101.0
99.8
106. 0
99.3
101.0
609. 6
571.9
603.0
647.2
625.4
642.6
613. 9
651. 3
28. 1
25.8
29.6
77.0
178.7
234. 3
163.3
139.2
122. 6
101.3
100. 1
121. 1
134.8
133.9
124.5
133. 3
164.8
140. 3
145.9
196.0
231.3
206. 2
183. 7
178.4
58.8
50.1
52.3
68.2
63.0
99.8
88.8
86.3
766. 5
674.2
791.9
895.0
972. 4
1, 102. 7
982. 1
1,017. 2
104.5
92.8
85. 1
111.7
111.7
117.1
104. 3
108.0
78.0
66.8
66. 1
80.5
85.8
88.5
74.5
74.5
910. 5
763.5
809.6
942. 4
969.7
1,011. 7
939.9
966. 8
103.3
99.6
92.0
104.2
93.7
88.0
75.7
80.2
89.8
86.6
88.1
92.8
86.2
79.9
68.7
72.8
789.3
759.6
825. 2
844. 5
790.2
928.9
775. 6
896.5
237.7
264. 1
281.8
463.6
660.7
779.1
764. 1
738.4
242.7
186.0
157.2
202.8
242. 5
244. 6
195.3
187.1
2, 930.0
2,825.0
2, 919.0
3,020. 8
3, 053. 8
3, 186. 0
3,057.9
3, 159.9
10,363. 0
167.0
9, 964.0
Other employment (includes construction, utilities, services, government, etc.).
28, 145.0
165.0
26, 055, 0
9, 342.0
166.0
28, 882.0
8, 985.0
176.0
30, 326. 0
8, 669.0
186.0
8, 580.0
183.0
8,451.0
8, 237.0
(3)
31, 087.0
31, 591.0
31, 659. 0
32, 623.0
¹ Included in total agriculture employment shown at bottom of table.
• Included in total forestry and fishery employment shown at bottom of table.
• Not available.
Sources: Employment and Earnings, Bureau of Labor Statistics, Department of Labor;
Statistical Abstract, Bureau of the Census, Department of Commerce.
Derivation: Nonagricultural employment data, for each year, are available in Em-
ployment and Earnings. Employment refers to both production and nonproduction
workers. Since the employment data is essentially classified on a Standard Industrial
Classification System basis, while the foreign aid data are not, it was necessary to make
a number of estimates in order that consistency between the classification systems in
table 10 and the earlier foreign aid tables be maintained. These estimates were of essen-
tially the same nature as those found in table 9.
The Agriculture and Forestry and Fishery employment estimates were obtained from
the Statistical Abstract.
854
THE FOREIGN AID PROGRAMS
TABLE 12.-Number of indirect employees for every hundred direct employees,
by industry
In order to conserve space, the column letters correspond with the similarly lettered industry description
in the line]

Industries shipping aid commodities
Total indirect_
a. Bread grains (manufactured, wheat
flour)
c. Rice (manufactured; milled, polished
rice).
d. Other grain preparations (manufac-
tured).
e. Fats and oils (manufactured).
f. Feeds and fodder (manufactured)
g. Dairy products (manufactured).
1. Fruits and nuts (manufactured, canned,
preserved fruits)
j. Vegetables and preparations (manufac-
tured; canned, frozen, etc.).
k. Fish and products
and products
(manufactured;
canned, frozen, etc.).
1. Meats (manufactured).
m. Sugar and related products (manufac-
tured).
o. Miscellaneous
agricultural
(manufactured).
p. Fertilizer (including fertilizer minerals)..
s. Tobacco and tobacco products.
2211
2211
2211
10
- 9800
ami
с dmf emf gmf Jaz 1 Mmf 0mf
233 233
233 412 150 26 373
178 155
11
1
1
4
1
10
1
50
6
211
2
11
2
16
2
1
1
1
4
1
3
1
5
5
5
24
3
8
1
1
1
1
6
1
1
88
products
3
3
3
13
2
1
44
t. Chemicals and related products (manu-
factured).
7
7
7
10
3
1
3
1
2
u. Lumber and wood products (manufac
tured)
4
4
7
v. Hides, skins, leather and leather prod-
ucts (manufactured)
3
3
3
4
4
w. Paper and allied products (manufac-
tured)....
13
13
x. Textile products (manufactured).
y. Crude oil and petroleum products.
25
25
4
4
z. Coal and related products..
4
4
22*
22**
13
25
11
4
4
8108
9
13
2
1
6
22
25
2
6628
7
1
3
aa. Iron and steel mill materials and prod-
ucts (including ferroalloys).
9
9
9 17
12
7
2
10
bb. Copper and copper products (including
brass and bronze)
1
1
1
cc. Zinc and zinc products.
dd. Lead and lead products.
ee. Aluminum and aluminum products...
ff. Other nonferrous metals and products...
gg. Metallic ores and concentrates.
hh. Nonmetallic minerals (excluding ferti-
lizer minerals) and products...
JJ. Construction, mining, conveying equip-
ment...
kk. Metal working machinery……---.
11. Machine tools……….
4
12
1 1 1
1
1
mm. Electric equipment_
nn. Generators and motors.
00. Engines and turbines.
pp. Industrial machinery (not elsewhere
classified)
4
4
4
5
qq. Tractors.
4
4
4
rr. Agricultural machinery (except tractors).
ss. Motor vehicles, engines and parts..
tt. Aircraft, engines and parts..
uu. Other transportation equipment_
vv. Miscellaneous industrial products.
4
4
4
232
2
1
1
4
1
4
18
18
18
17
5
5
5
13
aaa. Agriculture..
7
_་
7
7
10
10
254
11
bbb. Electric light and power………
ccc. Transportation.
38
ddd. Trade………
21
eee. Services..
828
38
21
21
30 30 30
8828
41
32
82
17
43
17
121
28
227
24
9
17
18
16
210
THE FOREIGN AID PROGRAMS
855
TABLE 12.—Number of indirect employees for every hundred direct employees,
by industry-Continued

Industries shipping aid commodities
Smi
t
u
▼
W
X
88
bb
cc
Total indirect..
155
203
77 38
105
63 107 246
170
a. Bread grains (manufactured, wheat
flour)
c. Rice (manufactured, milled, polished
rice)...
d. Other grain preparations (manufac-
tured).
e. Fats and oils (manufactured).
f. Feeds and fodder (manufactured).
g. Dairy products (manufactured).
1. Fruits and nuts (manufactured, canned,
preserved fruits)
J. Vegetables and preparations (manufac-
tured, canned, frozen, etc.).
k. Fish and products (manufactured,
canned, frozen, etc.)
1. Meats (manufactured)
m. Sugar and related products (manufac-
tured).
o. Miscellaneous
agricultural
(manufactured).
products
p. Fertilizer (including fertilizer minerals).
s. Tobacco and tobacco products.
2
1
1
1
1
1
1
54
t. Chemicals and related products (manu-
factured)...
4
36
1
4
3
12
1
4
2
u. Lumber and wood products (manufac-
tured)
7
5
42
1
13
3
3
LO
5
3
v. Hides, skins, leather, and leather prod-
ucts (manufactured)
11
w. Paper and allied products (manufac-
tured)
15
10
x. Textile products (manufactured).
y. Crude oil and petroleum products.
z. Coal and related products..
2
0240
1
1
39
3
1
1
2
6
1
2
5
3934
3
2
1
3
∞∞
8
28
1
6
aa. Iron and steel mill materials and prod-
ucts (including ferroalloys).
4
8
8
3
1
42
6
4
bb. Copper and copper products (including
brass and bronze).
cc. Zinc and zinc products...
dd. Lead and lead products.
ee. Aluminum and aluminum products..
ff. Other nonferrous metals and products..
gg. Metallic ores and concentrates…..
hh. Nonmetallic minerals (excluding fer-
tilizer minerals) and products..
jj. Construction, mining, conveying equip-
ment...
1
11
2
3
2
3
100 0 1 2
11∞
3
3
1
111
343000
14
13
6
6
51
9
1
1
1
3
6
3
1
1
1
1
1
kk. Metalworking machinery.
11. Machine tools…….
mm. Electric equipment.
nn. Generators and motors………….
00. Engines and turbines.
pp. Industrial machinery (not elsewhere
classified)..
1
2
1
1
1
2
3
2
qq. Tractors.
1
rr. Agricultural machinery (except tractors).
ss. Motor vehicles, engines and parts..
tt. Aircraft, engines and parts..
uu. Other transportation equipment.
1
vv. Miscellaneous industrial products…..
aaa. Agriculture.
16
20
2
bbb. Electric light and power.
ccc. Transportation..
10
16
ddd. Trade...
12
eee. Services..
21
21
31000
21
4
1
23
2
2
1
2
2
8
9
3
<< <
4
13
6
12
20
4
9
4
4
5
44
4
7
12
4
227
12
10
5
856
THE FOREIGN AID PROGRAMS
TABLE 12.-Number of indirect employees for every hundred direct employees,
by industry—Continued

Industries shipping aid commodities
dd
ee
ff
gg hh
jj kk
11
27
94
84
84
130
Total indirect…………….
a. Bread grains (manufactured, wheat
flour)
c. Rice (manufactured, milled, polished
rice).
d. Other grain preparations (manufac-
tured).
e. Fats and oils (manufactured).
f. Feeds and fodder (manufactured).
g. Dairy products (manufactured)
i. Fruits and nuts (manufactured, canned,
preserved fruits).
j. Vegetables and preparations (manu-
factured, canned, frozen, etc.).
k. Fish and products
canned, frozen, etc.).
1. Meats (manufactured)
(manufactured,
m. Sugar and related products (manufac
tured)..
o. Miscellaneous
agricultural
(manufactured).
products
p. Fertilizer (including fertilizer minerals).
s. Tobacco and tobacco products.
t. Chemicals and related products (manu-
factured).
u. Lumber and wood products (manufac-
tured)..
v. Hides, skins, leather and leather prod-
ucts (manufactured).
w. Paper and allied products (manufac-
tured).....
I. Textile products (manufactured).
174 117 202 30
2
3
5
4
2
1
2
3
4
5
1
2
1
1
8
1
3
y. Crude oil and petroleum products……---
z. Coal and related products..
1
6
125
28
112
1
1
2
1
1112
12
1
1
1
1
12
2212
aa. Iron and steel mill materials and prod-
ucts (including ferroalloys).
4
4
LO
5
4
1
26
26
26
bb. Copper and copper products (including
brass and bronze).
cc. Zinc and zinc products..
14
dd. Lead and lead products.
13
ee. Aluminum and aluminum products.
ff. Other nonferrous metals and products...
gg. Metallic ores and concentrates.
343000
5
5
7
6
30
6
14
51
4 72
081888
9
3
1
21
21
25
6
1
5
2
1
1
1
1
1
1
CHHS yol pol
1
1
4
1
1
hh. Nonmetallic minerals (excluding ferti-
lizer minerals) and products...
3
1
4
7
2
2
2
2
JJ. Construction, mining, conveying equip-
ment...
1
1
kk. Metal working machinery...
1
ll. Machine tools…….
mm. Electric equipment..
1
nn. Generators and motors………
00. Engines and turbines..
pp. Industrial machinery (not elsewhere
classified)
2
2
3
qq. Tractors…..
rr. Agricultural machinery (except tractors).
88. Motor vehicles, engines, and parts..
3324EL 021
6
6
6
1
1
16 11 11
1
1
1
1
---~--
212011 ===
201OIT HE
1
1
1
27
1
1
7
1
1
tt. Aircraft engines and parts.
uu. Other transportation equipment..
vv. Miscellaneous industrial products..
1
1
2
1
1
1
4
3
3
10
aaa. Agriculture.
ccc. Transportation..
ddd. Trade..
eee. Services..
bbb. Electric light and power.
2
2
---
12
9
15
10
11
12
5
5
2426
1422
454
1321
464
444
5
4
1987
THE FOREIGN AID PROGRAMS
857
TABLE 12.-Number of indirect employees for every hundred direct employees,
by industry-Continued

Industries shipping aid commodities
Total indirect….
a. Bread grains (manufactured, wheat
flour).
c. Rice (manufactured, milled, polished
rice).
d. Other grain preparations (manufac-
tured).
e. Fats and oils (manufactured)
f. Feeds and fodder (manufactured).
g. Dairy products (manufactured).
i. Fruits and nuts (manufactured, canned,
preserved fruits).
J. Vegetables and preparations (manufac-
tured, canned, frozen, etc.).
k. Fish and products
canned, frozen, etc.)
1. Meats (manufactured)
(manufactured,
m. Sugar and related products (manufac-
tured)..
agricultural
o. Miscellaneous agricultural
(manufactured)
products
p. Fertilizer (including fertilizer minerals).
s. Tobacco and tobacco products.
t. Chemicals and related products (manu-
factured).
u. Lumber and wood products (manufac-
tured)
v. Hides, skins, leather and leather prod-
ucts (manufactured).
nn
00
pp qq
IT
89
tt
uu
80
80
94
260
94
260
77
117
96
2
2
1
3
1
3
1
5
2
2
2
3
2
3
2
2
7
w. Paper and allied products (manufac-
tured)..
1
1
x. Textile products (manufactured)
y. Crude oil and petroleum products.
1
z. Coal and related products..
2
3337
4
aa. Iron and steel mill materials and prod-
ucts (including ferroalloys)…….
20
20
26
90
bb. Copper and copper products (including
brass and bronze).
cc. Zinc and zinc products..
dd. Lead and lead products.
ee. Aluminum and aluminum products...
ff. Other nonferrous metals and products...
gg. Metallic ores and concentrates.
hh. Nonmetallic minerals (excluding fer-
tilizer minerals) and products..
jj. Construction, mining, conveying equip-
ment...
3
3
3
1
1
1
1
1
1
2
2
2
1
1
1
2
2
1
1112
12
821514
311211
8 021514
1
1
1
2
26
8
3
3
2
4
2
1
1
kk. Metalworking machinery.
11. Machine tools...
mm. Electric equipment..
1
1
11
11
nn. Generators and motors...
oo. Engines and turbines..
pp. Industrial machinery (not elsewhere
classified)………….
qq. Tractors..
rr. Agricultural machinery (excluding trac-
tors)..
ss. Motor vehicles, engines, and parts..
tt. Aircraft, engines and parts...
5
1
3324 pat yr
15
1
1
**
4
4
16
02
20
**2422 22
14
~32+I1 #2
90
3437 8
2
3
1
1
1
3
77130
3
17
32
5
33
2
1
4
15
اهر
4
4
1
2
1
1
1
4
1
1
1
142422 20
1
1
2213
1
9
2
1
1
2
1
2
1
14
14
1
6
12
2
uu. Other transportation equipment..
vv. Miscellaneous industrial products..
1
1
17
4
4
4
13
4
13
7
6
31
aaa. Agriculture.
bbb. Electric light and power..
ccc. Transportation...
ddd. Trade.
eee. Services.
454
4
5
4
454
16
5
9
4
10
434
16
4
7
5
9
3
5
10
4
4
LO O LO
5
9
Source: Special Tabulation, Salant, Walter S., Brookings Institution. Mr. Walter S. Salant was kind
enough to provide some results of a study he is currently conducting and which will be published shortly
by Brookings Institution.
Derivation: The number of persons directly engaged in producing the commodities which compose for-
eign aid are not a complete measure of the employment necessary to obtain these goods. For, most goods
consume various materials, supplies, and services which in turn require employment at earlier stages of
production. Measures of such indirect employment created by each producing sector are theoretically
possible to derive with use of an inter-industry-relations table. Mr. Salant has gone through the arduous
task of determining the direct and the indirect employment created in each industry in the economy by
$1 million worth of exports by each of 72 selected industries. There are admittedly a number of "approxi-
mations" in the Salant results, arising from certain properties of the basic inter-industry-relation table
858
THE FOREIGN AID PROGRAMS
available to Mr. Salant. Perhaps the most important of these "approximations" from our standpoint is
that the basic interindustry data relate to 1947, since which time there may have been important structural
changes in the economy and that the data do not permit including the indirect effects which we transmitted
through household consumption, capital formation, and government expenditures.
It can be seen that the Salant data, stated in terms of indirect employment per million dollars of exports,
can be translated to indirect employment per every hundred people directly employed simply by dividing
each industry's indirect employment by the employment creating industry's direct employment and
multiplying by 100. This was done in order to derive table 12. However, a number of "peculiarities” in
table 12 must be pointed out.
First, it will be noted that a number of industries which export aid products do not appear as column
industries in table 12. These are all the agricultural industries except vegetables and preparations, and the
manufacturing industries feeds and fodder, eggs, fruits and nuts, fish and products, fertilizer, crude oil and
petroleum products, coal and related products, and ordnance. These industries do not appear because they
were not included in the Salant list of 72 industries. While the indirect employment which these industries
generate is not determined, the direct employment which they create appears in table 13.
In deriving the indirect employment estimates for the column industries, it was necessary to aggregate and
disaggregate various of the Salant industries to conform with our classification system. This was done by
using the proportion which a component industry's aid shipments was of the total aid shipments of the
group as a weight in these cases where aggregation was necessary; in the more numerous instances of dis-
aggregation the ratio of a component industry's exports to the total of the group exports was used as a weight,
since the detailed information on aid shipments was not available. In addition, the Salant information did
not provide sufficient data to determine the indirect employment created by the metal industries—lines
bb and ff. The estimates for these columns were derived through direct use of the interindustry inverse
table.
It has already been noted that the indirect employment created by transactions through the household,
government, and capital sectors are not included in our results. In addition, there are other factors leading
to an underestimate of the total of indirect effects. When indirect employment generated in a given in-
dustry was small these effects were not calculated in order to conserve research time. However, when such
effects in each industry are cumulated their sum may be a perceptible amount. These instances can be
observed in those cases in table 12 where the sum of the components of any column is less than the "total
indirect" figure in each column. Secondly, and more important, Mr. Salant excluded the indirect effects
upon certain of the agricultural industries on the grounds that the Government purchase program would
guarantee employment in these sectors regardless of the level of demand in the open market. As a conse-
quence, table 12 must also exclude the indirect effects moving through these agriculture sectors. The
agriculture line aaa contains only the indirect effects on the meat animals and products, poultry and eggs,
and farm dairy products industries.
In computing the table 12 estimates, it was necessary to aggregate and disaggregate certain of the Salant
row industries in order that they conform with our classification system. In the cases of aggregation, no
problem arises since the Salant data are constructed in such a way that simple addition of the necessary
component lines is all that is necessary. In the few cases of disaggregation, it was necessary to use weights
in order to allocate the component parts properly. The weights used were the ratio of United States pro-
duction of a component part to the total production of the group.
It will be noticed that certain of the industries appear to be "missing" from the line descriptions. None
of the agricultural industries is specifically identified. These, as indicated above, appear either as a part
of the agriculture line aaa, or are absent entirely. In addition, the manufactured eggs industry (line h)
and the ordnance industry (line ii) could not be separately identified. If there is any indirect effect on these
industries it would be included within one of the other industries specified.
Special consideration was given to the transportation industry line ccc. The employment generated in
the ocean freight industry can be considered either an indirect employment generated by the movement of
the aid commodities or it can be considered the direct employment resulting from the payments to the ocean
freight industry in order to move the aid commodities. In the former case, the effects of the cargo preference
legislation would be ignored; in the latter case, some minor parts of the indirect effects on the ocean freight
industry would be ignored. It was therefore desirable to treat the effects on the ocean freight industry as
being a direct employment effect (see table 13). This required making some adjustments in the transporta-
tion sector line in order to subtract the indirect employment created in the ocean freight industry. A
formula was devised and the necessary adjustments made so that line ccc actually represents all transpor-
tation industries exclusive of the ocean freight component.
THE FOREIGN AID PROGRAMS
859
TABLE 13.—Direct and indirect employment created by the 1955 foreign aid program
a. Bread grains:
[Hundreds of employees]

(1) Agricultural (wheat, rye) ¹_
(2) Manufactured (wheat, flour)...
b. Coarse grains (agricultural: barley, oats, buckwheat, sorghum) ¹_
c. Rice:
(1) Agricultural (rough rice) ¹.
(2) Manufactured (milled, polished rice)
d. Other grain preparations (manufactured)..
e. Fats and oils:
(1) Agricultural (peanuts and oilseeds) ¹.
(2) Manufactured…………
f. Feeds and fodder:
(1) Agricultural (hay) ¹………
(2) Manufactured...
38
g. Dairy products:
(1) Agricultural (fresh milk) ¹.
(2) Manufactured…….
88
h. Eggs:
(1) Agricultural (in shell) ¹.
(2) Manufactured…………
1. Fruits and nuts:
(2) Manufactured (canned, preserved fruits).
(1) Agricultural (nuts, fresh fruits) ¹
j. Vegetables and preparations:
(1) Agricultural (fresh vegetables) ¹_
(2) Manufactured (canned, frozen, etc.).
k. Fish and products:
(2) Manufactured (canned, frozen, etc.).
1. Meats (manufactured)
m. Sugar and related products (manufactured)..
n. Seeds, not oilseeds...
o. Miscellaneous agricultural products:
(1) Agricultural (livestock) ¹.
(2) Manufactured.
p. Fertilizer (including fertilizer minerals) and products....
q. Raw cotton (agricultural) ¹.
r. Raw wool (agricultural)
s. Tobacco and tobacco products:
(1) Raw tobacco (agricultural) 1
(2) Tobacco products (manufactured).
t. Chemicals and related products (manufactured).
u. Lumber and wood products (manufactured).
v. Hides, skins, leather and leather products (manufactured)
Direct Indirect
Total
32
4
36
42
5
1
5
1
3
LO
5
10
3
2
4
10
1
1
10
10
1
11
231
2
4
7
3
4

4
4
8
13
1
14
3
2
5
89
72
161
27
81
108
19
4
23
----
w. Paper and allied products (manufactured)…….
22
69
91
x. Textile products (manufactured)
86
47
133
y. Crude oil and petroleum products...
31
25
56
z. Coal and related products...
52
63
115
aa. Iron and steel mill materials and products (including ferroalloys).
138
526
664
bb. Copper and copper products (including brass and bronze).
14
63
77
cc. Zinc and zinc products..
20
20
dd. Lead and lead products.
10
10
ee. Aluminum and aluminum products…….
1
45
46
ff. Other nonferrous metals and products..
gg. Metallic ores and concentrates..
hh. Nonmetallic minerals (excluding fertilizer minerals).–
ii. Ordnance.
3
10
13
1
46
47
33
46
79
131
131
jj. Construction, mining, conveying equipment.
205
29
234
kk. Metalworking machinery.
18
29
47
11. Machine tools..
13
13
26
mm. Electric equipment..
183
128
311
nn. Generators and motors.
17
10
27
oo. Engines and turbines..
22
10
32
pp. Industrial machinery (not elsewhere classified).
126
142
268
qq. Tractors.
47
15
62
rr. Agricultural machinery (except tractors).
13
11
24
ss. Motor vehicles, engines, parts.
143
35
178
tt. Aircraft engines, and parts.
650
79
729
uu. Other transportation equipment.
vv. Miscellaneous industrial products.
30
9
39
158
189
347
aaa. Agriculture...
bbb. Electric light and power...
I See line aaa.
988
19
1
1,007
1
860
THE FOREIGN AID PROGRAMS
TABLE 13.-Direct and indirect employment created by the 1955 foreign aid
program-Continued
ccc. Transportation.
ddd. Trade..
eee. Services..
fff. Unallocated…….
ggg.
Total....
[Hundreds of employees]

Direct
Indirect Total
183
157
340
129
129
40
132
132
110
110
3,579
2,403
5,982
NOTE.-Table 13 shows the direct and indirect employment created by the 1955 aid program under the
assumption that the aid commodities would not otherwise be produced.
The direct employments for any given year can be determined by multiplying the total value of com-
modities shipped as aid (table 6) by the ratio of total employment to total production in that industry, if
it is assumed that the commodities shipped as aid have the same productivity ratios as the same com.
modities consumed domestically. This is equivalent to multiplying each industry's ratio of aid to pro-
duction (table 10) by that industry's total employment (table 11) for any given year. This procedure was
followed for the 1955 estimates for all industries in table 13 except the transportation and service industries.
In this case, as noted in table 12, only the ocean freight component of the transportation industry was con-
sidered to involve a direct employment. The direct transportation employment in line ccc was derived
by multiplying the ratio of employment to output in the ocean freight industry (as obtained from the
statistical abstract) by the foreign aid funds paid to the ocean freight industry (table 6). Direct employ.
ment in the service sector relates to the employment of technicians, scientists, etc. This estimate was made
directly from information provided in the International Cooperation Administration operations reports.
It will be noticed that the direct employment in specific agricultural industries is not identified. Line
aaa shows the direct employment in all agricultural sectors, as obtained by multiplying the total aid pro-
vided in the form of agricultural commodities by the ratio of total United States agricultural output to
employment.
Table 12 shows, for most of the industries directly supplying aid commodities, the indirect employment
in each industry in the economy which is a consequence of 100 persons directly employed in that industry.
If, therefore, the elements of each column of table 12 are multiplied by the direct employment necessary to
produce the aid commodities of the column industry (line 1, table 13), and then divided by 100, we obtain
the indirect employment created in each industry by each of the industries which were shipping aid com-
modities. In order to arrive at the total of any industry's indirect employment created by the 1955 aid pro-
gram we take the sum of all of the indirect employment created in that industry by each of the commodity
aid industries (1. e. the sum of the line elements). These indirect employments are shown in column 2 of
table 13.
It should be emphasized that while table 12 is independent of any given aid program, table 13 is not. That
is, table 13 shows the indirect employment created by the 1955 aid program; table 12 shows certain structural
relationships between industries which, on the assumption that these relationships do not change from year
to year, can be applied to any assumed or historical aid program in order to obtain the indirect employment
created by that program.
Since the indirect employment estimates were obtained from table 12, they have all the limitations and
underestimates of table 12. As was noted in table 12, the indirect employment created by certain of the
industries shipping aid commodities could not be determined. As a consequence, our indirect employment
estimates in table 13 do not contain these components. It was also seen in table 12 that the indirect employ-
ment in the agriculture industry line aaa refers only to the meat animals and products, poultry and eggs,
and farm dairy products industries. This is in contrast to the direct employment in line aaa, which includes
all agricultural industries. Table 12 excluded the specific industry effect when these effects were judged
too small to calculate. The sum of the ignored effects, however, were included in the “total indirect"
effect, line of table 12. Line ggg of table 13 shows all the sum of these unallocated employment effects for
the 1955 aid program.
In the derivation of both the direct and indirect employments it was decided to estimate only that employ-
ment currently created. Therefore, the foreign aid program which was considered relevant was that pro-
gram excluding the aid commodities shipped which were withdrawn from surplus or excess stocks (table 6).
THE FOREIGN AID PROGRAMS
861
6
85
5
78
Illinois..
New Jersey-
New York.
Pennsylvania.
Texas...
1
TABLE 14.-1953 State employment as a percent of the national employment, by
Industry
a. Bread grains (mfg.):
California..
I
1
1
1
1
1
·
I
1
industry
Percent
Illinois_-.
Massachusetts……….
Michigan...
Minnesota..
Missouri...
New Jersey..
New York.…….
Ohio...
Pennsylvania.
Texas
c. Rice (mfg.):
California
Illinois_-
Massachusetts....
Michigan...
Minnesota_.
Missouri
New Jersey.
New York...
Ohio....
Pennsylvania..
Texas__
1
d. Other grain preparations
(mfg.):
California..
Illinois...
Massachusetts..
Michigan..
Minnesota...
Missouri...-
New Jersey.
New York...
Ohio....
Pennsylvania.
Texas__
e. Fats and oils..
1
f. Feeds and fodder (mfg.):
California
Illinois_-_
Massachusetts....
Michigan..
Minnesota__
Missouri..
New Jersey.
New York..
Ohio.__.
Pennsylvania...
Texas
g. Dairy products (mfg.):
California....
Illinois...
Iowa..
Michigan...
Minnesota..
New York...
Ohio...
Pennsylvania..
Wisconsin…….
Not available.
1
1
I
I
1
I
78
3
5
2
4
3
11
6
8
LO
5
78
3
5
2
4
3
11
Industry
h. Eggs (mfg.):
California...
Illinois_-
Iowa...
Michigan.
Minnesota.
New York.
Ohio...
Pennsylvania.
Wisconsin...
i. Fruits and nuts (mfg.):
California..
Florida..
Illinois.
New Jersey.-
New York.
Pennsylvania....
Texas__
1
!!!!
I
1
t
Percent
1
1
j. Vegetables and preparations
(mfg.):
California
Florida...
4
7
4
4
7
-7663
5
13
19
9
6
6
8
4
3
5
2
4
3
11
6
8
5
(1)
LO
~
8
3
2
3
11
6
8
5
7
4
4
7
6
5
13
k. Fish and products (mfg.):
California..-
Florida__
Illinois.
New Jersey--
New York..
Pennsylvania..
Texas
1. Meat products (mfg.):
California...
Illinois...
Iowa....
Kansas...
Minnesota___
Missouri...-.
Nebraska
New York.
Ohio....
Pennsylvania.
Texas__
Wisconsin.
I
I
1
1
1
I
·
I
19
9
6
6
8
4
19
9
6
8
5
4
13
ocer
5
9
4
6
4
5
4
4
553
4
m. Sugar and related products…… (¹)
o. Miscellaneous agricultural
products...
p. Fertilizer_
s. Tobacco and products (mfg.):
Florida..
Kentucky..
New Jersey.
North Carolina…….
Pennsylvania..
Virginia...
CC
10
11
5
24
19
14
862
THE FOREIGN AID PROGRAMS
Table 14.—1953 State employment as a percent of the national employment, by
industry-Continued
Industry
t. Chemicals and products
(mfg.):
California....
Illinois.
Michigan..
New Jersey-
New York..
Ohio-----
Pennsylvania.
Tennessee.
Texas...
Virginia__
1
1
I
1
u. Lumber and wood products
(mfg.):
Alabama.
Arkansas
California.
Florida..
Georgia...
Illinois_
Indiana...
Louisiana..
I
1
J
1
I
Massachusetts.
Michigan....
Mississippi....
New York..
North Carolina…….
Ohio...
Oregon...
Pennsylvania………
South Carolina..
Tennessee..
Texas...
Virginia
Wisconsin....
Washington.___
v. Leather and leather products
(mfg.):
Illinois_
I
1
1
·
I
Maine..
Massachusetts.
Missouri..--
New Hampshire.
New York....
Ohio....
Pennsylvania.
Tennessee.
Wisconsin
1
1
1
I
I
w. Paper and allied products
(mfg.):
California..
Florida....
1
Georgia....
Illinois_
Louisiana...
Maine____
Massachusetts……….
Michigan..
Missouri..
New Jersey.
New York...
Ohio-----
Pennsylvania.
Virginia__
Washington...-
Wisconsin.
I
1
1
1
1
Percent
575
11
10
6
7
7
5
6
43725323
1
3
3
6
3
3
3
3
3
3
6
Industry
x. Textile products (mfg.):
Alabama...
Georgia.....
Massachusetts....
New Hampshire..
New Jersey-
New York....
North Carolina_.
Pennsylvania.
Rhode Island……….
South Carolina..
Tennessee_.
Virginia
·
y. Petroleum products (mfg.):
California.
Illinois_-
Indiana..
Kansas..
Louisiana_
New Jersey.--
Ohio.....
Oklahoma..
Pennsylvania.………
Texas...
z. Coal products:
Alabama...
California.
Illinois_-
Indiana_
Kentucky
Ohio....
Virginia
West Virginia..
Texas...
1
111
I
1
1
I
aa. Iron and steel and products:
Alabama...
California....
Connecticut....
Illinois__
6
5
18
11
5
17
4
9
3
5
~2203370263772
5
13
3
6
Indiana
Maryland.
Massachusetts.---
Michigan..
New Jersey.
New York...
North Carolina..
Ohio....
Pennsylvania.
Virginia__
Wisconsin....
bb. Copper and products:
California…….
Connecticut....
Illinois_-.
Indiana..
Massachusetts....
Michigan...
New Jersey...
New York..
Ohio___.
Pennsylvania….
Texas
Washington...
Wisconsin...
I
1
1
1
1
I
I
1
Percent
4
9
8
1
19
10
47RU423∞
12
9534
3
8
3
32
3
397
BBONN BI62121
4
4
25
2
5
2
10
6
2
2
9
3
8
1
NUNOONNO∞∞∞∞
14
18
1
2
6
6
11
4
2
8
5
9
11
10
3
2
2
THE FOREIGN AID PROGRAMS
863
TABLE 14.-1953 State employment as a percent of the national employment, by
industry-Continued
Industry
cc. Zinc and products:
California...
Connecticut.
I
1
1
1
I
1
1
1
Percent
6
1
Illinois_-.
Indiana....
Massachusetts.
Michigan..
New Jersey.
New York..
Ohio..
Pennsylvania..
Texas
Washington..
Wisconsin..
dd. Lead and products:
California
Connecticut...
Illinois_
Indiana…….
Massachusetts.
Michigan....
New Jersey--
New York..
Ohio___.
Pennsylvania.
Texas__
Wisconsin.
ee. Aluminum and products:
California.
Connecticut.
Illinois_-
Indiana.
Massachusetts.
Michigan__
New Jersey..
New York..
Ohio___.
Pennsylvania..
Texas
Washington...
Wisconsin.
ff. Other nonferrous metals and
products:
California..
Connecticut……….
Illinois_-.
Indiana..
Massachusetts.__
Michigan...
New Jersey.
New York___
Ohio.
Pennsylvania..
Texas...
Wisconsin
gg. Metallic ores
1
I
1
1
1
trates:
Alabama
Arizona.
Colorado....
Idaho___
Michigan...
Minnesota..
+
I
1
1
1
1
6
11
3
Industry
Percent
gg. Metallic ores and concen-
trates-Continued
Missouri.__.
Montana_.
New York...
Utah...
8 hh. Nonmetallic
6
9
11
10
322
6
6
11
5
2
5
6
9
11
10
1
2
6
5
10
5
377
5
10
9
9
3
products:
California.
Florida...
Illinois__
Indiana...
minerals and
Massachusetts.___
Michigan..
New Jersey.
New York....
Ohio.....
Pennsylvania..
Texas
West Virginia…….
ii. Ordnance:
California..
Connecticut____
Illinois__
Indiana...
Michigan..
Minnesota..
Missouri..
New York.
Ohio....
Texas..
Wisconsin.
1
1
I
1
I
1
1
I
jj. Construction, mining, and
conveying equipment:
California
Illinois_-_
Indiana...
23
3
6
Iowa..
Michigan.
Ohio....
Oklahoma..
Pennsylvania.
Texas__.
Wisconsin.
6 kk. Metal working machines:
11
5
2
5
6
9
11
10
12
17
Connecticut..
Illinois
Massachusetts.__.
Michigan...
New Jersey.
New York...
Ohio...
Pennsylvania
Rhode Island…….
Wisconsin...
11. Machine tools:
Connecticut..
Illinois_-_
Massachusetts...
Michigan...
New Jersey--
New York..
Ohio.....
1
|
1
and
concen-
5
11
5
1
1
1
4
11
I
I
I
1
1
1
I
1
I
1
4847
726
4
2
5
12
13
348234+*
374
7
6
5
18
9
5
4780HD
7
11
3
4
4
17
5
732
8
11
7
20
3
7
19
7
4
3
8
11
7
20
3
7
19
864
THE FOREIGN AID PROGRAMS
Table 14.—1958 State employment as a percent of the national employment, by
industry-Continued
Industry
1
1
Percent
7
1
11. Machine tools-Continued
Pennsylvania..
Rhode Island……….
Wisconsin__--
mm. Electrical equipment:
California
Illinois_-_
Massachusetts..
New Jersey..
New York...
Ohio...
Pennsylvania.
Wisconsin.
nn. Generators and motors:
California
Illinois..
Massachusetts..
New Jersey--
New York..
Ohio.....
Pennsylvania….
Wisconsin....
oo. Engines and turbines___
pp. Industrial machines, not else-
where classified:
California..-
1
I
1
1
1
1
1
I
43
6
15
9
11
13
9
11
4
6
15
9
11
13
9
11
4
(1)
Industry
rr. Agricultural machines (ex-
cept tractors):
Illinois_-
Indiana__.
Iowa.___
Kentucky
Michigan...
Minnesota.-.
New York___
Ohio...
Wisconsin
1
1
I
I
ss. Motor vehicles, engines, parts:
California..
Indiana...
Michigan..
Mississippi.
New York…….
Ohio.....
Pennsylvania..
1
tt. Aircraft, engines and parts:
California...
Connecticut.
Indiana__
Kansas..
1
1
Percent
42
250
12
4
4
4
2
4249
9
51
3
5
11
3
26
6
5
6
4
3
Connecticut.
Illinois_-_.
Indiana_.
Massachusetts...
Michigan_-_
New Jersey-
New York..
Ohio___
Pennsylvania.
Wisconsin
qq. Tractors:
Illinois__
Indiana
Iowa....
Kentucky...
Michigan.
Minnesota..
New York.
Ohio....
Wisconsin
I
I
1
I
1
I
I
I
1
1
I
+
3
10
6
7
9
7
9
15
10
Maryland..
Michigan
Mississippi.
New Jersey.
New York.
Ohio....
Pennsylvania.
Texas--
Washington…………
1
1
1
1
1
1
uu. Other transportation equip-
ment....
4 vv. Miscellaneous industrial prod-
42
Sert
12
4
4
4
2
4
9
ucts:
California..
Connecticut.
Illinois__
Indiana_.
Massachusetts____
Michigan...--
Minnesota.-
New Jersey.
New York
Ohio___
Pennsylvania...
Rhode Island…….
1
!!
93
6
4
(1)
6
5382
NO2LORTO-
1
6
25
7
10
1
Source: County business patterns, 1953, Department of Commerce, Department of Health, Education,
and Welfare.
Derivation: County business patterns shows estimates, by State and industry, of the number of em-
ployees subject to social security payment in March of 1953. These figures, for a number of reasons, are not
necessarily equivalent to the employment estimates provided by employment and earnings. It was felt,
however, that the data are sufficiently reliable to derive the proportionate distribution among States of the
total United States employment in each of the manufacturing industries.
The county business patterns industry data were first converted to the classification system used in this
report. When it was necessary to aggregate or disaggregate various of the industries, weights determined
by United States production data were used. The State proportions of the total within each industry were
then computed. Time did not permit computing the proportions for each State in each industry. The
proportion of only the relatively important States within each industry was derived. For most industries,
these included more than 60 percent of the total United States employment. The remaining employments
were small and evenly distributed among many States and therefore can be ignored in most cases. It will
also be noticed in table 14 that for several of the industries the State distribution of employment could not
be determined.
THE FOREIGN AID PROGRAMS
865
C mig
d mis
I mig
g mig
TABLE 15.-State and industry employment created by the 1955 aid
program
[In order to conserve space code letters have been used instead of industry description. See table 12 for industry which corresponds to code number]
V mig
t mis
U mig
h mis
i mis
I mig
K mfs
1 mfg
S mig
432
8 mfg
324
805
1, 127
Alabama.
Arizona...
Arkansas...
California.
252
35
21
35
4
16
190
209
38
35
Colorado..
Connecticut.
Delaware.
Florida..
90
99
18
Georgia..
Idaho..
Illinois...
288
40
24
40
28
60
66
12
91
Indiana..
50
216
540
1, 127
324
138
216
Iowa..
16
63
Kansas.
28
Kentucky.
55
Louisiana.
Maine.
Maryland.
Massachusetts.
108
40
Michigan...
180
25
Minnesota.
72
10
1939
9
15
15
25
6
10
47
16
28
Mississippi.
Missouri..
144
20
12
20
Montana..
Nebraska..
324
115
108
414
805
324
42
324
28
253
35
Nevada..
New Hampshire.
115
New Jersey.
108
15
9
15
60
66
12
25
1,771
New Mexico..
New York………..
396
55
33
55
7
28
80
88
16
28
1, 610
432
391
North Carolina.
120
648
North Dakota.
Ohio.
216
30
18
30
6
24
28
966
216
92
Oklahoma.---
Oregon
972
Pennsylvania….
288
40
24
40
5
20
50
55
10
35
95
1, 127
324
207
Rhode Island.
South Carolina.
324
South Dakota….
Tennessee.
1, 127
324
69
Texas
180
25
15
25
Utah..
Vermont.
Virginia..
Washington
West Virginia.
Wisconsin.
13
52
21
40
44
8
28
70
966
324
648
324
115

805
324

Wyoming.
998
THE FOREIGN AID PROGRAMS

TABLE 15.-State and industry employment created by the 1955 aid program-Continued
W
К
Alabama..
Ꭹ
532
ลง
aa
bb
сс
30
dd
ee
ff
gg
hh
ii
ཟ
jj
345
1,328
235
Arizona..
517
Arkansas..
California..
273
504
115
3, 320
462
120
60
276
78
553
393
1,638
Colorado.
235
Connecticut.
1,328
462
120
60
230
78
917
Delaware.
Florida..
182
158
Georgia..
182
1, 197
188
Idaho..
Illinois.
546
280
690
6, 640
847
220
110
460
143
474
524
2, 574
Indiana.
168
230
3,984
308
100
50
230
65
316
917
702
Iowa.
936
Kansas.
224
Kentucky.
1, 265
Louisiana.
273
448
Maine.
273
Maryland.
1, 328
Massachusetts..
637
1, 328
154
60
20
Michigan....
546
1,064
5, 976
616
160
280
138
26
158
50
322
65
517
237
786
936
Minnesota..
799
655
Mississsippi.
Missouri.
182
188
917
Montana.
376
Nebraska..
Nevada.
New Hampshire..
133
New Jersey
455
532
168
1,992
385
120
60
230
78
395
New Mexico.
New York.
1,183
931
5, 312
693
180
90
460
117
188
632
2,358
North Carolina.
2, 527
664
North Dakota.
Ohio.
637
168
460
9, 296
847
220
110
414
143
948
1,179
3,978
Oklahoma.
504
1, 170
Oregon..
Pennsylvania..
637
1, 330
392
11, 952
770
200
100
414
130
1,027
1,638
Rhode Island..
1,596
South Carolina.
South Dakota.
Tennessee------
399
Texas..
1,792
115
Utah..
231
60
10
138
13
316
524
3, 042
329
Vermont..
Virginia..
182
399
460
664
Washington.
273
154
40
92
West Virginia.
546
2,875
Wisconsin..
1,328
154
40
20
138
26
316
655
2,808



Wyoming.
THE FOREIGN AID PROGRAMS
867

Total
State em-
ployment
2,872
517
324
534
18, 954
1,735
34, 882
235
4,347
1,041
9, 971
813
kk
11
mm
nn
pp
qq
rr
88
tt
VV
5
Alabama.
Arizona...
Arkansas-
California.
Colorado.
Connecticut.
Delaware.
Florida.
1,866
162
1,072
376
208
804
94413—57——————56
Idaho...
Illinois..
517
286
4, 665
405
Indiana..
Iowa..
2,680
1,608
2,604
1,008
310
120
1,602
3, 645
2,776
694
744
288
Kansas.
Kentucky.
4,347
248
Louisiana.
96
Maine...
Maryland.
Massachusetts.
2, 916
1,919
188
30, 694
15, 265
2, 051
4,599
1, 664
1,045
388
4, 244
329
182
2,799
243
Michigan..
1,876
940
520
Minnesota.
2, 412
248
Mississippi.
248
96
95
96
9, 078
3,645
2,082
694
347
10, 726
30, 302
Missouri..
534
2, 187
Montana.
Nebraska.
Nevada..
2, 320
3,045
1, 764
376
35
New Hampshire.
New Jersey.
248
141
78
3, 421
297
New Mexico.
1,876
2, 916
2,082
17, 307
New York.…………
329
182
4,043
351
North Carolina.
2,412
1, 124
48
890
5,832
8, 675
North Dakota.
38, 249
3,959
Ohio.
893
494
2,799
243
Oklahoma.
4, 020
248
96
1,958
6, 561
2, 429
Oregon.
Pennsylvania..
329
182
3, 421
297
Rhode Island.
2, 680
534
2, 187
188
104
South Carolina.
3,470
347
South Dakota….
Tennessee-
39, 767
1, 674
972
34, 010
2, 235
324
1,919
12, 082
Georgia...
Texas.
Utah....
4,347
329
Vermont.
Virginia.
Washington.
3,065
West Virginia.
2,916
4, 123
Wisconsin.
3, 737
141
78
1, 244
108
1,072
558
216
Wyoming.
9, 111
868
THE FOREIGN AID PROGRAMS
t
TABLE 15.-State and industry employment created by the 1955 aid program-Continued
NOTE.-The effects of the 1955 foreign aid program on the employment in each State
were determined by multiplying the total employment (direct and indirect) in each in-
dustry, generated by the aid program (table 13) by the percents of total United States
employment in the industry accounted for by each State (table 14).
Table 15 is only approximate because of the use of a 1953 distribution of State employ-
ments in conjunction with a 1955 foreign aid program. It is felt, however, that the dis-
crepancy resulting from this approximation cannot be too large since the proportionate
distribution of employment among States can only change very slowly. More important
are the limitations of tables 13 and 14 which have already been noted. Table 13 under-
estimates the full effects on indirect employment by the foreign aid program. Table 14
does not show, for all agricultural and certain manufacturing industries, the proportionate
distribution of State employments. Therefore, the specific State employments created
by the aid shipments of these industries are not included in table 15. Table 14 also ex-
cludes the State employments in those industries where the State employs only a small
percent of the total United States industry employment. Such exclusion may be signifi-
cant for those States which, although employing only a small part of the total United
States employment in the industry, find that the industry's employment is a large part
of their total employment.
It will be noticed that the underlying assumption of table 15 is that the State partici-
pates in the production of each of the foreign aid commodities in the same proportion as it
participates in the production of that commodity for domestic consumption purposes.
This may not be the case. Interior States, because of transportation difficulties, may well
produce relatively less than the coastal States for foreign aid purposes. The estimates in
table 15 should be read with caution. In some instances, particularly the States with
small amounts of industry employment created, the estimating error is larger than the
indicated employment.
THE FOREIGN AID PROGRAMS
698

1
TABLE 16.—Annual average weekly earnings of nonsupervisory workers in nonagricultural ¹ establishments
[Dollars]
1948
1949
1950
1951
1952
1953
1954
1955
1956
c. Rice (manufactured, milled, polished) ¹.
a. Bread grains (manufactured; wheat flour) ¹.
b. Coarse grains (manufactured) ¹.
d. Other grain preparations (manufactured).
e. Fats and oils (manufactured) ¹....
f. Feeds and fodder (manufactured).
g. Dairy products (manufactured) ¹.
57.23
58.91
60.95
67.34
71.71
75.65
79.30
82.70
92. 20
53.62
56.01
58.03
65.85
69. 15
71.44
74.42
77.18
83. 28
50.39
51. 12
53.46
59.34
61. 51
64.89
68. 24
71. 14
74.20
51.01
54.98
57.21
64.54
67.62
69.30
71.87
74.25
78.50
52.26
54.61
56. 11
60.83
63.80
68.05
70.04
72.65
75.50
h. Eggs (manufactured) 13_
1. Fruits and nuts (manufactured, canned, preserved) 14
J. Vegetables and preparations (manufactured, canned, frozen,
etc.) 14
42.63
43.77
46. 81
53.21
54. 12
55. 76
56.82
58.65
71.39
k. Fish and products (manufactured, canned, frozen, etc.) ³_
(4)
(8)
(5)
44.40
45. 57
45.00
46.82
50.55
50.96
1. Meats (manufactured)
58.37
57.44
60.07
65. 78
70.30
74.57
76.86
83.16
89.03
m. Sugar and related products (manufactured).
50.24
54. 13
58.81
60.15
64.41
71. 18
73.01
77.17
83.80
n. Seeds, not oilseeds (manufactured) ¹.
o. Miscellaneous agricultural products (manufactured) ¹.
49.74
52. 17
54.99
57.11
60.35
63. 12
66.36
67.97
74.34
p. Fertilizer (including fertilizer minerals and products) (manu-
factured).
42.33
44.72
47.00
52.33
56. 23
59.36
61.48
63.75
67.32
q. Raw cotton (manufactured) ¹.
r. Raw wool (manufactured)
s. Tobacco and tobacco products (manufactured)
36.48
37.08
40.77
43.51
44.93
47.37
49.01
51.60
55. 61
t. Chemicals and related products (manufactured).
56. 23
58.63
62.67
67.81
70.45
75. 58
78.50
82.39
88. 17
u. Lumber and wood products (manufactured)
51.38
51.72
55. 31
59.98
63.86
65.93
66. 18
69. 29
74.39
v. Hides, skins, leather and leather products (manufactured).
41.66
41.61
44.56
46.86
50.69
51.65
50.92
53. 44
55.78
w. Paper and allied products (manufactured).
55.25
55.96
61. 14
65. 51
68.91
72.67
74.03
78.87
84.94
x. Textile products (manufactured)
45.59
44.83
48.95
51.60
53. 18
53.57
52.09
55.74
56.84
y. Crude oil and products (manufactured):
1. Crude petroleum products.
(4)
71.48
73.69
79.76
85.90
90.39
91.94
94. 19
107.87
2. Refining.
72.06
75.33
77.93
84.66
88.44
94. 19
96. 22
100.37
111. 10
z. Coal and related products:
1. Mining (bit.).
72. 12
63.28
70.35
77.79
78.09
85.31
80.85
96. 26
106. 40
2. Manufacturing.
58.56
61.07
62.85
69.39
73.74
78.81
80.93
86.31
96.08
aa. Iron and steel mill materials and products (including ferro-
alloys)
62.41
63.04
67.47
77.30
79.60
87.48
83.38
95.99
106.04
bb. Copper and copper products (including brass and bronze):
1. Mining.-.
65.81
63.96
72.04
2. Rolling, drawing and alloying.
60.42
59.29
70.24
70.76
76.49
85.37
81.20
93.31
94.69
cc. Zinc and zinc products: 8
1. Lead and zinc mining..
61.37
64. 79
66.64
76. 11
81.60
80.06
76.92
83.82
88.94
dd. Lead and lead products ³.
ee. Aluminum and aluminum products (rolling, drawing, and
alloying).
53.88
56. 21
59.99
64.22
69.95
77.74
79.79
86.09
94.83
See footnotes at end of table, p. 96.
870
THE FOREIGN AID PROGRAMS
TABLE 16.-Annual average weekly earnings of nonsupervisory workers in nonagricultural ¹ establishments-Continued
[Dollars]
1948
1949
1950
1951
1952
1953
1954
1955
1956
ff. Other nonferrous metals and products (manufacturing).
57.81
58.05
66.75
68.78
74.29
82.29
80.80
89.89
94.81
gg. Metallic ores and concentrates (metal mining).
60.80
61.55
65. 58
74.56
81.65
88.54
84.46
92.42
100.96
hh. Monmetallic minerals (excluding fertilizer minerals) (manu-
facturing mining and quarrying).
55. 31
56.38
59.88
67.01
71.10
75.99
77.44
80.99
89.77
ii. Ordnance.
57.20
58.76
64.79
74.12
77.47
77.90
79.60
83.44
93. 41
jj. Construction, mining and conveying equipment.
60.33
58.74
65. 97
75.82
77.61
79.42
79. 17
86.92
92. 42
kk. Metal working machinery..
62.94
61. 11
71.54
85.93
91. 87
96.64
92.87
98. 10
110. 45
11. Machine tools...
61.57
59.15
69. 72
84.85
89.96
94.92
89.03
95. 27
107.85
mm. Electric equipment (machinery, etc.).
55.30
56. 56
60. 21
65.25
68.80
71.81
72.44
76.52
82.41
nn. Generators and motors.
58.34
59.61
63.75
75.36
80.82
84.03
82.62
85.90
93.52
oo. Engines and turbines..
63.50
63. 13
69.43
79.55
82.68
85. 28
85. 65
91.08
96. 70
pp. Industrial machinery (not elsewhere classified).
59.78
59. 53
66. 33
77.08
79. 24
83.42
80.19
86.73
95. 22
qq. Tractors..
62.05
61.86
66.09
75.67
77.02
79.20
80.98
87.53
91. 83
rr. Agricultural machinery (except tractors)
58. 62
59.93
62. 57
70.88
73.97
75. 20
76.03
79.80
84. 56
ss. Motor vehicles, engines, and parts..
61.86
65.97
73.25
75.45
82.82
87.95
88.91
97.78
99.06
tt. Aircraft, engines and parts...
61. 21
63.62
68.39
78.40
81.70
83.80
85.07
89.62
97.94
uu. Other transportation equipment..
58. 14
57.60
64. 44
68.53
73.02
73.49
71.94
77.83
79.35
50.39
50.23
54.04
57.67
61.50
64.06
64.24
67.40
71.10
vv. Miscellaneous industrial products.
1 Earnings data not available for agriculture.
* The 1956 figure is the September average.
• Not available as a separate item.
• Canned fruits and vegetables are combined.
'Not available.
Source: Bureau of Labor Statistics, U. S. Department of Labor.
Derivation: The basic data were first converted to our classification system and the

average weekly earnings then computed.

THE FOREIGN AID PROGRAMS
871

TABLE 17.—International Cooperation Administration and predecessor agency commitments and expenditures for development of
minerals overseas, by commodity, April 1948 through December 1955
[In millions of United States dollars or dollar equivalents]
A. Strategic-materials loans
B. Basic
materials
United
States
Local cur-
rency
program
loans United
C. Total
ICA loans
Total
States dollar
D. Grant
aid loans
projects
over 1,000
dollars
equivalents
E. Purchases
with ICA
local cur-
rency funds
F. 90 percent
country
counterpart
funds used for
metal and
other mining¹
Aluminum.
Asbestos..
10.6
28.0
38.6
2.4
41.0
1.5
.1
Bauxite------
Beryl, mica..
.1
12. 1
.1
12. 2
.1
12. 2
.9
.9
.9
Chrome ore and concentrates.
1.0
2.6
3.6
3.6
Cobalt.
.6
.6
.6
Columbium.
.3
.7
.9
.9
---
Copper.
14.3
14.3
1.4
15.7
Copper-cobalt.
Copper-lead..
1.7
.6
Copper-lead-zinc…….
.3
.2
62
2.2
2.2
.5
.5
Diamonds.
1.0
2.9
3.9
3.9
Fluorspar.
1.3
1.3
1.3
Lead and lead-zinc..
4.3
17.0
21.2
21.2
Manganese.
.1
.1
.1
Mullite.
.1
.1
.1
Tungsten..----
1.1
1.1
1.1
Tin..
1.6
1.6
1.6
Lead cadmium zinc.
2.3
2.3
2.3
Subtotal of strategic minerals development projects.
21.3
83.3
104.6
3.8
108.4
Iron ore-----
9.4
Other----
3.5
Port and harbor.
.9
1.4
2.3
7.9
10. 2
Railway construction.
Geological surveys.
Hydroelectric development.
Subtotal other projects.
Grand total..
Expenditures.
14.0
14.0
11.9
25.9
1.5
1.5
1.5
4. 5
4.5
2.4
15.4
17.8
24. 3
42. 1
23.8
98.7
122.4
28. 1
150.5
14.4
115.0
20.0
23. 2
97. 1
120.4
26.6
147.0
113.9
.5
1.6
2.1
1.5
3.5
1.1
Unobligated funds..
1 Exclusive of coal mining.
Source: International Cooperation Administration.
NOTE.-Table 17 shows the expenditures of aid funds devoted to the development of
minerals resources overseas.
872
THE FOREIGN AID PROGRAMS
Table 18.-Cumulative Economic Cooperation Administration and Mutual Defense
Assistance program, for metals Apr. 3, 1948 to June 30, 1951—Procurement
authorizations for purchases by 17 European nations by commodity group and
area of source
[In millions of dollars]

Total
Area of source (cumulative Apr. 3, 1948, to
June 30, 1951)
Commodity
Apr. 3,
Apr. 1,
1948
1951
United
Latin
Partici-
pating Other
through
through
States
Canada | America
coun-
coun-
June 30, June 30,
tries
tries
1951
1951
Copper..
360.9
10.7
113.7
106.3
109.7
27.3
4.0
Aluminum.
123.5
2. 4
3.2
120.3
Zinc………….
81.7
2.0
33.2
39.8
6. 3
.5
Lead..
58.3
.6
2.9
31.4
20.8
2.3
1.9
1.0
Other, including precious
metals.
38.0
3.5
27.4
4.9
1.1
3.8
6
Total, nonferrous metals
and products...
662, 4
14.4
180.4
302.8
137.9
33.9
7.5
Iron and steel products includ-
ing ferroalloys....
299.6
13.7
257.5
19.6
.9
20.3
1.2
Metallic ores and concentrates.
141.3
7.4
13. 1
38.7
87.4
2.1
Total...
1, 103. 3
35. 5
451.0
361. 1
226. 2
54. 2
10.8
Source: International Coperation Administration.
NOTE.-Table 18 shows the aid funds authorized for the purchase of metals and metal products from
both the United States and other countries.
THE FOREIGN AID PROGRAMS
873
Table 19.-Foreign aid in 1965
[In millions of dollars]
Model 1
Model 2
Model 3
Model 4
Model 5
Mili-
Non-
Mili- Non-
tary
mili- Total tary mili- Total
Mili-
tary
Non-
Mili-
tary
tary
mili- Total
tary
tary
Non-
mili-
tary
Mili-
Non-
Total
tary
mili- Total
tary
Total.
2, 154.3 4, 987.4 7,141.7 3, 310.1 3,831.6 7, 141.7 3, 102. 8 3,591. 6 6, 694. 4 2, 154.3 2,493.7 4, 648. 0
04, 648.0 4, 648.0
a. Bread grains.
b. Coarse grains...
c. Rice...
e. Fats and oils.
f. Feeds and fodder.
g. Dairy products..
22.3
181.0
203.3
34.2
139. 1
173.3
32. 1
130.3
162.4
22.3
90.5
112.8
0
168.7
168.7
15. 5
104. 2
119.7
23.8
80.0
103.8
22.3
75.0
97.3
15.5
52. 1
67.6
0
97.1
97.1
4.0
27.6
31.6
6. 1
21.2
27.3
5.8
19.9
25.7
4.0
13. 8
17.8
25.8
25.8
d. Other grain preparations-
2.0
9.0
11.0
3.1
6.9
10.0
2.9
6. 5
9.4
2.0
4. 5
6.5
0
8.4
18.4
22.9
258.4 281.3
35. 2
198.6
233.8
33.0
186. 1
219.1
22.9
129.2
152. 1
0
240.8
240.8
3.4
16.0
19.4
5.2
12.3
17.5
4.9
11.5
16.4
3.4
8.0
11.4
0
14.9
14.9
253.4
253.4
194.7
194.7
182.5
182. 5
126. 7
126. 7
0
236. 2
236. 2
h. Eggs..
1. Fruits and nuts.
J. Vegetables and preparations..
k. Fish and products...
1.3
6. 2
7.5
2.0
4.8
6.8
1.9
4. 5
6. 4
1.3
3.1
4. 4
0
5.8
5.8
9.4
44. 4
53.8
14.4
34. 1
48.5
13.5
32.0
45.5
9.4
22.2
31.6
0
41.4
41.4
5.4
28. 2
33.6
8.3
21.7
30.0
7.8
20.3
28. 1
5.4
14. 1
19.5
0
26.3
26.3
1.3
6.2
7.5
2.0
4.8
6.8
1.9
4.1
6.0
1.3
3.1
4.4
0
5.8
5.8
1. Meats (manufactured).
4.0
18.2
22.2
6.1
14.0
20.1
5.8
13. 1
18.9
4.0
9.1
13. 1
17.0
17.0
m. Sugar and related products..
1.3
6. 2
7.5
2.0
4.8
6.8
1.9
4.1
6.0
1.3
3.1
4.4
5.8
5.8
n. Seeds, not oilseeds (agricultural).
.7
3.2
3.9
1.1
2.5
3.6
1.0
2.3
3.3
.7
1.6
2.3
0
3.0
3.0
o. Miscellaneous agricultural products.
4.0
18.8
22.8
6. 1
14. 4
20.5
5.8
13.5
19.3
4.0
9.4
13.4
0
17.5
17.5
p. Fertilizer (including fertilizer minerals and
products)
3.4
60.0
63.4
5. 2
46. 1
51.3
4.9
43.2
48. 1
3.4
30.0
33. 4
q. Raw cotton (agricultural).
23.0
165.8
188.8
35.3
127.4
162. 7
33. 1
119.4
152.5
23.0
82.9
105.9
г. Raw wool (agricultural)
.4
2.0
2.4
.6
1.5
2.1
.6
1.4
2.0
.4
1.0
1.4
0
8. Tobacco and tobacco products..
20.9
95.2
116. 1
32.1
73.1
105. 2
30. 1
68.6
98.7
20.9
47.6
68. 5
----
0
55.9
55.9
0 154.6
154.6
1.9
1.9
0 88.7
88.7
t. Chemicals and related products (manufac-
tured)..
49.2
263. 2
312.4
75.6
202. 2
277.8
70.9
189.5
260.4
49.2
131.6
180.8
0
245.3
245.3
u. Lumber and wood products (manufactured)-
v. Hides, skins, leather products (manufac-
tured)
8.1
44.8
52.9
12.4
34.4
46.8
11.7
32.3
44.0
8.1
22.4
30.5
0
41.8
41.8
5.4
28. 2
33.6
8.3
21.7
30.0
7.8 20.3
28.1
5.4
14. 1
19.5
0
26.3
26.3
w. Paper and allied products (manufactured).
x. Textile products (manufactured)..
14.2
66.6
80.8
21.3
51.2
73.0
20.5
48.0
68.5
14.2
33.3
47.5
0
62. 1
62. 1
24. 5
151.0
175.5
37.6
116.0
153.6
32.3
108.7
143. 0
24.5
75.5
100.0
0
140.7
140.7
y. Crude oil and petroleum products.
30.3
186. 4
216. 7
46.6
143. 2
189.8
43.6
134. 2
177.8
30.3
93.2
123.5
0
173.7
z. Coal and related products..
22.9
164.0
186.9
35.2
126.0
161.2
33.0
118. 1
151. 1
22.9
82.0
104.9
0
152.8
aa. Iron and steel mill materials and products….
58. 6
309.0
367.6
90.0
237.4
327.4
84.4
222. 5
306. 9
58.6
154. 5
213. 1
0
288.0
bb. Copper and copper products..
10.8
66. 6
77.4
16. 6
51. 2
67.8
15. 6
48.0
63.6
10.8
33.3
44. 1
0
62. 1
cc. Zinc and zinc products..
.8
.8
.6
.6
6
.6
.4
.4
0
.7
7
dd. Lead and lead products.
.2
.2
2
.2
.1
1
.1
2
2
ee. Aluminum and aluminum products.
.7
5.8
6. 5
1.1
4.5
5.6
1.0
4.2
5.2
.7
2.9
3.6
0
5.4
5.4
ff. Other nonferrous metals and products..
gg. Metallic ores and concentrates.
2.7
13.4
16. 1
4.1
10.3
14.4
3.9
9.6
13. 5
2.7
6.7
9.4
0
12.5
12. 5
2.0
9.4
11.4
3.1
7.2
10.3
2.9
6.8
9.7
2.0
4.7
6.7
8.8
8.8

874
THE FOREIGN AID PROGRAMS

TABLE 19.-Foreign aid in 1965-Continued
[In millions of dollars]
Model 1
Model 2
Model 3
Model 4
Model 5
Mili-
Non-
Mili-
Non-
Mili-
Non-
Mili-
Non-
Mili-
Non-
tary mili- Total
tary
mili- Total
tary
mili- Total
tary
mili-
Total
tary
mili-
Total
tary
tary
tary
tary
tary
hh. Nonmetallic minerals (excluding fertilizer
14.2
68. 4
82.6
21.8
52.5
74.3
20.5
49.3
69.8
14.2
34.2
48.4
0
63.7
63.7
minerals).
il. Ordnance.
411. 5
27.2
438.7
632.3
20.9
653. 2
592. 7
19.6
612.3
411.5
13.6
425. 1
0
25.3
Construction, mining, conveying equipment.
38. 1
152.0
190. 1
58.5
116.8
175.3
54.8
109. 5
164. 3
138. 1
76.0
114. 1
0
141.7
25.3
141.7
kk. Metalworking machinery.
8.4
33.4
41.8
12.9
25.7
38.6
12. 1
24. 1
36.2
8.4
16.7
25. 1
0
31. 1
31. 1
11. Machine tools..
6.4
24. 2
30.6
9.8
18. 6
28.4
9.2
17.4
26.6
6.4
12. 1
18.5
0
22.6
22.6
mm. Electric equipment.
154.3
155.8
310. 1
237. 1
119.7
356.8
222.2
112. 2
334. 4
154.3
77.9
232. 2
0
145. 2
145. 2
nn. Generators and motors.
7.1
32.0
39. 1
10.9
24. 6
35.5
10. 2
23.0
33.2
7.1
16.0
23. 1
0
29.8
29.8
00. Engines and turbines..
12. 2
47.2
59.4
18.7
36. 3
55.0
17.6
34.0
51.6
12. 2
23.6
35.8
0
44.0
44.0
pp. Industrial machinery, not elsewhere classi-
fled..
60.9
228.2
289. 1
93.6
175.3
268.9
87.8
164.3
252.1
60.9
114. 1
175.0
0
212.7
212.7
qq. Tractors.
26.3
92.6
118.9
40.4
71. 1
111.5
37.9
66.7
104.6
26.3
46.3
72.6
0
86.3
86.3
rr. Agricultural machinery (except tractors).
6. 1
28.2
34.3
9.4
21.7
31. 1
8.8
20.3
29.1
6. 1
14. 1
20.2
0
26.3
26.3
ss. Motor vehicles, engines, parts..
208.0
320.4
528. 4
319.6
246. 1
565.7
299.6
230.7
530.3
208.0
160.2
368.2
0
298. 6
298.6
tt. Aircraft, engines, and parts.
462.0
64.6
526. 6
709.9
49.6
759.5
665.4
46.5
711.9
462.0
32. 3
494.3
0
60.2
60. 2
uu. Other transportation equipment.
97.5
112.0
209.5
149.8
86.0
235.8 140.4
80.7
221. 1
97.5
56.0
153.5
104.4
104.4
vv. Miscellaneous industrial products.
ww. Ocean freight...
56.0
293.0
349.0
86.0
225. 1
311.1
80.7
211.0
291.7
56.0
146. 5
202.5
0
273. 1
273.1
34.3
482.0
516.3
52.7
370.3
423.0
49.4
347. 1
396. 5
34.3
241.0
275.3
0
449. 2
449. 2
IX. Services.
176.2
213.8
390.0
270. 7
164. 3
435.0
253.8
154.0
407.8
176.2 106.9 283.1
0
199.3
199.3
NOTE.-Table 19 shows the size and composition of five alternative projections of the
foreign aid program. These alternative projections are based on the following assump-
tions:
Model 1 assumes that by 1965 the economic aid component of the total aid is twice the
1955 level while the military aid component remains the same as the 1955 level. Model 2
assumes that by 1965 total aid has increased by the same amount as in model 1. However,
in reaching this total both the military and economic aid components are increased in
proportion to their respective shares in the 1955 aid program.
Model 3 assumes that both the economic and military aid components increase in pro-
portion to a projected increase of gross national product to 565 billion dollars.
Model 4 assumes the same foreign aid program as 1955.
Model 5 assumes the same foreign aid dollar volume as 1955 but that the total of aid is
economic aid with no military aid.
Derivation: The 1955 commodity composition within the military and economic aid
groups were used as the basis of the projections. Military, in this sense, relates only to the
Defense Department expenditures and does not include the defense support, develop-
ment, etc.. programs of the International Cooperation Administration. In 1955, military
aid was 46.3 percent of total aid, with 46.2 percent coming from current production and
0.1 percent from excess stocks; economic aid was 53.7 percent of total aid, with 48.7 percent
coming from current production or supplies, and 5 percent from surplus stocks.
In the 1965 projections, no distinction was made between surplus stocks and current
production so that the models can be interpreted either as there being no withdrawals
from stocks in this period or that the relationship between stock withdrawals and current
production remains the same as in 1955.
An examination of each of the industries in the military and economic components was
made to determine whether by 1965 the supply conditions of the industry would be such
as to warrant a greater or require a lesser share of the total aid than it showed in 1955.
No such cases were found, so that the 1965 models are projected on the basis of the 1955
proportion which each industry's ald shipments was of total economic aid on the one hand
and the total military aid on the other hand.
THE FOREIGN AID PROGRAMS
875
1939....
1940...
1941..
1946.....
1947..
1948.
1949_
1950......
1951...
1952.
1953.
1954...
1955...
TABLE 20.—United States oceangoing fleet (except military auxiliary)
[Vessel, 1,000 gross tons and over, in millions of deadweight tons]

End of year-
Total
Active Inactive Foreign
Domestic
trade i
trade
Number
Tons
1,385
11.6
9.9
1.8
2.9
6.9
1,233
10.5
9.6
.9
3.4
6. 2
1, 168
10.1
9.9
.2
4.1
5.8
4, 422
46.5
25.4
21.1
20.6
4.8
3,696
38.9
23.7
15.2
17.2
6.4
3, 410
36.5
16.6
19.8
11. 2
5.4
3,389
36.4
14.6
21.8
8.4
6. 2
3, 168
34.0
13. 4
20.6
7.6
5.8
3,373
36. 3
22.4
13.8
16.3
6. 2
3, 349
36.1
16.7
19.4
2 10.3
6.4
3,350
36.3
16. 2
21.0
• 10.3
5.9
3,255
35. 1
14.1
20.0
6.7
6.0
3, 154
34.2
13.6
20.6
6.9
6.0
1 Postwar, 60 percent of the active fleet was engaged in foreign trade, the reverse of the prewar situation.
• Includes 264 ships totaling 2.7 million deadweight tons operated by U. S. Government.
Includes 36 ships totaling 0.6 million deadweight tons, mostly tankers, engaged in foreign operation
and 313 ships of 3.3 million deadweight tons operated by U. S. Government.
Source: U. S. Maritime Administration.
NOTE.-Since it is estimated that foreign aid cargo constituted 25 to 30 percent of United States foreign
exports, it is assumed that the excess tonnage after 1948 compared to the 1939-40-41 period is directly attrib.
utable to our foreign aid programs.
TABLE 21.-Military Sea Transport Service, foreign aid cargo movements by sponsor,
program, commodity, and fiscal year-Fiscal years 1954, 1955, and 1956
[In measurement tons]

Commodity
Sponsor, program, and fiscal year
Total
Reefer Bulk Ammo General
Special Aircraft
Army:
Civilian aid:
1954...
1955..
1956.
Total..
Mutual defense assistance pro-
gram:
1954--
1955....
1956-----
Total....
Navy:
Mutual defense assistance pro-
gram:
1954.
1955.
1956......
Total..
Air Force:
Mutual defense assistance pro-
gram:
1954
1955...
1956.....
Total...
14
2,797 223, 615
33, 302
597
158, 109
12,006
319
191, 611
24,956
397, 124
250, 202
5 129, 873
1
78, 857
14, 297
223, 033
2,816 386, 790
917
428, 577
51, 259
870, 359
694
271, 263
416, 430
635, 876
585
3,756 1,328, 019
91, 944
245, 179
624, 874
1,145
192, 586
552, 598
556, 325
962, 582
1,302, 654
2,424
555, 793 |1, 214, 207 1,817, 075
3,756 3, 593, 255
1
18, 519
54, 113
78,946
50, 744
22
14, 172
202, 323
39, 599
24, 187
17,404
122
95, 384
9, 091
29, 409
10, 915
22,568
72, 105
145
41, 782
123, 121
114, 048
90,716
369, 812
42, 188
138, 844
56, 471
133, 218
370, 721
18, 764
154, 787
48, 580
190, 292
19
412, 423
28, 382
131, 547
42,383
527, 353
729, 684
19
89, 334
425, 178
147,434
850, 863 1,512, 828
876
THE FOREIGN AID PROGRAMS
TABLE 22.-Comparison between Economic Cooperation Administration/Mutual
Security Agency/Foreign Operations Administration/International Cooperation
Administration financed exports and total exports to International Cooperation
Administration European countries by period from April 1949 by category

[In thousands of long tons]

1951
1952
April July July July July July July
1949- 1950- 1951- 1952-
June June June June
1950
1953-
1954-
1955-
June
June
June
1953
1954
1955
1956
All vessel service:
Total exports...
International Cooperation Administra-
tion financed exports...
Percent International Cooperation Ad-
ministration to total.
29, 646
27,343
49, 470
25,099
20, 281 33, 185
53, 469
20, 212
9, 588❘ 13, 250
5,055
3,695
3,240
3,415
68
35
27
20
18
10
Dry bulk vessel service:
6
Total exports..
13, 586
16, 560 35, 330 13, 295
International Cooperation Administra-
8,907
20,635
39, 124
tion financed exports..
10,967
Percent International Cooperation Ad-
ministration to total…..
4,339❘ 10, 762
2,511
1,748
1,947
2,415
81
26
30
19
20
9
Liner vessel service:
6
Total exports...
13, 130
8,424
9,796
9, 125
International Cooperation Administra.
8,949❘ 10, 404
10, 895
tion financed exports.
7,607
4, 733
2,224
2,047
Percent International Cooperation Ad-
1,705
1,259
1,000
ministration to total..
58
56
23
22
19
12
9
Tanker vessel service:
Total exports..
2,961
2,358
4,333
International Cooperation Administra-
2,679 2,425
2,146
3,450
tion financed...
1,638
516
264
497
242
34
Percent International Cooperation Ad-
ministration to total……
55
22
6
19
10
2
0
Source: Census FT 985. April 1949-June 1952 Special Census Report to International Cooperation
Administration. International Cooperation Administration paid shipment tonnage figures.
TABLE 23.-Mutual Defense Assistance Program-Ocean shipments by type of
vessel and range
[In thousands of measurement tons)

Type of vessel
Range
Total
ocean
United States flag
commercial
shipments
Foreign
flag
U. 8. Gov.
ernment
operated
Tonnage Percent of
total
(1)
(2)
(3)
(4)
(5)
(6)
JUNE 30, 1956

Total........
12, 121
8, 247
68
2, 684
1,188
Scandinavian range….
United Kingdom-Ireland range………………
739
360
49
268
110
287
150
52
96
39
Bayonne-Hamburg range…….
Mediterranean area…………
Far East area….
Persian Gulf area....
South American area..
3, 110
2,000
64
939
170
4, 014
2,756
69
866
391
3,575
2,674
75
451
449
294
215
73
54
25
98
88
90
7
}
JUNE 30, 1955

Total.........
10, 650
7,171
67
2,524
954
Scandinavian range…….
719
347
48
261
110
United Kingdom-Ireland range…………
269
138
51
95
34
Bayonne-Hamburg range...
2,951
1,887
64
910
153
Mediterranean area…...
3,508
2,369
68
784
354
Far East area……………
2,927
2, 193
75
434
299
Persian Gulf area…….
185
156
84
29
South American area...---.
87
79
90
THE FOREIGN AID PROGRAMS
877
TABLE 23.—Mutual Defense Assistance Program-Ocean shipments by type of
vessel and range-Continued
[In thousands of measurement tons]

Type of vessel
Total
Range
ocean
United States flag
commercial
shipments
Foreign
flag
U. 8. Gov.
ernment
operated
Tonnage Percent of
total
(1)
(2)
(3)
(4)
(5)
(6)
JUNE 30, 1954

Total......
Scandinavian range………
United Kingdom-Ireland range………
Bayonne-Hamburg range…-----
Mediterranean area…….
Persian Gulf area...
Far East area...
8,965
6, 040
683
326
252
123
49
2,714
1, 782
66
2,954
1,926
65
2, 179
1,731
124
101
South American area……
54
47
5 798328%
67
2,173
751
48
246
110
94
34
842
89
701
326
258
190
22
Total......
Scandinavian range.
United Kingdom-Ireland range..
Bayonne-Hamburg range----
Far East area…….
Mediterranean area…………..
Persian Gulf area...
South American area….
Total........
Scandinavian range-
United Kingdom-Ireland range.
Bayonne-Hamburg range…….
Mediterranean area….
Persian Gulf area.---------
Far East area………-
Total…………….
Scandinavian range..
United Kingdom-Ireland range..
Bayonne Hamburg range..
Mediterranean area………….
Far East area……------
Persian Gulf area…………
Coastwise...
Total....
United Kingdom-Ireland range…-----
Scandinavian range..
Bayonne-Hamburg range.
Mediterranean area…….
Far east range………
JUNE 30, 1953

6, 615
4, 431
67
1, 659
524
567
245
43
217
104
192
78
41
84
29
2, 279
1,524
61
680
74
2,156
1,400
65
535
221
1,323
1, 106
84
120
96
83
67
80
16
11
8
71
3
JUNE 30, 1952

3,205
2,282
71
628
293
277
106
38
106
64
64
18
29
17
28
1, 265
912
72
323
29
1, 060
831
78
104
124
518
397
77
73
47
18
16
86
2
JUNE 30, 1951


1,290
1, 029
90
68
7
4
570
444
396
358
210
142
8 LIKES
80
206
54
76
17
4
64
2
78
108
17
90
26
12
67
47
20
13
11
84
2
1
0
1
JUNE 30, 1950



139
98
5
1
48
84
883-22
100
72
វីឌវីន ដ
31
8
2
23
3
85
8
100
878
THE FOREIGN AID PROGRAMS
APPENDIX II
(This outline was prepared by the staff of the special committee to
serve as a guide for the National Planning Association in preparation
of its report to cover subjects of interest to the committee.)
THE FOREIGN AID PROGRAMS AND THE UNITED STATES ECONOMY
This project will point out the impact of foreign aid programs on
the United States economy. It will consider favorable as well as un-
favorable effects. It will estimate the repercussions that are likely
to be felt in various segments of the American economy in the event
the aid programs are drastically curtailed or eliminated on the one
hand or substantially increased on the other. The study is designed
to assist the committee in determining what legislative action, if any, may
be desirable in the interest of reducing such harmful effects, and increasing
such beneficial effects on the domestic economy as may be derived from
foreign aid programs.
I. What do foreign aid programs cost the United States?
A brief survey of the monetary cost of the foreign aid programs to
the United States Government since the end of World War II and at
the present time. The section should deal with cost in the following
terms:
A. Percentage of national budget devoted to assistance.
B. Percentage of national income devoted to assistance.
C. Per capita cost to the taxpayers.
D. Other indicators.
II. What effect have the aid programs on American industry?
An analysis of the effect of the aid programs (all types) which would
throw light on the following matters:
A. Aid as a factor in total United States industrial production,
indicating quantitatively the types of American industries pro-
ducing any substantial amount of materials for the various aid
programs, and where such industries are located.
B. The significance of production for aid programs as a part
of total production of such industries which produce a substantial
amount for the aid programs.
C. An estimate of the byproduct effect of production for aid
programs on other industries not directly engaged in such
production.
D. Other indicators of adverse and beneficial effects of pro-
duction for the aid programs on American industry.
III. What effect have the aid programs on United States foreign
commerce?
An analysis of the effect of the aid programs which would throw
light on the following matters:
A. The part of total exports represented by shipments made
under the aid programs.
B. The effect of the aid programs on United States shipping.
C. An estimate of the effect of the aid programs on imports
into the United States (quantity, price, etc.).
D. Other indicators of adverse and beneficial effects of the aid
programs on American foreign commerce.
THE FOREIGN AID PROGRAMS
879
IV. What effect have the aid programs on United States agriculture?
A separate project will examine in detail the various problems re-
lated to American agricultural surpluses and the relation of Public
Law 480 to the total foreign aid program. This project will consider
briefly the effects of foreign aid programs upon agriculture (indicating
levels of surplus agricultural products at different periods since 1946)
with particular reference to answering the question, "Have foreign
assistance programs as such harmed or benefited American agriculture?"
V. What effect have aid programs had on United States labor?
An examination of the relationship of assistance programs to
American labor in terms of:
A. Levels of employment and unemployment.
B. Salary and wage levels.
C. Shortages of technical (or other) personnel as direct or
indirect result of production for assistance programs.
[NOTE.-A separate project will consider in detail the availability
of different categories of personnel for any possible expansion of
technical assistance programs.]
VI. What effect have aid programs had on the American consumer?
An examination of the effects of assistance programs as felt by the
American consumer, including:
A. Prices (supply-demand impacts).
B. As related to per capita consumption or standards of living.
C. Other adverse or beneficial effects on domestic consumption.
VII. What effect have aid programs had on supply of natural resources
available to the United States?
An examination of:
A. The effect upon natural resources available within the
United States, particularly those in short supply.
B. The direct and indirect effects resulting from the aid pro-
grams in increasing or decreasing world supplies of raw materials,
especially of strategic materials.
VIII. On balance, what effect will a substantial reduction or increase
in assistance have upon the United States economy?
An estimate of the impact of a reduced or an expanded magnitude
of foreign assistance with consideration both to beneficial and harmful
effects.
A. Fiscal effect. In terms of national and per capita income;
percentage of national budget; relation to price structure and
inflation; effect upon the individual taxpayer; other.
B. Effect upon industrial production.
C. Effect upon United States commerce.
D. Effect upon agriculture.
E. Effect upon the consumer.
F. Effect upon natural resources including strategic materials.
G. Effect upon labor (with particular reference to the effects
of an expanded technical assistance program upon labor.)
IX. In the event of a continuance of the aid program at the same level
as at present, a reduction in the amount expended, or a substantial in-
crease, what measures may be desirable to decrease the adverse effects and
increase the beneficial effects of foreign aid to the American economy?
!
STUDY NO. 10
THE MILITARY ASSISTANCE PROGRAM
OF THE UNITED STATES
TWO STUDIES AND A REPORT
BY
A SPECIAL CIVILIAN-MILITARY REVIEW PANEL
THE INSTITUTE OF WAR AND PEACE STUDIES OF
COLUMBIA UNIVERSITY
THE SYSTEMS ANALYSIS CORPORATION, WASHING-
TON, D. C.
MARCH 1957
881
SUMMARY OF CONTENTS
Page
Report of Civilian-Military Review Panel__
885
Military Assistance and the Security of the United States, 1947-56, a study
by the Institute of War and Peace Studies of Columbia University, New
York, N. Y_
903
Military Aid Programs, a study by the Systems Analysis Corp., Wash-
ington, D. C..
971
883
94413-57–
-57
:
REPORT OF
CIVILIAN-MILITARY REVIEW PANEL
885
Letter of transmittal_
CONTENTS
1
Page
889
891
895
900
Conclusions and recommendations_
Background paper:
I. Discussion of reasons for certain of the panel's conclusions and
recommendations___.
II. Matters not sufficiently covered by the two studies.. -
III. Points touched upon in the two studies on which panel did not
consider it appropriate or feasible to reach recommendations
or conclusions_
901
887
LETTER OF TRANSMITTAL
FEBRUARY 18, 1957.
The CHAIRMAN,
Special Committee To Study the Foreign Aid Program,
United States Senate, Washington 25, D. C.
DEAR MR. CHAIRMAN: In accordance with the request contained in
your letter of January 4, each of the members of the civilian-military
panel has reviewed the two military aid studies which were prepared
for the use of the special committee.
In addition to their individual consideration of the two studies, the
members of the civilian-military review panel, meeting as a group,
have considered the two studies at meetings held in Washington on
February 4, 5, and 16.
The review panel has reached certain unanimous conclusions and
recommendations with respect to the general subject with which the
two studies deal.
There are attached hereto the conclusions and recommendations of
the review panel, together with a background paper which discusses
in greater detail the reasoning on which these conclusions and recom-
mendations are based.
In reaching its conclusions and recommendations and in preparing
the background paper, the review panel, while it did not feel itself
limited by the two studies prepared for the special committee, has
necessarily centered its attention on these two studies-both because
it was these two studies that led to the establishment of the review
panel, and because of the time limitations which made it impossible for
the review panel to make an independent study of all of the many com-
plex facets of the military aid program. The panel did not attempt,
for example, to include within the scope of its review any evaluation of
the merits of strategic plans or specific United States attitudes with
respect to particular countries, for the special committee and other
appropriate committees of the Congress will have available the testi-
mony of officials of the executive branch accountable for these matters.
Similarly, while the panel recognizes the close interrelation that neces-
sarily exists among economic, political, and military considerations in
the overall planning of the aid program, it should be noted that the
panel did not attempt to include within the scope of its review any
detailed evaluation of the nonmilitary aspects of the foreign aid
program.
In connection with the preparation and submission of the attached
material, we wish to express our particular appreciation to Senator
Russell and Senator Saltonstall, who discussed with us the objec-
tives which the special committee had in mind in establishing the
review panel; to Carl Marcy, chief of staff of the Committee on
Foreign Relations, who discussed with us the two military aid studies
889
890
LETTER OF TRANSMITTAL
in the broader perspective of the overall review of the foreign aid
being conducted by the special committee; to Mr. Hanrahan and Pro-
fessor Fox, authors of the two studies, who met with us at our
request to answer our detailed questions about the studies; and to
Totton Heffelfinger, consultant to the review panel, who organized
the work of the panel and who was of major assistance at all stages
of the panel's consideration of this subject.
Respectfully submitted.
MARX LEVA.
Adm. ROBERT B. CARNEY, USN (Retired).
Gen. JOSEPH T. MCNARNEY, USAF (Retired).
Maj. Gen. GERALD HIGGINS, USA (Retired).
S. L.A. MARSHALL.
REPORT OF THE CIVILIAN-MILITARY REVIEW
PANEL
CONCLUSIONS AND RECOMMENDATIONS
1. Our ultimate objective, through the military aid program and
all other parts of our foreign and defense policy, is the achievement
of international peace and security.
2. Our more immediate objective, in furtherance of the best interests
of the United States, is to prevent the Soviet Union and its satellites
and associates from utilizing aggression, the threat of aggression, sub-
version, or economic infiltration to inflict Communist rule on other
countries.
3. The principle of military aid is sound. To date, the investment
of the United States in military aid programs has served materially
to stabilize the free world and discourage aggression.
4. For the years immediately ahead, and probably until such time
as a workable and thoroughly policed international disarmament pro-
gram comes into effect, the military aid program should be regarded
as an integral part of the defense program of the United States.
5. Up to the present time, there has been a tendency-both in the
executive branch and in the legislative branch-to deal with the mili-
tary aid program on a year-to-year basis. The result has been a lack
of adequately coordinated long-range programing. This deficiency
should be corrected by the executive branch, through increased em-
phasis on adequately coordinated long-range planning and analysis,
and by the legislative branch, through effective support of such long-
range planning and analysis.
6. Such support by the legislative branch should include the freeing
of some of the appropriations for the program from the 1-year
availability limitation to which such appropriations have heretofore
been restricted.
7. The long-range planning referred to above should, of course, be in
terms of meeting the threat to our national security and to interna-
tional peace which is posed by the military capabilities of the Com-
munist world. The point is perhaps an obvious one-and we make it
here only because of our feeling that this is a point which has received
inadequate attention in the otherwise excellent studies which we have
reviewed.
8. In connection with the making of long-range plans, both the
executive branch and the legislative branch should face up to the
possibility that the military aid program, rather than costing less in
future years, may cost more. This statement rests, not on any sug-
gested increase in the present level of forces, but on the maintenance
of the existing level of forces. In addition to the cost of providing
weapons and equipment for any new forces that may be added in the
future, the following three major categories of increased costs may be
encountered in maintaining the present level of forces:
891
892
THE MILITARY ASSISTANCE PROGRAM
(a) Providing new and more complex-and more costly-
weapons and equipment;
(6) Increased training and other personnel costs brought about
by the new weapons and equipment;
(c) Maintaining and replacing parts for old weapons and
equipment—an increasingly costly process, since only Western
Europe and Japan are industrially capable of providing replace-
ment spares, and in many cases we no longer have either stock-
piles or production lines for the weapons and equipment hereto-
fore furnished.
9. In connection with the possibility of increased costs referred to in
the preceding item, the panel feels that the following comment is in
order: There has been a tendency in recent months to assume that
modern weapons and increased mobility will make possible a major
reduction in the level of forces. This may ultimately prove to be the
case. But for the present, this would be a dangerous assumption on
which to proceed. Indeed, it is entirely possible, that, in terms of
the total forces required, including both combat and logistics, the
nature and complexity of modern weapons may necessitate more men
rather than less.
10. With respect to the military aid program as presently consti-
tuted, there is a need for designating some central point in the execu-
tive branch to evaluate the effectiveness of the program from a mili-
tary, political, and economic point of view. At the present time, the
International Cooperation Administration is charged with the func-
tion of coordinating the program, but this does not fulfill the above
need.
11. The planning cycle and implementing system as presently con-
stituted are ponderous mechanisms. Time-consuming, unnecessary
steps in both planning and implementation can and should be elimi-
nated. If the deficiencies noted in item 5 above are corrected, this
should be of major assistance in this regard.
12. Among other things, the ponderous nature of the present system
as referred to in item 11 above makes it extremely difficult to take rapid
emergency action when situations arise which require such action.
Procedures should be initiated to facilitate rapid emergency action in
appropriate cases.
13. The present system for detailed evaluation of the need for and
use of military equipment by recipient countries is satisfactory for the
NATO countries, but is unsatisfactory outside of NATO. The "an-
nual review" which in NATO has become a penetrating and effective
instrument to accomplish this purpose is probably not feasible in other
areas where there is not the same regional agreement on fundamental
objectives that characterizes NATO. In these other areas, however,
there is need for a more effective system of evaluation than presently
exists.
14. In terms of the effect on military aid policies of the continued
growth in the atomic and thermonuclear capabilities of the Soviet
Union, the views of the review panel are as follows:
(a) The growth of Soviet capabilities highlights the need to
further the progressive modernization of NATO forces;
(b) The growth of Soviet capabilities does not, however, elimi-
nate the need for armed forces equipped with conventional weap-
THE MILITARY ASSISTANCE PROGRAM
893
ons, both in NATO and elsewhere. Indeed, the possibility or
actuality of a thermonuclear stalemate may increase the need
for armed forces equipped with conventional weapons;
(c) Modernization and the maintaining of old equipment are
always normal and concurrent requirements. This must be rec-
ognized both in force-level planning and budgetary-support
planning;
(d) In evaluating the types of military aid to be supplied,
consideration should be given to the possibility that the United
States may use at least low-yield atomic weapons in any localized
war in which it might become involved.
15. Caution should be employed in accepting doctrinaire opinions
regarding "1-week wars," "trip-wires," and other concepts of a similar
nature which are referred to in the two studies. There are as yet no
proven criteria for such concepts and no substitutes for careful study,
full discussion, and mature deliberation on each issue.
16. In terms of the criteria which should be used as a guide in
supplying military aid, the views of the panel are as follows:
(a) It is a fallacy to believe that any given set of criteria can
have universal applicability. The detailed criteria that should
be utilized necessarily vary from one country to another, and
from one part of the world to another. The overriding criterion,
however, should always be: Will it further the best interests of
the United States?
(6) Within the framework of this overriding criterion, the
United States should, as a general proposition, supply to foreign
governments only that type of equipment that is best designed to
carry out approved military objectives-subject, however, to the
considerations outlined in items (c) and (d) below;
(c) It should be recognized that in some instances the type of
military aid provided to a given country is influenced not only
by military, but also political and economic considerations; with
the result that the United States sometimes supplies a foreign
government with equipment that is not solely suited to approved
military objectives;
(d) It should also be recognized that in some instances the
situation described in (c) above relates to our own need for bases
and other facilities or concessions in overseas areas.
17. It should also be recognized that in some instances it is to the
best interest of the United States to furnish types of military aid
which are designed to enable a country to resist internal subversion.
18. Aid should be given on a regional basis only where there is a
stable and well-organized regional alliance. In effect, this means
that, except for NATO, country-by-country aid arrangements should
be the rule.
19. To the greatest extent possible, the idea of a partnership between
the United States and the recipient country should be stressed and
the recipients of military aid should be required, insofar as practicable,
to put up matching funds in such proportions as their economies will
permit.
20. The Congress should view with caution proposals that addi-
tional restrictions and conditions be placed in the Mutual Security Act
894
THE MILITARY ASSISTANCE PROGRAM
since an excessive emphasis on restrictions and conditions can increase
the cost and decrease the effectiveness of the program by lessening
the flexibility with which the program can be administered.
21. Finally, it is unanimously the wish of the members of the panel
to commend the results which the authors of the two military-aid
studies have been able to bring about under the severe time limitations
with which they were working. The reports, on the whole, are both
factually correct and thorough, so far as the panel can determine,
and they provide invaluable assistance in understanding the back-
ground of a multiplicity of problems which underlie the military-aid
program.
BACKGROUND PAPER
[
I. DISCUSSION OF REASONS FOR CERTAIN OF THE PANEL'S CONCLUSIONS
AND RECOMMENDATIONS
3, 4. Continuing need for military aid
Paragraphs 3 and 4 of the panel's conclusions and recommendations
assert the success of the military aid program to date, and the likeli-
hood that this type of aid will be needed for a considerable future
period. This is in accord with conclusions found in both of the
studies under consideration.
Neither the state of world tensions, nor the technological advances
in weapons and equipment, give much hope that the necessity of
military aid will be soon eliminated. Aggression must still be de-
terred by the maintenance of appropriate forces, both those of the
United States and those of other countries. This means a continuing
need for conventional weapons both in and out of NATO, and possibly
the additional need to provide NATO with low-yield atomic
capability.
Outside of Western Europe and Japan there is little likelihood
that economic development will progress, even under stimulation, at
such a rate that these countries will be industrially capable of provid-
ing replacement spares in the near future. This becomes even more
true with the increasing complexity of modern armament. The cases
of Turkey, Korea, and Formosa illustrate the most serious problems
in this respect, inasmuch as forces are maintained in these countries
which their industrial capabilities and their economies could not pos-
sibly support without assistance from the United States.
5,6,7. Long-range planning and programing
Paragraphs 5, 6, and 7 of the conclusions and recommendations un-
derline the fact that the military aid program is currently being han-
dled on the basis that military aid is an emergency measure, the need
for which will soon terminate. The panel believes that this basis of
handling the program has resulted in a tendency to plan the program
only 1 or at most 2 years into the future. This lack of adequately
coordinated long-range planning and programing has caused unnec-
essary waste in the carrying out of the program and has compounded
the delays occasioned by the complexities of the planning cycle.
The panel believes that the executive branch should project plans
for the program several years into the future, and that the Congress
should facilitate this by providing some of the funds for the program
on a "several year" or "no year" basis.
This, in general, coincides with the conclusions and recommenda-
tions of the studies under consideration, although the panel raises the
additional question of whether the executive branch currently attempts
895
896
THE MILITARY ASSISTANCE PROGRAM
long-range planning to a sufficient degree and, if so, to what extent and
with what success, despite the 1-year funding impediment. Sufficient
information was not available on this question, either from the studies
or from the representatives of the executive branch who met with the
panel at the panel's request.
The need for long-range planning has intensified since the inception
of military aid for several reasons. First, as mentioned above, there
is likelihood that military aid should be continued over a considerable
future period. Second, contrary to past practice, much military aid
must be furnished from new production rather than from United
States stockpiles. This means a delay (production "leadtime"),
sometimes of several years, before military equipment can be deliv-
ered. Finally, the possible increased cost of the program, a matter
which is discussed in greater detail below, requires that careful and
continuous analyses be conducted along the following lines:
1. To determine what weapons and equipment are obsolete or be-
coming obsolete and what items are in need of repair, but not obsolete.
2. To determine relative costs of repairing and maintaining old
weapons and equipment, as opposed to replacing them with new, pos-
sibly more complex, equipment, and maintaining that.
3. To determine the adequacy of logistical backup for sustained
operations.
4. Studies of individual countries to assure that they are receiving
from the United States the type of equipment which best suits the
national objectives of the United States (military, political, and eco-
nomic).
Intelligent long-range planning of a program which can be carried
out within reasonable cost limits cannot be conducted without the
information which the above analyses will yield.
Long-range planning must, of course, take into account the capa-
bilities of the Communist countries, and the threat which their forces
pose to the free world. It must also seek to integrate the military
assistance which we give to our allies into our military planning for
our own forces. For example, we may wish to arm certain countries
only for the purpose of enabling them to resist internal subversion
and, for the purpose of resisting external aggression at those points,
we may wish to maintain United States units which have a sufficient
degree of mobility for the purpose. This, of course, relates to the
question of balanced forces from the overall standpoint. In NATO,
and in country-by-country aid arrangements, the United States should
and does urge upon countries that they develop the types of forces
which they can best maintain, and which are best keyed in to United
States and regional military plans.
8. The possibility of increasing costs
Paragraph 8 of the conclusions and recommendations points out the
possibility of a considerable increase in the cost of maintaining the
present level of forces in countries which receive military aid.
This conclusion is in accord with the findings of the Systems Anal-
ysis Corp. report.
When the military-aid program was initiated, military end items
were supplied mostly from World War II surplus. This surplus also
included a supply of spare parts. Some of this material has become
obsolete, although the information available to the panel did not indi-
THE MILITARY ASSISTANCE PROGRAM
897
cate the extent to which this obsolescence factor is already operative.
Much equipment which is not obsolete requires new parts and repair.
Our stockpile of surplus goods is less and less able to supply the pro-
gram with weapons, equipment, or spare parts, and these must there-
fore be supplied from new production.
Japan and the countries of Western Europe are, to a large degree,
capable of producing the parts necessary for maintenance of their own
weapons and equipment. Outside of these areas, the United States
must bear this burden. This in itself would mean a jump in the cost
of the program, but added to this is the higher cost of producing and
maintaining new equipment, and the expense of training people to
use it.
Where weapons and equipment are obsolete, and where the present
level of forces is to be maintained, the obsolete weapons and equipment
must be replaced either by new items, or by more modern items which
are retired from use by our Armed Forces. Where complex and costly
equipment is involved, such as aircraft, it is likely that the latter
alternative would be preferred to the extent that use of this alternative
is feasible.
Where, on the other hand, weapons and equipment are not obsolete
but only old and in need of repair, we must make the initial decision
as to whether we will repair the old items, or replace them with newer
models. This necessitates a wealth of information regarding com-
parative costs which was not available to the panel, and which requires.
further inquiry. (See above.) Repairing old equipment may be
expensive, because the spare parts may no longer be in production in
this country. However, it might be possible to obtain the parts at
lesser cost through offshore procurement in Japan or Western Europe.
Replacement of weapons and equipment, on the other hand, requires
a substantial initial investment, although this may be reduced some-
what if the same items are being produced in quantity for our own
Armed Forces, or if the items consist of military equipment being
retired by our own Armed Forces. Once supplied, however, new
weapons and equipment, if more complex, may prove more costly to
maintain and may involve the additional cost of training local people
to use and maintain them.
Adding to these prospective costs is the possibility that we will pro-
vide advanced weapons to NATO.
9. The possibility of reducing force levels by increasing mobility and
firepower
The Systems Analysis Corp. report refers to the possibility of future
reappraisals in the light of technological developments, which may
permit "extensive reductions in the size" of standing armies and their
replacement with smaller and more mobile units with greater fire-
power.
The panel felt that if we embark on a course of modernizing the
forces of our allies, it might be possible sometime in the future to
reduce the level of combat personnel in those countries. However,
to obtain the requisite degree of mobility might well require an in-
crease in the number of personnel needed for logistical support. The
net result may be a greater total number of personnel, including both
combat and logistics.
898
THE MILITARY ASSISTANCE PROGRAM
There must also be taken into account our unwillingness to provide
atomic capability to our allies, particularly outside of NATO, and
the cost of modernizing forces to achieve the necessary degree of
mobility.
10. Evaluating the effectiveness of programs
This paragraph of conclusions and recommendations reflects the
feeling of the panel that existing procedures, combined with the prob-
lems inherent in evaluating a program of this nature, make an accu-
rate measure of the effectiveness of the military aid program difficult.
This situation is attributable to a number of factors, including the
basic reporting system, problems of evaluation inherent in a program
such as this, and the absence of any central point in the executive
branch charged with the duty and given the authority to make coordi-
nated and continuous evaluations from a political, military, and eco-
nomic point of view. (The International Cooperation Administra-
ton, although it has the function of coordinating the military aid
program, is so situated that it does not have effective authority to
implement National Security Council policies.)
The problem is, of course, directly related to adequately coordinated
long-range planning. Adequately coordinated long-range planning
cannot make substantial progress without extensive evaluation of mili-
tary aid policy and programing. Neither can adequately coordinated
long-range planning be sustained unless evaluation is made a contin-
uous function thereof.
11, 12. The planning cycle
The panel agrees with the conclusion of the Systems Analysis Corp.
that the planning process is cumbersome and complex, and that some
steps in the process are probably unnecessary and should be eliminated.
It is emphasized, in this connection, that long-range planning, by
reducing the necessity of following the same complex procedure year
after year, will minimize the difficulties and delays inherent in the
system.
The panel also agrees that the country team system is good, and
facilitates the planning process by introducing a coordinated
approach at an early stage of planning.
The panel also feels that procedures should be developed to facili-
tate rapid emergency action.
13. Evaluating the need for and use of military equipment
This paragraph reflects the view of the panel that the system of
evaluating the use of military equipment by recipient countries is, ex-
cept for a few individual countries, inadequate outside of NATO.
In NATO there is an effective check on the reports made by the
Military Assistance Advisory Groups. This is the "annual review"
which has developed into a penetrating analysis, touching all factors
which bear upon the ability of member countries and their willingness
to use military aid to achieve the maximum mutual benefit.
Outside of NATO and the few individual non-NATO countries
referred to above, the Military Assistance Advisory Groups largely
evaluate their own effectiveness. There is no central point of inspec-
tion and report which analyzes the several country programs under
common criteria. Until this gap is filled, intelligent planning for these
countries cannot proceed.
THE MILITARY ASSISTANCE PROGRAM
899
14. Effect of growth in atomic capabilities of Soviet Union
The conclusions of the panel contained in this paragraph reflect the
agreement by its members that the growth of atomic capability in the
Soviet Union does not eliminate the need for military aid to enable
countries to maintain local forces sufficient to assist in deterring
aggression. This conclusion is in accord with the conclusions of the
Columbia University Institute of War and Peace Studies.
It is emphasized by the panel that changes in the military aid pro-
gram necessitated by these technological strides have been faced by
the executive branch, but information is not available to the panel
to indicate what decisions have been made or the extent to which these
decisions have been implemented.
The growth of Soviet nuclear capability does not eliminate the need
for conventional weapons, since the possibility must be considered
that local wars will be fought with conventional weapons, supple-
mented, perhaps, by low-yield nuclear weapons. Interesting light is
cast upon the continuing need for conventional weapons by the testi-
mony of Lt. Gen. Carter Magruder before the Senate Preparedness
Investigation Subcommittee on February 5, 1957. General Magruder
testified it would be "3 to 5 years" before the Army has enough tactical
atomic weapons to reduce use of conventional ammunition in a war
by as much as 25 percent.
In making its conclusions and recommendations under this heading,
the panel recognizes that complete modernization of forces is not pos-
sible. The need will always exist in the military aid program to
replace equipment as it becomes obsolete, and at the same time to
maintain equipment which is not obsolete.
16. The absence of universal criteria
In making the conclusions and recommendations contained in this
paragraph, the panel is particularly desirous of emphasizing its belief
that each country must be considered individually to determine (1)
whether military aid should be given, and (2) in what form. It is
felt that the absence of universally applicable criteria is not sufficiently
stressed in the studies under consideration.
Although there are no universally applicable criteria, the following
factors should be considered in evaluating country cases:
a. Overall United States advantages to be gained, political, eco-
nomic, and cultural.
b. Altruistic gains.
c. Overall effect on the U. S. S. R.
d. The need for countering a threat to internal security.
e. Alliance commitments and relations.
f. Applicable alliance threat and strategy.
g. If not organized alliance, regional importance, threat, and
strategy.
h. Desired force contribution to collectively balanced allied
forces.
i. Ability to receive and maintain weapons and equipment.
j. Willingness to accept United States country team, or
k. United States willingness to waive close review and
supervision.
1. Chances of subsequently phasing out aid because of reduced
threat or improvement in country's economy.
94413-57-58
900
THE MILITARY ASSISTANCE PROGRAM
m. Anticipated cost of building and maintaining force level.
n. Effect on country's economy.
o. Consequences of future discontinuance.
p. Impact of current pricing policy.
q. Effect of new weapons on military plans.
r. Diplomatic gain anticipated.
s. Tangible gain in terms of bases or other concessions.
In connection with some of the factors enumerated above, the panel
desires to make this additional comment: The panel has considered
the problem of giving countries weapons and equipment which are not
best suited to their individual needs or to United States military objec-
tives. It is recognized that we sometimes give aid which falls into
this category. For example, a given country may insist on receiving a
particular type of ships or aircraft, for prestige reasons, or because
its neighbor has them, even though the country is unable to maintain
the ships or aircraft and though this type of aid does not strictly fit
into the pattern of overall balanced forces. The United States some-
times accedes to these requests because of its need for bases or other
concessions, or for other political and economic considerations which
have validity.
17. Internal subversion and military aid
In some countries, particularly underdeveloped ones, the political
and economic instability is such that internal subversion is the primary
threat. Once again, this situation can be uncovered only through
country-by-country analysis. Paragraph 17 reflects the agreement of
the panel with conclusions and recommendations under this heading
in the Systems Analysis Corp. study.
19. Matching funds
This recommendation, of course, relates to the question of how much
bargaining we can do with military aid.
The panel feels that, although it may not be advisable or possible
for us to bargain for subsidiary objectives with the totality of our aid,
for example, by withholding all aid or threatening to terminate the
program in a given country, still there is a good deal of bargaining
that can be done "around the edges.'
""
Where such bargaining is in our interest, it is important that recip-
ient countries recognize that they are our partners in common de-
fense, and that they should manifest this by themselves contributing
in some proportion to the amount we contribute. A recipient country
may be unable to manufacture its own ammunition, for example but
in such a case, where we supply ammunition, it might be reasonable
for us to require the recipient to build the necessary ammunition-
storage facilities.
II. MATTERS NOT SUFFICIENTLY COVERED BY THE TWO STUDIES
1. A comprehensive picture of the extent to which long-range plan-
ning in military aid programs has been attempted in the executive
branch despite the 1-year funding limitation.
2. Analysis of the impact of the military aid program on individual
countries. In this connection, the reports did not sufficiently stress the
futility of attempting to devise universally applicable criteria on
which to evaluate programs in individual countries.
THE MILITARY ASSISTANCE PROGRAM
901
3. Analysis of the extent to which weapons and equipment in the
hands of our allies have become or are becoming obsolete; analysis
of the relative cost of repairing worn-out weapons and equipment as
opposed to replacing these items either in kind or with more modern
weapons and equipment.
4. Analysis of the adequacy of logistical backup for sustained opera-
tions.
5. The attempt to attain balanced forces for an alliance as a whole,
as distinguished from balanced forces for an individual country, and
the difficulties sometimes encountered because of the national pride
factor involved.
6. The effectiveness of the NATO "annual review" system and the
need outside of NATO for some more effective system of evaluating
country requirements and country performance.
7. The importance in planning military aid programs of continu-
ously evaluating the capabilities of the Communist bloc.
8. The need in the military aid program for a point of central re-
sponsibility in the executive branch for the purpose of continuously
evaluating the program from an economic, political, and military
point of view.
III. POINTS TOUCHED UPON IN THE TWO STUDIES ON WHICH PANEL
DID NOT CONSIDER IT APPROPRIATE OR FEASIBLE TO REACH RECOM-
MENDATIONS OR CONCLUSIONS
1. The panel considers that it is inappropriate to comment on the
merits of strategic plans.
2. The panel believes that comments on the new pricing policy
would be premature, but wishes to point out that practices developed
under the old policy were sometimes harmful to the aid program.
3. The panel did not specifically take up the question of dealing with
regimes having political philosophies different from our own, believ-
ing, as stated in the panel's conclusions and recommendations, that
universal criteria are inapplicable in these cases as in others.
4. Except for the comments set out in the panel's conclusions and
recommendations with respect to the possibility of increased costs, the
panel did not discuss the impact of military aid on the United States
economy and its resources.

MILITARY ASSISTANCE AND THE SECURITY
OF THE UNITED STATES, 1947-1956
A STUDY PREPARED BY THE INSTITUTE OF WAR AND PEACE STUDIES
OF COLUMBIA UNIVERSITY
903
CONTENTS
Page
Letter of transmittal..
907
1
1. Summary.
--
909
assistance..
II. Military assistance in the context of foreign policy.
III. United States self-interest as ultimate justification for military
IV. The background of the Mutual Defense Assistance Program.
V. Major assumptions underlying the Mutual Defense Assistance
Program.
A. The geographical area of priority.
B. The relation to military aid of economic recovery.
C. The security threat to Western Europe__
D. The American strategy of multiple deterrents, mutually
reinforcing.. -
VI. Changing perspectives on military assistance programs: 1950-56.-
A. Reversal of program priorities: Rearmament to the fore…….
B. From maximum peril point to the long haul..
C. From Europe to Asia.
D. Congressional concern with program details_
E. Estimates of security threat and overall Western strategy--
VII. Strengthening America's free world partners—contrasting military
assistance patterns in NATO Europe and elsewhere__
A. The big war and small wars-
B. Role of United States forces in the anti-Soviet coalition.
C. The threat of open warfare and the danger of subversion_-
D. The degree of intraregional consensus_.
913
916
919
923
923
924
925
926
932
932
933
935
I
1
936
1
1
937
939
939
940
941
943
E. Relation of military effort to country's stage of economic
development--
944
F. Choice between military power in being and economic
progress_
945
G. Psychological impact of military assistance program.
946
VIII. Other security implications of military assistance__
B. The attraction of allies.
C. Utilizing the locational assets of allies_
D. Security implications of offshore procurement.
948
A. Newer and better equipment for United States Armed
Forces___
948
948
949
1
950
1
E. Strengthening regional relationships in Western Europe. -
F. Assisting the "enemy's enemy".
951
951
G. Limiting the effectiveness of a potential enemy-
H. Preclusive military assistance__.
IX. Limitations on the use of military assistance.
I
1
1
952
1
953
956
A. Limitations occasioned by the national self-interest of the
donor.
956
B. Limitations imposed by the long-term character of military
buildup...
956
C. Limitations resulting from absence of consensus.
D. Problems arising from the success of military assistance..
E. Limitations resulting from the economic consequences of
military buildup..
957
958
959
F. Limitations imposed by rapidly advancing weapons tech-
nology__
960
G. The necessity of dealing with undemocratic regimes_
X. Characteristics of an effective military assistance program_
XI. Criteria to gage the success of military assistance__
961
964
1
968
1
905
LETTER OF TRANSMITTAL
COLUMBIA UNIVERSITY IN THE CITY OF NEW YORK,
INSTITUTE OF WAR AND PEACE STUDIES,
New York, N. Y., December 20, 1956.
The CHAIRMAN,
SPECIAL COMMITTEE TO STUDY THE FOREIGN AID PROGRAM,
United States Senate, Washington, D. C.
DEAR MR. CHAIRMAN: Pursuant to the agreement made October 1,
1956, between the Institute of War and Peace Studies of Columbia
University and the Special Committee To Study the Foreign Aid
Program, created July 11, 1956, by Senate Resolution 285, I submit
herewith a report entitled "Military Assistance and the Security of
the United States, 1947-56."
It would be invidious to single out for special mention any of the
many present and former Government officials who were extremely
helpful in the preparation of this report. Special mention, however,
has to be made of the generosity of the Carnegie Corporation of New
York in giving Dr. William W. Marvel a leave of absence. Dr. Marvel
and I are coauthors of this report. Dr. Glenn H. Snyder, Elizabeth
Stabler, and Barbara Turbington of the institute staff participated
in its preparation.
Sincerely yours,
WILLIAM T. R. Fox,
Director, Institute of War and Peace Studies,
Columbia University.
907
MILITARY ASSISTANCE AND THE SECURITY OF
THE UNITED STATES, 1947-56
I. SUMMARY
1. The United States must provide military aid to its free world
partners well in advance of an actual war crisis if it is to provide
it at all.
The "two camp" pattern of today's world politics, the length
of time which under prevailing conditions of military technology
it takes for a major rearmament effort to bear fruit, the dis-
.parity in productive capacity between the United States and other
nations of the free world whose centers of population lie closer
to the Soviet Union, the American interest in their survival for
moral and political reasons as well as for strategic reasons, and
the prospect that a new world war's decisive phases would come
long before wartime mobilization could produce effective military
power all mean that in its decisions regarding military aid the
United States passes "the point of no return" many years before
the moment of supreme peril.
2. The case in principle for military aid, as indeed for every other
means of promoting the survival and fighting capabilities of other
states threatened by Soviet aggression, is easy to make. The issue is not
whether or not military aid is in general a good thing but what kind
of aid it is in the American interest to offer, to which countries, and
for how long.
Even on the narrowest calculation of United States self-
interest, the United States could not sit idly by while its over-
seas friends and allies were being swallowed up by a Soviet
aggressor.
3. So long as there are wide differences of opinion among those
debating foreign aid regarding foreign policy and military strategy,
there will be equally wide differences of opinion on the aid program.
There is no yardstick to measure the "rightness" or "wrongness"
of major military aid proposals unless there is prior agreement
on basic foreign policy and military strategy. Aid proposals will
doubtless continue to reflect the full range of views on policy
and strategy which one would expect to find in a vigorous
democracy.
4. American commitments made in 1949 under the North Atlantic
Treaty and the closely related decision to initiate a mutual defense
assistance program both reflected a belief that first priority had to
909
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THE MILITARY ASSISTANCE PROGRAM
be given to increasing military strength in Western Europe so that
it would be more than a trip wire for atomic counterattack in response
to a Soviet advance.
Increased military strength in Western Europe would, it was
believed, help greatly to restore the morale and spirit of the peo-
ple there, and economic recovery could then be vigorously and
confidently pursued. This recovery would in time provide the
long-range basis for a reconstruction of European military
strength on a more nearly self-sustaining basis. Meanwhile, it
would make smaller wars seem less profitable to the aggressor,
while the North Atlantic Treaty would seem to increase the risk
that a small aggression in Europe might call down atomic re-
taliation in Russia.
5. The aid program in 1949 seemed to be limited in time, in scope,
and in magnitude; but the dramatic events in world politics since that
date have transformed it into a multipurpose and continuing instru-
ment of American diplomacy.
The defeat of Nationalist China on the Asiatic mainland, the
wars in Korea and Indochina, and the development of Soviet
atomic power indicated that the Communist threat had intensi-
fied and had spread. The long-haul concept which has dominated
defense planning in recent years reflects a belief that the threat
will persist for a very long time. The aid program could hardly
help but reflect these basic changes in the estimate of the Soviet
threat.
6. As the focus of the mutual-security program has shifted from
Europe to Asia, the program has had to be adapted to the general
characteristics which differentiate the two continents from each other
and the special characteristics which distinguish particular regions
and countries in the vast continent of Asia.
There has not been in most of Asia the same expectation that
any small war would mushroom into a third world war. With
the Soviet threat in Asia being continually shifted from one point
to another on the periphery of the Soviet world, there has prob-
ably had to be an element of improvisation about aid policy in
Asia. Coalition military planning and American military aid
to implement that planning have had to reflect a basic American
unwillingness to risk huge manpower losses in land warfare in
Asia. They have also had to reflect the need to meet simultane-
ously the twin Soviet-inspired threats of attack and subversion.
Finally, they have had continually to take account of the possibil-
ity that the aid would, by exacerbating intraregional conflict, play
into Soviet hands. We have also had to bear in mind that the
economic, and hence the long-range military, consequences of
large-scale military aid are very different for the relatively ad-
vanced economies characteristic of Western Europe and the under-
developed ones typical of most of Asia.
7. There is no doubt that the mutual defense assistance program
has made it possible for friendly nations closer to the Soviet threat
than the United States to have added military strength to deter, delay,
or defeat aggression aimed directly at them. It thus enables multiple
deterrents to be brought to bear on the prospective aggressor.
THE MILITARY ASSISTANCE PROGRAM
911
Even if it were true that the United States would be willing to
risk two-way thermonuclear war, involving atomic retaliation
on its North American homeland, by using its strategic airpower
to check a local aggressor, it is not certain that either America's
friends or her enemies would believe it. Accordingly if local
aggression is to be deterred and if it is to be delayed or defeated
locally, the military power to do so must be kept locally available.
8. In addition to aiding friendly nations to be stronger, the mutual
defense assistance program has contributed to improving the security
position of the United States in a variety of other ways.
American Armed Forces have newer and better equipment as a
result of sending used and surplus equipment to aided countries.
Planning and standardization on a coalitionwide basis have pro-
gressed more rapidly under the spur of the possible granting or
withholding of requests for various types of end items. Valuable
base rights abroad have been secured as a quid pro quo. Certain
neutral countries have been encouraged to maintain their opposi-
tion to Soviet demands and certain traditional neutrals have been
persuaded to participate in coalition security arrangements.
9. Because the military aid program is not a giveaway program but
one based solidly upon an estimate of enlightened American self-
interest, the United States is not free to terminate aid as a means for
achieving merely subordinate foreign policy objectives.
Marginal benefits under the aid program may, of course, be
made conditionally available; and the type and amount of mili-
tary end items supplied ought to take account of the efficiency
with which those supplied earlier were used. However, in the
face of the all-pervasive Soviet threat almost all objectives not di-
rectly related to security tend to seem subordinate. Thus, as in
the cases of Spain and Yugoslavia, considerations of ideological
fastidiousness may have to be overlooked.
10. In a particular case where an urgent American interest is in-
volved, there may not be time to develop a program which is in all
respects ideal; but, assuming time, an ideal program would exhibit at
least the following characteristics:
(a) Whatever level of sacrifice the United States accepts for
the maintentance and promotion of national security, allocation
between expenditures on our own forces and on foreign aid should
be such that the last dollar spent on each purchases a comparable
amount of benefit to our foreign and military policy objectives.
(b) To be effective, the program must be logically related to
United States national policy and military strategy. Clearly, the
effort should not be to create all over the world smaller replicas
of America's own Armed Forces but instead forces specifically
adapted to deterring, delaying, and, if possible, defeating local
aggressions locally.
(c) The program must not only be militarily desirable but not
be economically or politically self-defeating.
(d) The program should involve as little improvisation as
possible and preferably should be planned ahead on a 3- to 5-year
basis. This means that foreign aid has to be accepted as being
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THE MILITARY ASSISTANCE PROGRAM
as normal an instrument for achieving foreign policy objectives
as our own Army, Navy, or Air Force.
(e) The interallied political and strategic consensus on which
an effective aid program must be based has continuously to be
maintained. To limited degree, military assistance is an instru-
ment which should be used to that end.
(ƒ) Trends in world politics and military technology which
increase or reduce the need for aid must be better understood by
leaders of public opinion, and the dependence of the aid program
on fortuitously timed crises and dramatic Executive presentations
lessened.
(g) The continued stake of the United States in maintaining
the fighting capacity of its European allies must not be obscured
by the shift in emphasis in recent years to Asia. (If the defense
of Western Europe should, for example, require a defense outlay
beyond the means of that area and the evidence is plentiful that
weapons now being developed will be increasingly costly-the
shift to reimbursable military aid in Europe might have to be
reversed.)
11. It is never possible to measure with precision the military
consequences of a military aid program in the way, say, that increases
in the gross national product of a country which has received eco-
nomic aid can be measured. We would never know with certainty
until it was too late that a given amount of aid was inadequate or
the way in which it was spent, ineffective.
There may, of course, be a variety of ways in which the present
program's efficiency may be improved. However, so long as a
serious security threat remains, so long as deterrence seems to
work, so long as military assistance continues to prove useful
in advancing a variety of national purposes, and so long as its
cost is only about 1 percent of our national income, it would
appear that the United States is getting a good return on its
investment.
II. MILITARY ASSISTANCE IN THE CONTEXT OF
FOREIGN POLICY
Military assistance has loomed large in postwar United States
foreign policy, by whatever yardstick measured-billions of dollars,
thousands of American personnel abroad, our expectations of what it
could accomplish, or our allies' reliance upon it. Since 1947, Congress
has appropriated about $46 billion for foreign assistance; of this
amount, almost exactly half or $23 billion has been for military
assistance. Among foreign-aid activities, direct military assistance
and the open participation of the United States in the military buildup
of its friends and allies have gained the center of the stage.
Is it possible that the United States has come to rely too heavily
upon foreign aid, and especially upon military aid, as a means of
implementing its policies in the world? Or is it possible that we are
relying too little on military aid? The fact that at least these are
not unreasonable questions to ask means that the present review of our
foreign-assistance activities is warranted and timely.
It is important to remind ourselves that military aid is only one of a
variety of instruments available to the United States to carry out its
central objective of promoting the national security. Obviously
enough, there are other forms of foreign assistance: economic aid
for rehabilitation, loans for development purposes, and technical assist-
ance through the provision of advisory personnel. But quite apart
from these forms of assistance to foreign nations, states can and do use
a variety of other means: traditional diplomacy; activities in the field
of information and propaganda, calculated to effect the attitudes of
people in foreign countries; membership in various kinds of alliances
and other regional groupings; participation in the United Nations
and other international organizations; economic pressures and bland-
ishments (aside from the granting of assistance), all the way from
relatively mild measures (tariff and exchange manipulations and
barter deals) to severe economic warfare actions such as blacklisting,
blockade, and seizure of assets; and finally, of course, application of
the ultimate sanction, force, whether by demonstration, use in limited
hostilities or full-scale war.
These instruments are all available to the United States for the pro-
motion of its security, and of course should be used in the most effec-
tive combination. As the prospects of full-scale war have become
progressively more horrible to contemplate, there has been a con-
tinuing quest for that combination of instruments which will most
effectively deter war as well as provide a means to wage war, if neces-
sary, at less than absolute levels of destructiveness.
The upbuilding of military force by the United States and the pro-
vision of military assistance to its friends and allies are two distinct,
913
914
THE MILITARY ASSISTANCE PROGRAM
but by no means incompatible, ways of pursuing national objectives."
They involve different problems, have different implications, and may
have widely different meanings for the success of our policies. A basic
consideration, therefore, is where the balance is to be struck between,
on the one hand, the building up of America's own military forces and,
on the other, assistance to friendly nations for the creation and mainte-
nance of their forces. This balance cannot be easily struck, for it in-
volves estimates of our allies' purposes, reliability and fighting effec-
tiveness as well as estimates of the efficiency of various strategies for
deterrence and, if necessary, for ultimate victory. The two extremes
of policy would be, on the one hand, to concentrate singlemindedly on
creating powerful United States forces based in the Western Hemi-
sphere, disregarding the whole possibility of reliable allies and the
enhancement of their military effectiveness; and on the other hand,
emphasis on the arming of allies even to the point where military
equipment in the hands of American forces had to suffer, presumably
on the theory of placing the greatest power where it was nearest to,
and therefore could most quickly be brought to bear upon, the enemy.
The one extreme suggests "fortress America"; the other, the idea of
equipping other peoples "to fight our wars." It is likely that neither
kind of allocation of our military strength would be as effective in its
result as one which sought to achieve some kind of balance between
what we ourselves could do and what we could help our allies do in the
common cause.
Assistance to America's friends and allies can take many forms, and
it is impossible to go far in discussing military aid programs without
encountering problems of definition in distinguishing these types of
aid from one another. The terminological confusion springs in part
from the close inherent relationship of the military force of a country
to its economic productive base. The more one allows one's thinking
to become compartmentalized so that one thinks of "economic assist-
ance" being for economic ends and "military assistance" for military
ends, the greater the likelihood of magnifying a distinction which may
be greater in form than in function. Military assistance may have
important economic consequences, and economic measures may have
military significance.2
It is clear that the provision of end items ready for combat use
will create effective military forces much more rapidly than the
provision of "economic assistance" which would help to build or
retool factories for the production of military hardware in the aided
country. If the immediate goal is the development of local defensive
military strength in one or a number of foreign countries, the decision
to grant military instead of economic aid is likely to be based on
timing-not on a real distinction between the end results that either
method could achieve.
1 Either method strengthens "our side." Theoretically, and one hopes practically, there
may be a third way of achieving the desired balance between Soviet and non-Soviet arms.
This third way is by negotiated disarmament. The prospects for such negotiated disarma-
ment were apparently nil in 1949-50. With the rebuilding of the free world's armed
strength and the realization on both sides of the costs of two-way thermonuclear war,
negotiated disarmament may again become practical politics.
* Modernizing the Turkish Army permitted the return to the national labor force of
surplus soldiers, and highways constructed for the better defense of Turkey have promoted
trade. Military aid given the Philippines contributed to the crushing of the Huk rebellion
and thereby the reestablishment of public order and the restoration of normal economic
life. The key to difficulties over base rights in Iceland may be found in helping Iceland
dispose of its fish and certainly will not be found in the proffer of military aid to its
nonexistent armed forces.
THE MILITARY ASSISTANCE PROGRAM
915
Beyond the obstacles to understanding which the distinction between
economic and military aid often poses, further complexity has been
added by the variety of categories of military aid that have been
established by law or executive order. There is the major category,
military assistance, usually denoting the supply of military end items
and training in their use. Other categories are direct forces support,
defense support (economic assistance to those countries in whose
defense the United States has concerned itself by making a military
assistance grant), offshore procurement, additional military produc-
tion, infrastructure, and facilities assistance. There is also the dis-
tinction between aid for which the recipient pays and that for which
he does not, reimbursable and nonreimbursable aid. The differences
between what is done under these various labels may not in every
case be as great as is suggested by the category names. Terminologi-
cal invention may have been much more a device for meeting transient
difficulties in the evolution of the program than for making changes
in the essential character of the operations. It is not at all clear, for
example, that what was done under "defense support" after the
passage of the Mutual Security Act of 1952 differed greatly during
the first few years of the mutual security program from what was
done as "economic assistance" under the Marshall plan prior to 1951.
Neither type of assistance was meant to be part of a "giveaway" pro-
gram. Both, like military assistance, had to find their justification
in American self-interest.

94413-57-59
III. UNITED STATES SELF-INTEREST AS ULTIMATE
JUSTIFICATION FOR MILITARY ASSISTANCE
One thing which the word "military” in the name of the military
assistance program undoubtedly accomplishes is to make it much more
difficult for anyone to misunderstand foreign military assistance as
some kind of lavish charity or giveaway program. Economic aid and
technical assistance activities are much more susceptible to this mis-
conception because the raising of living standards and the restoration
of peacetime productive capacity may seem to be of very great mate-
rial benefit to the recipients of aid and of relatively little to us. But
placing arms in the hands of allies to meet a common threat is a
policy of such patent self-interest, albeit enlightened self-interest,
that there is apt to be less confusion over motives. Military aid may
raise a host of new and different problems: the dependability of the
ally, the possibility that it may upset some delicate internal political
balance in the recipient country, and the need for prior agreement on
major strategic plans, for example; but there is little room to believe
that this heavy expenditure of public funds stems from some twisted
and misguided sense of altruism and that the expenditure is made
without reference to our own national security.
The prominent part played by foreign aid in American security
policies over the last 10 years reflects a view of America's role in the
mid-20th century world which has now become widely accepted. The
United States has come to recognize that it is not, and can never again
be, "out of history," withdrawn from the troubles of the rest of the
world. As recently as 1940 the hope that this posture could be main-
tained was indeed widely shared by the American people. New
nuclear weapons systems and the development of air striking power
capable of delivering them halfway around the world have, of course,
removed permanently and completely the inviolability to foreign
attack which we enjoyed for so many years in our history. But even
without this nightmare having become a reality, the threat of a
Soviet-dominated Europe would have been quite sufficient to prevent
total withdrawal by the United States from the Old World.
Thus, most Americans agree that our only way of avoiding partici-
pation in a general war is to prevent that war from ever starting.
A war that threatened to turn against our side the uneasy balance
which has existed between the Communist and the free world during
most of the postwar years would be so threatening to our national
security that it would be inconceivable for the United States to stand
aloof. Participation would carry with it the threat that our conti-
nental homeland would become the target of enemy fission or fusion
bombs. For the first time in history the maintenance of even minimal
United States national security seems to require the prevention of
all-out general war.
Another lesson we appear to have learned is that changes in aline-
ments, territorial holdings, and power structures, brought about by
916
THE MILITARY ASSISTANCE PROGRAM
917
means short of a general war, could have an almost equally deleterious,
if not so dramatic or immediately apparent, effect upon national
security. In geopolitical terms, America fought in two world wars
to help prevent a consolidation of the European rimland under a
single hostile power. We have learned what Great Britain accepted
as the basic tenet of its diplomacy for a hundred years: that a single
power center which could organize and mobilize the vast resources
of manpower, raw materials, and productive plant capacity to be
found in Continental Europe, would be in a position to exert greater
power than that of any combination which could be formed against
it. In the postwar years, the potential threat has been the same, only
more so. The state which has represented that threat since 1945 is
centrally located in Eurasia and has seemed, by its location, its viru-
lently hostile ideology, and its manifest intentions, to be in a position
to take over little by little most of the great Eurasian land mass.
Frustration of this design has really been the unifying theme of our
postwar foreign policy. "Containment," despite the apparent un-
popularity in recent years of policies pursued in its name, is a
continuing goal of American policy.
The consolidation of all, or a great part, of the Eurasian land mass
under the totalitarian control of a single hostile state, would con-
stitute a major peril for United States security. The reason for follow-
ing a policy of containment was to prevent this from happening.
But containment could not be a viable policy unless the nations rimmed
around the Soviet periphery recognized, or could be brought to
recognize, the same threat to their independence, and were already
strongly motivated, or could be motivated, to retain that indepen-
dence. To resist Soviet blandishments, infiltration, subversion, or
aggression, those independent nations needed to strengthen them-
selves in various ways. Most of them, in one way or another, have
required outside assistance to that end. The point that should not be
overlooked, however, is their indispensability to the United States
as allies in carrying out its grand design of frustrating the Soviet
aggressor.
1
Three great material assets distinguish European nations in the
path of Soviet expansionism from those in the Near East and in south
and east Asia: strategic location, relatively large pools of skilled man-
power, and at least potentially, a strong industrial economy. To
make these human, material and locational resources fully effective
required assistance from the United States. To have withheld that
assistance where it was truly needed might well have involved a double
loss: the loss in effectiveness of the area as a power base and, more
serious, the loss of allies in the area if, for whatever reason, their
foreign policy were to take a neutralist turn.²
1 Recognition of the threat and determination to meet it has not existed everywhere
along the borders of the free world, for example, in some of the Arab countries, but bring-
ing about that recognition and stimulating that determination is a task for diplomacy
rather than for military assistance. Military assistance or the promise of it, can, of
course, give a recipient government a sense that there is some prospect of meeting the
Soviet threat successfully and that the effort is worth the immediate sacrifice and the
immediate risk.
2 The vigorous neutral, who is prepared to resist aggression strongly from whatever
direction, may be a security asset to the side which knows it will not be the aggressor.
Sweden and Switzerland are perhaps exemplars of this kind of neutrality. Of course,
where coalition military planning is essential to effective defense, being even a vigorous
neutral may not be enough. It is worth distinguishing between this vigorous neutrality
and neutralism. The weak neutralist, who wishes neither to prepare to defend himself nor
to take sides. may be a threat to our security. The United States has every reason to seek
to prevent the rise of such sentiment in, for example, such critically important countries
as France and India.
918
THE MILITARY ASSISTANCE PROGRAM
These several considerations-growing awareness throughout the
American population that the Nation could no longer stand aloof from
world politics; the critical importance to our national security of con-
taining Soviet power and halting territorial aggrandizement; and
especially the need for effective allies in carrying out this policy-all
pointed to a posture of constant involvement in the affairs of the world.
No longer was there a realistic possibility that, by constructing efficient
machinery for regulating international conduct, we would have at
hand a means of resolving dangerous situations that arose, with a
minimum input of our own energy. World politics were not quite
ready for automation: our involvement was to be on a day-to-day and
week-to-week basis, with choices full of consequences for our future
security constantly having to be made. Our new situation required
simultaneous pursuit of bilateral diplomacy with many nations,
participation in regional and international organizations, and a readi-
ness to calculate the impact upon our security position of events and
developments within our own country and in virtually any other spot
in the world.
This is the broad background of our postwar foreign aid programs,
especially of military assistance, the form of aid most closely and
self-consciously related to our politico-strategic conceptions. Because
the world of 1956 presents so many contrasts to that of the immediate
postwar years when military assistance was born, it is important to
sketch in the background of the Mutual Defense Assistance Act of
1949.
IV. THE BACKGROUND OF THE MUTUAL DEFENSE
ASSISTANCE PROGRAM
Although begun on an emergency, "one-shot" basis, the supplying
of military equipment and training missions to Greece and Turkey,
following President Truman's request for funds for this purpose in
March 1947, really marks the beginning of what proved to be a con-
tinuing foreign military aid program.¹ The first formulation of mili-
tary aid policy in comprehensive, nonemergency terms was embodied
in the Mutual Defense Assistance Act of 1949.
In the period between the enunciation of the Truman doctrine and
the passage of the mutual defense legislation what seemed to be the
United States' greatest strategic asset, from the standpoint of deter-
ring aggression and preserving the peace, was its atomic monopoly.
Not only was there the fact of this monopoly; but there was every
expectation in the West, shared by statesmen and scientists, that it
would take the Soviet Union many years to explode its first atomic
weapon.
In general, there appeared to be considerably less rigidity in the
alinements and affiliations of nations than was assumed after the out-
break of the Korean war. Countries of the Near East and south
Asia were in the process of shaking off their colonial bonds; but before
1947, relatively few had achieved fully independent status. The war-
time coalition was rapidly dissolving, and with the creation of the
United Nations-an international organization presumably based on
the principle of universalism and collective great power responsi-
bility-the United States was not yet engaged in regrouping nations
or acquiring allies to buttress its own security. The Red army was
encamped across Eastern Europe; but the consolidation of its satellite
empire was not yet complete. Events in Czechoslovakia and Yugo-
slavia during 1948 clearly showed that additions to and subtractions
from the Soviet bloc were still going on. The Iron Curtain had not
yet been bolted firmly into place.
Ironically, it was the United States' first major, carefully planned,
long-range foreign assistance program that accelerated the "bolting
down" process. The irony lay in the fact that the first Marshall plan
1 Earlier military aid to the Philippines, China, and Korea had different antecedents.
The Philippines was a newly independent state which many Americans regarded as our
protegé and our "show-case of democracy" for the Orient and unsatisfied nationalist
aspirations generally and for which we acknowledged guardian responsibilities. Aid to
China and Korea should be thought of more as satisfying wartime obligations than as
steps in devising a new policy for the postwar, or "cold war," period.
period. In continuing
military assistance to China after the war, however, the United States in fact engaged
in its first major effort to use this instrument to prevent the emergence of an undesired
(all-Communist) regime. Greece was the second such case. Turkey, on the other hand.
was the first instance of military aid aimed directly at deterring aggression by the Soviet
Union itself. Although the Truman doctrine was stated in sweeping terms, there was
resistance in the State and War Departments to the interpretation that it was a "blank
check to give economic and military aid to any area in the world when the Communists
show signs of being successful.' Aid was to be granted only "where the prospective
results bear a satisfactory relationship to the expenditure of American resources and
effort" (Joseph M. Jones, The Fifteen Weeks, New York, 1955, p. 252).
919
920
THE MILITARY ASSISTANCE PROGRAM
proposals called for the Soviet-dominated portion of Europe to join
in a program for Europe-wide economic revival. Thus, it did not
seem to have all the "military" overtones of the Greek-Turkey pro-
gram. Although the promise to come to the aid of victims of aggres-
sion any time, anywhere, enunciated by President Truman in connec-
tion with that earlier program, had excited relatively little public
concern, the military assistance aspect of aid to Greece and Turkey had
evoked criticism, and in some quarters, vehement protest.2
As the Marshall plan began to take shape, consequently, there
seemed to be relief that the United States was concentrating on "good,"
"positive," "economic" things for Europe, and turning its back on
the suspect military measures which had loomed so large in the dis-
cussion of Greek-Turkish aid. Furthermore, these "good" measures-
providing food, rebuilding factories and agriculture, improving stand-
ards of living, and helping meet foreign-exchange deficits-gave the
Marshall plan another virtue. It was not only "a" way to prevent the
western spread of communism in Europe, but, in according with a
concept of the economic causation of communism, then highly fash-
ionable, it was "the" way to do so.
There were other persuasive arguments for the Marshall plan.
Aside from the humanitarian one, that it is wrong not to help one's
less-fortunate brothers when one is in a position to do so, two of the
arguments had military implications. The first was that during the
limited period of the American atomic monopoly Europe was tem-
porarily freed from the necessity of defending itself, and had a special
never-to-be-repeated opportunity to strengthen the productive base of
its economy and therefore to expand its ultimate military potential.
The other was that the greater the increase in East-West trade, which
increase would follow from Europewide acceptance of the Marshall
plan, the greater the interdependence of Eastern and Western Europe
and the harder the Eastern countries would be for the Soviet Union to
digest and utilize for possible war.
During the period from June 1947 until April 1948, when the Mar-
shall plan received the necessary congressional blessing, the Soviet
Union proceeded to make clear its posture vis-a-vis Western Europe.
Shortly after Secretary Marshall's offer, Russia forced her Eastern
European satellites to refuse the proffered aid. The Soviet Union's
neighbors in Eastern Europe apparently would have welcomed this
assistance from the United States, but their refusal at Moscow's be-
hest dramatized their satellite relationship.
In February 1948 occurred the coup d'etat by which the Commu-
nists took over full control of the Government of Czechoslovakia.
This seizure of power galvanized opinion in the West. Any doubts
that had remained as to the necessity of Marshall plan aid for Europe
vanished. It won new support not because Marshall plan aid was
thought to be proof against coups of the Czech type, but because it was
the one positive program offered to combat the spread of Soviet power.
As Western Europeans and Americans had this and further demon-
strations of Soviet capabilities and intentions-as expressed, for ex-
2 There was also widespread concern that the United Nations had been ignored as a
possible vehicle for aid; by acting through the United Nations, the United States would,
in the eyes of some, have purged its assistance proposals of implications of power politics
or American imperial expansion to offset British imperial contraction.
THE MILITARY ASSISTANCE PROGRAM
921
ample, in the effort to seal off Berlin from the West in the summer and
fall of 1948-and as they realized in contrast how ponderously the
process of economic recovery would inevitably proceed, they were im-
pelled, even before Marshall plan aid had begun to flow, to consider
what else was necessary to secure Western Europe.
The North Atlantic Treaty and the mutual defense assistance pro-
gram constituted the answer ultimately devised by the West to the
intensified Soviet threat as manifested in Soviet rejection of the Mar-
shall plan, organization of the Cominform in 1947, the Czech coup,
and the Berlin blockade of 1948. Arriving at this answer took time.
It was April 1949, more than a year after the Czechoslovak coup, that
the North Atlantic Treaty was signed; it was August 1949 before it
was ratified by a sufficient number of signatories to enter into effect.
Two more months elapsed before legislation authorizing a military-
assistance program was passed by Congress in October 1949.
It was not an accident that the two programs were adopted at
almost the same time. The manner in which the security plans of
the West were developed, especially within the American Govern-
ment, resulted in tying the treaty and the aid program together, vir-
tually into a single package. The Communist seizure of Czechoslo-
vakia was followed the next month by the signing of the Brussels
Treaty, organizing Britain, France, Belgium, the Netherlands, and
Luxembourg into a military defensive arrangement called Western
Union. Official American reaction was immediate. On the very day
representatives of the five nations were signing the Brussels Treaty,
President Truman addressed Congress and, while asking a renewal
of draft legislation and additional funds for a new military buildup
in the United States, acknowledged the readiness of the United
States to help the Western Union powers in improving their defense
capabilities. In June of 1948 the so-called Vandenberg resolution
signified Senate approval of United States efforts to join with like-
minded countries of Western Europe in new defensive arrangements.
At this point, the Berlin blockade and the defection of Yugoslavia
from the Soviet bloc provided two new stimuli. The first under-
scored the urgent need for action, and the second suggested that an
opportunity existed to encourage other satellites, as well as Yugo-
slavia, to resist Soviet control, if the West could demonstrate cohesive
vigor and purpose.
In September 1949, while the Mutual Defense Assistance Act was
still before Congress, the first explosion of an atomic weapon by the
Soviet Union was announced. Whatever assumptions regarding the
place of the American atomic monopoly underlay the North Atlantic
Treaty and the military-assistance program, this event revealed to
all the world that the end of that monopoly was approaching. One
can only speculate on the impact of this event upon the attitudes of
the Members of Congress who were then deliberating the military-
assistance bill. The Mutual Defense Assistance Act, which like the
Marshall plan legislation had been up to the last minute the object
of many doubts and criticisms by the legislators, was passed less than
a month later.
Finally, the aggression from North Korea in June of 1950 was per-
haps the most decisive stimulus of all to Western rearmament. It
gave the Western powers a painful lesson as to the magnitude and
922
THE MILITARY ASSISTANCE PROGRAM

the geographic dispersion of the threat they faced and as to the mag-
nitude of the sacrifice that would be necessary to meet this expanded
challenge.
We have already said that the North Atlantic Treaty and the
military-assistance program were tied together from the beginning.
The end of the American atomic monopoly and the beginning of the
Korean war had a powerful effect on both. Together, they provided
not only spurs to rearmament but imperatives to intensify Western
coalition defense planning within the North Atlantic Treaty frame-
work.
V. MAJOR ASSUMPTIONS UNDERLYING THE MUTUAL
DEFENSE ASSISTANCE PROGRAM
What did responsible officials of the United States Government orig-
inally expect this program to accomplish, when they were formulating
and presenting it during those earlier years? So long as its objectives
remain unfulfilled, has the program been persistently maintained and
adequately supported? What modifications, if any, in policies regard-
ing military assistance were necessary in view of the changes that have
occurred in world politics since 1950, and have these revisions been
made?
In the case of the North Atlantic Treaty and the military aid pro-
gram in support of it, congressional and public discussion was suffi-
ciently extensive for most of the basic assumptions to be clearly and
publicly articulated. They will be presented under four headings: (1)
the geographical area of priority; (2) the relation of military aid to
economic recovery; (3) the security threat to Western Europe; and (4)
the American strategy of multiple deterrents, mutually reinforcing.
A. THE GEOGRAPHICAL AREA OF PRIORITY
Western Europe was the priority area, not because it was the only
likely target of Soviet expansionist drives, but because it was an area
where (a) the free world had most to lose if successful aggression took
place, and (b) effective countermeasures could be most constructively
and quickly taken.
The primacy of Europe in American security calculations-an as-
sumption frequently stated in connection with Greek-Turkish aid and
the Marshall plan-continued to prevail. United States policymakers
were operating within the framework of the "Europe first" thinking
which characterized our grand strategy during World War II. Again
and again during these early postwar years, American spokesmen
made the point that the loss to the Soviet bloc of the great industrial
complex of Western Europe would be the one development which
would perhaps irretrievably tip the scales of the power balance in
favor of our opponents.
But it was not only the fact that this was the region of the world the
loss of whose material power would be most critical for the United
States; it was also the conviction that in Western Europe-more than
in the Near East, south Asia, and the Far East-there were values to be
secured which these peoples shared with Americans. Collectively they
possessed great industrial strength which needed to be restored through
retooling and rebuilding. Perhaps most important of all, the nations
of Western Europe shared with the United States such western tradi-
tions as free government and respect for human dignity. These were
nations "like the United States," a fact which made their survival a
good thing in itself and one which meant that in a common rearma-
ment effort there would be a minimum of cultural barriers to surmount.
923
924
THE MILITARY ASSISTANCE PROGRAM
The prospect was real that in this part of the world, "self-help and
mutual aid” could become an actuality. In sum, Western Europe was
where the United States had most to lose-in terms of damage to its
own security position if the countries of that area became, by whatever
process, appendages of the Soviet Empire-and most to gain from eco-
nomic and military assistance because the essential preconditions for
an effective program were present.
B. THE RELATION TO MILITARY AID OF ECONOMIC RECOVERY
The military and economic recovery of Western Europe were inter-
dependent. The military buildup in Western Europe was universally
recognized as being closely dependent upon economic recovery. But
especially after the Czech coup and the Berlin blockade, it was also
argued that the achievement of some degree of defensive military ca-
pability was a prerequisite of rapid economic recovery and a necessity
if the fruits of economic recovery were to be protected.
Statesmen on both sides of the Atlantic correctly understood that
without the revival of the economies of the Western European coun-
tries there would be no basis for sustaining military power in any sig-
nificant degree. During discussions of the Marshall plan, and no doubt
even earlier, the ultimate military implications of European economic
recovery were clearly articulated. But it was also understood that even
in the short run, in view of the threatening behavior of the Soviet
Union, single-minded concentration on economic recovery was not a
viable policy.
This assumption that something was necessary beyond economic
assistance and recovery, was based partly on a belief that the process
of recovery itself was being seriously retarded by the fear that gripped
Western Europe as it lay defenseless in the shadow of Soviet armed
might. It was thought important to restore the confidence of those
whose decisions were crucial in the process of recovery itself-manage-
ment, investors, labor, government officials. The Czechoslovak coup,
the Berlin blockade, the persistent refusal of the Soviet Government
to come to any agreement on the reunification of Germany, and the
Soviet atomic explosion of September 1949-all of these things served
to remind Western Europe of the hostile intentions and military capa-
bilities of Russia. Why strain and sacrifice to accelerate economic
recovery and rebuild the national defenses when there was such a
strong possibility that all might be lost to the Soviet aggressor? Hav-
ing so recently gone through the successive experiences of enemy occu-
pation and friendly liberation, the people of Western Europe could
hardly be expected to provide the labor, capital, and overall human
energy required for economic recovery while facing the danger that
they might suddenly discover they had been rebuilding their econo-
mies for the benefit of Soviet captors. President Truman reflected
this belief when he declared that "however well conceived our economic
programs may be, they cannot succeed unless there is some assurance
against the outbreak of aggression."1 John Foster Dulles concurred
when he urged before the Senate Foreign Relations Committee the
ratification of the North Atlantic Treaty because it would "do much to
abolish fear" and thus "pave the way to reducing the cost and duration
1 Speech at Little Rock, Ark., June 11, 1949.
THE MILITARY ASSISTANCE PROGRAM
925
of the European recovery program." In these terms, the inhibiting
effect of Western European insecurity on the recovery effort was ex-
plained by American spokesmen.
But the danger went even beyond this: it was further argued that
the very process of recovery would itself increase the danger of ag-
gression against Western Europe. On the one hand, it was feared that
the Soviets would see in Western European economic recovery only
a rebuilding of the foundations of military strength. To the extent
that the twin processes of economic recovery and potential military
revival embraced Western Germany, the specter that traditionally
haunted Russia would be raised. From the Soviet viewpoint, it might
be well to strike before any such opposing military strength could
be created.
There was another way in which economic recovery was thought to
increase the likelihood of a direct military move against Western
Europe. Events since the Second World War had demonstrated, and
the February 1948 coup in Czechoslovakia had dramatized, both the
role of strong local Communist Parties in Soviet aggrandizement and
Soviet preference for internal, subversive seizures of power as against
outright aggression requiring the Red army to move across national
frontiers. To the degree that the European recovery program was
successful, however, it would progressively foreclose the chances for
successful subversion. Unemployment would be reduced; living
standards would be raised; consumers goods would become more abun-
dant; and in general, dislocation, instability and misery, on which
communism was presumed to flourish, would diminish. Thus, with its
preferred instrumentality, the local Communist Parties, rendered less
effective, and with its preferred means of action, internal subversion,
ever less likely to succeed, the Soviet Union might turn to adopt more
direct, if more risky, measures.
This 1948-49 analysis which pointed to the need for a military
buildup in Western Europe, can be restated briefly as follows: until
the fear of Soviet aggression that pervaded Western Europe could be
dispelled, economic revival could not be expected to go forward at
anything like the pace necessary to create within the foreseeable
future, the foundations of long-run economic, political, and military
power. To the extent that economic recovery was nevertheless
achieved, this would increase the "prize for aggression" (by making
these countries more valuable possessions for the Soviet Union) and at
the same time gradually reduce the likelihood that communism would
prevail through the tactics of subversion and infiltration. But West-
ern Europe, unable to defend itself, was fully exposed to military
aggression and the danger was believed to be that the Soviets would
be tempted to try it.
C. THE SECURITY THREAT TO WESTERN EUROPE
Underlying the official American analysis of the security threat to
Western Europe were certain assumptions concerning the behavior
to be expected of any totalitarian aggressor.
Footnoting their assertions with frequent references to the dictator-
ships of the interwar period, American statesmen expressed the con-
viction that any powerful totalitarian regime has unlimited ambi-
926
THE MILITARY ASSISTANCE PROGRAM
tions to expand. However, it would turn to the big war only as a last
resort, or would bring it on by miscalculation of the reactions of other
great powers. Denied the opportunity to subvert, its next preferred
strategy would always be to engage in swift, low-cost, piecemeal ag-
gression; it would be tempted only by a situation where prospective
gains clearly overbalanced probable costs. Recalling the failure of
the democracies to stand up to Hitler, Mussolini, and the Japanese,
United States spokesmen declared that potential aggressors ordi-
narily being unprepared deliberately to precipitate the major war-
could be deterred from undertaking even minor aggression if the
costs were made sufficiently high and it were made absolutely clear
that the consequence of any aggressive move would be the imposition
of those costs. In brief, the dictator would probably stop short if he
could be convinced that all paths to expansion were high-toll roads.
These assumptions regarding the typical behavior of aggressive dic-
tatorships helped to define a proper strategy to counter the threat to
Western European security and national integrity. The essence of
that strategy was to deter and therefore prevent aggression by in-
creasing the price which the aggressor would have to pay in trying to
acquire his new prize.

D. THE AMERICAN STRATEGY OF MULTIPLE DETERRENTS, MUTUALLY
REINFORCING
The strategy of the United States in meeting the threat to its na-
tional security which stemmed from the military weakness of West-
ern Europe, looked to a collaborative effort with its allies involving
a system of multiple deterrents.
1. United States atomic power as a deterrent
It was widely assumed from 1946 to 1949 that United States atomic
power was the principal, if not the only, deterrent to Soviet aggression.
The United States 6th Fleet's restless patrolling of the Eastern Medi-
terranean during this period underlined the United States atomic po-
tential. In Europe, for example, America's atomic arsenal was evi-
dently viewed as an effective deterrent, for while the European
recovery program (ERP) was being planned and adopted, there was
little discussion of filling in the military power vacuum in Western
Europe. Instead, discussion focused on the role of ERP in eliminating
conditions that made the European democracies susceptible to sub-
version or indirect aggression. The recovery program thus comple-
mented the deterrent effect of American atomic strength.
After the Czech coup, Western Europe acutely feared being quickly
overrun by the Red army and having to endure again the painful
process of liberation. United States atomic power did not seem to be
a sufficient shield and protector without some commitment as to the
circumstances under which that air atomic power would be used.
The prospective end of the American monopoly position, of course,
magnified this fear many times over. An approaching atomic balance
would drastically reduce, if not altogether remove, the only real de-
terrent Western Europeans felt they had to depend on against the pos-
sibility of Soviet aggression. The reason, of course, is that as Soviet
atomic capability grew, Soviet and West European governments
THE MILITARY ASSISTANCE PROGRAM
927
alike would begin to doubt that the United States would risk the
retaliatory destruction of its own big cities to save Berlin or the other
great cities of Europe from nonatomic attack. Thus even prior to
the revelation in September 1949 that the Soviet Union had exploded
its first atomic device, there was felt to be a gap in the West's system
of deterrents.
2. The North Atlantic Treaty as a deterrent
The North Atlantic Pact was the first peacetime treaty of alliance
signed by the United States since the earliest days of the Republic.
This commitment went a long way toward reassuring America's part-
ners in Western Europe of assistance in the event of Soviet aggression.
It also accomplished several related purposes. First, it converted the
possibility or presumption of United States intervention in case of
aggression in Western Europe or the Mediterranean area into a virtual
certainty. The united West had drawn the line across which potential
aggressors should step only at their peril. Second, the treaty was a
solemn testimony of American determination to remain involved in
European affairs. The 20-year commitment went well beyond the 4-
year lifetime originally ordained for the Marshall plan, and a great
deal further than the stopgap or short-term measures which had mark-
ed United States intervention in Europe before 1948. It offered our
new allies assurance against the possible resurgence of withdrawal
or isolationist tendencies in the United States itself. Third, the treaty
pledged the Western European signatories to a long-term cooperative
effort in partnership with the United States and Canada, and thus
offered the North American signatories assurance against the develop-
ment of neutralist tendencies or at least, against the effective impact
of such tendencies on the foreign policies of those countries. It was
generally accepted in the United States that the North Atlantic
Treaty allies on neither side of the Atlantic could accomplish their
task of countering the Soviet challenge by "going it alone." The
strength of the new commitment thus lay in the reciprocal need of
Western Europe and North America for each other.
3. Coalition military effort as a deterrent
The treaty and the related military-assistance program were based
on a further assumption that the Soviet Union could be more effec-
tively deterred by balanced military forces created through a coali-
tion effort and deployed to a large extent in Western Europe, than by
United States Armed Forces, even of the size and striking power that
the same American investment could create, the major part of which
would presumably be stationed on the American Continent in advance
of the outbreak of hostilities. In undertaking the European recovery
program, the United States recognized the economic debility of West-
ern Europe. It required little imagination to comprehend that coun-
tries whose economic systems were so nearly prostrated, could not en-
tertain the notion of launching a major-or indeed, even a minor-
rearmament program on their own accounts. If the stability, freedom,
and integrity of those countries were in fact indispensable to United
States security, and if one of the requirements of maintaining those
conditions was local military strength in being, then there was no
alternative to United States assistance.
928
THE MILITARY ASSISTANCE PROGRAM
4. Mutual reinforcement of deterrents
Each of these three measures for deterrence, developed to persuade
the Soviets that the penalties for aggression would outweigh the gains,
had a separate rationale of its own. But the major premise the
unifying assumption underlying this whole effort was that Western
defensive possibilities would be maximized through the interaction
and mutual reinforcement of these deterrents.
A basic assumption originally underlying military aid, it will be
recalled, was that United States atomic power, alone or in combina-
tion with the pledge of the North Atlantic Treaty, would not be ade-
quate to defend the countries of Western Europe. Conforming to
the behavior pattern of all totalitarian aggressors, it was expected the
Russians would automatically seek to avoid general war and would
send the Red army westward only on the calculation of a quick and a
relatively cheap victory. Consequently, if aggression occurred at all,
it would be launched when conditions favored the achievement of
Soviet objectives in a matter of days. Thus it was not simply the
possibility of being conquered, occupied, and then subjected to another
Îiberation that fanned the wave of anxiety sweeping Western Europe;
it was above all the fear that the aggression would be successfully
carried out so swiftly that United States atomic power would to all
intents and purposes be neutralized.
Should Soviet or satellite divisions occupy the major cities of West-
ern Europe quickly enough, they would have rendered themselves "in-
vulnerable" to atomic attack. This is simply because Europe would
hardly want to be "saved" by bringing nuclear destruction to Paris,
Frankfort, Brussels, The Hague, Rome, or Vienna even if it were
American rather than Russian bombs that wrought the destruction.
To be sure, if the United States were prepared to launch a major air
atomic offensive against the Soviet Union-which, when the era of
"nuclear parity and plenty" arrived, would instantaneously make
United States cities targets for Soviet atomic attack-and if this kind
of offensive alone were enough to bring Russia to her knees, then our
allies might be effectively liberated by atomic power without them-
selves experiencing atomic destruction. But there was no certainty in
1949, on either side of the Atlantic, that atomic bombardment alone
and quickly could defeat the Soviet Union. In that case, there seemed
little prospect that the state of siege in Western Europe could be
lifted. The Red army was famous during the war for its ability to
draw on local sources of supply and "live off the land" for long pe-
riods; and there was little reason to count on any loss of capability
on this score. To Europeans, therefore, American atomic power, in-
cluding a treaty guaranty of its swift application, fell considerably
short of the mark.
What would make the difference was local defensive strength in
Western Europe-military force in being, on the ground, blocking the
path to speedy victory for the Red army. It was unnecessary to seek
parity with the Soviet Union. The purpose of local defensive strength
in Western Europe was not to throw the enemy back across the Elbe,
or even the Rhine; it was to increase the cost of aggression thus hope-
fully deterring the Russians from ever undertaking it, and if they
did invade, to slow down their advance. Thus Soviet victory and

THE MILITARY ASSISTANCE PROGRAM
929
occupation would be delayed until United States power, including
atomic power, could be brought to bear and defeat the aggression.
Thus, it was possible to plan the original mutual defense assistance
program in terms of a "minimum force concept." Military defense
capability of that magnitude could perhaps be created on the basis of
United States-supplied end-items without gravely distorting and re-
tarding the recovery effort. The legislation establishing the Mutual
Defense Assistance Program asserted the "clear priority" of economic
recovery; and during much of the first year American spokesmen reit-
erated the intention of keeping rearmament in second place. In this
way, a military buildup in the short run was kept consistent with the
restoration of the only possible foundation for actual local military
strength in Western Europe in the long run-a vigorous, productive,
expanding economy. And likewise, this concept, it was hoped, would
minimize competition between the economic and military programs
for manpower, financial resources, raw materials, and for congres-
sional approval of requests for funds. The minimum force concept
and the "clear priority" of economic recovery were not destined to
endure for many months, but they are important to understanding
the form and scope of military aid at the outset.
There remains to be considered one final range of considerations,
the several ways in which the kind of program proposed was expected
to result in greater overall security for the West than a mere summing
up of the resources and forces contributed by each nation would sug-
gest. These "bonus" increments of strength were expected to accrue in
three ways.
First, considerable advantage would be gained from detailed coali-
tion planning and strategic deployment of forces well in advance of
aggression or outbreak of war. In the two world wars of this century,
both of them lasting several years, American participation in advance
joint planning among the prospective allies was less critical. Having
great military potential, but limited forces in being, the United States
still had time to make its potential decisive. It could build up its
own forces and provide aid to its partners after the war had gone on for
2 or 3 years, and after events had made clear where American in-
terests lay. But after the advent of atomic, and especially hydrogen
weapons, one could no longer count on a protracted war. In the new
era, the whole issue might well be decided in a matter of hours, or at
most, days. Preparedness at the outset, not potential for development,
became the critical factor. This meant that for a nation to use its
superior mobilization base, it had to do a whole series of military-
related things in peacetime that previously would not have been
thought appropriate except in war. Military aid in a framework of
interallied collaboration was one of the things that logically had to be
pushed back farther and farther into peacetime. Thus, because of the
time factor of war in the atomic weapons age, advance preparedness
was an essential element of power if the test came.
Secondly, an additional increment of strength was expected to ac-
crue to the West from integration of effort in the creation of balanced,
collective forces-a central premise of the North Atlantic Treaty and
the mutual defense assistance program. American spokesmen in-
sisted during the early days of the arms program that there was a
930
THE MILITARY ASSISTANCE PROGRAM
great difference between mere coordination and actual integration :
the latter required standardization of equipment and training, the
prior meshing of forces supplied by different countries into combat
units, and a much firmer consensus on central strategic concepts. Only
by being simultaneously a party to the North Atlantic Treaty and the
source of military equipment provided under the mutual defense as-
sistance program could the United States effectively push its allies
toward the necessary integration of effort.
2
Finally, it was expected that added strength would be derived from
the operation of a kind of "national security multiplier." American
manpower was relatively expensive to train and maintain, and in
relation to America's productive capacity, it was in short supply. In
Europe, the exact reverse was true, and emphatically so down to about
1952. The military assistance program therefore could be considered
to embody the principle of division of labor and comparative advan-
tage: end-items from America would help the Western European
allies make up their deficiencies in material, thus enabling their man-
power to be effectively used. This is not to imply that the United
States had embarked on the hiring of mercenaries; on the contrary, its
own troops would ultimately be involved in any conflict in Europe.
The need was to arrive at that combination of manpower and equip-
ment, contributed from each side of the Atlantic, which gave the great-
est total effective military power with the least input of effort and
resources. Before 1950, there were complementary "surpluses" of
manpower in parts of Western Europe where unemployment was high,
notably Italy; and of military equipment in the United States, espe-
cially during the first years of military aid, when many of the end-items
delivered abroad were from surplus stocks. It could reasonably be
argued that a program which put both "surpluses" into "active duty"
was sensible and economical.³
:
Along with a large available manpower pool, another "advantage"
possessed by the European powers was strategic location. By becom-
ing allied with those countries, the United States pushed its own stra-
tegic frontiers many thousands of miles farther east, thereby improv-
ing its defensive position materially.
The major strategy for defense of the West that grew out of these
assumptions may be recapitulated in several sentences. The job was
first to increase local military strength in Western Europe so that it
would be more than a tripwire for atomic counterattack in response to
the Soviet advance; this would help greatly to restore the morale and
2 Admiral Radford summarized this concept succinctly in 1955 while testifying before
the Senate Foreign Relations Committee:
"If we are to be adequately prepared and simultaneously maintain a stable economy for
the long pull, our forces must generally complement each other and constitute balanced
forces on a global scale.
"This balance can best be attained by each nation contributing to the pool those forces
and facilities that it is most proficient and best capable of developing. In view of our
vast industrial capacity, technological ability and limited manpower, we believe that the
most effective contribution which the United States is capable of making consists of
complex technical weapons and equipment, modern air and naval power, and highly mobile
offensive combat forces, backed by the Ready Reserves. On the other hand, we feel that
the other allied nations can most efficiently provide in their own and adjacent countries
the bulk of the defensive ground forces and local naval and air power" (United States,
84th Cong., Senate, Committee on Foreign Relations, Hearings *** on the Mutual
Security Act of 1955, p. 98).
This point may apply with even greater force, of course, when one considers American
military aid to certain underdeveloped countries.
THE MILITARY ASSISTANCE PROGRAM
931
spirit of the people there, and economic recovery could then be vigor-
ously and confidently pursued; and this recovery effort would in time
provide the basis for the real reconstruction of European military
power, so that ultimately United States aid would be unnecessary.
Thus military assistance was viewed as a kind of fulcrum from which
leverage would be exerted to accomplish a series of objectives. It
would make smaller wars less profitable to the aggressor and at the
same time would add to the deterrent effect of American air atomic
power by forcing the aggressor to realize that the launching of a
"small" attack was most likely to bring on the big war.
94413-57—————60
VI. CHANGING PERSPECTIVES ON MILITARY
ASSISTANCE PROGRAMS: 1950-56
The analysis of the assumptions underlying the Mutual Defense
Assistance Program has dealt almost exclusively with military aid in
the context of Western Europe. This may appear anomalous in 1956
when the proportion of American military assistance going to NATO
countries is small in comparison with what it was or with what now
goes to other regions. The explanation is simple. In 1948 and 1949,
American concern and anxiety were directed to Europe, for reasons
already explained. So it was with respect to that continent that the
rationale for military aid was formulated and articulated. After 1950,
and especially after 1952, the Far East and the Near East rapidly grew
in importance in American foreign policy, and correspondingly in the
shares of military assistance allocated to them. What has happened
to the basic assumptions underlying a program developed for Europe
as the focus of the program has shifted to Asia? The North Atlantic
Treaty and the mutual defense assistance program, one, a long-term
treaty, and the other, an operating program subject to annual con-
gressional renewal, have continued through the years to provide the
framework of our foreign assistance effort. World events have
naturally brought changes in the rationale of military aid, but it is
remarkable only that these changes have been so few. Changes in the
program that affected the broad dimensions, content, magnitude, and
orientations of the program can be grouped in five categories."
A. REVERSAL OF PROGRAM PRIORITIES: REARMAMENT TO THE FORE
Military shipments had scarcely begun to arrive in Europe, under
a program whose central tenet was the undisputed priority of eco-
nomic recovery, when halfway around the world there were new
eruptions which, in less than a year, would make places other than
Europe and efforts other than recovery, the primary American targets.
The fall of China in 1949 had shaken the American public, and this,
together with storm warnings in Korea and Indochina in the spring
of 1950, led United States policymakers to spur the European recipi-
ents of economic and military aid to more determined efforts at re-
armament. The necessity of greater effort, on their part and ours, was
plain for all to see after the aggression against South Korea in June
1950. Declarations of American policy reflected a new urgency: the
need was to rearm forthwith, even at the expense of economic recovery.
It was now required that all policies be governed by the "year of
greatest danger" concept. The new assumption was that the free
world had a limited, and a fairly specific period of time to prepare
1 The discussion of modifications and shifts in emphasis omits many of the issues which
arose in executive and legislative consideration of foreign military aid. Most of those
omitted had to do with the broad administration or detailed operation of the program, or
for other reasons fall outside the policy focus of this report.
932
THE MILITARY ASSISTANCE PROGRAM
933
before the adversary reached his peak of power and would constitute
the greatest peril.
By the time of the President's budget message in 1951, the prece-
dence of military programs was an established United States policy.
The first Mutual Security Act, adopted in the fall of 1951, officially
closed the era of the Marshall plan, and implied that future economic
aid for Europe and other areas closely associated with the United
States, would be used primarily to expand the economic base for mili-
tary production. By 1952 the implicit had become explicit; what had
in earlier legislation been described as "economic aid" was now called
"defense support."
2
The American demand for a posture of military strength in West-
ern Europe raised two large problems. First there was the necessity
of somehow cushioning the more severe effects of rearmament on the
newly achieved levels of economic activity and standards of living in
the countries allied with us. To a degree, defense support would
serve this function; but there was no intention that American largesse
should relieve the Western Europeans of all sacrifice. Secondly,
agreement had to be reached as to how the burden of rearmament
should be shared among the European NATO countries and between
those countries and the United States. This became of even greater
importance as western leaders began in another way to make explicit
that which had all along been implicit to visualize the defense effort,
not as a peak to be scaled in one supreme push, but as a relatively
high plateau stretching out as far as the human eye could reach. This
was the second major change affecting military aid between 1950 and
1956.3
B. FROM MAXIMUM PERIL POINT TO THE LONG HAUL
A new President and a new administration would have wanted in
any case to have a general stocktaking of American foreign and mili-
tary policy, but the external situation changed in such important re-
spects during 1953 that it seemed very much in order. The death of
Stalin and the purge of Beria generated an expectation in the West
that the Soviet Union faced a period of some degree of internal in-
stability, probably sufficient at least to make risky foreign adventures
temporarily unattractive.
An armistice in Korea was also achieved in 1953, bringing some re-
lief from the sense of crisis under which the anti-Soviet coalition had
lived for 3 years. And through that same year, awareness grew in
both America and Europe that the two opposing camps in world
politics were moving toward parity in nuclear weapons.
In response to these, and perhaps other, stimuli, United States
spokesmen began to define in new terms the nature of the rivalry with
Soviet Russia and the conditions necessary to achieve reasonable
security for the West. With growing frequency, it was asserted that
the contest with Soviet power would not be decided in a day or a week,
and that we faced competition in many fields, in all geographical
areas, with a variety of tactics and techniques. We were compelled to
adjust military force-levels, defense budgets, mobilization plans, and
2 Not only did our European allies have to sacrifice for rearmament, but the Korean
war increased the prices of raw materials which the industrialized countries of Western
Europe have to import for civilian and military production alike.
"It was not a novel idea that the free world would have to keep itself on a high level
of preparedness once it had rearmed, but many had thought the need for American mili-
tary assistance would diminish once Europe's economic and military strength was restored.
934
THE MILITARY ASSISTANCE PROGRAM
defense-related economic policies to the new reality that the burden
would have to be borne for "the long haul." No longer was the im-
perative to build up military forces precipitantly so as to be ready
for some moment of maximum peril, specified in advance. Instead, it
was necessary to gear ourselves to the maintenance of a strong military
posture over a long period; but this level of defense had to be such
that we could support it without such a cost to the economy as to make
it ultimately self-defeating.
This reinterpretation of the required future course of action had
important implications for many national policies, including foreign
military assistance. Two events, both largely responses to the exigen-
cies of the Korean war, had resulted in arrangements that were espe-
cially relevant to the concept of the long haul. In 1951 the Mutual
Security Act had brought together into one program all United
States foreign assistance, so that as an integrated instrument of policy
it could more effectively advance national security. Early in 1952 at
the Lisbon Conference a comparable advance had been registered in
NATO. This meeting adopted the recommendations of the "Three
Wise Men" (the Temporary Council Committee of NATO). This
three-man committee, after visiting the various countries of the alli-
ance, had recommended a solution to the troublesome problem of "fair
shares" in meeting the heavy demands for accelerated rearmament.
In subsequent years, the annual review was a means of maintaining
agreement as to the division of sacrifice among the allies. From the
standpoint of the United States, as the "banker" in the NATO coali-
tion, it was also a device to maintain more or less constant pressure
on its partners not to let their defense efforts lag.
Logically, the concept of the "long haul" applied as much to the
military assistance program as it did to the support of the United
States' own Armed Forces, but this was not always made clear. The
new administration assumed office in January 1953 with a firm deter-
mination to reduce Government expenditures generally and balance
the budget. Less was requested for foreign aid; and it was argued
that, by seeing that assistance was more effectively used, the Western
World could be assured of reasonable security while the United States
outlay was reduced. Some observers even believed that the notion of
"the withering away" of military assistance, except in crisis areas,
was held in high Government circles. In any event, there was no
immediate or deliberate confrontation of the issue of how long United
States self-interest would dictate that it share its resources with
friendly foreign nations. Not until 1956, in fact, was there a flat
statement recognizing the implication of the "long haul" concept for
foreign military aid, that so long as the world outlook remained as
it was and America had allies willing to share the burden, the program
would have to go on.
There were other manifestations during 1953 and 1954 of the com-
bined impact of the "long haul" concept and the economy drive in
the American Government. Defense planners foresaw in subsequent
years a considerable decline in the value of military end-items supplied
to Europe. It was argued that as American resources were devoted
instead to a large-scale capital buildup, there would be a permanent
increase in defense capability at a cost which ultimately would be
much lower. Americans revealed a heightened interest in Western
THE MILITARY ASSISTANCE PROGRAM
935
European unity, often questioning whether the nations receiving
mutual security assistance were really being "mutual" enough in their
relations with each other. The assumption was that if they really
cooperated, a given amount of United States dollars would "purchase"
an increased "amount" of security.
Another way to gain strength in Western Europe with a less than
proportional demand for American assistance was thought to be the
inclusion of Germany in the defense compact. Germans enjoy in
the United States a high reputation as combat soldiers but were en-
tirely out of uniform; German industry was booming but was not
geared to the western rearmament effort; and prosperous Germany
did not seem to be paying its full share to meet the common threat.
The quest for a formula for German participation in Western
Europe's defense played a prominent part in foreign policy discussions
among the NATO countries during 1953 and 1954 and was one of the
important motivating factors in the drive to establish a European
Defense Community. This latter project had so great appeal in the
United States that foreign aid appropriations for the fiscal years
1954 and 1955 both were passed with provisions that made their avail-
ability partly or wholly dependent on the recipients' having ratified
the European Defense Treaty.
The theme of "trade, not aid" was attractive to those who believed
the revival of international trade was a good thing in itself, but it
too expressed the idea that the more intensive the international col-
laboration of our NATO allies, the less we would have to spend on
them. It was agreed that the more devices that could be found to
raise the level of intra-European and European-Western Hemisphere
trade, the greater could be the cutback on foreign assistance without
adversely affecting defense capabilities.
The transition to the long haul concept inevitably raised the ques-
tion, "How long is 'long'"? Was foreign aid, with the military pro-
gram the largest part, to be a regular charge upon the United States
budget-or, even granting the long-term nature of the problem, could
one formulate hypothetically a test of free world security by which
one could tell how much, if any, military assistance was still needed?
Even by 1956, there seemed to be no real answer to this question.
C. FROM EUROPE TO ASIA
Beginning in 1950, American public and official attention ceased
to concentrate so single-mindedly on Europe and began to face up to
issues in Asia. The curve of military aid to countries in the Far
East followed an upward course as that to Western Europe fell, par-
ticularly in 1954 and thereafter.*
The earlier concentration on aid to Europe followed from the then-
accepted set of strategic considerations concerning the importance and
defensibility of the friendly nations of that continent, but it was also
• Aid to France had doubtless made it much easier for France to support the war in
Indochina, so that some aid which was, prior to 1954, carried in the "Europe" column.
could with at least equal propriety have been charged to Asia. By mid-1952 France had
spent about twice as much on the war in Indochina as she had received in aid since the
beginning of the Marshall plan. A large part of the offshore procurement program in
France was producing military end-items destined for Indochina, and most of the French
counterpart funds were being spent for that war. The United Kingdom effort to suppress
guerrilla warfare in Malaya would seem similarly to have been indirectly financed out of
aid which ostensibly was going to Europe.
936
THE MILITARY ASSISTANCE PROGRAM
based on their ability to absorb American weapons and equipment,
which was thought to be much greater than that of countries in the
Near East and in the rest of Asia. The increased share of Asia in
military aid resulted from a series of dramatic events in the Far
East: the defeat of Nationalist China in 1949 and the withdrawal of
its government to Formosa, the worsening situation in Indochina be-
ginning in 1950, and the outbreak of the Korean war in June 1950. It
also resulted indirectly from the substantial progress that was being
made in Western Europe. Expectations were high that by 1954
adequate force levels would be achieved in Europe and a sound mobili-
zation base created. Most important of all, the various deterrent
measures undertaken in Europe seem actually to have deterred, for
there had been no large-scale aggression and the danger of subversion
and piecemeal aggression had almost entirely vanished. To the ex-
tent that all the European roads to easy conquest had been blocked,
the Soviets were impelled, if they were not to give up their expansion-
ist design completely, to probe the possibilities in the East, whether
through their own action or through the instrumentality of their
Chinese and other Communist friends in Asia. It was logical, there-
fore, for the United States to support the effort to defend the non-
Soviet countries of Asia.5
D. CONGRESSIONAL CONCERN WITH PROGRAM DETAILS
Perhaps reflecting a growing suspicion that foreign aid was in
the process of becoming a fixed part of the annual United States
budget, Congress exhibited during the years after 1952 a growing con-
cern with the operating details of the program. This was reflected
not only in the more critical and detailed scrutiny of each year's pro-
gram in congressional committee hearings but also legislative pro-
posals, not all of them enacted into law: restricting the use of military
end-items; making the continuation of aid contingent on the attain-
ment of highly specific performance levels, such as the establishment
of the European Defense Community or the activation of a stipulated
number of NATO divisions; seeking to enforce American proscrip-
tions against Western European trade in strategic items with the
Soviet bloc; and keeping executive agencies engaged in military assist-
ance on shorter rein by more critical scrutiny of their unobligated and
unexpended balances.
The constricting effect of certain of these provisions was mitigated
by the grant to the President of power to allow exceptions to Congress'
general directives when he believed that the interests of national
security so warranted. This was, for example, true of the Battle Act,
which under certain circumstances permitted the President to suspend
its penalty provisions. He was also given power to reallocate funds
up to specified percentages as between different areas, as between coun-
tries in the same area, and as between functional uses (military,
defense support, etc.). Thus, despite a tendency to increase the num-
ber of conditions written into foreign assistance legislation, there was
5 Logical as this effort was, it carried with it a danger of creating expectations that
would not and perhaps could not be fulfilled. For a number of reasons, developed subse-
quently, the implications of military assistance to the highly organized and industrialized
countries of Western Europe were totally different from those applying in the case of
underdeveloped and, in many cases, recently independent nations on the southern and
eastern flanks of the Soviet world.
THE MILITARY ASSISTANCE PROGRAM
937
a countervailing tendency to maintain necessary flexibility by specific
grants of Executive discretion.
E. ESTIMATES OF SECURITY THREAT AND OVERALL WESTERN STRATEGY
The 1953-56 period saw the emergence of a New Look in Soviet
foreign policy following the death of Stalin, and the growth of post-
humous anti-Stalin policies on the part of the new Russian leaders.
The tactical changes in Soviet policy involved mounting an offensive
on the economic and cultural fronts in the uncommitted countries of
Asia, the adoption of the "Geneva smile" as a symbol of alleged new
sentiments of amity toward the West, and the announcement of a
voluntary and unilateral reduction of Soviet land forces. The in-
tended effect was doubtless to lead the free nations to lower their guard
and relax their efforts. By word and deed, the United States sought
to forestall any such reaction among its allies. Certainly the United
States did not, as a direct consequence of these Soviet tactics, alter in
any significant way the policy of aiding other free countries to build up
their military defense capabilities.
A portentous development of these years has been the achievement
by the Soviet Union of approximate atomic parity with the United
States. The arsenals of both countries are now stocked with multi-
megaton thermonuclear weapons. If it was reasonable to develop the
foreign military assistance program under conditions of American
atomic monopoly, and when few realized how rapidly the Soviet Union
would become an atomic power, there was even greater force of logic
in continuing it during the years of "nuclear plenty" and stalemate.
Under conditions of mutual deterrence, the Soviet Union would be
tempted to trade on its opponent's unwillingness to embark on full-
scale two-way thermonuclear war as a response to some smaller scale
nonatomic aggression. The free world coalition thus still had to be
prepared to fight with conventional weapons, or perhaps using atomic
weapons tactically in limited warfare situations. So long as the
United States was not ready to rely exclusively on major assaults on
the airbases, population and power centers of the enemy (and on con-
tinental air defense against a similar attack by the enemy), military
assistance was an essential part of a system of multiple deterrents.
It is noteworthy that foreign military assistance-an instrument
devised before 1950 to meet conditions as they were then perceived-
proved itself adaptable during succeeding years to a rather different
set of circumstances. The mutual defense assistance program had
originally been formulated as virtually a onetime operation. Al-
though no terminal date had been placed on the program, the original
intention had clearly been to help equip the armed forces of the NATO
countries as much as possible from the United States vast surplus
stocks of end items. There was no evidence that the Congress was
consciously legislating a program that would be renewed and revised
annually for an indefinite number of years and constantly have to be
readapted to changes in world politics. By 1956 military aid had
thanged in ways that could scarcely have been foreseen in 1949.
From the original 12 countries, all relatively advanced European
nations, the list of aided countries had grown to about 40, and of this
number, 25 fell into the classification of "underdeveloped." Most of
these 25 nations were in Asia and a wide range of new problems had

938
THE MILITARY ASSISTANCE PROGRAM
been encountered in assisting with their military buildup. However,
the most dramatic changes had come in Europe. Quality, rather than
quantity, was the new watchword of the effort in Europe and, in fact,
in quantitative terms the effort there leveled off; by 1956 grant aid to
Europe was largely for training, replacement, spare parts, and main-
tenance. "Defense support" largely took the form of supplying
Europe with surplus United States agricultural products. The United
States and Canada together were supplying only about 15 percent of
the costs of common defense in Western Europe, the remaining 85
percent being the contribution of the European ÑÁTO countries. All
of this seemed to suggest that European capacity for "self-help and
mutual aid” had indeed been restored. This was of real significance
as the United States came to accept the "long haul" concept with the
Soviet threat limited neither in time nor in location and at the same
time sought to cut down its own annual defense outlay.
6
But, in addition to the expanded threat in Asia, there is a second
important obstacle to bringing down further the cost of military aid,
one which applies particularly to the NATO area. This is the recog-
nized need to modernize and reequip the NATO armed forces, whether
or not we are to supply our NATO allies with the atomic warheads
in advance of war, with highly expensive guided missiles, jet aircraft,
and the array of fantastically expensive advanced electronic devices
required by modern fighting forces. The United States may well, as
the cost of new weapons continues to rise, have a hard choice between
maintaining the progressive shift to reimbursable military aid for
Europe, on the one hand, and providing the NATO fighting forces
with the equipment required for their maximum combat effectiveness
and our maximum protection on the other. In meeting this problem,
the new concept of military assistance geared to the long haul will
meet another test of its adaptability to the ceaseless dynamics of both
technology and world politics.
• Except for the United Kingdom, the percentage of military hard goods financed from
this side of the Atlantic has been much larger.
VII. STRENGTHENING AMERICA'S FREE WORLD PART-
NERS-CONTRASTING MILITARY ASSISTANCE PAT-
TERNS IN NATO EUROPE AND ELSEWHERE
The prime objective of military assistance is obviously to transform
some of the United States economic strength into its free world part-
ners' military strength. It does this by providing funds to help equip
and train their forces and to strengthen the industrial base for their
own mobilization efforts. An evaluation of the extent to which the
program has achieved this objective must take account of the widely
divergent characteristics of the recipient countries. The program
began in NATO Europe, one of the most complex and intricately
organized industrial areas of the world. Emphasis has now shifted
to the Far East, south Asia, and the Near East, to countries with
underdeveloped economies and often with peasant, agricultural so-
cieties. Inevitably, in providing military aid in such different con-
texts, there are major contrasts in the objectives we have a reasonable
hope of achieving, the character of the arrangements, the content of
the programs, and the possibilities of self-help and mutual aid. These
contrasts are fundamental to any attempt to assess United States.
military assistance policies.
1
For the purpose of drawing relevant distinctions, it is necessary
to view the NATO countries of Europe as one reasonably homo-
geneous group, and the principal recipients of military aid in the
Near East and Asia as another. This blurs the issue with respect
to some countries. Spain and Yugoslavia, for example, are in Europe
but are relatively underdeveloped; neither is a member of the North
Atlantic Treaty Organization. Greece and Turkey are members of
NATO but have economic problems more like their non-NATO neigh-
bors than fellow members of NATO. Japan is in a region of retarded
economic and political development but is itself a technologically
more advanced industrial nation. The contrasts about to be drawn
between NATO and non-NATO recipients, while not always appli-
cable to individual countries, are nevertheless of value in suggesting
the widely divergent situations in which the United States has pro-
vided military aid.
A. THE BIG WAR AND SMALL WARS
The outbreak of a small, limited war between East and West in
Europe is difficult to envision. At any rate, the expectation is low
that a small war in Europe would remain small. On the other hand, in
the non-European portion of the Eurasian rimland, protracted and
bitter less-than-total wars have already occurred. In Korea and Indo-
1 Aided countries in Latin America do not fall in either group. However undeveloped
their economies, they do not have to solve their urgent problems of economic development
and at the same time face a Soviet military threat.
939
940
THE MILITARY ASSISTANCE PROGRAM
china, the biggest "small" wars in history were fought, and in other
parts of the area, the Philippines and Malaya, there have been long-
drawn-out military actions against Communist-led or Communist-
inspired guerrilla forces.
2
In the Near East and Asia there has been an aspect of improvisation
to American policy; perhaps this only reflects our need to respond
promptly to the initiative of an opponent so centrally situated as a
land power that it has a wide choice of alternative points at which
pressure can be exerted. The hope is that a prompt response in Asia
insures against the conflict being transferred to Europe or North
America where it would trigger two-way thermonuclear war. The
contingency in Europe for which we are helping to prepare is pre-
sumably far beyond this "fire brigade" type operation. With our
European allies, we have been engaged in long-range planning to
strengthen military defenses and to deter the enemy from starting
world war III. Not since Greece, where the conflict was technically a
civil war, has the, United States been obliged to come precipitantly
to the aid of a European victim of Communist aggression. Mili-
tary assistance to Europe and to Asia must therefore reflect the very
different kinds of fighting which are envisioned in the two areas. The
aid program has been variously criticized for attempting to shape the
armed forces of its allies in the American image and for helping to
create World War II type divisions all over the world. Whatever
the facts, the criticism would be much less relevant to Asia than to
NATO Europe.
B. ROLE OF UNITED STATES FORCES IN THE ANTI-SOVIET COALITION
Following from the belief that any size war in Western Europe
would be likely to result in full-scale war in which the United States
would be immediately involved, the sharpest debate has centered on
the role of American ground forces in such a conflict. Would the
United States seek to defend its European allies in Europe or was the
function of United States forces stationed there to be the "plate-glass
window" whose smashing would invoke against a Soviet aggressor
the dread sanction of strategic airpower? This issue was fully aired
in 1951, and it has since been American policy to maintain forces there
which express our intention to defend Europe in Europe, rather than
to allow the Continent to be overrun and to face liberation again in
the hour of victory.
In the non-European areas there has been no such commitment made
nor expectation created. Opinions have differed sharply as to whether
in the Far East the United States could in the end fight "an immacu-
late war," a war in which our contribution would be to provide the
decisive thunderbolt from afar and one in which we avoided the use
of our own troops by making equipment and training available in ad-
vance so that the relatively plentiful manpower resources of those
countries could be utilized to advantage. Whichever side Americans
have taken on this issue, they have certainly been less willing to have
2 This point can be overstressed. Certainly in the case of Communist China, and to
some degree with Russia, geographical distance and barriers and an inadequate overland
transport system place limits on the rapid mobility of forces from point to point. Some
military observers question whether Red China, for logistical reasons, could sustain a war
that required her to fight simultaneously on two major fronts some distance apart.
THE MILITARY ASSISTANCE PROGRAM
941
large United States land forces stationed at exposed points outside of
Europe than within it. And they have shown resistance to any strat-
egy that would require American ground forces in Asia to bear the
main brunt of an enemy's land attack. Our most recent experience
with warfare on the Asian mainland, the defense of South Korea, has
hardly increased American inclination to supply large quantities of
troops for action in the Far East.
Proponents of two otherwise opposed strategic doctrinal positions
could easily find themselves in agreement on this point. Advocates of
great or exclusive reliance upon long-range air atomic power can see
little future role for ground forces anywhere, and would be especially
hostile to the idea of pouring our resources into the bottomless well
of a land war in Asia. On the other side, among those who argue that
the United States must be prepared to fight limited, "peripheral”
wars, that we would actually become more insecure if we had nothing
in our arsenal of weapons other than the ability to deliver nuclear
bombs to the adversary's heart, many would also oppose committing
divisions of American troops to the Asian mainland. They would,
for example, attribute the defeat of the South Korean Army during
the early weeks of fighting in 1950, to the lack of adequate training
and modern equipment provided its forces. Prior military assist-
ance, they would argue, could have made up the deficiencies and
obviated the need for large numbers of American troops, for either
deterrent or actual combat purposes.
This idea does not assume the total absence from the area of per-
sonnel in American uniform. On the contrary, as the situation in
Taiwan illustrates, there are numerous functions that United States
military personnel can perform without the United States committing
itself to supply frontline divisions in land warfare. American train-
ing and advisory personnel are present in substantial numbers because
of the large-scale military effort and the relative unfamiliarity of the
Chinese with complicated mechanical and electronic equipment and
modern tactical principles. However, short of their assignment to
positions of authority with smaller army units or their participation
in actual hostilities, they are not in such a role "invested with the
national presence" in the sense that 5 or 6 full divisions in Europe are.
In any case, the participation of several thousand American officers, or
the "sandwiching in" of special United States units to stiffen the
morale and to make up for technical and specialized weapon deficien-
cies of the native soldiers, would not be open to the same criticism
as our "getting bogged down in a land war in Asia." And, of course,
American air and naval power could become involved to almost any
degree without this objection being raised.
The object of military assistance in Asia is therefore to help Asians
themselves deter or defeat a challenge in less-than-total war or, failing
this, to prepare them to hold out until specialized United States air,
sea, and land support can be brought to bear.
C. THE THREAT OF OPEN WARFARE AND THE DANGER OF SUBVERSION
In providing military assistance to friendly countries, the United
States has been augmenting its allies' military defensive strength
against two major contingencies: outright aggression, and internal
942
THE MILITARY ASSISTANCE PROGRAM
subversion, disorder, and civil war. Since 1950 there has been a
marked contrast betwen Europe and Asia as to the imminence of these
threats. There have been no open hostilities in Western Europe be-
tween pro- and anti-Soviet forces, and there has been a growing ex-
pectation that the deterrents erected by the United States and its allies
would prove effective. In the Far East, on the other hand, not only
were there two instances of large-scale warfare (Korea and Indo-
china), but in each case there has been a fear that the armistice which
followed these wars might be abrogated at any time. And in the case
of a third war, the civil war in China, Nationalist China's cessation
of hostilities with the Communist opponent has not been followed by
any formal armistice agreement at all. As a consequence, there are
situations in Asia where American military assistance has seemed to
be required in massive amounts, not only to satisfy a theory of de-
terrence, but to prepare local forces to fight an aggressor capable of
striking at any time.
Similarly, in the case of threats from subversion and internal dis-
order, Asia has presented the more serious problem. Until 1949 or
1950, this danger loomed large in Europe; local Communist parties
had been strong and the Communists wielded considerable power in
labor unions, especially in France and Italy; the Communists openly
avowed their objective of achieving coalition or popular-front govern-
ments; and the Czech coup was an impressive object lesson in the
way this device might serve as a steppingstone to assumption of full
power in a Western European state. The relationship of military aid
to the prevention of this indirect type of aggression received consider-
able emphasis during consideration of the Mutual Defense Assistance
Act. It was assumed that, with growing capacity for self-defense,
Western Europeans would experience a new confidence, and that their
governments would be strengthened to resist indirect aggression. In
actuality, the real advances in economic recovery by the time NATO
was organized and the military-assistance program was fully under-
way made subversion seem no longer a pressing concern in Western
Europe.
In Asia, subversion and internal disorder had been major problems
continuously from the war years, and are still prime dangers for some
of the newly established governments and traditional colonial powers
alike. Merely to list the principal disturbances in east and southeast
Asia over the last 10 years-the Chinese civil war, the Korean war,
the Huk rebellion in the Philippines, the guerrilla warfare in Malaya,
the struggle with the Vietminh forces in Indochina, a variety of dis-
orders generated by fragmented rebel groups in Burma-is to suggest
the degree to which civil war and internal disorder have threatened
the security of the area.
It may be of little importance whether local rebel groups are Com-
munist led or even avowed Communists. Unfulfilled nationalist as-
pirations and demands made in the name of social justice can, whether
or not exploited by Communists, create turmoil, disorganize national
life, and undermine the stability of governments, thereby serving
Soviet, whether Russian or Chinese, purposes. For this reason, mili-
tary assistance policies in many Asian countries have emphasized the
creation of internal-security forces. Even where the armed strength
developed is no match for the Chinese or Soviet Russian military
THE MILITARY ASSISTANCE PROGRAM
943
power that could be pitted against it, these forces are helping to meet
a local threat which is real and imminent.
D. THE DEGREE OF INTRAREGIONAL CONSENSUS
A calculation that must affect the decision to grant military aid is
that of the risk that such equipment and training will finally be used
against someone other than the principal target of security arrange-
ments, as viewed by the United States, and the alternative risk that
this new military power, though used against the intended target, will
be used more aggressively than the United States intended, thus leav-
ing to an ally the possibility of starting a war which the United
States did not want at a time it did not want it. There has always
been the chance, and the Suez crisis has shown that it was more than
a chance, that American equipment would be employed in wars that
reflected Britain's and France's interests in areas of traditional
activity. Insofar as it was practicable to do so, the United States
hedged against this possibility by writing geographical limits into
the North Atlantic Treaty commitment and by the terms of its
bilateral aid agreements. However, in NATO Europe, military assist-
ance was given on the basis of a fully developed intraregional agree-
ment, which in turn expressed the wide consensus that already existed
among those countries concerning the common threat to their security.
There seems almost no possibility that equipment supplied by military
assistance will be used by any of the NATO countries against another
nation within Western Europe.
Again the contrast is dramatic when the spotlight is shifted to
nations on the Asiatic periphery of the Soviet world. There the
chances are much greater that American supplies and equipment may
in the end be used in ways and against adversaries other than those
intended by the United States. No real counterpart of NATO has
existed in Asia, for there is not the same widely shared intraregional
consensus to receive expression in a mutual defense agreement.
SEATO is technically a treaty of this kind; but it is self-evident that,
though it may have a superficial resemblance to NATO, its substance
and significance are different. It does not express any real consensus
on the common values being secured by military assistance and de-
fense arrangements. No comparable degree of mutuality is a condi-
tion of aid. Furthermore, SEATO is formed of countries located at
considerable distances from each other and lacking any prior experi-
ence in defense collaboration. From all reports, any advance, joint
planning for greater effective military strength that may go on is but
a pale reflection of this function as carried on in NATO. (The Bagh-
dad Pact may have forged closer bonds than SEATO, but its coalition
military planning activities cannot be compared with those of NATO.)
Finally, in Asia and the Near East there are several situations that
go beyond a mere absence of consensus among neighbors. The dispute
between India and Pakistan (over Kashmir) and the hostile relation-
ships between the Arab States and Israel are without real parallels in
Western Europe. Although it has proved possible to carry out a rela-
tively large military assistance program with Pakistan, that country's
conflict with India demonstrates how difficult it is to make effective
use of military aid when the aided country has an acute unresolved
conflict with a country with which the United States seeks to maintain
944
THE MILITARY ASSISTANCE PROGRAM
cordial relations. The net gain achieved from the Pakistan program
has to be calculated so as to take account of the loss suffered in our
relations with India where our action has produced resentment and
suspicion.
Military aid based on prior regional consensus is virtually im-
possible in the Israel-Arab States context since each side views the
other, rather than Soviet Russia, as its mortal enemy. Assisting in
an approximately equal military buildup on the two sides would sup-
port the most unprofitable kind of arms race, while granting military
aid to one side also only entails undesirable consequences: the upset
of a prior balance, however tenuous, which may have prevented either
side from taking the initiative, or provocation of the side that was
being disadvantaged to turn to the Soviet Union or its satellites for
countervailing aid. This situation is at the other end of the spectrum
from the consensus among neighbors found in NATO Europe.
3
E. RELATION OF MILITARY EFFORT TO COUNTRY'S STAGE OF ECONOMIC
DEVELOPMENT
The Mutual Defense Assistance Program having been formulated
in terms of Western Europe, it was believed that United States aid
would serve two closely related purposes in the security field: first,
provide actual military end items and training so as to raise defense
capabilities in the short run; and second, help build or restore the
foundations of long-run sustainable military power in the recipient
countries. Several consequences for American policy follow from
the fact that in the non-European aided countries, Japan being the
main exception, there is very little possibility in the visible future
of maintaining the present level of military effort on the basis of
indigenous resources, technology, and productive capacity without
continuing assistance.
4
This Europe-Asia distinction may explain the very different pres-
sures which the United States is reported to have exerted in the two
areas. In Western Europe there has been a constant effort to en-
courage the NATO countries to raise their arms levels and defense
budgets and accept the necessary sacrifices to their standards of liv-
ing; frequently in Asia and the Near East the effort has been to con-
vince local leaders to hold arms levels down so inflation can be con-
trolled and some kind of balance achieved in the allocation of the
country's manpower and material resources between the military ef-
fort and progress in achieving economic development and political
stability. Some Asian leaders, Syngman Rhee being an outstanding
example, have sought to build or maintain much larger armed forces
than the United States has thought necessary. In this kind of situ-
ation, military assistance has an obvious leverage potential; we will
help train and equip this many divisions and no more. But it also
has a more important function; by increasing the quality, mobility,
and firepower of local forces, it should be possible to get the same
degree of military effectiveness with fewer men under arms. By
The Cyprus conflict has embittered Greece's relations with Great Britain and Turkey
and is an exception to the generally prevailing consensus, not yet, however, so serious as to
tempt any of the three to turn to the Soviet Union for aid.
It is reported that Pakistan may be the only other country that could make much of a
contribution toward sustaining its own military forces-as a result of the major arsenal
the British built, an installation apparently of great capacity and versatility.
THE MILITARY ASSISTANCE PROGRAM
945
thus raising the quality it makes possible lowering the quantity of
troops. Military aid cannot eliminate the necessity for sacrifice and
hard choice which underdeveloped countries with urgent military
threats and unresolved social and economic problems have to make,
but it can help bring the sacrifice and hard choice within manageable
limits.
The consequences of an interruption of military aid are vastly dif-
ferent in Western Europe and in Asia. The European nations have
a substantial organizational and industrial base to sustain military
forces, and American aid has strengthened that base. By definition,
however, the underdeveloped country has no such economic base;
what it has by way of military equipment and supplies will probably
correspond rather precisely to what has been provided by foreign aid.
Even if such a non-European country is at a more advanced stage of
industrialization than its neighbors, it is unlikely to have much heavy
industry, a prerequisite for large-scale arms manufacture. In fact,
the military absorptive capacity of the underdeveloped countries of
Asia is limited by their lack even of the plants and technicians capable
of servicing and maintaining the military equipment provided.
When this fact of minimal or nonexistent military strength apart
from outside support is juxtaposed with the public identification and
alinement with the United States which is part of the process of
receiving military aid, there emerges a distinct picture of the kind
of relationship into which the United States has entered. A nation
politically and economically underdeveloped, without hope of inde-
pendently sustaining a significant military effort, has been given out-
side support sufficient to build up its armed forces. In the process
of lining up openly with the United States, it relinquishes the uncom-
mitted role that at least several Asian nations have found rather com-
fortable, and identifies itself before Soviet or Chinese power as a
growing point of potential opposition. Thus, if the United States
had a sufficient security interest in the independence and integrity of
the particular country to begin an aid program in the first place, there
would be a strong presumption against the termination of assistance
so long as the Soviet threat persisted and the aided country remained a
loyal ally. For military, and especially psychological reasons, to in-
terrupt the program for any length of time would probably be to leave
the country more "exposed" to the adversary than if military assist-
ance had never been begun. It would also, one may presume, do
severe damage to the prestige and national reputation of the United
States in Asia.
The essence of this contrast is simply that in Europe the United
States has had the hope of some "phasing out" of American assist-
ance and one need only consult the tables of annual foreign aid
appropriations and obligations from 1950 to 1956 to see the major
extent to which it has been realized; whereas in Asia, once military
assistance is undertaken, logic, and perhaps moral obligation, argue
for a long-term continuation of support.
F. CHOICE BETWEEN MILITARY POWER IN BEING AND ECONOMIC PROGRESS
A corollary of the distinction drawn above is that in the industrially
advanced countries of Western Europe, the choice between increasing
defense capabilities and increasing national productivity tends to be
946
THE MILITARY ASSISTANCE PROGRAM
less drastic than in the underdeveloped countries, and that choice is
made easier still by the kind of aid the United States has extended
under the military assistance program. The greater the gap sepa-
rating standards of living from subsistence levels, the greater the
industrial plant capacity, the higher the rates of per-man and per-
hour productivity, presumably the greater will be the margin available
to reallocate to military ends. Military equipment supplied from the
United States represents that many more items, immediately avail-
able, without any diversion of resources to produce them in the coun-
try; and offshore procurement contracts can, and presumably are,
awarded in such a way as to contribute positively to both the defense
effort and overall productivity, the latter by supporting the moderni-
zation of production facilities, the expansion of capacity, or at least
the fuller utilization of capacity.
The situation in much of Asia differs sharply in degree if not in
kind. The margin separating current levels of living from bare sub-
sistence is narrower. A country's own contribution to its military
buildup manpower, food and clothing-has less relation to capital
accumulation and economic development than to current consumption
levels. Asian manpower may appear abundant, but in nonindustrial
areas the techniques of production require such a large labor input
that the "huge pools of manpower" not gainfully employed are largely
fictional. The transfer of substantial numbers of the most able-
bodied citizens to the Armed Forces might simply result in a failure
to produce enough food. The total impact of military assistance on
economic life, far from relieving pressure on the economy, can in fact
be such as to require additional economic (defense support) aid from
the United States. This latter form of aid would probably be needed
to counter the inflationary effects of military aid.5 So used, it would
do little to promote longer-run economic development. Thus, the
underdeveloped countries of Asia, to a much greater degree than those
of NATO Europe, may have to postpone greatly valued economic
advancement to achieve higher levels of military strength. Generally
speaking, American military assistance to Asia does not tend to pro-
mote both objectives at the same time, as to some extent it has in
Europe.
G. PSYCHOLOGICAL IMPACT OF MILITARY-ASSISTANCE PROGRAM
6
Most Western European nations have long military traditions and
have largely succeeded in harmonizing a large military establishment
with the institutions of parliamentary government, individual free-
dom, and civilian supremacy. Succeeding generations have been
inured to the idea that to sustain certain levels of military prepared-
ness is the price they must pay for their freedom and independence.
A new rearmament effort, spurred by American military aid, is no
more likely to weaken those institutions than any previous one.
But over the long run, the outcome is unpredictable with respect
to the underdeveloped countries of the Near East, south Asia and the
5 In Korea, for example, foreign goods provided under defense support were sold to the
public. The Korean currency thus retired from circulation partly counterbalanced that
used to support the military forces.
"Germany may be cited as an exception, but the German military in the Hitler era has
been more criticized for obeying its civilian superiors, the Nazi leaders, than for scheming
to overthrow them.
THE MILITARY ASSISTANCE PROGRAM
947
Far East. Many of these nations are newly independent and without
experience in keeping large armed forces from playing a decisive role
in their internal politics.
The intention here is not to imply that the countries of Asia will,
necessarily or for any inherent reason, prove less capable than the
advanced nations of the West of maintaining military forces in being
for long periods. The point is to suggest that the situation is full
of imponderables. If the size of the forces is so large as to bear little
relation to the country's potential, are the economic, political, and
psychological centers of gravity likely to shift from the civilian into
the military sector of national life? What are the implications for
future internal peace and stability of teaching large numbers of citi-
zens to handle small weapons and perhaps accustoming them to eating,
dressing, and being paid better than they would be if there had been
no military aid or if it were to stop?
This contrast between the psychological impact of a military build-
up in NATO Europe and in the Asian periphery must be left in the
form of questions. They appear, however, to be questions worth
asking.
How far has military assistance achieved its paramount purpose, to
strengthen America's friends and allies militarily? Much has been
accomplished in NATO Europe, although opinions may differ as to
whether that much has been enough or whether present levels of
military effectiveness can be maintained without further military
assistance. In Asia, military assistance has certainly bought time, but
there is almost unanimous testimony that it has not yet and will not
soon create conditions that make its continuance unnecessary—unless
the United States is prepared to yield on the issues which first made
military assistance seem imperative.
94413-57-61
VIII. OTHER SECURITY IMPLICATIONS OF MILITARY
ASSISTANCE
Any appraisal of the total consequences of military aid must go
beyond an inventory of its effects in the various aided countries.
Military aid has other effects, often unforeseen. Many of these effects
are regarded as desirable, and of these some are directly related to the
promotion of American security.
A. NEWER AND BETTER EQUIPMENT FOR UNITED STATES ARMED FORCES
Funds appropriated for military assistance have helped to provide
our own Armed Forces with new equipment of the latest models and
most advanced types. This results directly from the provision in the
Mutual Security Act governing the procurement of common items-
those types of equipment which are used by both the United States
Armed Forces and those of aided countries. Items to be furnished
recipients of military aid can be drawn from equipment in actual use
by or from stocks in the hands of the American Military Establish-
ment; as replacements, our forces get now items more recently off the
assembly lines, frequently incorporating recent improvements. Thus
the military-aid program makes possible much earlier new-item re-
placement of various types of equipment than would otherwise be
possible. Sometimes, of course, an item furnished out of existing
stocks does not have to be directly replaced, and this makes for flexi-
bility in military planning. Leaving for subsequent consideration the
military and psychological impact of this arrangement on our allies,
it at least makes it possible for both old and new equipment to be kept
in service at a cost to the American taxpayer only of the new.

B. THE ATTRACTION OF ALLIES
Published accounts of the negotiations leading up to the North
Atlantic Treaty give the impression that at least some of the European
members of NATO were originally more interested in obtaining mili-
tary equipment from the United States than in receiving the pledge
of protection from afar in time of emergency, provided by the treaty.
By making it clear to potential allies that signing the treaty was the
basic condition of eligibility for military aid, the United States was
apparently successful in exerting leverage on other countries to join
the treaty organization.¹
Observers at the time believed that the prospect of military aid was
decisive for Norway's and Denmark's membership.2 The utility of
1 By the time the treaty was signed, the first draft of legislation on the military assist-
ance program had not even been presented to Congress. Therefore, the State Department
could not make even a qualified promise that signers of the treaty would receive aid:
all it could say was that those that did not sign would not receive aid.
2 The two countries had historic policies of neutrality. Just before the question of sign-
ing the North Atlantic Treaty arose, they had been invited by Sweden to join in a Scandi-
navian Pact intended to be a regional security arrangement independent of either power
bloc. While Norway's leaders were deliberating the whole question, Norway was sub-
jected to a series of blatant Soviet threats and blandishments. reminding her leaders that
she would be the only member of NATO that had a common frontier with the Soviet Union.
(Turkey also has a common frontier with the Soviet Union but was not one of the
original members of NATO.)
948
THE MILITARY ASSISTANCE PROGRAM
949
f
military aid as a bartering device in diplomatic negotiations was thus
demonstrated before the United States even had a military-assistance
program.
3
4
There were apparently no other instances where this became quite as
explicit as in the Scandinavian cases; nevertheless the acceptance of
military aid inevitably results in making the recipient to some degree
a partner in the United States coalition security arrangements. This
is for several reasons: the commitments undertaken by the recipient.
nation in signing the bilateral agreement limiting the use to which the
military end-items supplied to it may be put; the stationing of a
military assistance advisory group in the country, some of these groups
assuming considerable size; and, in the case of an underdeveloped coun-
try, the dependence on the United States which the receipt of American
equipment creates because of the whole range of considerations pre-
viously discussed, particularly the country's inability to manufacture
replacements and spare parts. Thus, receiving military aid, more than
other forms of assistance, presupposes some degree of conformity to
the policies and strategies of the donor.
C. UTILIZING THE LOCATIONAL ASSETS OF ALLIES
The distant location of the United States from its prospective ene-
mies and, one may hope, from the prospective scene of hostilities, poses
difficult problems in a period when defense planning must be com-
pleted before the outbreak of "the big war." From our standpoint,
one of the assets possessed by our allies and partners is a strategic
location; they are geographically dispersed around the periphery of
the Soviet Empire and have greater proximity to the major Russian
target areas. For the United States to take full advantage of this
asset in time of war, it must have access to various countries well in
advance of hostilities in order to create and maintain the required
bases and other facilities. Military assistance has proved a highly
useful instrument in achieving this early access, although most recipi-
ent countries are eager to have the facilities developed for the prompt
deployment of American forces in the event of hostilities.
Spain furnishes the best illustration, however, of a country which
seems to have been granted aid on a straight quid pro quo basis. The
United States wanted rights to build and maintain air and naval bases
at given locations in the country, and the Spanish Government wanted
hundreds of millions of dollars worth of certain specified types of
It is entirely conceivable that military assistance could prove useful, as an inducement
or reward, in negotiations over a wide range of international subjects: to influence voting
patterns in the United Nations, or to reward a country for supporting the United States
in other ways; to achieve a reduction in trade barriers; to settle an outstanding claim;
to bring another country around to a more liberal colonial policy in some respects; etc.
It is worth noting that although military aid in prospect may have some negotiating
utility, this is a vanishing asset once assistance has been begun. To threaten suspension
or termination of military assistance is not likely to be effective as a penalty or sanction
in support of some objective unrelated to United States security; for the punishment would
be disproportionate to the crime.
• Subsequent pact negotiations received generally less publicity and were not, in any
case, viewed as being so critical to United States security interests as the arrangements
in Western Europe. It seems entirely likely that the prospect of military ald from the
United States played an analogous role in the formation of the Baghdad Pact and SEATO.
In the former case it was reported that Iran was showing some reluctance about joining.
but that this was overcome when the budget request for assistance to that country was
increased. In the SEATO area there are several countries of strong neutral leanings
equally disinclined to join a defense pact or to receive military aid.
stances, this instrument would obviously have limited utility for the purpose being
Under such circum-
discussed here.
950
THE MILITARY ASSISTANCE PROGRAM
military "hardware." It was probably not a coincidence that Spanish
sights were set at a level which reflected provisions written into mu-
tual security legislation making available at least $225 million for
Spain before the negotiations were concluded. The bargain was struck
at about that level, making the Spanish case the outstanding example
of a substantial grant of military aid in which the immediate Ameri-
can security interest was not to increase the aided country's own mili-
tary power. This is not to say that modernized, effective Spanish
armed forces might not prove useful in certain future contingencies,
but rather that, for a variety of reasons, including Spain's exclusion
from NATO, her forces were not likely to have a role in Western
European defense which justified about $225 million worth of military
aid at that time.
5
The military assistance program has provided leverage in negotia-
tions for base rights with other countries. This issue has apparently
arisen with Portugal. It was reported from Lisbon in June 1956, that
"problems of aerial defense," which presumably could be solved by the
supply of certain military end items, were beclouding Portuguese-
American relations temporarily. By a coincidence, negotiations were
at that moment under way for renewal of base rights in the Azores.
Finally, the infrastructure program of NATO can be interpreted
as a use of military aid that enables the United States to capitalize on
its allies' locational assets. Here, the United States does not have to
pay double for the facilities, once for the right of access and once more
for construction. Also, because of what we think of as the complete
reliability of our NATO partners in the event of World War III, easy
access to these bases in time of emergency would not hinge, as it might
in some other cases, on the calculations of a ruler who might have a
strong preference for neutrality. Finally, the United States gains use
of the greater part of the infrastructure facilities at no direct cost to
itself; we pay about 40 percent of the cost of the program. In this
case, we not only obtain access to and full use of important facilities,
but, because of the "mutuality of aid" aspects of foreign assistance, we
get them on a bargain basis.
6
D. SECURITY IMPLICATIONS OF OFFSHORE PROCUREMENT
Offshore procurement has military and security implications apart
from the objective of strengthening the defense production base of
the economies of Western Europe, and thus ultimately increasing each
recipient's military power. It makes possible a more efficient alloca-
tion of America's defense dollar by purchasing equipment all allies
need often at a lower cost than would have to be paid if the items

5 With Iceland, as indicated earlier, the issue turned on trade restrictions affecting that
country's crucial fish exports. Not only our own policies, but even more importantly, those
of Britain were involved.
In October 1956, it was reported that the executive branch of the Government was
including an item in the next foreign aid budget in anticipation of requests for assistance
from the newly independent countries of Tunisia and Morocco. The implication of this
newspaper account (New York Times, October 25, 1956) was that, although it would be a
question of economic assistance, rather than military, a basic consideration was to estab-
lish and maintain friendly relations with these newcomers to the family of nations, in
view of the fact that several major United States airbases now lay within their sovereign
borders.
Of course, infrastructure facilities are more likely to be overrun than facilities in the
Iberian Peninsula or North Africa.
THE MILITARY ASSISTANCE PROGRAM
951
were manufactured in the United States. It is reported, for example,
that the use of British Centurion tanks results in a saving of more
than 50 percent. It also has the effect of (a) shortening the supply
lines in case of war in Western Europe and thus to some degree reduc-
ing the anticipated Soviet submarine menace to transatlantic ship-
ping; (b) standardizing certain military end items at the actual source
of production; (c) dispersing critical military targets in such a way
as to reduce the vulnerability to atomic or hydrogen-bomb attack of
the production base on which the combined effort of the free nations
would rest; and (d) to the extent that Western Europe factories are
supplied from other sources, conserving raw material resources within,
or readily accessible to, the United States. These desirable conse-
quences of offshore procurement are to be counted among the gains
from military assistance, even though they have played little if any
role in the decision to undertake a military assistance program.
E. STRENGTHENING REGIONAL RELATIONSHIPS IN WESTERN EUROPE
The positive effects of the various expressions of interest in Western
European federation that have been written into American foreign-
aid legislation over the years are difficult to assess. The major in-
stance when this concern went beyond a legislative affirmation of belief
was the Richards amendment to the Mutual Security Act in 1953.
This made 50 percent of the military-aid funds for Western Europe
contingent on the coming into being of the European Defense Com-
munity (EDC), the most far-reaching plan for uniting Western
Europe that seemed to have any real chance of adoption. In 1954, the
language of this provision was changed so that all aid was to be
withheld from countries failing to ratify the EDC Treaty. The
defeat of EDC in France and the adoption in its stead of strengthened
Western Union arrangements with German membership in NATO
and a British pledge to keep forces in Germany, relegated this issue
to the background.
In another way military aid has helped to bring greater unity
among the nations of Western Europe. This is the development by
the NATO countries of the actual institutions of joint coalition plan-
ning. This may seem a long way from the "United States of Western
Europe," but some students of the problem would argue that it is
out of such "practice at cooperation and integration" in their urgent
military tasks, rather than by the devising of grand designs, that
closer political ties may eventually be born. NATO is historic at least
for the fact that it has brought the military representatives of 9 (and
since the admission of Western Germany, 10) Western European na-
tions together, so that in a shoulder-to-shoulder relationship, day after
day, they are collaborating on plans for the use of armed forces in
joint operations for the achievement of common goals. This may not
be political federation, but it is a radical step forward.
F. ASSISTING THE “ENEMY'S ENEMY'
.99
Military assistance to Yugoslavia is, for several reasons, a special
case. Marshal Tito's break with the Kremlin in 1948 presented the
952
THE MILITARY ASSISTANCE PROGRAM
first, and so far the only, opportunity for the United States to support
militarily a nation that had defected from the Soviet bloc. In reject-
ing any test of ideological conformity as a condition for granting
assistance, including military aid, to Yugoslavia, the United States
implicitly extended an invitation to other satellites to follow the same
course. In both material and psychological ways, United States as-
sistance presumably strengthened the will of Tito's government to
resist Moscow's pressures; it thus helped to destroy the myth of Soviet
monolithic unity, to diminish the actual military power of the Soviet
bloc, and to undermine Soviet prestige around the world. The Yugo-
slav defection proved to be of significance to the security of the free
nations in another way. That country had been the major base from
which the rebels fighting the Greek civil war had been supplied, and
the dramatic Moscow-Belgrade rupture of 1948 was one of the prin-
cipal developments paving the way for an early termination of the
Greek conflict. In general, it greatly improved the outlook for Greece
and Turkey, for whose support the United States had assumed re-
sponsibility the previous year. As Yugoslav military capabilities
improved there was the possibility that, even if it did not aline with the
West, this Balkan nation would assert a vigorous neutrality and would
oppose Soviet westward expansion on the southern flank, much as
Sweden can be thought of as performing that function in the north.
To the extent that Yugoslav military strength was a factor to be dealt
with, the result might be to pin down a portion of the Red army that
otherwise, in peace or war, would have been available elsewhere.
8
United States interests thus seem to have been served by strengthen-
ing Yugoslavia in its new posture of independence from Moscow.
Although economic aid was also granted, that country was relatively
undeveloped and therefore had only limited ability to convert eco-
nomic aid into short-run military strength. This was a case, then,
where military rather than economic assistance served the immediate
purpose, which was not to bring about a change in world politics more
favorable to the free nations, but after this had occurred, to help
fortify the new status quo.
G. LIMITING THE EFFECTIVENESS OF A POTENTIAL ENEMY
Military assistance policies have resulted in building up, in South
Korea and on Taiwan, armed forces whose combined total approaches
1 million men. Together, these two small countries receive an ex-
tremely large fraction of the whole military aid appropriation. It is
out of all proportion to their size and their apparent relationship
to the overall defense strategy of the free nations. It is customarily
argued that aid of this magnitude is required because they are prime
targets for elimination by an expansionist hostile power that has al-
7 There is considerable speculation on the bearing of the Yugoslav example and American
aid to that country over the years, on the present instability and turmoil in Hungary and
Poland. We may never know the answer with certainty, but Tito's Yugoslavia is the only
experienced defector-nation and it appears to have gotten on well during more than 8 years
of steering an independent course. This kind of prospect obviously had appeal for many
Poles and Hungarians.
& Yugoslav participation in the Balkan Pact, whose other members, Greece and Turkey,
belong to NATO, moved that country some distance toward alinement with the West.
THE MILITARY ASSISTANCE PROGRAM
953
ready launched an aggressive war against one and for several years
has appeared to be making preparations to do so against the other.
In helping the Republic of Korea and Nationalist China meet
this challenge, however, it is possible that the United States has
achieved quite another but wholly desirable result. The qualifying
phrase "it is possible" must be included, because the point cannot be
fully demonstrated. Our policy may be having the consequence of
tying down in areas of the Chinese mainland near these two small
Asian countries, disproportionately large elements of the Red Chinese
Army. Generalissimo Chiang Kai-Shek and President Rhee each have
some 20 divisions almost entirely American- trained and equipped.
These two elderly leaders have certain territorial and political objec-
tives in mind and would by no means be averse, under appropriate cir-
cumstances and with American support, to ordering their troops into
battle. Because the United States reaction to a "march to the north"
in Korea or an attempted "return to the mainland" from Taiwan
would be highly unpredictable in advance, the Chinese People's Re-
public may not lightly choose to liberate these forces for action by
being the one to open hostilities. On the other hand, given the
alleged propensities of Chiang Kai-shek and Syngman Rhee, it may
not feel inclined to redeploy its very large forces now tied down in
North Korea and opposite Matsu and Quemoy for military adventures
elsewhere.
If, because of this threat, it is deemed necessary to keep Red Chi-
nese armed strength at a higher level than would otherwise be neces-
sary, the expected result would be to slow down to some degree the
rate of economic development and consequently the ability of the
Red Chinese leaders to satisfy the rising aspirations of their people.
If the analysis developed earlier in this report is correct, that is, if
the implications for an underdeveloped country of building and main-
taining large armed forces are serious and can only be partially miti-
gated by foreign aid, then it must apply to Communist China too. If
the possibility suggested in these paragraphs is borne out-and in due
course, new data or actual events may prove or disprove the case-
it is surely one of the major consequences of military assistance.
and one which was not publicly advocated as a reason for embarking
on the program.
H. PRECLUSIVE MILITARY ASSISTANCE
It has already been pointed out that in most cases, Yugoslavia being
the chief exception, a smaller country, by the very act of receiving
military aid, affiliates itself closely with the donor. This is because
military assistance is the type of aid which would be most difficult
for a nation to receive simultaneously from both of the great power
blocs in world politics. Thus, one of the purposes that United States
military assistance sometimes has served is simply that of "cornering
the market," and thereby making it most unlikely that the particular
country would be able to turn to the Soviet bloc for military equip-
ment and assistance. "
• The Soviet Union, of course, can also play this game.
954
THE MILITARY ASSISTANCE PROGRAM
Military aid has not ordinarily been granted solely to preclude the
recipient from receiving aid from the other side; there are usually
other things to be accomplished simultaneously. In Latin America,
for example, the military forces that are trained and equipped through
the United States aid program are conceived to have strategic value
in Western Hemisphere defense. In the event of general war, they
could relieve United States forces, which would almost certainly be
hard-pressed on other fronts, of the task of patrolling sealanes and
guarding airbases and other critically important facilities. In both
peace and war, they have important internal security functions. The
recent history of Guatemala clearly illustrates that Soviet-directed
Communist challenges are possible in the Western Hemisphere; and
this being true, the granting of arms aid to some Latin American
countries may be important in enabling them to combat the threat
of subversion. Some of these countries may wish to build and main-
tain their armed forces for other reasons as well: to maintain a dic-
tator in power; to be adequately defended against a neighboring
country with which there is a longstanding border dispute; or for
prestige reasons (or possibly only "vanity" reasons), to have a few
pieces of shiny modern equipment to parade on national independence
day.
The reasons a country may want military aid and the strategic
validity of granting such assistance may occasionally prove less im-
portant than the simple fact that it does want certain military end
items and there is an alternative source of supply. It is here that the
preclusive purpose of military assistance enters: it removes the temp-
tation to look to the Soviet Union or its satellites for satisfaction of
these desires. The danger of their doing so would not be that Russian
or Czech rifles in the hands of our neighbors would be any more
dangerous than American rifles, but rather that the training missions
which ordinarily accompany military aid are, for the Soviet Union
as for the United States, a means of extending the influence of the
donor nation. The necessity of looking to the original donor for
ammunition, spare parts, and replacements tends to maintain that
influence. There was a clear object lesson for the United States in
the prevalence of German military equipment and training missions
in Latin America during the 1930's. Given the threat to the United
States and hemisphere security which any extension of Soviet influ-
ence, military or otherwise, in these continents would pose, it is pos-
sible that military assistance would be justified in Latin America if it
served no other but the preclusive purpose just discussed.10
Through military aid, it should be clear by this stage in the analysis,
the United States has not only served its stated purpose in under-
taking the Mutual Defense Assistance Program in 1950 but, in the way
10 This does not imply that by doubling the present low foreign aid appropriation for
that area, the United States could "buy" twice as much security; nor that aid to Latin
America ought to be given at the cost of aid to Europe or Asia. Opportunities for the
preclusive use of this instrument are not necessarily numerous; and to satisfy this purpose
alone, no more aid is required than the minimum amount that will keep the other country
from "shopping" elsewhere. If the donor were to interpret this criterion too liberally, he
would open up the possibility that the recipient's "needs" and expectations would rise
more rapidly than they could be satisfied.
THE MILITARY ASSISTANCE PROGRAM
955
it has developed the program, has buttressed its security in a great
variety of other ways. Perhaps this is only another way of saying that
this new weapon of diplomacy has been fully integrated into the com-
plex weapons system of United States diplomacy. As we shall see in
the next pages, it is not an all-purpose instrument; it is a specialized
instrument serving many purposes.
11
11 Some ends not directly related to national security have been or may be served by
military aid and may simply be noted. Like other forms of aid, it frequently helps to close
the dollar gap.
Some of it has been used to generate productive capacity abroad; it thus
removes inflationary pressures at home in periods of full employment. Congress has re-
quired that the program be so administered that it contributes to the reduction of farm
surpluses and to the aid of relatively high-cost American shipping. Finally, it may serve
to relieve spot unemployment in communities with large defense industries, if the weapons
production under military assistance is scheduled to take up the slack between periods of
peak production for American use.
It is not always appreciated that about four-fifths of military assistance funds are spent
in the United States. Presumably this makes some contribution to full employment and
a rising national income. The following exchange, which occurred during the hearings on
the Mutual Security Act of 1955, is illustrative:
"Senator FULBRIGHT. So this program, in addition to the primary purpose of defense
and prevention of the spread of communism, also has a very great effect upon our economy
in the sense that it gives the purchasing power to these countries to purchase many of our
products that is, our raw materials and manufactured articles; is that not true?
"Secretary DULLES. It is.
"Senator FULBRIGHT. There would have been a great contraction of our own economy
had we not carried on the aid programs that we have during the past 10 years?
"Secretary DULLES. I agree with you.' (United States 84th Cong., 1st sess., Senate
Committee on Foreign Relations, Hearings on the Mutual Security Act of 1955, p. 20.)
IX. LIMITATIONS ON THE USE OF MILITARY
ASSISTANCE
After 6 years the general effectiveness and versatility of military
assistance as an instrument of foreign policy seems to be established.
It is nevertheless as important to understand its limitations as it is
to appreciate its uses. To comprehend its limits is to have guides to
more effective aid policies, not justifications for inaction.
A. LIMITATIONS OCCASIONED BY THE NATIONAL SELF-INTEREST OF THE
DONOR
It was observed earlier that there is little cause for confusion over
the basic motivations of a nation in granting military assistance. The
immediate purpose is to increase the ability of certain other countries.
to defend themselves, but this is not the ultimate end. The program
warrants the money and effort invested in it because the independence
and integrity of the other countries are important for the national
security of the donor. Improvement of its own security position,
therefore, is the principal "return" the United States seeks from its
"investment" of funds in military assistance, a fact the United States
does not conceal from the recipient nations.
Because military assistance is a policy of self-interest, however
enlightened, in many circumstances it cannot be effectively used to
bring pressure on the recipient country to make all of its policies
conform with those of the United States. Nor is suspension of aid
ordinarily available as a penalty measure to express American pique
or vexation with some action of an ally. If the original decision to
grant assistance, in order to improve the other country's defense
capabilities, was soundly conceived, then the United States would
damage its own interests by exerting pressure in this way. In seeking
to accomplish some other end, it would interfere with the achievement
of the original and probably more basic purpose.
There need be no blanket prohibition against using military aid to
achieve various ends which are distinct from the core objective; in
fact, we have already seen that military aid is a highly versatile in-
strument. However, care must be taken not to burden the program
with a wide array of largely unrelated and peripheral objectives, such
that we dissipate the power inherent in military assistance on objec-
tives of relatively low priority. And we must constantly guard against
overestimating the potency of military aid for general negotiating
purposes, since the representatives of the recipient nations, across the
table, are fully cognizant of our self-interested motives.
B. LIMITATIONS IMPOSED BY THE LONG-TERM CHARACTER OF MILITARY
BUILDUP
Years elapse between the executive branch formulation of a military
assistance program for a given fiscal year, and the arrival in the
956
THE MILITARY ASSISTANCE PROGRAM
957
recipient country of the corresponding equipment and supplies.¹ It
is a longer time still between the initial decision of a country like
the United States to undertake a military-aid program, and the actual
achievement of desired levels of military strength on the part of our
allies. This characteristic of military aid tends to impose a limitation
on the program similar to the one noted above. It means that it is
not an appropriate instrument for month-to-month readjustment, for
sudden turning on and off, and therefore for bringing immediate pres-
sure to bear on recipient countries for the accomplishment of a variety
of subordinate objectives which the United States considers desirable.
So again, in contemplating an interruption of aid, our policymakers
must ask themselves whether the purpose they seek to accomplish
is worth sacrificing the "rhythm of a going concern."
It follows that, given the long length of the supply pipeline and
the extended time required before results can be seen, military assist-
ance is not a flexible means of responding instantaneously to the ad-
versary's latest thrust. It is patently not suited to giving a little help
where the opponent seems to be threatening this month, and then quick-
ly transferring attention to some other geographical point next month.
It is the possibility that an all-out general war in the age of nuclear
weapons may be over in a few days that has made it necessary to push
back into peacetime many aspects of mobilization and coalition plan-
ning which heretofore it was feasible to delay until hostilities had
begun. Assistance to allies is one such measure. Undertaken in a
long-run context, it it not amenable to short-run manipulation, par-
ticularly if the short-run object is not related to building up the free
world's military strength.
C. LIMITATIONS RESULTING FROM ABSENCE OF CONSENSUS
The special implications of common alinement, general affiliation,
and concerted policies between the recipient and the donor of military
assistance have been alluded to several times. Because of this im-
portant difference between the military and nonmilitary forms of
assistance, the former is of limited utility in promoting policies which
require the cooperation of certain determinedly neutral Asian coun-
tries. On many basic issues, including the important one of "who is
the enemy?", these countries either do not agree or will not say they
agree with United States estimates. Often they appear anxious to have
American assistance for purposes they view as important; but the
aid must have some label other than "military" and may not be ac-
cepted at all if accompanied by "undertakings" and commitments
typical of the military assistance bilateral agreements.2
1 In the early stages of military aid, when the United States was drawing on its large
stocks of surplus World War II equipment, this was presumably less true; but even then it
took many months after the passage of the Mutual Defense Assistance Act in 1949 before
considerable amounts of material began flowing to Europe.
2 This provides an illustration of the value of having a variety of kinds of assistance
programs at the service of American diplomacy. It is entirely possible that under an
economic or technical assistance program, measures of considerable military defense
significance (public works like bridge and road construction, and the building of factories
which are convertible from "plowshares to swords") could be accomplished. If the country
is really neutral and not "neutralist," it presumably wishes to be able to protect itself and
would welcome assistance to improve its ability to do so. It is often the name, connota-
tions, and accompanying conditions of military ald, not the substance of what is accom-
plished, that present the obstacle.
958
THE MILITARY ASSISTANCE PROGRAM
3
The lack of regional consensus within areas where United States
military aid is being, or might be, granted also imposes limitations on
the use of this instrument. In south Asia, for example, one country
will apparently have sufficient mutuality of interests with the United
States to be a recipient of military assistance and its immediate neigh-
bor will not. In such cases it is imperative that our policies for
extending military aid to the one country be systematically reviewed
in the light of their impact on that country's neutral-minded neighbor.
If our actions were to have the effect of threatening or weakening a
country which, although not prepared to join our camp, was basically
friendly to the United States, the outcome could be to lessen the overall
security of the area.
The Near East provides an extreme example of this absence of in-
traregional consensus. Here the limitation on effective use of military
assistance is even more severe: extending any military aid would carry
with it the danger of provoking a destructive arms race between coun-
tries, all of whom may be at least potentially sympathetic to the cause
of the free nations as against the Soviet bloc. The side falling behind
in the arms race may feel impelled to turn to the Russians for assist-
ance, thus giving our adversaries an opportunity to extend their in-
fluence into the area.
D. PROBLEMS ARISING FROM THE SUCCESS OF MILITARY ASSISTANCE
One of the ironies of military aid is that it may make it easier for
the recipient country, at least, in the short run, to adopt independent
policies and to pursue objectives which the donor does not fully share.
A nation's pursuit of some of its distinctive foreign-policy objectives
must necessarily be muted during a period of extreme military weak-
ness. Until the effects of military aid begin to be felt, this may give
the impression of a more inclusive consensus between donor and recip-
ient than in fact exists. Enhanced military capabilities and fortified
industrial potential, as we have come to learn, do not automatically
make the new strength of our allies available for the goals which the
United States values most highly. The success of the military effort
may, in fact, have reinforced this tendency toward policy independ-
ence in another way. To the extent that the creation of a deterrent
force in Western Europe diverted Communist probing activities and
aggression to non-European areas, it reduced the external pressure for
keeping the coalition tight.
This does not mean that the alliance has fallen apart; the consensus
which had been assumed was not fictional. However, once their mili-
tary power is restored, even the United States closest partners may
decide to exercise it independently in that "margin" not covered by
the consensus. Some of our allies have demonstrated that they are
not in perfect accord with, nor perfectly responsive to, American pref-
erences on certain important questions. The ambition of President
Rhee, of South Korea, to reunify his country with American-trained
and equipped forces and the hopes of Generalissimo Chiang to return
to the mainland are examples of areas of nonconsensus in which allies
become more likely to act on their own initiative as their military
• The Asian members of SEATO are widely dispersed and frequently separated from each
other by countries which chose not to join. This is confirming evidence of the absence of
consensus within the region.
THE MILITARY ASSISTANCE PROGRAM
959
power increases. The situation is similar with Britain and France.
in regions of current or past colonial activity. The French in Algeria
and the British in Cyprus, and, above all, of course, the two together
in their joint invasion of Egypt, have raised this question of the inde-
pendent use of their new military power for purposes the United
States could not condone.
These actions of our two largest NATO partners present another
issue: the use for the pursuit of objectives which we do not find
congenial of military equipment financed by, and perhaps produced in,
the United States. It is particularly serious if American standing
with the colonial and ex-colonial peoples is compromised by having
military items virtually stamped "Made in U. S. A." used against
them.4
This problem is not wholly avoidable, if military aid to an indis-
pensable ally is regarded as essential. It does, however, suggest two
important considerations of which American policymakers should
ever be mindful. The first is to make as certain as possible that on
balance, the advantages flowing from the improved military capabili-
ties of our allies more than outweigh the damage to our security
position that may result from actions taken in the "margin of non-
consensus." And in the second place, in view of the growing possibil-
ity of such independent actions as time passes and the ally's military
power grows, it is important that the state of the alliance be kept
constantly under review, and that all instruments of policy, especially
diplomacy, be concerted to prevent this contingency from becoming
reality or to mitigate the consequences if it does.
E. LIMITATIONS RESULTING FROM THE ECONOMIC CONSEQUENCES OF
MILITARY BUILDUP
The impact of military buildup on the economic life of a country
has been à recurrent theme through these pages. In order to avoid
certain undesirable or damaging consequences of the military program,
it often proves necessary to complement military aid with other care-
fully coordinated American assistance programs. Thus we can ac-
complish less within an overall foreign aid figure set by the Congress
than would be the case if some part of those funds were not required
"to cover the damages," as it were, occasioned by the military program.
With the economically advanced countries of Western Europe, the
expectation has been that they would build and maintain their military
forces and that the function of American assistance was to help equip
them. In carrying out their part of the arrangement, the NATO
governments inevitably place certain strains on their economies and
impose certain sacrifices on the people. But United States military
aid itself is unsuited to alleviate these strains and sacrifices. Thus,
the United States frequently faces the choice of supplementing mili-
4 The question of end-use control of military equipment provided by the United States
arose in connection with the British-French invasion of Egypt. An attempt had been
made to meet such a situation in advance by writing into the North Atlantic Treaty certain
geographical delimitations, the precise areas within which the provisions of the treaty
would apply and joint actions would be taken. After the invasion began, the British ap-
parently were called to task as to whether equipment which the United States had financed
for the use of forces assigned to NATO was involved in this military action. The answer
from a British statesman seems to have been that it was really quite difficult to keep
straight the origins of all this equipment and that the question was therefore impossible
to answer with precision.
960
THE MILITARY ASSISTANCE PROGRAM
tary aid with defense support or some other form of assistance, or of
risking the possibility of deleterious effects on morale and even on gov-
ernmental stability resulting from increased taxation, lowered stand-
ards of living, and loss of newly won amenities of life.
In the underdeveloped countries, the problem of the economic costs
of maintaining a substantial military program over a long period is
apt to be even more serious, for reasons that relate directly to the
condition of economic backwardness. The rate of deterioration for
military equipment is likely to be high because of the relative
unfamiliarity of native personnel with good maintenance practices,
the absence of technicians for major repairs, and the special hazards
imposed by climate, terrain, and road conditions. At the same time,
an underdeveloped country, by definition, does not have factories to
produce new equipment, nor even facilities to provide its own spare
parts. By whatever means the problem is solved-more frequent
replacement of equipment, providing American technicians, or special
programs to train local ones-it involves additional cost.
The underdeveloped countries face a further problem with respect
to their citizens who have received military training, served their
tours, and are then released. The critical factor is their successful
reabsorption into the civilian economy, for the alternative is poten-
tially threatening to political stability and internal security. During
their army tours these men receive a sort of dual conditioning: on
the one hand, to appreciate a standard of living frequently higher
than they enjoyed before (however low the standards in the local
armed forces might appear by our criteria); and, on the other, to
handle small arms with facility. Turning loose on the country
substantial numbers of men conditioned in this way may provide
numerous potential recruits for armed guerrilla and bandit gangs.
This problem would arise to some degree under any system of rotating
service. But it would become critical in a situation where it was
necessary to reduce, suddenly and materially, the level of military aid
to an underdeveloped country where extremely large forces were being
supported by American foreign assistance. Unless concerted economic
programs were undertaken, at additional cost, to provide gainful
employment for these ex-soldiers and reabsorb them into the regular
economy, the country might be storing up real trouble for the future.
This limiting factor is that military aid raises problems which
cannot be met by more or different military assistance. Once the
required level of defense capabilities is reached, whether or not it is
subsequently maintained, therefore, complementary economic pro-
grams, involving added costs of their own, may be necessary.
F. LIMITATIONS IMPOSED BY RAPIDLY ADVANCING WEAPONS TECHNOLOGY
Because of the rapid pace of weapons development, it is inevitable
that many nations to which the United States grants military aid will
have equipment which is to some degree out of date. Continuous
reequipment of the armed forces of all the recipient countries with
the newest types and latest-model versions of equipment is, of course,
out of the question; it would be prohibitively costly, and we would
never catch up anyhow. Nor do we attempt it even with our own
forces. The issue is really to what extent the United States ought to
share its newest weapons with its allies, and with which allies.
THE MILITARY ASSISTANCE PROGRAM
961
Crudely speaking, the pattern has been to maintain a kind of eastward
flow of gradually obsolescing equipment. The policy of the Depart-
ment of Defense has ordinarily been to get the most recent models
into the hands of American troops. This frequently involves turning
over not-quite-so-recent models for shipment abroad under military
assistance. By and large, there are good reasons for doing this:
the maintenance of security standards regarding construction and
performance details of the newest equipment, the unfamiliarity of
military personnel in some of the allied countries with complicated
machinery and electronic devices, the unreliability of some recipient
nations, and the danger of losing new weapons to the enemy if they
were located too easily within his reach.
But there is another side to this coin. Our allies are, after all, at
the front line and in some cases, the most modern weapons and equip-
ment would have their best chance of being effectively used if they
were in the hands of their armed forces rather than our own. Of a
character and sufficient in amount to improve substantially the stay-
ing power of allied armed forces, these latest types of weapons could
be expected to increase the deterrent force of the anti-Soviet coalition.
They would constitute the first barrier an aggressor would have to
break through instead of being located thousands of miles away.
Furthermore, if the impression were created that the farther east
one went the more obsolescent the materiel one found in the hands of
American-equipped troops, it seems likely that morale in recipient
countries would soon come to be adversely affected. It is not so much
a question of whether the items furnished by the United States are in
fact inferior, given local circumstances, to those we have retained.
The difficulty is that our allies may become convinced that as a matter
of policy we are giving them the second best, however well equipped
are the Red army or other Soviet-supplied troops they face across the
frontier.
Finally, rapid advances in weapons systems, in their impact on mil-
itary assistance, tend to produce an additional cost factor. In most
cases, the nations that have obsolescent American military items are
the underdeveloped countries that are relatively less able to provide
proper maintenance and produce necessary replacement parts. To the
degree that it were necessary to produce in the United States, or obtain
through offshore procurement, a variety of spare parts no longer re-
quired for the newer types of equipment in the hands of United States
or Western European forces, the military assistance program would
incur costs additional to those involved in maintenance support for
"common items."
G. THE NECESSITY OF DEALING WITH UNDEMOCRATIC REGIMES
Military and strategic requirements sometimes dictate the granting
of military assistance to countries ruled by undemocratic regimes. In
an ideal world, the United States would doubtless prefer to select the
recipients of its aid according to its standards of ideological purity,
among other criteria. But the actual world is so far from ideal that
the full list of nations having what we think of as representative
government, political freedom and individual liberty would, even
acting in unison, be considerably deficient in manpower, resources and
locational assets. The practice has therefore been to apply a less
962
THE MILITARY ASSISTANCE PROGRAM
refined test: on the big issue, the Soviet versus the free world, is the
country on our side? 5 Thus, the standard of absolute conformity to
American standards of democracy has been sacrificed to achieve what
is deemed a more urgent value, security and survival.
It is nevertheless important to be fully cognizant of the limitations
on the effectiveness of military aid in situations where the recipient
is an authoritarian regime, a caudillo-type one-man government, or a
military dictatorship. It matters not that we have no intention for the
grant of aid to constitute a seal of approval on the government in
power. What does matter is the interpretation put on our action
by the people of the recipient country, and by the community of
democratic nations, especially those that are near neighbors of the
dictatorial regime. Especially as regards their own publics, dicta-
torships often show real imagination in exploiting American assist-
ance as evidence of full United States approbation.
The implications of military aid in this situation are a great deal
more serious than would be the implications of economic or technical
aid. The act of "standing up and being counted" which military aid
requires, and which makes neutral countries refuse that aid, works
in reverse for the local strong man. From military aid, he and his
government get an identification with the United States; the dictator
can take countless opportunities to impress his people with the "fact"
of American backing. But apart from the propaganda value the
regime is able to extract from military assistance, the people are
reminded, whenever they see American equipment, of the internal
impact of United States assistance. For the planners in Washington,
the half dozen light tanks or propeller-driven fighter planes, the
obsolete field pieces and well-used Army six-by-sixes, supplied by the
United States, may have some slight meaning in overall defense strat-
egies; or they may have been used as bargaining tools in negotiations
over base rights. To the people in certain recipient countries, they
are instruments that entrench the ruler in power and make his removal
that much more difficult. Military aid usually does not produce any
immediately visible humanitarian or socially beneficial results, so
unless this program were "sweetened" by economic or technical assist-
ance, there would be nothing to ameliorate the ill will towards the
United States that could be expected to build up.
Given the politico-strategic rationale by which military aid in most
of these cases is justified, it is important that the longevity, stability,
and reliability of clique-ruled or one-man-dominated governments,
be calculated. In some of the smaller countries where undemocratic
government prevails, there tend to be fairly high casualty and turn-
over rates in the top position. Even though one of the effects of mili-
tary aid may be to lengthen effective tenure of office, the possibility
always exists that power will be achieved by new elements who,
whether out of conviction or opportunism, will seek to exploit popular
disfavor of the United States.
There would be little point in such military aid unless we can look
forward to the aided country's military assets-whether manpower,
strategic location, or raw materials-being available in time of crisis
and unless our opponent can be brought to share this expectation.
In a case like that of Yugoslavia, the test is even less severe: Is the country at least
not on the other side?
THE MILITARY ASSISTANCE PROGRAM
963
However, the dependability of any authoritarian ruler, even those
who proclaim their anticommunism in the most strident tones, needs
to be scrutinized with care. Although there may be formal agree-
ment between the United States and a foreign dictatorial regime as to
its enemy's identity, there is by definition a large area of noncon-
sensus. Our relationship with the dictatorship that we have supplied.
with military equipment may have to rest, unfortunately, on nothing
stronger than a hope: that in time of crisis, he will not choose to evade,
or conditions will prevent him from evading his obligations and fol-
lowing the path of opportunism which may seem attractive to him.
In some cases, this may be a slender reed on which to lean. How-
ever, the United States has to deal with the government that is there
if it is to do any dealing. We can protect our position to some extent
by taking full account in our planning of the possible unreliability
of such regimes in time of emergency, and in the meantime, comple-
menting military aid with other instruments of policy which will
help counteract the tendency of military assistance to store up ill
will for the United States among the people ruled by dictatorship.
Most of these limitations on the use of military assistance can also
be interpreted as costs involved in carrying out the program. Some
can be attributed to the fact that rearmament is always unproductive
in a strictly economic sense, and in its impact on the economy creates
conditions which must be met with additional nonmilitary aid or
other extraordinary measures. Others reflect the fact that a military
buildup and the provision of outside assistance on which it may de-
pend, are essentially slow, long-term processes. Still others result,
in an ironical way, from the very achievement of the immediate mili-
tary goals of the program. One principle they all tend to support,
however, is that the time when the question of granting military aid
to a particular country should be most meticulously examined is be-
fore the decision has been taken; thereafter, the range of effective
choice quickly narrows. Once the program has been launched, and
progressively as the military build-up proceeds, it grows less and less
feasible, from the standpoint of our own self-interest, to reduce sup-
port radically or to terminate it. At each step of the way, we increase
our material and moral involvement in the defense of the other coun-
try, so the motivation will be strong to protect the investment already
made by continuing assistance. This built-in self-propeller must be
kept in mind during the initial decision-making period, for once the
vehicle is moving, the brakes are hard to apply.
6
• Korea, in which the United States is now spending-on the Korean forces and the
Korean economy, and on our own and United Nations forces-at a rate of more than a
billion dollars a year, is an example of a country whose defense in world war III would
not, prior to 1950, have had a high priority in American strategic calculations. Our
moral commitment has now hardened to the point where earlier strategic considerations
seem almost irrelevant.
94413-57————62
X. CHARACTERISTICS OF AN EFFECTIVE MILITARY
ASSISTANCE PROGRAM
The role of the military assistance program has been described in
terms of its major immediate objective, the military strengthening of
our allies; and of its overriding objective, the improvement of the
United States own national security and of the benefits which accrue
from fully integrating military aid into the "weapons system" of
foreign and military policy. Its role has also been examined nega-
tively, in terms of ways in which it is unsuitable to use military aid.
There has thus been an implicit if not an explicit characterization
of an "ideal" program. Of course, the need for aid may be too urgent
to withhold any particular grants until all criteria of efficiency have
been perfectly satisfied. After all, one of the requirements of an
effective program is that the aid arrive in time. Some of the other
characteristics listed below, when stated in general terms, are little
more than truisms.
1. Whatever level of sacrifice the United States accepts for the mainte-
nance and promotion of national security, allocation between ex-
penditures on our own forces and on foreign aid should be such
that the last dollar spent on each purchases a comparable amount
of benefit to our foreign and military policy objectives
This is not always an easy principle to apply. So long, however,
as the foreign aid program remains at about one-tenth that of the
defense budget, an extra percent or two added to or subtracted from
the defense budget could, if a corresponding sum were taken out of
or put into the foreign aid program, have very significant effects.
At whatever point the overall ceiling for security-oriented expendi-
ture is set, from then on the object should be to get the best bargain
for the defense dollar. Executive presentation and congressional
consideration should be in a form that continually promotes a com-
parative analysis of the increments to our national security which
would flow from small transfers back and forth between the two types
of expenditures.
2. To be effective, the program must be logically related to United
States national policy and military strategy
It must be based on the same assumptions regarding the probable
enemies, their intentions and capabilities, as those which underlie the
size, composition, and character of our own Armed Forces. Where
the creation of deterrents and the possible fighting of less-than-total
wars is a joint operation with allies, there is an obvious need to relate
the kind of forces we are helping other countries build to our own
plans for the use of United States forces under various contingencies.
If, for example, the armed forces of a distant ally were being scaled
up only to the point where they could delay but not stop the aggressor,
yet the organization, deployment, and mobility of our own forces
964
THE MILITARY ASSISTANCE PROGRAM
965
were such that our help could not conceivably arrive in time to make
a difference, there would be an obvious disjunction between the mili-
tary aid program and our own strategic planning.
To take a less abstract example, if there is American reluctance to
be the first to embark on direct atomic air strikes on the centers of the
enemy's power, a strategy which assigned only a "trip wire" function
to NATO forces in Europe would be ill conceived. So would any
plan which fell short of defending Europe in Europe. On the other
hand, if we have resolved, and made clear our resolve, to protect
Europe primarily by strategic airpower, though this involves even
an added risk of atomic retaliation by Soviet airpower on our conti-
nental homeland, any effort more than necessary for the trip wire
might conceivably yield greater security if applied elsewhere. Pre-
sumably, we ought to avoid an in-between level of preparedness which
is logically related neither to a plan to defend Europe in Europe nor
to a plan to defend it "by hitting the octopus in the eye."
A less dramatic application of this principle might occur in a deci-
sion as to whose forces are to have the newest equipment or as to
whether equipment especially developed for the military aid program
should be supplied. If there is some real prospect that an ally man-
ning our frontline defense against the Soviet world could do a larger
share of the job if he had newer or special equipment, we should be
careful not to be niggardly in supplying him.
3. An effective program must make political and economic, as well as
military, sense
Military assistance and other means being used to support foreign
policy objectives ought to be mutually supporting and ought to be
fully coordinated both in Washington and in the field. This is
especially important in the case of the military assistance effort be-
cause of the economic, political, and social problems that follow in
its wake. A military aid program oriented and managed as though
the only consideration were the achievement of short-run military
ends would be self-defeating. This applies with respect to all geo-
graphical areas, but is particularly important in the case of the under-
developed countries in Asia.
4. The program must involve as little improvisation as possible and
therefore should be forward-planned on a 3- to 5-year basis
Because rearmament in peacetime is inevitably a slow process, it is
desirable to plan the operation over a 3- to 5-year period in advance.
Dependence on annual authorizations and appropriations is to some
degree inhibiting in any instance where the "product" has little utility
until it is completed. In the case of military assistance, what is
being "constructed" is a situation of strength and, much as in the case
of a large carrier being built by the Navy, little effect can be realized
against an already prepared opponent (or even one who is just one
jump ahead) until all the essential pieces are put together.
The plans for rebuilding the defense of Western Europe projected
after the passage in 1949 of the Mutual Defense Assistance Act and
particularly after the Korean aggression, were made on this 3- to
5-year basis. The possibility existed that a semiprepared Europe
would actually increase the danger of attack from the Soviet Union,
which might not want to sit idly by while the military balance was
966
THE MILITARY ASSISTANCE PROGRAM
being swung against it. The several-year basis of United States
planning increased the willingness of the countries of Europe to risk
this interim danger.
For reasons set forth previously, equally long-range planning for
Asia is highly desirable, but we have also seen that it is much more
difficult and that successive crises in Asia have so far made it
practically impossible.
5. For the program to continue to be effective, the interallied con-
sensus has to be continuously maintained; and the instrument of
military assistance itself should be used toward that end
Especially with the NATO countries, military assistance can
achieve its results only on the basis of a broad consensus as to overall
policy, strategic principles, and burden sharing. As a general prop-
osition, there is nothing illogical or unsuitable in using military aid
as a bargaining device to maintain and extend the consensus. It is
especially appropriate where pressure must be exerted to assure that
our allies make fully effective use of the equipment we have provided.
The United States key role as the primary source of military aid
has in fact given our Government an effective bargaining base even
in dealing with our European allies whose degree of dependence on
American aid is by now so much less than that of several of the Asiatic
recipients.
One caveat is in order: the indispensable condition of any bar-
gaining with military aid is that the assistance be "withholdable."
If, in reality, the suspension or termination of aid would be unimagi-
nable, then this instrument is of limited bargaining use. But if the
balance between prospective gain and loss is such that we could apply
this extreme sanction, as we can where, for example, we are negoti-
ating for base rights in a country whose armed forces we are not
placing great reliance upon, then there is every reason to bargain
forcefully with military aid. One ought not, however, to dissipate
this power on objectives with tenuous relation to basic security
interests or of relatively low priority.
6. Public judgment concerning military assistance must be made more
sensitive to underlying trends that increase or reduce the need for
aid, and less dependent on fortuitously timed crises or dramatic
Executive presentations
One clue to the difficulty which the average member of Congress ex-
periences in voting military-assistance funds is the great difference
between the practically unanimous vote in favor of the defense budget
(as it finally emerges on the floors of the Senate and House) and
the much more divided vote on military-aid funds. Since both are
to achieve security objectives, the disparity in the vote strongly sug-
gests some misunderstanding either at congressional levels or back
home among those whom the Members of Congress represent.
Stalin helpfully dramatized the Soviet threat in 1948 and 1950 by
the Czech coup and the North Korean aggression. His successors may
not repeat this error.
The willingness of the American public to sustain the military-aid
program over the long haul will probably depend on public per-
ception of the relationship this effort bears to national security. A
well-informed and discriminating public opinion concerning military
THE MILITARY ASSISTANCE PROGRAM
967
aid would make it politically feasible for the executive and legislative
branches to be equally discriminating in their judgments. This
would provide protection against public opinion overreacting in the
face of sudden crisis or, and this is even more pertinent with respect
to military assistance, withdrawing essential support for military
aid during periods when tensions are apparently, but only apparently,
easing. A greater effort in public education might in the end con-
tribute more to the long-run success of the military-aid program
than any other investment of effort or funds of corresponding size.
Although, to be effective, the military-aid program needs to be
insulated against day-to-day changes in the world political scene, it
must at the same time respond to slower, more permanent changes.
The situation is one where some short-term inflexibility is not only
inevitable but necessary, yet where long-term rigidity would be self-
defeating. This, too, requires a discriminating and informed public
opinion.
XI. CRITERIA TO GAGE THE SUCCESS OF MILITARY
ASSISTANCE
There is a natural and proper instinct for those who have final re-
sponsibility to the American people for the expenditure of large sums
of public money to seek ways of measuring the effects those funds
have had. This process of review and evaluation must always go on,
the only question being the degree of precision with which the results
can be expressed. The military-assistance program is one of those
for which it is extremely difficult to formulate exact criteria. The
success of the effort can be gaged only in the long run and, even then,
perhaps not precisely. Both of the essential processes involved, the
supply of equipment through a long pipeline and the training of troops
in new weapons and tactics, are slow to show results. The outcome of
this year's effort may not be readily discernible until 2 or 3 years hence.
Thus, even if satisfactory measuring devices existed, the readings they
would show today would probably reflect what had been undertaken
only up until several years ago.
The difficulty of establishing satisfactory criteria is best illustrated
by drawing the contrast with economic assistance. One can compute
statistically the number of factories restored to productivity, the in-
creases in unit production of coal or steel, and the percentage rise in
the standard of living. In connection with military aid, it is much
more difficult to measure the number of divisions, aircraft, vehicles,
bases and the like, both now and then, if only because with advancing
military technology the units being counted have no standardized
meaning and cannot be priced in terms of some power calculus. It can
be shown that, whereas in 1951 the NATO forces had about 15 divi-
sions and a thousand modern aircraft, they now have some 100 divi-
sions and 6,000 aircraft. We know that 6 or 7 years ago local defense
forces in South Korea, Formosa, and Indochina were pitifully weak
and that today, after a considerable military-aid effort, those coun-
tries now have some 60 combat divisions, largely trained and equipped
according to American standards. This, to be sure, is one kind of
measure of program effectiveness, but the problem is that such gains
cannot be as easily interpreted in the military sphere as comparable
indexes can be in the economic sphere. If coal and steel production
have been raised and the standard of living raised, there is no question
but that the core purposes of an economic recovery program are being
achieved. But with military assistance the equation is necessarily
more complex.
The basic reason is that military power is always relative; it is af-
fected as much by what the adversary does as by what we ourselves
do. If he starts with a considerable margin of advantage and builds
at the same rate as we do, our effective military power is unlikely to
show any increase. And if the military buildup in the West appears
provocative to the enemy and spurs him to greater exertions, it is
conceivable that our defense capabilities might actually decline. Our
968
THE MILITARY ASSISTANCE PROGRAM
969
power will be affected by changes not only in the opponent's capa-
bilities but also in his intentions and objectives. So a number of fac-
tors have to be evaluated before the significance of an absolute in-
crease in military strength can be realistically determined.
Even with the most careful calculations on this score, the answer
may not be revealed short of having the allied military effort sub-
jected to the ultimate test, actual warfare. Since one of the basic
purposes of military aid is to support a system of deterrents, the effort
will have to be deemed highly successful if general war is prevented,
but generally unsuccessful with respect to areas where, despite our
assistance to local military forces, deterrence does not work and limited
war breaks out. If aggression occurs and limited or general war fol-
lows, then the ultimate criteria of the success of military assistance
must be applied, and it would be relatively easy to gage the effective-
ness of military aid. But in all less serious contingencies, the esti-
mate of "success" must be highly nebulous.
Perhaps this is a case where the United States is required to take
something on faith. What would be required to prove definitively
the effectiveness of what we are doing is the one result we seek to avoid
at almost all cost. Short of this drastic test, its effectiveness cannot
be gaged by strict accounting methods. But so long as a serious.
security threat remains, so long as deterrence seems to work, so long
as military assistance continues to prove useful in advancing various
national purposes, so long as we can still count on allies to share the
burdens of mutual security with us, and so long as our contribution to
their effort comes to only about 1 percent of our national income, we
should be satisfied that we are getting a good return.

MILITARY AID PROGRAMS
A STUDY PREPARED BY THE SYSTEMS ANALYSIS CORPORATION
971
CONTENTS
Letter of transmittal_
I. Summary
A. Conclusions.
B. Recommendations_
II. Military aid—1949–56_-_.
A. Scope:
1
14
1. Scope of military aid-1947–51---
2. Changes in the scope of military aid-1951-56..
3. Regional defense organizations__
B. Costs:
1. North Atlantic Treaty Organization__.
1
2. The Near East, Africa, Latin America, and Asia…--
C. Objectives:
1. Current program objectives by area-
III. Planning a military aid program.
A. Summary.
B. Conclusions..
C. Recommendations.
D. Discussion:
1. Decision to give aid.
1
1
1
1
1
2. Determination of magnitude of country program_
3. Program guidance..
4. Drafting a country program.
Page
977
979
979
980
981
981
982
984
985
986
987
990
990
990
990
991
991
992
992
5. Review by "country team" and unified area com-
mand_
993
6. Program review at United States Government level.
7. Congressional authorization and appropriation.--
8. Reprograming… -
994
994
995
1
9. Coordination of planning-fiscal year 1958-
10. Need for further reduction of planning cycle.
IV. Program effectiveness criteria____
A. Summary-
B. Conclusions__
C. Recommendations___
D. Discussion:
996
I
1
I
I
1
1
1
1
996
999
999
999
999
1
1. Country program progress.
1000
A. Summary-.
2. Regional effectiveness criteria...
3. Other aspects of measuring military aid effectiveness.
4. Efforts to improve program effectiveness reports.
5. Program termination criteria.
V. The value of military aid.
B. Conclusions..
C. Recommendations.
D. Discussion:
1001
1002
1002
1002
1004
1
1004
I
1
1
1004
1004
1. The global impact of military aid__.
1004
2. Limitations of military aid effectiveness__
1006
3. Cost-effectiveness of military aid in major world
areas
1007
(a) Europe (excluding Turkey and Greece)
1007
(b) Near East and Africa (including Turkey
and Greece).
1008
(c) Asia and the Far East__
1008
(d) Latin America____
1009
1
4. The "fixed assets" of military aid.
1010
973
974
THE MILITARY ASSISTANCE PROGRAM
VI. Country program value and pricing policies.
A. Summary.
B. Conclusions..
C. Recommendations.
D. Discussion:
1
1
I
I
11
I
1
1
1
1. Responsibility for determination of the value of
a country program_--
2. Effect of pricing policies upon mutual defense
assistance program_
3. The new pricing policy--
VII. Lead time and related problems.
A. Summary.
B. Conclusions_
C. Recommendations_
D. Discussion:
1. Defining lead time..
I
1
I
1
1 1
1
1
2. Administrative lead-time problems..
3. Production lead-time problems..
4. Delivery lead-time problems..
I
I
1
1
VIII. Experience with conditions in the Mutual Security Act.
A. Summary….
B. Conclusions.
C. Recommendations.
D. Discussion:
1
1
1
I
I
I
I
I
t
1
1. Experience with conditions of military assistance.--
2. Suggested amendments to existing legislation -
IX. Country versus regional programs…….
A. Summary-
B. Conclusions
C. Recommendations...
D. Discussion:
1. Congressional intent
I
I
1
I
|
1
1
1
2. Regional and international military aid programs.--
(a) The North Atlantic Treaty Organization
(b) United Nations agencies [Sec. 535 (b)]----
(NATO)___
3. Other regional programs.
Page
1012
1012
1012
1012
1013
1014
1016
1016
1016
1016
1017
1017
1018
1022
1023
1023
1023
1023
1023
1025
1027
1027
1027
1027
1027
1028
1028
1929
1029
4. Advantages and disadvantages of regional programs. 1030
X. The role of the Departments of Defense and State in policy determi-
nation
A. Summary--
B. Conclusion...
C. Recommendations..
D. Discussion:
1. Policy areas_
I
2. Policymaking agents.
3. Agency interaction.
I
1
4. The role of the Department of State..
1
I
1
1
5. The role of the International Cooperation Adminis-
tration__
6. The role of the Department of Defense..
7. Recent developments_-
XI. United States resources and the capacities of recipient countries_
A. Summary-
B. Conclusions_
1032
1032
1032
1032
1032
1033
1033
1034
1034
1035
1037
1039
1039
1039
1039
1039
1039
1041
1041
1042
1042
1043
8
1043
C. Recommendations..
D. Discussion:
1
1. Military assistance and United States resources_
(a) The gross national product and military aid.
(8) Military aid and the
(b) Military aid and the United States produc-
tion base__
(1) Production base_.
(2) Manpower requirements
(c) United States raw materials requirements.
2. Technical and economic capacity of recipient
countries___
(a) Absorptive capacity of recipient countries_
(b) Productive capacity of recipient countries. 1043

THE MILITARY ASSISTANCE PROGRAM
975
Page
XII. Alternatives to military aid.
A. The "Fortress America" concept_
B. International order through the United Nations.
C. Increase of weapons productivity.
--
D. Underdeveloped areas and military aid.
E. Economic strengthening versus military aid.
F. Outlook on military aid..
Appendixes:
1
1
1
1
1
1
I
I
1
I. Excerpts from the Mutual Security Act of 1954, as amended.___
II. Country compliance..
1045
1045
1046
1046
1047
1048
1048
1050
1055
III. Countries and international organizations eligible for receipt of
military assistance__.
1056

LETTER OF TRANSMITTAL
The CHAIRMAN,
SYSTEMS ANALYSIS CORP.,
Washington, D. C., December 20, 1956.
Special Committee To Study the Foreign Aid Program,
United States Senate, Washington, D. C.:
Military aid, as part of the mutual defense assistance program
(MDAP), is the major means by which the United States contributes
to the security of the free world. It currently consumes 62 percent of
all foreign aid funds.
The present concept of mutual defense assistance was formulated
when the threat of a general war with the Soviet Union was considered
a clear and imminent danger, and when Soviet bloc policies were based
entirely upon political subversion and military aggression.
During the past 2 years, the Soviet policy concept has been enlarged
to include economic and military aid on a vast scale to underdevel-
oped areas which hitherto had been considered part of the free world.
The recent tragic events in Hungary have shown that this new concept,
however, does not preclude the use of naked force.
This change in Soviet policies has made it clear that a reevaluation
of United States aid policy was needed to counter effectively the new
Communist penetration of the free world. This was the aim of the
United States Senate in appointing a Special Committee To Study
the Foreign Aid Program authorized by Senate Resolution 285.
According to the resolution, the special committee is to "make ex-
haustive studies of the extent to which foreign assistance by the United
States Government serves, can be made to serve, or does not serve, the
national interest." To this effect, the special committee contracted
the services of several scholarly institutions and private research
corporations (of which the Systems Analysis Corp. is one) with the
view of studying the whole foreign aid field on the broadest possible
base.
While the Senate resolution did not limit the scope of the study
in any way, it especially directs the attention of the special committee
to the following areas:
(a) Defining the "proper objectives of foreign aid programs”
and proper measurement criteria for achievement;
(b) The "capability of the United States to extend aid” in ref-
erence to its own resources;
(c) "The need and willingness of foreign countries to receive
aid, and their capacity to make effective use thereof";
(d) A study of various alternatives to present aid programs;
and
(e) Suggested actions to make foreign aid "effective in achiev-
ing national objectives."
977
978
THE MILITARY ASSISTANCE PROGRAM
One other limitation imposed by the resolution was that the whole
study be transmitted to the Senate not later than January 31, 1957,
with such recommendations for the change or improvement of aid
operations as may at that time be found desirable.
The research staff of the Systems Analysis Corp. devoted its at-
tention to an intensive study of the programing phase of the military
aid program. In somewhat less than 3 months' time, 5 researchers of
professional standing perused thousands of pages of congressional and
executive records, interviewed Government officials in various execu-
tive agencies connected with programing stages of the military aid
program, secured additional documentation from private sources, and,
through the team-review process, arrived at conclusions and recom-
mendations as set forth in this report.
One of the major difficulties faced in the investigation was the very
magnitude of the program. Information had to be secured from
many sources and often far afield. Many problems worthy of a de-
tailed study per se had to be treated in relation to the total time avail-
able for completion of the report. The conclusions reached in such
a complex field as military aid on a worldwide basis must, therefore, be
considered as preliminary. Solid evidence, however, is produced in
many cases which delineates areas of malfunction and possible im-
provement.
Due credit is given to the various offices of the executive and legisla-
tive branches which have facilitated the completion of this study
within the allotted time span by cooperating with our research staff
and by furnishing relevant documentation. Specific recognition is
given to the Office of the Assistant Secretary of Defense (International
Security Affairs); the Special Assistant for Mutual Security Affairs,
Department of State; the Division for Plans and Programing, Inter-
national Cooperation Administration; the Legislative Reference
Service, Library of Congress; the Office of Defense Mobilization; the
National Security Council; the National Statistics Division, Depart-
ment of Commerce; the staff of the House Subcommittee on Appro-
priations on Defense Appropriations; and the Treaties Division, De-
partment of State. Many other organizations and individuals have
also contributed their knowledge to this study.
The project research staff of the System Analysis Corp. for this
report was: project leader, Gene Z. Hanrahan; research associates,
Hugh G. Elbot, Bernard B. Fall, Emory E. Hackman, and William
M. Rossiter; and editor, Norma J. Brown.
The views presented in this report are those of the Systems Analysis
Corp. alone and do not necessarily represent those of the contributors
mentioned above.
GENE Z. HANRAHAN,
President.
MILITARY-AID PROGRAMS
I. SUMMARY
The mutual defense assistance program has proved a valuable
deterrent to Communist expansion. Military aid, perhaps more than
any other expenditure, has strengthened the free nations against im-
mediate external aggression or internal subversion and has thus pre-
vented further attrition of the free world.
Since inception of the program in 1949, the Congress has appro-
priated about $24 billion for military aid of which less than $16
billion were actually expended. In the same period, more than $226
billion were spent in support of the Armed Forces of the United States.
This comparatively small outlay in military aid has further stimu-
lated the will to resist of our free world allies, who now spend about
$6 of their own for every military aid dollar spent by the United
States.
Built and partially supported by military aid appropriations, there
now exist free world air and naval forces nearly equal in size to
those of the United States and ground forces 10 times larger than
the United States Army. In addition, the program has helped to
provide the United States with a network of friendly bases from
which to strike immediate retaliatory blows against an aggressor.
Any similar expenditure for United States defense could not have
provided the same increment in military force capabilities as that
provided by the mutual defense assistance program.
This positive effect, however, should not be construed to mean that
the military aid program has worked perfectly. This is not the case.
Errors have been made and funds have not always been spent wisely.
In fact, a great part of this report is devoted to an examination of
areas for improvement.
On the other hand, considering the very magnitude and urgency
of the military aid effort and the many limitations placed upon the
small number of personnel charged with program implementation,
our military aid program has achieved creditable results to date.
Detailed conclusions and recommendations are included at the
beginning of sections III through XI of this report. The major
conclusions and recommendations reached in this study are outlined
briefly below:
A. CONCLUSIONS
1. Military aid has achieved its original objectives by strengthening
significantly the defensive capabilities of the nations throughout the
free world.
2. If free world security is to be maintained, military aid must
be continued until the danger from militant communism subsides.
94413-57-63
979
980
THE MILITARY ASSISTANCE PROGRAM
3. Extension of military aid without the adoption of a long-range
program will perpetuate the many present limitations in program
effectiveness.
4. To date, the military aid program has not been accepted on a
level of equality with other measures designed to meet national se-
curity objectives.
5. Because of the lack of permanency in the program, no general
solution has been found to the problem of adjusting military aid to
the fact that most of the equipment delivered in the early stages of
the program is now either obsolescent or worn out.
6. Present mutual security legislation appears too detailed in many
points, and some of its provisions hamper the application of the act
in world areas where it would be most effective in stemming Com-
munist infiltration.
7. Interagency coordination in planning is complex and time con-
suming. Recent changes have been undertaken to improve the situa-
tion, and there presently is some evidence that a favorable trend is
developing. There is also some indication that closer association with
Congress at an earlier point in the planning cycle may be desirable
and may result in less reprograming at a later stage.
8. In some instances the length and complexity of the programing
cycle appears to have delayed the timely delivery of military aid.
9. In the past, the pricing policy of the armed services resulted in
a reduced number of equipment items delivered to the recipient coun-
tries from the funds allotted to the program by the Congress. The
overcharge on military-aid items may have exceeded $1 billion. A
new pricing policy, enacted by the Congress in July 1956, is now being
implemented. However, its effects will not be felt for at least 2 years.
B. RECOMMENDATIONS
1. That military aid be continued on a long-range basis.
2. That the problems inherent in military aid be fully recognized
and considered throughout the Government.
3. That more flexible funding procedures be instituted.
4. That the Mutual Security Act be revised to allow for greater
flexibility in the administration of military aid and the elimination
of redundant or contradictory provisions from the act.
5. That serious study be given in the legislative as well as in the
executive branches to the many complex and difficult problems which
now arise in connection with the development of a long-range military-
aid program. Some of these, such as continued maintenance costs,
the problems of shifting aid to underdeveloped countries, etc., are now
beginning to be felt in the program itself. A more detailed discussion
of these problems appears in each section.
II. MILITARY AID-1949-56
A. SCOPE
The magnitude of the Communist danger to the free world began
to emerge in the years following the close of the Second World War in
a gradual, clear pattern. By 1947, much of eastern Europe and large
sections of Asia had already slipped behind the Iron Curtain. Greece,
Turkey, and Iran-vital non-Communist countries flanked by the
Soviet orbit-were seriously endangered by civil war or external
aggression. Once again, the countries of the free world faced a
serious and ominous threat to their existence.
The United States acted to preserve the independence of those
countries most threatened by Communist aggressive designs. Be-
tween 1947 and 1949, arms, ammunition, and military equipment were
supplied on a priority basis to Greece, Turkey, and Iran. American
military personnel operating as advisory groups assisted in train-
ing troops and instructing them in the use of American weapons and
equipment. The civilian economies of these countries were also sup-
ported by financial and material aid. American advice and assistance
in these critical years assured the continued independence of these
three countries. In furnishing this aid, precedent was established for
the mutual defense assistance program which was to follow.
1. Scope of military aid-1947-51
The United States as early as 1947 initiated the European recovery
program to revitalize the economic structure of Western Eur-
ope. This program continued until 1952 and has been considered
to be an unqualified success. When the program was brought to a
close, Western European industrial production and inter-European
trade were over 35 percent above prewar levels.
During this period, however, there was an increasing awareness on
the part of the United States and its allies that economic recovery
alone would neither deter nor halt Communist aggression. Conse-
quently, world events gradually carried the United States forward
into accepting military as well as economic leadership of the West.
The first formal step in this direction was the signing of the North
Atlantic Treaty in April 1949. Twelve nations-the United States,
Belgium, Canada, Denmark, France, Iceland, Italy, Luxembourg,
the Netherlands, Norway, Portugal, and the United Kingdom-
joined in the newly formed North Atlantic Treaty Organization
(NATO). Six months later, in September of that year, the Congress
of the United States passed the Mutual Defense Assistance
Act of 1949, which provided that adequate arms and material assist-
ance would be supplied by the United States to the member nations.


1 Greece (1952), Turkey (1952), and West Germany (1955) were subsequently admitted
into the North Atlantic Treaty Organization.
981
982
THE MILITARY ASSISTANCE PROGRAM
In the early years, primary emphasis was placed on the immediate
military buildup of the Western European members of the organiza-
tion, although substantial amounts of aid were continued to Greece,
Turkey, and, to a lesser extent, to Iran.
Rapidly changing events in Asia, however, soon required a modifi-
cation in the terms of the military-aid program. The Communist
victory in China, resulting in the withdrawal of the Chinese Nation-
alist Government to Formosa, and the need for strengthening the
military positions of both South Korea and the Philippines soon led
to the inclusion of all three of these countries in the military-aid pro-
gram. But, with the exception of United States military support of
the Republic of Korea in the Korean conflict, Asia was given only
secondary consideration during this period. Military aid to Asia in
fiscal years 1949-51 amounted to less than 8 percent of the total allotted
to the program.
Strategic thinking in the initial period of military aid postulated
that a Soviet attack would be based on the employment of conven-
tional forces. The United States expected to retain a monopoly on
atomic weapons for the foreseeable future. It was reasoned, there-
fore, that an immediate and substantial buildup in conventional
western forces would deter the Soviet Union from launching a
sudden, all-out attack against the West. Acting on these assump-
tions, the main effort of military aid was directed toward essentially
quantitative goals. Primary emphasis was given to the creation of
military forces whose numerical strength would discourage Com-
munist aggression or, if required, have the capability of adequately
defending the West against attack. Thus, in the first 2 years of the
program, 94 percent of military aid was given in the form of the
immediate tools of war-arms, ammunition, and military equip-
ment-most of which consisted of World War II stocks drawn from
American military-supply depots; significantly, only about 4 per-
cent of the aid consisted of basic tools and materials of the type
which could give the North Atlantic Treaty Organization nations
their own capability for long-range defense production. The Mutual
Defense Assistance Act of 1949, then, in the light of existing events,
was a stopgap effort designed to counter an immediate and dangerous
threat to free-world security.
2. Changes in the Scope of Military Aid-1951–56.
The mutual security program was initiated by the Mutual Security
Act of 1951. The outstanding feature of this act was that one legis-
lative authorization provided for the major programs of assistance
(economic, technical, and military). The approach was geographic
rather than functional. A program of military, economic, and tech-
nical aid was provided to Europe (title I), Near East and Africa
(title II), Asia and the Pacific (title III), and to the American
Republics (title IV). The act delegated to the President the au-
thority to regulate aid by bilateral executive agreements.
The Mutual Security Act preserved the policy objectives contained
in preceding legislation but outlined congressional intent in more
detail:
* * * to maintain the security and promote the foreign pol-
icy of the United States by authorizing military, economic,

THE MILITARY ASSISTANCE PROGRAM
983
and technical assistance to friendly countries to strengthen
the mutual security and individual and collective defenses
of the free world, to develop their resources in the interest
of their security and independence and the national interests
of the United States, and to facilitate the effective participa-
tion of those countries in the United Nations system for
collective security.
One of the immediate benefits the United States derived from the
mutual defense assistance agreements was the nearly worldwide en-
forcement of an embargo on shipments of strategic materials to the
Soviet bloc. This embargo, established in the "Battle Act," was
passed as an addition to the Mutual Security Act of 1951, and pro-
vided that aid would be withheld to countries violating the provisions
of the embargo.2
As hostilities in Korea continued into their second year, it was
generally agreed that military aid had to be something more than
a "one-shot" arming and equipping of a large number of allied
units. The program was readjusted to reflect long-term strategic
requirements, taking into account the probable availability of the
material and financial resources of other member nations of the
North Atlantic Treaty Organization.
This reassessment of the situation was reflected in the adoption
of the following policy:
(a) Consolidation of North Atlantic Treaty Organization
programs with the level of actual achievement and the realities
of local political conditions;
(b) Expansion of military aid in Asia; and
Increased emphasis on regional collective security.
A number of significant developments acted to bring about a grad-
ual reappraisal of the nature and scope of military aid by 1953. The
growing capability of the Soviet Union for launching an atomic or
thermonuclear attack was perhaps the most important of these, al-
though Chinese Communist intervention in the Korean conflict and
subsequent Communist success in Indochina were also of consequence.
These events of far-reaching import served to bring about a serious
review of the future defense needs of the free world. This situation
occasioned a change in military-aid programing by the calendar
year 1954.
Appropriations for the fiscal year 1954 reflected a change in pro-
gram emphasis as well, shifting a slightly larger portion of military
aid to Asia. Whereas Europe had received 74 percent of the total
military aid budgeted in fiscal year 1953, its share was reduced to
58 percent the following year. In the same period, assistance to
Asia increased from 13 to 32 percent. The remaining budget per-
centage was allocated to the Near East, Africa, Latin America, non-
regional, and other programs:
2 The President, however, was given latitude to make exceptions in certain categories on
the embargo list.
984
THE MILITARY ASSISTANCE PROGRAM
Military aid fund allocations-Fiscal years 1953–54

Area
Europe..
Asia.
Near East, Africa, Latin America, regional and support..
Total....
Percent
1953
1954
74
13
13
882
*33
58
32
10
100
100
High levels of military aid for the Republic of Korea and the
Chinese Nationalist Government were continued and, for the first
time, mutual defense assistance funds were made available to Japan.
On the other hand, changes in attitudes of two countries toward
assistance, and the 1954 Geneva agreement which prohibited Cam-
bodia, Laos, and the Republic of Vietnam from entering into military
alliances, reduced the amount of military aid going to southeast Asian
countries.
Most countries within the North Atlantic Treaty Organization had
rebuilt their economic structure by 1955, and consequently economic
aid was reduced to insignificant proportions. In addition, a con-
certed attempt was made within the North Atlantic Treaty Organi-
zation to concentrate more on quality and less on the numerical
quantity of troops. In line with this change, better maintenance
facilities were created; troop training and unit combat readiness were
stressed; and finally, increased emphasis was given to the infrastruc-
ture program.3
3. Regional defense organizations
The French defeat in the Indochinese conflict and the growing
power of Communist China underlined clearly the vulnerability
the individual fledgling states in southeast Asia to Communist sub-
version and aggression. These developments had a marked effect on
free world opinion and greatly assisted the United States effort
toward creating a regional defense organization in southeast Asia.
In September 1954, the United States, France, Great Britain, Aus-
tralia, and New Zealand joined with Pakistan, Thailand, and the
Philippines in the negotiation of the Southeast Asia Collective De-
fense Treaty. In February 1955, a headquarters for this Organi-
zation was established in Bangkok, Thailand, for planning purposes.
In October 1955, the Middle East defense organization, popu-
larly known as the Baghdad Pact, was created at the other end
of the Asian Continent. Turkey, Iran, Iraq, Pakistan, and Great
Britain joined in its formation. While not a signatory to the pact,
the United States evidenced active interest in its future and promised,
where needed, to act as an observer and to furnish military aid to
pact powers. The fact that the United States has not entered the
Baghdad Pact has evoked some concern on the part of several pact
signatories. On the other hand, a series of bilateral military aid
agreements with all individual participants in the past has insured
prompt support of their individual defense requirements.
* A program for the construction and maintenance of airfields, depots, and other mili-
tary installations so established as to be available for use by all North Atlantic Treaty
Organization participants in a common defense effort.
THE MILITARY ASSISTANCE PROGRAM
985
The military aid budgets for fiscal years 1955, 1956, and 1957 con-
tinued to reflect longer-range views demanded by continued world
tension. In the North Atlantic Treaty Organization, an advanced
weapons program was put into effect, stressing the equipping of
western forces with missiles, a nuclear capability, and other complex
weapons. In addition, more and more importance has been placed
on preparing the European countries to better support their own
defense establishments financially and industrially. Finally, military
aid to the Far East, Southeast Asia, and the Near East has been in-
creased proportionately in an effort to bolster the defense capabilities
of the smaller, less developed, nations of the free world.
Between 1949 and 1956, the number of nations receiving American
military aid has more than doubled; from an original 15 to the present
36. Today, 8 of these countries receive only military aid; 28 others
because of their economic underdevelopment-receive military and
economic assistance.
B. COSTS
From the beginning of the mutual defense assistance program in
1949 through March 31, 1956, weapons, equipment, and other mili-
tary support amounting to about $20 billion have been programed for
military aid. Approximately $12.6 billion have been earmarked for
Europe; $2 billion for the Near East and Africa; $3.9 billion for
the Far East; and $200 million for Latin America.¹
1. North Atlantic Treaty Organization
There has been a decided trend in the North Atlantic Treaty Or-
ganization countries in recent years to assume more and more the
costs of their own defense load. Currently, North Atlantic Treaty
Organization nations have been assuming approximately 85 percent
of their total defense costs, with the United States and Canada sup-
plying the balance. This applies to mutual defense assistance con-
sisting of military assistance and defense support.5
6
Since the inception of the mutual defense assistance program
(MDAP), the fiscal year 1953 was the peak year for deliveries to
European North Atlantic Treaty Organization countries. Since then,
a gradual cutback in military aid to those North Atlantic Treaty Or-
ganization countries has occurred. This is largely due to four factors:
(a) Mutual defense assistance program equipped force levels
have been largely achieved in the North Atlantic Treaty Or-
ganization;
(b) Significant advances in European economic recovery;
(c) A shift in program emphasis to Asia; and
(d) An awareness of the need for emphasis on long-range de-
fense needs rather than "one-shot" operations.
Finally, a larger proportion of military aid to North Atlantic Treaty
Organizations countries taken as a group is now on a reimbursable or
loan basis.
• Approximately $1.2 billion was appropriated for nonregional programs and for use by
the Office of the Secretary of Defense as required.
"Military aid" is a general term referring to all forms of military support given to a
foreign country. "Military assistance" refers to equipment, supplies, and services given
to foreign armies. "Defense support" refers to those indirect commodities, services, and
financial and other assistance designed to sustain and increase overall military effort.
Defense industries, for example, would be included in defense support costs.
The mutual defense assistance program is that part of the Mutual Security Act con-
cerned with military aid.
986
THE MILITARY ASSISTANCE PROGRAM
2. The Near East, Africa, Latin America, and Asia
A marked shift of military aid emphasis from Europe to the coun-
tries of the Near East, Africa, and Asia has occurred in recent years.
Yet, a significant portion of the aid allotted to these areas has not
been actually absorbed by the countries concerned.
Thus, North Atlantic Treaty Organization, Europe (excluding
Greece and Turkey), absorbed all but 1.3 percent of all United States
aid, while in the Near East and Africa, more than 20 percent of the
aid remains to be expended, and in the Far East and southeast Asia,
nearly 30 percent of all aid awaits expenditure."
The high absorption rate in Europe is due largely to the advanced
economic and military capability of the countries in that area; a
general factor which contributes to the delay in absorption is the long
lead-time required for the production of more complex weapons and
equipment. In the remaining areas, on the other hand, the following
factors have served to deter absorption or delay in delivery:
(a) In the underdeveloped countries, certain essential facili-
ties for the storage, maintenance, and utilization of military
items have to be built from the ground up. Thus, an additional
lead-time is necessary for the proper phasing of a country's
capability for effectively utilizing and maintaining military aid
items;
(b) Shortages of trained specialists and technicians capable
of operating and maintaining complex military equipment; and
(c) Lack of equipment because of crash program priorities for
other areas such as Korea and Indochina and, to a certain extent,
Formosa.
Since fiscal year 1954, there has been a slight trend toward greater
absorption rates in many of the non-European countries. This trend,
however, has been slow in developing, largely because of the basic
economic and educational deficiencies in most of the underdeveloped
countries receiving American military aid. The following table shows
percentages of aid allocated to world areas since the beginning of the
mutual defense assistance program:
Military defense assistance program allocations ¹
1
Europe.
Far East..
Near East..
Latin America.
Nonregional..
Total.
Area
[Percent]

1950-55
Fiscal years Fiscal year
1956
Request,
fiscal year
1957
66.7
20.8
17.7
44. 6
* 25.3
38.9
10. 1
7.8
15.7
.7
.5
1.2
4.8
26. 3
18.9
100.0
100.0
100.0
¹ Based upon unclassified figures of Mutual Security Program, vol. 1, Program Estimates, Fiscal Year
1957, and on information supplied by the Department of Defense, Office of International Security Affairs
2 The advanced weapons program and other related activities also contributed to the rise in military aid
to North Atlantic Treaty Organization countries.
"International Cooperation Administration, Operations Report, data as of March 31,
1956, pp. 39–41. These percentage figures pertain to all United States aid, including de-
fense support. They are significant for military aid as well, because underdeveloped areas
need larger amounts of defense support to maintain their military establishments.
THE MILITARY ASSISTANCE PROGRAM
987
C. OBJECTIVES
The objectives of military aid were outlined first in the Truman
Doctrine.
The primary purpose was to build the military strength of the
non-Communist nations of the world in order "to support free peoples
who are resisting attempted subjugation by armed minorities or by
outside countries."
These objectives, of course, are but one facet of the overall United
States policy of promoting world peace by contributing to the politi-
cal, economic, and military stability of friendly nations by means of
bilateral assistance agreements and, wherever possible, multilateral
defense pacts. Within this framework, there have been two primary
objectives of supplying military aid—
1. to insure the internal security of countries where this con-
sideration is a paramount problem; and
2. to create military forces in being, sufficiently effective to
deter aggression and, if possible, repel an invader.
Except for a few nations in the Near and Far East, military aid
was directed in its early years against the Soviet threat to Europe.
It was designed to create and maintain military forces capable of con-
taining the armies of the Soviet Union. In 1949, it was hoped that
this objective could be achieved by meeting the more urgent deficien-
cies in European military strength and by encouraging European
economic recovery. Gradually, as this initial objective was reached, it
became obvious that military aid would require long-range planning.
Further crises in other parts of the world resulted not only in a
broadening of the geographic scope of military aid but also in a
reassessment of its objectives.
1. Current program objectives by area
Current program objectives by area are outlined in the Mutual
Security Act. The three broad policy objectives for Europe are as
follows-
(a) to maintain United States/European unity in policies
designed to promote the mutual security of the United States and
the free world;
(b) to help Western Europe reach its potential military, politi-
cal, and economic strength to keep at a maximum its ability to
contribute to the collective security of the free world; and
(c) to deny Western Europe and its economic and military
potential to the Soviet Bloc.
In accordance with these broad policy objectives, military aid to
Europe is furnished to-
(a) assist North Atlantic Treaty Organization countries in
the buildup and efficient maintenance of their forces, taking into
account new concepts of warfare;
8
(b) encourage further integration of Western Europe; and
obtain the greatest possible contribution to free world
security from nonmember countries such as Spain and Yugoslavia.
The fiscal year 1957 aid objectives for Europe reflect the improved
military and economic situation in many North Atlantic Treaty
988
THE MILITARY ASSISTANCE PROGRAM
Organization countries. Primary emphasis is now given to regional
rather than individual country defense. Finally, as the problem of
internal security is of only secondary import, emphasis is placed on
maintaining adequate regular military forces in being, capable of
deterring Soviet armed aggression.
Military aid to the Near East and Africa is directed at problems
quite different from those in Europe. Emphasis is placed on pro-
viding these countries with the capability of preserving their own
national independence, both from internal subversion as well as from
external aggression. In addition, basic material aid, economic as-
sistance, and training are recognized as fundamental to a workable
military aid program. Finally, consideration is given to creating a
political and military climate favorable to the development of a
regional defense organization.
In detail, the four broad policy objectives for the Near East and
Africa are
(a) to promote the development and maintenance of govern-
ments independent of Soviet domination;
(b) to foster peaceful relationships within the region;
(c) to encourage closer cooperation with the rest of the free
world in political, economic, and security matters; and
(d) to further the growth of economic strength and political
stability throughout the area.
In connection with these broad objectives, the specific purpose of
military aid is to—
(a) provide material and training to contribute to strengthen-
ing of the defense of the area
(b) bolster the internal security of the several states; and

8
(c) promote stability and friendly cooperation and help the
countries develop a defense capacity which will make an effective
regional defense arrangement possible.
As in the Near East and Africa, the major objectives of aid to Asia
center on the need to protect the free nations in that area from internal
subversion as well as from external aggression. Additionally, em-
phasis is placed on effecting material and economic progress, creating
good relations among the governments of east and southeast Asia,
and, finally, on working toward a system of regional defense in which
all member nations cooperate freely and willingly.
In brief, military aid to Asia is intended to
(a) strengthen the will and ability of the Asian countries to
maintain their independence in the face of threats of further
Communist expansion and subversion;
(b) demonstrate that a system based on freedom and justice
is more attractive than one based upon Communist threats and
promises; and
(c) develop greater unity and cohesion among those Asian
countries so that their individual resources and capabilities may
be more effectively used for the benefit of the entire region.
Whereas greater integration and common defense on a regional basis
had proved to be effective in Europe, similar results could not be
attained in the Near East and the Far East because of jealousies be-
THE MILITARY ASSISTANCE PROGRAM
989
tween recipient countries. Traditional hegemonies and animosities
could not be overcome in such a short period through either aid or
advice coming from the United States. Unity and mutual cooperation
in those areas is still a goal to be achieved in the future.
Aid to Latin America reflects conditions unique to the geographical
location of that area; namely, its proximity to the United States
and its relative security from the threat of external aggression. Ob-
jectives of such aid are—
(a) cooperation to maintain friendly relations between these
countries and the United States;
(b) support of their endeavors for political and economic prog-
ress, and
(c) promotion of hemispheric defense against external ag-
gression.
In summary, the major objectives of military aid are to increase
the defensive capabilities of the free world and to promote the national
interests of the United States. These, in turn, are related to the
conditions specific to particular geographical areas. Aid in one
area stresses regional defense and the maintenance of adequate stand-
ing forces in certain other areas, it underlines the importance of
social and economic betterment, the creation of a climate of friendly
cooperation, and the development of forces primarily designed to
protect their homeland from the threat of internal subversion.
III. PLANNING A MILITARY-AID PROGRAM
A. SUMMARY
A number of executive agencies are involved in the program-
planning process. Specific program development begins in the field
with the Military Assistance Advisory Groups (MAAG's) and ends
in Washington subsequent to congressional appropriation of funds.
In the initial field stage of planning, the Military Assistance
Advisory Group maps out a country program in cooperation with the
other United States agencies represented in the country which, with
the Military Assistance Advisory Group, form the "country team."
Upon review by the "country team," the program draft is examined
at the area command level and forwarded to the Department of
Defense where the principal review is conducted with respect to
military policy. The Department of State analyzes the effect of the
program draft on foreign policy. All country and regional programs
are reviewed and consolidated by the Director of the International
Cooperation Administration in his capacity as coordinator of the
mutual security program. Many other agencies also review the
program.
Upon approval by the President, the program is presented to the
Congress for authorization and appropriation. Congressional changes
in the programs result in reprograming and program refinement.
Reprograming in Washington, including the incorporation of
budgetary changes made by Congress, is a complex task which involves
several interagency groups and consumes nearly two-thirds of the
entire 18-month planning cycle.
In the past, program development did not readily adjust to rapidly
changing situations. There have been recent improvements along
such lines, and efforts have been made to shorten the planning cycle
by the increased use of "opposite number" contacts at working levels.

B. CONCLUSIONS
1. Present planning procedures, while workable, are very complex
and require so much time that program impact is lost in many
instances.
2. Present programing is inconsistent with funding on a fiscal-year
basis, and along with the present year to year fund limitations seri-
ously hampers advance planning.
3. The number of personnel in the Military Assistance Advisory
Groups appears small in relation to the magnitude of the program.
4. The concept of the "country team" is a vital one in the planning
of a military-aid program.
C. RECOMMENDATIONS
1. A thorough study of program planning should be undertaken
to determine areas where reductions in the length and complexity
990
THE MILITARY ASSISTANCE PROGRAM
991
of the planning cycle are feasible. Preliminary analysis indicates
that the following approaches to the problem warrant consideration:
(a) Increased emphasis on parallel or concurrent planning
operations for two or more fiscal years and less end-on-end
(series) planning;
(b) Relaxation of 1-year funding to permit procurement along
lines of the armed services;
(c) Injection of congressional views at an earlier stage of the
planning cycle, possibly by use of a joint committee; and
(d) Provision for additional competent personnel for military
aid planning staffs.
2. A comparative study between procurement, maintenance, and
operating costs of new equipment and continued maintenance and
operating costs of "old" (World War II to Korea) equipment should
be initiated to provide information of substantial value to future
planning.
1. Decision to give aid
D. DISCUSSION
The decision to give military aid to a foreign country is made at the
Presidential level. This decision is based upon broad policy objec-
tives outlined in National Security Council directives and is coordi-
nated by the representatives of the Government departments primarily
concerned with military aid.¹ Exploratory talks are then held be-
tween military and diplomatic representatives of the United States
and officials of the prospective recipient government. Once prelimi-
nary negotiations have been completed, the country formally requests
military aid from the United States. Upon approval and agreement
between the United States and the country, a Military Assistance
Advisory Group is sent to the country to supervise the planning of the
military-aid program.
2. Determination of magnitude of country program
Policy papers dealing with the overall aid requirements for a coun-
try program are drawn up by the National Security Council. Country
and area studies which highlight general program criteria are then
produced on action by the Operations Coordinating Board.
With the exception of member nations in the North Atlantic Treaty
Organization, the actual size of a military-aid program to a given
country is determined largely by the military estimate of that country's
strategic importance and its ability to support specific levels and types
of armed forces. This estimate is set by the United States Joint Chiefs
of Staff and reflects not only National Security Council policy direc-
tives, but additional criteria of a political, economic, and psychological
nature supplied by appropriate executive agencies.
The North Atlantic Treaty Organization's Standing Group, repre-
senting all member nations, arrives collectively at the combat force
and support unit objectives to be attained within specified time limits,
including the level of combat readiness to be maintained, for forces in
1 On occasion, a foreign country may initiate discussions by requesting aid prior to any
United States action. This, however, appears to be the exception rather than the rule.
It applies in most cases where a country requests reimbursable aid.
992
THE MILITARY ASSISTANCE PROGRAM
the North Atlantic Treaty Organization. These estimates are used to
determine the magnitude of military aid to countries in this organiza-
tion. The Standing Group, however, is strongly influenced by the
judgments of the Joint Chiefs of Staff in determining the magnitude
of military aid required. Although the United States has but one
vote as a member of the North Atlantic Treaty Organization, the
actual amount of military aid to be given is a decision which rests
ultimately with the Government of the United States alone.
It has been common practice to accept the Joint Chiefs of Staff
estimates of the level of forces requiring support in a given country.
Only rarely have Joint Chiefs of Staff estimates been refused as un-
realistic. In the event specific political considerations are considered
overriding, however, the level of forces to be supported may be sub-
ject to revision. In the case of one ally, for example, the Joint Chiefs
of Staff estimated the magnitude of the country program to be sig-
nificantly less than that now being supported. Other considerations
dictated that the military-aid program be enlarged over the size esti-
mated by the Joint Chiefs of Staff.
3. Program guidance (see attached chart)
Programing is the course of action to accomplish a specific objective
within a time schedule. Program guidance is issued by the Depart-
ment of Defense to United States Military Assistance Advisory
Groups in recipient countries and to the three military services. This
guidance delineates overall United States policy objectives, force goals
to be achieved by each country, priorities for the delivery of aid, and
other factors relevant to military aid requirements. Prior to 1956,
program guidance was not clear with respect to the relationship be-
tween the individual United States agencies concerned with the ex-
ecution of the program. However, a more definitive guidance was
issued in 1956. The new guidance stresses interagency coordination
between the Department of Defense, the Department of State, and the
International Cooperation Administration. This guidance is now
being utilized, although some phases of it have not as yet been formally
approved.
4. Drafting a country program
The first step in planning a country program occurs when the Mili-
tary Assistance Advisory Group advises the local government of the
following three considerations:
1. The force goals which the United States thinks necessary;
the goals are confined generally to forces in a state of combat
readiness on M-day and M-day plus 30;
2
2. United States estimates of the country's (a) capability to
meet manpower requirements, (b) material and equipment needs,
and (c) monetary requirements; and
3. The requirements and terms under which the United States
is prepared to offer military aid. Such aid is given either on a
grant basis (gift), by reimbursable aid paid for in cash, or on a
long-term loan basis.

* Force goals are an objective expressed in terms of military units planned to be acti-
vated by a recipient nation within a specified period of time. M-day forces refer to those
combat units prepared to meet a sudden enemy attack. "M-plus 30" forces are those units
which will be in a state of combat readiness 30 days following the date of mobilization or
30 days subsequent to an enemy attack.
94413 O-57 ( Face p. 992)
MILITARY ASSISTANCE PROGRAM MAJOR STEPS IN PROGRAMMING AND FUNDING, FY 1958
NSC
STATE
DEPT.
OSD
ICA
JCS
ISA
COMPTROLI
MILITARY
HPT.
UNIFIED
COMMANDS
HAAG
STEP
1
BRIEF DESCRIPTION
Unified Commands, JCS and OSD Conference: Instructions for Apr 56
Preparation Priority List of Accomplishments by each U.C.
DATE
PRESIDENT CONGRESS

2
ISA Receives Programming Guidance from JCS.
Apr 56
3
ISA Receives from U.C. Priority List of Accomplishments.
May 56
4
ISA Initial Distribution of Draft MAP Guidelines to U.C.
May 56
PRIMARY ORGANIZATION
RESPONSIBILITY
5
JCS Submits Comments to ISA on Unified Commands Priority
List of Accomplishments.
May 56
REVIEW AND PRIMARY
ORGANIZATION RESPONSIBILITY
6
JCS, 06D Conference on Priority List of Accomplishments
and Implementation of MAP Guidelines.
Jun 56
ORGANIZATIONAL PARTICIPATION
7
ISA
Issues Guidelines to Field Agencies.
Jun 56
REVIEW PARTICIPATION
8
KAAGS Review Country Requirements & Develop FY 1958
Country Requirements & Forwards to U.C.
Jun-
Jul 56
9
OED Field Teams Assist Unified Commands in Clarification
of FY 1958 Guidelines.
Jul 56
10
Unified Commands Review of MAAG FY 1958 MAP Requirement
& forwards them with comments to ISA and Mil. Depts.
Jul-
Aug 56
11
Mil. Depts Review of MAAG Requirements & Submission of
World-Wide Requirements to ISA & JCS.
Jul-
Sep 56
233
12
ISA Submits to 11SC thru ICA Est. of HOA & enditures.
Aug 56
13
OSD Review of MAP Requirements & Supply Availabilities
(OSD Agencies, JCS, Mil. Depts, etc).
&
Sep 56
14.
JCS Submission of FY 1958 MAP for ISA Review.
Oct 56
15
Inter-Agency Review of FT 1958 MA Program.
Oct 56
16
ISA-MAP Alternatives FY 1958, Development & Distribution
to all interested Agencies for Review & Comments.
Oct 56
17
ISA Receipt of Comments from all interested Agencies
Alternatives.
Oct 56
18
Review of ISA Mark-up by Assistant Secretary ISA with
JCS and Service Comments thereon.
Oct-
Nov 56
19
ISA Determination of Program
PROJECTION
Nov 56
20
State, ICA and DCD Policy Level Discussions & Review of
Estimate
Nov 56
21
06D Submission to ICA of Preliminary Estimates of Nev
Obligational Authority & Expenditure Estimates FY 1958.
Nov 56
R
BOB Inter-Agency Review.
Nov 56
22
23
Budget Schedules for President's FY 1958 Budget, submitted Nov 56
to ICA for Review:
23
24
ISA directs Mil. Dept. to prepare Priced Out Country
Programs by Selected Iten & Maj Cut for use in Cong Pres.
Dec 56
25
1958 Presentation Books Prepared by ISA and Forwarded
to ICA.
Max 57
26
DOD Instruction covering refined FY 1958 & 1959 Program
Guidance to Unified Commands and MAAGS.
Feb 57
27
BOB Recommends to President the TY 1958 Mutual Security
Fund Estimata
Mar 57
28
Authorization Hearings-Committee on Foreign Affairs-
House (FY 1958)
May 57
29
Authorization Bearings-Committee on Foreign Relations
Senate (FY 1958)
Арг
8 2 * 335
30
FY 1958 Appropriation Committee House Hearings.
May 57
May-Jun 57|
32
FY 1958 Appropriation Committee Senate Hearings.
32
Joint Resolution Providing Interim Fund Availability.
Authorisation & Appropriation Bill signed by President
& Forwarded to ICA & ISA for Implementation.
Jun-Jul 57
Jul 57
30
Jul 57
34
ISA Consults with Mil. Depts. in Adjusting Program to
final Appropriation.
Aug 57
35
State, ICA and BOB Review Programs & Apportionment
Requests.
Aug 57
36
BOB Apportions Funds to ISA & ISA Allocates Funds to
Military Departments.
Ang 57
37
Mil. Depts, receive Finalised FY 1958 Refined Country
Program & Funds, & Initiates Supply Action.
Bep 57
(12)
13
15
[16]
(7)
(20)
7
ரு
3
1
10

Control Division, OP&C,
OABD/ISA
7 Nov 1956
C28232

*
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:
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}
:
:
1
:
THE MILITARY ASSISTANCE PROGRAM
993
Following preliminary discussion between representatives of the
Military Assistance Advisory Group and officials of the recipient gov-
ernment, the military establishment and government of the recipient
country draw up an estimate of military aid needs based on the above
factors. These estimated needs, in turn, are evaluated by the Military
Assistance Advisory Group in terms of the country's-
(1) total force potential relative to objectives;
2) capability to supply all or part of its material require-
ments;
(3) capacity for utilizing effectively various types of military
equipment; and
(4) capability for maintaining weapons and equipment at a
satisfactory level of readiness.
The Military Assistance Advisory Group's evaluation of a country's
estimated needs is then submitted to the local government. A formal
request is then drafted by the recipient country, reviewed by the Mili-
tary Assistance Advisory Group, and forwarded to other members of
the "country team."
5. Review by "country team" and unified area command
The "country team" is composed of the chief of the Military Assist-
ance Advisory Group, the chief of the local United States operations
mission (USOM) of the International Cooperation Administration,
and the United States ambassador to the country, or their representa-
tives. It is headed by the ambassador or minister accredited to the
particular country. Actually. the "country team" is a loose term
used to refer to a cooperative effort of the various agency representa-
tives in a given country. It is not a formal organization per se and
meets only on an ad hoc basis.
When the military aid request is received by the "country team," its
members evaluate it in terms of their own responsibilities. The valid-
ity of the country's own estimate of its economic, manpower, and tech-
nical capabilities and the consistency of the request with basic pro-
graming guidance from Washington are considered.
Because members of the "team" are in daily contact with the imme-
diate problems within the country, the military theater commands and
executive departments in Washington are heavily dependent on the
quality and comprehensiveness of "team" reports. Full cooperation
between the various "team" members is required if a balanced view of
the recipient country's aid requirements is to be assured.
The degree of cooperation effected with the local government by the
"country team" and within the "team" varies from country to country.
Delays in supplying answers to vital questions posed by "team" mem-
bers, disagreements between the "team" and the country on certain
issues, and disagreements among various "team" members which may
become known to the country's officials-are problems which are known
to have occurred. These all serve to slow assessment of the country
estimates at the "team" level.
Although the highest ranking representative of the United States
within a country (usually the ambassador) is responsible for "team"
coordination, there is evidence that such coordination has been lacking
in previous years.
994
THE MILITARY ASSISTANCE PROGRAM
In 1956 an effort was made by the Department of State to rectify this
condition. A directive which emphasized the role of the various
"country team" representatives in respect to military-aid guidance was
dispatched to senior United States representatives in the field. This
directive was based on the belief that issuance of more definitive pro-
gram guidance would serve to delineate more clearly the responsibili-
ties of the individual representatives on the "country team." Other
steps have also been taken to encourage firmer leadership and coordina-
tion in the "country team." It is, as yet, too early to assess their effect
on overall program effectiveness.
In addition, the total number of personnel administering and co-
ordinating a military-aid program in a given country is relatively
small compared to the expenditures involved. The Military Assist-
ance Advisory Groups, the primary field organization concerned with
military aid, for example, had less than 2,000 military personnel
scattered throughout the world as of the beginning of fiscal year 1955.
During that fiscal year, the United States spent over $1 billion on
military aid alone.
Once final agreement is reached, the refined country request is then
forwarded to the next higher United States military command in the
area, the unified command, as for example, the commander in chief,
Pacific area (CINCPAC). At this level, the country request is re-
viewed in terms of its relationship to United States military objectives
as well as its functional relationship to other military-aid country
objectives and programs within the area concerned. Concurrences
or modifications determined by the unified command are attached to
the original estimate and forwarded to the Department of Defense.
6. Program review at United States Government level
When a country program request reaches Washington, the Depart-
ment of Defense has primary responsibility for reviewing problems
related to military aid. The Department of State evaluates foreign-
policy implications and the International Cooperation Administration
determines the economic and technical aspects of foreign aid. Eval-
uation, however, does not end with these departments or agencies.
Before a program receives Executive approval, the Treasury De-
partment, the Bureau of the Budget, and when required, the United
States Information Agency, the Central Intelligence Agency, and the
Office of Defense Mobilization are afforded an opportunity to express
their views consistent with their appropriate responsibilities.
Final coordination of country and regional programs is effected by
the Director of the International Cooperation Administration. It is
then again reviewed by the Bureau of the Budget to insure its con-
sistency with the overall operating and fiscal program of the executive
branch. Upon final executive approval, program "presentation
books" are drawn up for the Congress. These are organized on a
country and regional basis and contain a summary of past progress
relative to program objectives as well as new budgetary requests.
7. Congressional authorization and appropriation
The executive program proposal for military aid is presented to
the appropriate congressional committees. Responsible programing
officers are called upon to justify various program items. In addition,
there are both open and closed hearings before which programing
THE MILITARY ASSISTANCE PROGRAM
995
officers, departmental chiefs, field representatives, and witnesses from
outside the Government testify as to the advisability of adopting the
program proposal as drafted.
Following hearings on the program, the congressional committees
study the proposed course of action. This process usually results in
further refinement or modification of the program. Differences of
opinion between House and Senate are resolved in joint conferences
before final congressional approval. When passed by the Congress
and signed by the President, the authorizing legislation for all pro-
grams takes effect.
Thereupon, the fiscal aspects of the program are examined by the
Appropriations Committee. At this time, detailed cost studies are
presented to the committee by the executive branch. This congres-
sional scrutiny represents another control factor in the programing
process. This action might also result in further modification of the
program, as curtailment of funds in various program categories could
necessitate more revision by the executive branch.
As can be noted, the process of presenting a program to the Congress
and obtaining passage of the necessary legislation for implementation
is the principal step in realizing the desired objective of delivering
military equipment abroad. This is necessarily so, not only because
adequate scrutiny of so detailed and complex a program-involving
aid to 36 recipient countries-takes time, but also because this process
represents a major point of program control.
8. Reprograming
When program requests have been reduced by congressional action,
individual country programs must be modified by the executive
branch. This involves a review of their general priority status rela-
tive to military objectives, and also of the need for programing certain
items at the time. This can mean a shift in program emphasis not
only in respect to the magnitude but also with regard to the nature of
a particular country program. The limiting of program appropria-
tions is not the only consideration in reprograming. Inasmuch as an
average period of 18 months has elapsed between the initiation and
final approval of a program before items can be ordered or delivered,
changes in the international situation may require withholding deliv-
ery of certain items to some countries, or shifting the priority sched-
ules for meeting force objectives in other countries or areas.
In the actual process of reprograming (see chart detailing the major
steps in programing and funding), liaison between the departments
and agencies concerned with all aspects of the Mutual Security Act
continues. Program refinement documents are exchanged between
the Departments of State and Defense and the International Coopera-
tion Administration. These bring requirements up to date and em-
phasize those changes which will require urgent readjustment before
the program is finalized. The Director of the International Cooper-
ation Administration in his role as overall coordinator of the program
gives his approval and the final version is forwarded to the Depart-
ment of State for last-stage policy guidance before implementation.³

Under sec. 513 of the Mutual Security Act of 1956, the executive branch is required
to report "promptly" all changes or adjustments to the congressional committees con-
cerned.
94413-57-64
996
THE MILITARY ASSISTANCE PROGRAM
Inevitably other last-minute problems arise whose resolution re-
quires additional time in interagency sessions. As many as 8 or 9
workshop type conferences may be required at step 35 in the attached
chart, and even further delays may occur if approval of decisions taken
in these sessions is not promptly made. Speeding this latter process
will be difficult because of having to anticipate peripheral problems
which may result from the program changes. This means that such
problems must be dealt with piecemeal as they become apparent to
officers charged with administering various categories of the program.
9. Coordination of planning-fiscal year 1958
In planning the military assistance program for fiscal year 1958,
there appears to have been a more concerted effort to achieve inter-
departmental coordination than heretofore. Essentially, this effort
was directed toward getting so-called "opposite numbers" of the vari-
ous departments and agencies together in the earliest possible stages
of planning. This seems to have had the effect of promoting clearer
understanding in respect to the requirements of the various officials
responsible for the mutual security program. For example, the Spe-
cial Assistant for International Cooperation Administration Affairs
in the Department of State was consulted very early in the planning
process for the first time in program history. This action and similar
instances involving responsible personnel from other agencies outside
the Department of Defense, was perhaps a major factor in promoting
smoother coordination in the latter stages of planning. In addition,
it should be noted that greater experience in actually working with
the program has also proved of advantage.
It would appear that better team guidance and more contact with
higher programing echelons will serve to make planning more con-
sistent with overall foreign policy objectives, increase programing
control, and may help to accelerate the planning cycle.
10. Need for further reduction of planning cycle
A program may lose its effectiveness by excessive delays involved in
planning. This factor is of great importance for it means that mili-
tary aid to a given area may arrive at a time when the aid no longer
serves the purposes for which it was assigned.
In 1950, for example, the Huk rebellion was at its height in the
Philippines. Over 15,000 armed Communist guerrillas had wrested
control over key areas in the island of Luzon and were threatening
Manila itself. The Government of the Philippines was hard pressed
at the time and was suffering from limited numbers of well-armed
and experienced troops as well as inadequate finances to successfully
prosecute the anti-Huk war. The Huks unexpectedly collapsed a short
time later for a number of complex reasons. By late 1951 and early
1952, the military threat to the internal security of the Philippines
had diminished considerably. Yet, the full impact of United States
military aid to the Philippines-much of it designed to counter the
threat to the internal security of that country-did not arrive until
1953. (See chart, p. 107.) There were many reasons why the major
portion of military aid did not arrive in the Philippines until this late
date, but there is good reason to believe that the slowness of aid plan-
ning contributed significantly to this delay. Indochina is another case
in point. Major amounts of weapons, ammunition and other materials

THE MILITARY ASSISTANCE PROGRAM
997
of war were still in the logistic "pipelines" or piled up on the docks
in the United States when the Indochina cease-fire was signed in July
1954. It is understood, from French sources, that two infantry divi-
sions had to be dropped from the Vietnamese National Army program
in 1952 for lack of adequate weapons and equipment to put them in
the field.
Another reason for reducing the planning cycle centers on the need
for allowing for a greater period in the budgetary year for actually
committing funds for procuring the items programed. Prior to fiscal
year 1957, less than 6 months ordinarily had remained in the budget
year for procurement. Procurement, too, had been further limited
by the provisions that not more than 20 percent of the total annual
appropriation can be expended in the last 2 months of the fiscal year.
The amount of time remaining after planning a program bears a direct
relationship to the implementation of sound and effective procurement
policies.
Philippines

1949
1950
1951
MDAP deliveries.
1952
1953
1954
1955 1956
Huk threat to Philippine security.
(Exact figures deleted for security reasons.)
NOTE.
This chart does not include materials supplied directly from United States de-
fense stocks in the period 1945–50.
998
THE MILITARY ASSISTANCE PROGRAM
A final point of importance deals with the increasing need to reduce
the planning cycle in view of the basic change coming about in the
nature of the military equipment and weapons placed in the foreign
aid program. Previously, a large portion of these items consisted of
excess World War II stocks or materials drawn from the "mobiliza-
tion reserve." In large part, these were "on hand” items.
With the exhaustion of these stocks and the increased emphasis on
more advanced weapons, a significantly greater percentage of foreign
aid materials will have to be manufactured prior to delivery. Thus,
the additional lead time required will add considerably to the period
before final delivery. Under these circumstances, the need for a
reduction in the planning cycle becomes even more acute.
IV. PROGRAM EFFECTIVENESS CRITERIA
A. SUMMARY
Criteria are established for measurement of program effectiveness,
progress, and ascertaining specific deficiencies. Measurement is ac-
complished largely through use of written reports. Such reports are
prepared by various echelons and agencies concerned with military
aid programs.
Primary responsibility for reporting on the effectiveness of a given
country military aid program rests with the Military Assistance
Advisory Group. Reports from the latter cover political, economic,
and other aspects of a country as well as purely military factors. The
North Atlantic Treaty Organization prepares separate reports on pro-
gram effectiveness in member countries. Overall evaluation of the
military aid program is made annually by the National Security
Council.
In addition to periodical reassessments of various country programs,
studies are undertaken from time to time on particular aspects of
military assistance and defense support by the Department of Defense
and the International Cooperation Administration.
There are several criteria for the termination of military aid.
They are based on considerations of the usefulness of aid to a given
country in the light of United States and free world security
objectives.
B. CONCLUSIONS
1. A system for reporting the effectiveness of military aid programs
has been established, operating mostly on a country-by-country basis.
2. No system for measuring program effectiveness on a regional
basis exists outside the North Atlantic Treaty Organization.
3. The great number of reports flowing to the executive branch
from its various field agencies make measurement of program effec-
tiveness difficult.
C. RECOMMENDATIONS
1. An overall study of the reporting system and its usefulness should
be undertaken.
D. DISCUSSION
The establishment of proper criteria for measuring program effec-
tiveness is basic to further planning or programing. Unless such
criteria are realistically developed and applied, effectiveness cannot
be measured. In addition to major criteria for measuring overall
program effectiveness, a number of subsidiary criteria are employed
in order that timely information on specific deficiencies as well as the
progress of given programs is obtained.
999
1000
THE MILITARY ASSISTANCE PROGRAM
1. Country program progress
Primary responsibility for reporting on the effectiveness of a given
country military-aid program rests with the Military Assistance Ad-
visory Group. Other members of the "country team," however, must
review these reports in order to determine the impact of military aid
on other mutual-security programs. For example, the International
Cooperation Administration is responsible for defense support pro-
grams which include road and rail systems and other basic facilities.
These are directly involved in military-aid problems. Thus the In-
ternational Cooperation Administration must review all Military
Assistance Advisory Group reports.
The Military Assistance Advisory Group is charged with the
preparation of an annual report (supplemented regularly) which
estimates the status of the military-aid program relative to objectives.¹
These annual reports include a summary appraisal of the effectiveness
of country forces in respect to assigned mission; a review of the politi-
cal, economic, and budgetary situation, including an assessment of the
impact of military aid on these factors; and also include detailed esti-
mates of military effectiveness of the various service branches. This
last estimate includes comments on relatively intangible factors such
as general morale, degree of adaptability of the officer corps, state-
ments on the physical condition of armed forces personnel, the rate
of illiteracy, and other considerations affecting the state of operational
readiness or future potential of country forces. Whenever pertinent,
additional comment is also made by the United States service branches
represented on the Military Assistance Advisory Group in regard to
specific problems faced in achieving goals. In short, many of the
same criteria used in determining the magnitude of a country program
are also used in monitoring the progress of a program once it has been
instituted.
In addition to the general estimates on program effectiveness, the
Military Assistance Advisory Groups are responsible for other related
reports. These include quarterly activities statements; a quarterly
time-phased requirements report which indicates the material pro-
gramed, received, and required under approved programs; and a
quarterly report on excess material which can be redistributed or dis-
posed of in accordance with existing laws. These reports are usually
commented on by the unified commands before they are received by the
Department of Defense.
Many other reports are prepared by the military departments and
the Office of the Secretary of Defense in respect to the status of total
military aid, accounting procedures, offshore procurement programs,
ocean shipments, and other requirements embodied in Mutual Security
Acts. Most important in respect to overall program effectiveness,
however, is an annual report to the National Security Council on the
status of the military aid programs. This report is designed to keep
the National Security Council apprised of current developments and
sets forth the major military objectives; commitments made to indi-
vidual countries; background information; recommendations for im-
proving capabilities; Joint Chiefs of Staff comments and appraisals

1 In the North Atlantic Treaty Organization area, these reports are entitled "Effective-
ness of Forces." In other regions, they are referred to as a "Country Statement, Non-
NATO Countries."
THE MILITARY ASSISTANCE PROGRAM
1001
of area forces; and statements as to progress and current problem
areas. All criteria considered to be relevant for measuring effective-
ness in terms of policy objectives are examined in this report.
2. Regional effectiveness criteria
The North Atlantic Treaty Organization has the only unified ef-
fectiveness measurement system in which the member countries par-
ticipate. This system is termed "The Index of Operational Readi-
ness,
," and seeks to express the exact state of country force readiness
with regard to the force goals set by the standing group, as revised by
the North Atlantic Treaty Organization Council.
In brief, the index of operational readiness is based on five major
criteria categories for evaluating effectiveness:
1. Effectiveness of organization-which provides an estimate
of the efficiency of the military commands, including the organi-
zational framework for effective command through which they
must operate, and also the effectiveness of accounting and admin-
istrative systems, in support of their military operations;
2. Personnel effectiveness-an estimate of the overall physi-
cal condition of the military manpower, its availability for active
forces, and the status of its morale and training;
3. Logistics-an estimate of the country and area ability in
respect to the communications network, including roads, railroads,
harbor facilities, and airports, and a statement of current or
planned improvements through mutual defense assistance pro-
gram funds;
4. Material-a survey of ready equipment and war reserves of
equipment, material, ammunition, and fuel requirements neces-
sary to meet mobilization deadlines; and
5. An overall appraisal based on the degree of mutuality in
military assistance, and willingness to cooperate with other North
Atlantic Treaty Organization members in improving the regional
defense.
It is to be noted that United States Military Assistance Advisory
Groups estimates may or may not agree with the North Atlantic
Treaty Organization report. Hence, the Department of Defense, in
effect, has two estimates for comparison in regard to the effectiveness
of North Atlantic Treaty Organization military aid programs. Both
of these estimates include such factors as the effect of military buildup
on the national economies involved, and also the effect of delivery lags
on needed items.
In this regard, the longer lead-time necessary for provision of better
air-warning systems, all-weather fighters, and advanced weapons, as
well as decisions to take more of a long-range view, are not the only
consideration in scheduling deliveries. There are also questions of
more intensive force training, more integrated planning, and agree-
ments to be made on concepts of utilization before the newer equip-
ment can provide maximum effectiveness on a regional basis. In short,
not only the question of when equipment can be provided physically,
but also the problem of actual absorptive capacity for proper utili-
zation, represents a larger problem for North Atlantic Treaty Organi-
zation effectiveness of forces than when the buildup was concentrated
on providing more conventional weapons and other material.
1002
THE MILITARY ASSISTANCE PROGRAM
3. Other aspects of measuring military aid effectiveness
The various factors used in assessing program effectiveness in a
given country obviously have different significance depending on the
military potential present and the primary objectives of the United
States in extending aid. The chief concern in the case of the North
Atlantic Treaty Organization, for example, is less one of creating
basic country military machines than that of generating harmonious
intercountry relationships so that realistic planning can be made for
pooling the forces for maximum effectiveness as a regional deterrent
to aggression. A different view of program effectiveness must be taken
in respect to countries facing the problem of internal security against
Communist subversion or aggression. Here a more balanced approach
to the question of military assistance vis-a-vis other forms of political
or economic aid must be observed.
During the last 2 years, the need for reassessing overall assistance
programs in terms of policy objectives has been recognized within the
executive branch. As a result, a number of country studies have been
completed by the Operations Coordinating Board and have been ap-
proved for action by the National Security Council. Others are cur-
rently in a state of preparation in accordance with stated priorities.
These studies include an estimate of country status and potential in
terms of its political stability and internal security problems. From
this estimate, the primary areas at which all types of assistance should
be directed have been resolved, and the specific responsibilities of all
agencies represented on the "country team" in providing various kinds
of assistance have been delineated. As a result, some basic criteria
for measuring the effectiveness of assistance programs are receiving
new emphasis. Hence, these studies represent an effort to place into a
more realistic general framework the probable expectations of the
United States in extending military aid to these countries.
4. Efforts to improve program effectiveness reports
Inherent to program effectiveness is the management aspect of the
program, including the tools available. No evaluation is made in
this study of personnel experience, capabilities, and accomplishments.
Significant features of management, however, are reports and the
system of reporting as these enter into program-evaluation measure-
ments. The types of reports, routing, and utilization are indicated
elsewhere in this section. The immediate points of interest, then, are
the efforts made to improve the reports and reporting system.
Studies as to form, content, purpose, requirements, etc., have been
made by management personnel within the Department of Defense
with respect to individual reports. Recently, a study has been pro-
posed to review and analyze from an overall viewpoint the reporting
system within the Department, including subordinate agencies, as
concerns the reports pertinent to the military aid program. A critical
examination of report content is also included. Such a study, if under-
taken, would be evidence of management awareness of continued need
for improvement, both in management itself and in measuring pro-
gram effectiveness at all military echelons involved in the program.
5. Program termination criteria
Military aid has been terminated in only a few countries since the
beginning of the program. Wherever termination has occurred, how-

THE MILITARY ASSISTANCE PROGRAM
1003
ever, there has been no implication of finality. Aid can be resumed
at any time should it be decided that such resumption of aid is in the
interest of the security of the United States or the political stability
and peace of the free world. A "crash" program can be undertaken
at any time through use of the Presidential emergency fund, or if need
be, through special legislative action.
Termination, like any other action on foreign aid, is based upon
decisions made by the President with the advice of the National Secu-
rity Council. The latter advises whether:
1. the continuance of aid to a given country, either on a grant
or reimbursable basis, is still consistent with the free world objec-
tives and security interests of the United States; and
2. the recipient countries have reached a state of economic and
political stability which would permit them to assume the burdens
of their own defense.
Great Britain and West Germany no longer receive military equip-
ment on a grant basis except for undelivered material procured by the
Department of Defense in previous fiscal years. In their case, this is
due to economic considerations, since both countries were considered
sufficiently recovered to assume their own defense burden. However,
it is equally clear that both countries remain eligible for grant aid,
should the National Security Council find that a sudden deterioration
of the economic or political situation in either country would warrant
resumption of such aid.
Considerations which might prove applicable in specific circum-
stances are reviewed by the National Security Council at least annually
on a country-by-country basis. It is, therefore, conceivable that coun-
tries not eligible at present may become eligible by the next fiscal year.
In the final analysis, however, the decision as to whether military aid
to a given country should be reduced or terminated or continued on
either a grant or a reimbursable basis is one that is essentially polit-
ical in character. It is, therefore, reserved to the President and his
foreign policy advisers, subject to congressional review.

•
V. THE VALUE OF MILITARY AID
A. SUMMARY
Since the inception of the mutual defense assistance programs in
1949, less than $16 billion has been spent on military aid, while more
than $226 billion has been expended for the United States Armed
Forces. For this outlay, the United States has helped to achieve a free
world defense potential of sea and air forces nearly equal in size to
those of the United States, and ground forces 10 times the numerical
strength of active United States ground forces.
The mutual defense assistance program also has provided the United
States the use of military bases at strategic points-bases whose value
cannot readily be estimated in dollars.
Military aid effectiveness is limited in a number of countries by eco-
nomic and cultural factors such as the degree of literacy and technical
sophistication. Effectiveness is also conditioned by regional and
country political interests. Additional limiting factors include obso-
lescence of equipment which has been delivered, and the unsuitability
of some types of equipment to particular conditions in recipient coun-
tries.
B. CONCLUSIONS
1. Military aid has justified itself in terms of increased military
strength of the free world as well as in the denial of strategic areas to
the Soviet bloc.
2. Effectiveness of military aid is limited by many factors, includ-
ing: induction, training, and organization standards of recipient coun-
tries; regional and country political considerations; economics; tech-
nology, and others.
3. New problems have been created by the obsolescence, wear, and
maintenance costs of equipment originally delivered.
C. RECOMMENDATIONS
1. That military aid be continued.
2. That emphasis be given to the long-range concept of military aid,
adjusting to the realities of new weapons, maintenance costs, obso-
lescence of equipment, and the technology of recipient countries.
D. DISCUSSION
1. The global impact of military aid
Since the inception of the mutual defense assistance program, from
the fiscal years 1949 through 1956, the United States has spent on na-
tional defense a total of more than $226 billion. This sum has provided
the United States with an Air Force of almost 300 squadrons, a Navy
of nearly 1,000 fighting ships, and active ground forces of more than
20 divisions.
1004
THE MILITARY ASSISTANCE PROGRAM
1005
During the same period, the United States expended approximately
$16 billion on military aid. Through 1955, deliveries have provided
America's allies and other countries with the following items:
1. About 40,000 tanks and other combat vehicles;
2. 1,200 naval craft of all types;
3. 44,000 artillery pieces of various types and caliber;
4. 7,000 aircraft, 50 percent of which are jet-propelled;
5. 2 million small arms and automatic weapons; and
6. billions of rounds of ammunition.¹
1
In addition, mutual defense assistance program funds have provided
allied nations with the necessary means to increase and modernize
their own armament plants to a point where several of them now are
able to provide equipment for their own defense. Many of these
countries can now contribute to their neighbors' defense effort by
providing them with equipment under the "offshore program" (OSP).
It is generally conceded that, because of military aid, the allied
defense effort in Europe and Asia has been far more effective than
the mere added figures of American aid and the national-defense bud-
gets of the individual countries indicate. Total free-world forces,
outside those of the United States, now include-
1. allied air forces totaling more than 300 squadrons, of which
more than 6,000 aircraft-including a heavy proportion of jet-
planes are concentrated in the North Atlantic Treaty Organi-
zation;
2. navies aggregating more than 2,000 ships, now including
many modern antisubmarine-warfare vessels; and
3. ground forces amounting to more than 200 divisions-10
times the size of United States ground forces in 1956-of which
more than 110 divisions are concentrated in the North Atlantic
Treaty Organization, with the remainder stationed in Korea,
Taiwan, and the Southeast Asia Treaty Organization.
These figures will, no doubt, be revised upward if the Federal
Republic of West Germany reaches its contemplated force levels in
fiscal year 1958.
These facts show that, in terms of overall costs, the United States has
obtained a substantial return for funds expended on mutual defense.
This return is drawn in terms of the improved military-defense capa-
bility throughout most of the free world. For example, testimony
presented in May 1956 before the Subcommittee on Defense Appro-
priations of the House Appropriations Committee brought out the
following:
The annual per capita cost to the United States for the
defense of the free world is somewhere around $400. Now,
going country by country, as I look at the figures, in the case
of Vietnam the free world will have X number of forces at
around $400 per capita. In the case of Taiwan the free world
will have X number of forces at a cost to us of around $340 per
capita. In the case of the Philippines, the free world will
have X number of forces at a cost to us of around $590 per
capita.
1 The Mutual Security Program, Report by the President to the Congress, April 1956.
1006
THE MILITARY ASSISTANCE PROGRAM
As a member of the Army panel on appropriations, we have
had brought to our attention repeatedly over the last 4
years that the average per capita cost of the United States
Army is around $6,000 a year. This is substantially more
than the cost of helping the aforementioned free nations.2
2. Limitations of Military-Aid Effectiveness
On the other hand, statistics alone do not give an entirely accurate
picture of just what the United States military-aid dollar has "bought"
abroad. This is particularly true when compared to what it would
have bought had it been spent on immediate defense needs at home.
For example, the 200 allied divisions referred to above vary widely
in terms of combat effectiveness, firepower, and equipment as well as
in size and organization. The quality of the individual soldier va-
ries-health, state of education, and technical sophistication. These
differences will no doubt be further accentuated as the mission and
character of the United States ground forces changes under the im-
pact of the new nuclear-warfare concepts. Yet many allied divisions
will still have to be equipped and trained to cope with the more im-
mediate dangers of internal subversion (guerrilla warfare) and so-
called "brush-fire wars."
Another major factor limiting military-aid effectiveness has been
the progressive obsolescence of much of the equipment delivered to the
allies. According to testimony by the Department of Defense pre-
sented to Congress, the last World War II vehicle was delivered abroad
as late as September 1956. Although official figures indicate that
50 percent of all aircraft delivered through military-aid channels is
jet propelled, it must be remembered that many now in the North
Atlantic Treaty Organization and Southeast Asia Treaty Organiza-
tion squadron service are either obsolescent or entirely obsolete. The
spare-parts problem for this obsolete material-some of which has
been in continuous service in Greece and Turkey, for example, since
1947—becomes increasingly difficult as similar items are no longer pro-
duced in the United States and must be produced abroad.
Still another problem that now arises is the poor adaptability of some
standard United States equipment to the local conditions prevailing in
many of the recipient countries. For example, United States Army
trucks equipped with automatic gearshifts are exceedingly difficult to
maintain with the rudimentary maintenance facilities in certain un-
derdeveloped countries. In the words of Department of Defense
witnesses, it "is overengineered for our [military aid] purposes.
The same commentary applies to other pieces of equipment. The
F-100 jet fighter, for example, is considered too heavy for most over-
seas fighter airfields and "not primarily engineered and developed for
the missions of mutual defense assistance recipient nations." +
Similar problems arise with individual weapons (rifles and sub-
machineguns), parachutes, vehicles, tanks, and airplanes-all engi-
neered to the body or strength specifications of the average American
soldier, who averages about 40 pounds heavier and 10 inches taller than
4
2 Statement by Congressman Gerald R. Ford, Jr., member of the Army panel on appro-
priations, during military defense assistance program appropriations hearings, May 25,
1956 (hearings, p. 85). See also testimony by Secretary of State John Foster Dulles
(ibid., p. 38).
McGuire, op. cit., p. 363.
• McGuire, op. cit., p. 362.
THE MILITARY ASSISTANCE PROGRAM
1007
his Asian comrade in arms. A remedy is now sought by the Depart-
ment of Defense in planning, in many cases, for separate military-aid
equipment specifically built to suit the requirements of recipient coun-
tries. While the supplying of such special equipment may help to
resolve this particular problem, it creates additional problems in
standardization, logistic support, and maintenance.
Unit-for-unit comparisons between American and allied forces run
the risk of being misleading, for many allied units are structured
primarily for internal security missions rather than for integration
into a unified fighting command. This is particularly true in Asia
where, for example, Nationalist Chinese or Thai armed forces are
provided with less artillery and transportation than their American
counterparts. On the other hand, they are better adapted to oper-
ating in their own type of terrain by virtue of lighter weapons and
equipment. Disparity between numerical strength and tactical ef-
fectiveness becomes an even more important factor in the case of
the "technical" services such as the signal corps and engineers.
Additional impediments to military aid effectiveness result from
the geographical dispersion of the recipient nations situated along
the rim of the Soviet orbit and their technological disparity. Also,
some nations friendly to the United States have economies still based
on the wooden plowshare, while others can produce their own jet
bombers. These disparities often require individual solutions which
vary not only from area to area, but in many cases, from country to
country.
3. Cost-effectiveness of military aid in major world areas
A brief appraisal of the extent of mutual defense assistance pro-
grams in every major area and the results thus far attained may
illustrate the nature of this problem.
The military aid program has encountered, in certain areas, a
number of problems which previously have not been made clear.
(a) Europe (excluding Turkey and Greece)
In Europe, total military aid expended has amounted to about $9
billion as of the end of 1955. Major United States objectives in
the Western European area, according to the Department of De-
fense's 1957 congressional presentation, are to maintain American
and European policy unity; to help Europe reach its "full potential
in military, political and economic strength;" and to deny the
Soviet Union access to this potential.
While the North Atlantic Treaty Organization has made great
strides in the increase of its defense potential, progress in the re-
armament of West Germany has been disappointing. Additionally,
usually reliable accounts indicate that French and British buildups in
Algeria, Cyprus, and other areas have stripped Western Europe of
most of its first-line combat troops (outside the United States forces)
committed to the North Atlantic Treaty Organization. Finally, re-
cent events in the Middle East have put a severe strain on the main-
tenance of Western unity.
On the positive side of the European ledger, the continued improve-
ment of the North Atlantic Treaty Organization infrastructure and
progress made in the construction of a new system of air and naval
bases in Spain has been encouraging. Yugoslavia-which over the
1008
THE MILITARY ASSISTANCE PROGRAM
past 7 years has received about $800 million in military aid-has main-
tained a sufficiently independent attitude toward the Soviet bloc to
justify the continuance of certain types of military aid. Continuance
of aid was granted Yugoslavia by President Eisenhower on October
18, 1956, in accordance with the provisions of the Mutual Security
Act of 1956.
The net effect of recent British-French actions in the Mediterranean
has been a notable increase of French and British active ground
forces through the calling up of trained reserves at home. However,
the dispersion of important forces far away from the main points
of effort along the Iron Curtain has created a state of potential mili-
tary imbalance which eventually will have to be resolved."
(b) Near East and Africa (including Turkey and Greece)
Not counting special Greece and Turkey programs between 1947
and 1948, the Near Eastern and African areas have been allotted about
$1.4 billion in military aid in the fiscal years 1950-56. Here, the pic-
ture is one of partial deterioration of the Western position, in military
as well as political and economic areas. The Greek dispute with
Britain over Cyprus and the subsequent extension of the dispute to
Greece's neighbor, Turkey, has strained relations between the powers
constituting the North Atlantic Treaty Organization's southeastern
flank.
Turkey represents the brightest spot in a military sense, with a
capable, well-trained army and a fairly adequate infrastructure. Com-
munist infiltration is insignificant and the Turkish citizenry are awake
to the dangers of Russian aggression. At the present time, Turkey is
in the throes of severe economic difficulties, and defense support (i e.,
economic aid designed to strengthen a country's defense capability)
promises to play an important role in helping Turkey overcome it.
Iran, Iraq, and Pakistan, as participating members in the Baghdad
"Northern Tier" Pact of 1955, also are recipients of military aid.
In view of the tense Middle Eastern situation the solidity of the
Baghdad Pact has been put to a severe test. Last year's hope that the
Baghdad Pact would increase stability in the area has not matured.
It is felt by some observers that the effectiveness of the pact in the
military field has been hampered by the fact that the United States
"supports" the pact, but thus far has not become a treaty member.
No military aid on a grant basis goes to Egypt or Israel. However,
both countries have, in the past, purchased limited amounts of equip-
ment-mostly spare parts for American equipment obtained through
commercial channels.
(c) Asia and the Far East
More than $2.4 billion worth of military aid has been channeled
to various Asian countries between fiscal years 1950 and 1955, inclu-
sive. About three-quarters of the total went to the four countries
most directly threatened by Soviet and Red Chinese aggression: the
Nationalist Chinese Government on Taiwan, the Republic of Korea,
According to news sources, there are about 400,000 French troops in Algeria; 150,000
in Morocco; and about 80,000 in Tunisia. The joint Franco-British expeditionary force on
Cyprus and Suez counted. at the beginning of November 1956, about 225,000 troops.
In addition, during the Korean war, the Republic of Korea received more than $2
billion worth of equipment from the Defense Department.
THE MILITARY ASSISTANCE PROGRAM
1009
the Republic of Vietnam (also known as South Vietnam), and Japan.
The armed forces of the Republic of Korea (ROK) constitute per-
haps the largest single ground force of the free world; nationalist
forces on Taiwan are in a high state of training. The forces of the
young Republic of Vietnam are now being built up with the help of
a sizable United States Training Relations Instruction Mission
(TRIM).
The armed forces of Japan are being developed. This country has
an industrial potential unmatched elsewhere in Asia and Africa and
thus is a major prize in the power contest between the free world
and Sino-Soviet bloc. It is expected that Japanese ground, air, and
naval components will begin to play an effective role in the defense
of Japan within the next 2 years. In the meantime, United States
forces stationed in Japan assume a large share of the defense respon-
sibilities in that area.
In other Asian states, military aid has been a major deterrent to
Communist aggression, but often at the price of serious economic strain
in the country itself. The point has been made by various sources
that in any case the Republic of Korea will require free-world aid
should it be attacked by an outside aggressor. The Republic of Korea
has 21 divisions which cost the United States more than $700 million
a year and absorb a great deal of Korean manpower of the age groups
most needed for essential economic activities.
A policy of bringing allied military capabilities into line with their
economic situation would be compatible with what is called the "Mili-
tary New Look," which an authoritative source describes as follows:
*** the new policy aimed at leveling out the peaks and val-
leys of military preparedness, as the saying went. Based on
the concept of a floating D-day, it called for maintenance of a
level of forces and material which could be paid for without
staggering the economy and which could be borne for an in-
definite period of years."
Future appraisals of mutual security policy must be concerned with
the extent to which Asian force levels should be maintained. At the
present time, they appear insufficient to resist aggression but are too
large for their economies to support easily. They also appear to be
larger than necessary for the internal security missions which in most
cases are their permanent paramount objective.
(d) Latin America
The United States has mutual defense assistance agreements with
13 countries of Latin America. Only Argentina, Bolivia, Costa Rica,
El Salvador, Panama, Paraguay, Mexico, and Venezuela are ex-
cluded. Military aid expenditures for 1949-57 for recipient countries
total $175 million.
8
Through mutual defense assistance programs, the Latin American
countries are put in a better position to fulfill their hemisphere defense
commitments within the meaning of the framework of the Inter-
"Donovan, Robert J., Eisenhower-the Inside Story, New York: Harper & Bros., 1956,
p. 52.
A "floating D-day" means simply that no fixed date for total readiness would be
sought, but rather that emphasis would be placed upon long-range development of a
maximum potential in being.
8 However, all those countries are members of various hemisphere defense arrangements,
such as the Rio Treaty.
1010
THE MILITARY ASSISTANCE PROGRAM
American Treaty of Reciprocal Assistance. This treaty established
the principle that an attack upon one American state would result in
action by all. Given adequate equipment, some Latin American na-
tions have shown that their combat performance in overseas theaters of
operations can be very creditable. A Brazilian expeditionary force
operated in Italy in World War II, and a Colombian unit fought with
United Nations Forces in Korea. Colombian troops equipped with
American military-aid material now form part of the United Nations
emergency force (UNEF) in Egypt.
In the words of the congressional presentation of the mutual
security program of 1957:
9
the countries of Latin America do not have the financial re-
sources or the experience in modern warfare to train and
equip forces for hemisphere defense without external help.
However, a realistic appraisal of Latin American military effec-
tiveness would be remiss if the essentially limited character of the
existing military forces were not emphasized. As events in various
Latin American countries have proved over recent years, the armed
forces of those countries play an important role in the internal
political picture. In view of the reservation expressed in the above-
cited program estimates, they cannot be expected to play an important
role in overall hemisphere defense for years to come, however.
4. The "fixed assets” of military aid
Military aid assumes particular importance in areas of the world
where mutual defense assistance program dollars not only are spent
upon maintenance of armed forces friendly to the United States, but
where they also allow the United States the mutual use of important
strategic bases. The fact that friendly bases are available to the
United States in a vast arc around the entire Sino-Soviet bloc-from
Greenland to Africa and from the Middle East to Japan-is, in itself,
an inestimable deterrent to Soviet aggression.
Secretary of State John Foster Dulles testified before the Commit-
tee on Foreign Relations of the United States Senate on April 30,
1956, that:
*** our own Defense Establishment would be cut down tre-
mendously in its effectiveness if we did not have these rela-
tionships with foreign countries *** I believe that Ad-
miral Radford, the Chairman of the Joint Chiefs of Staff,
testified before the House Foreign Affairs Committee that it
would cost four or five times as much to get in terms of our
own national Military Establishment the increased security
which we get in terms of these relationships with other
countries.
Secretary Dulles expressed similar views to the House Subcommit-
tee on Defense Appropriations, stating that it "is the capacity to strike
from many places around the world *** that creates the greatest de-
terrent [to a major conflict]." The Secretary asserted that the loss
of such bases would be "crippling" to the United States Military
Establishment. Admiral Radford, the Chairman of the Joint Chiefs
• Department of Defense, Mutual Security Program, Program Estimates, Fiscal Year
1957, vol. I (unclassified), p. 1–109.
THE MILITARY ASSISTANCE PROGRAM
1011
""
of Staff, emphasized further before the same subcommittee on June
13, 1955, that allied military strength, thanks to mutual defense
assistance program aid, allowed this country to concentrate on the
development of advanced weapons without having to match Sino-
Soviet forces "at every possible point of aggression around the globe.
Such overseas bases, wherever available to United States forces,
considerably enhance the striking power of the free world, for they
greatly reduce the logistic overhead of operational units. In view
of the comparative scarcity of long-range tanker-type planes and
fleet tankers for naval task forces, these bases (improved through
American aid and know-how) have become an important part not
only of the defensive system of the free world, but also of that of the
United States itself.
94413—57————————65
VI. COUNTRY PROGRAM VALUE AND PRICING POLICIES
A. SUMMARY
The term "value" as used in this section means the total cost of
military assistance given a recipient country by the United States
within a single year.
The determination of the "value" of a country program is reserved
by law to the President. This power was delegated by the President
to the Secretary of State, and delegated in turn by the latter to the
Director of the International Cooperation Administration (ICA).
On the other hand, the pricing of individual items delivered to
various countries under the mutual defense assistance program is the
responsibility of the Department of Defense. Until 1956, mutual
security legislation permitted the armed services to transfer service
stocks to the mutual defense assistance program on a price basis equal
to new and up-to-date items.
The Mutual Security Act of 1956 modified the mutual defense
assistance program pricing policy, making it similar to that prac-
ticed in the armed services. In December 1956, the Department of
Defense prepared a uniformed pricing directive for service guidance
although all aspects of this new policy have not, as yet, been fully
implemented.
B. CONCLUSIONS
1. Pricing practices in the past have permitted the services to pro-
gram service stocks for military aid, obtaining up-to-date items from
appropriations originally allocated to the military-aid program.
2. The new pricing policy, providing it is immediately implemented
and fully observed, promises to prove beneficial to the mutual-security
program.
3. However, in view of the "long lead-time" for many items pro-
cured under the mutual defense assistance program, the effect of the
new pricing policy on some fiscal year 1957 items will be felt only
between 18 months to 3 years after its actual implementation by the
armed services.
C. RECOMMENDATIONS
1. Considerable attention should be given during the current fiscal
year to determine whether the new pricing policy is being expediti-
ously implemented and fully observed.
D. DISCUSSION
1. Responsibility for determination of the value of a country program
In accordance with the Mutual Security Act of 1955,¹ the preroga-
tive to determine this value was reserved to the President of the
United States. He, in turn, delegated his powers for determining
1 Sec. 524 (b).
1012
THE MILITARY ASSISTANCE PROGRAM
1013
the value to the Secretary of State by means of an Executive order
issued on May 9, 1955.2 On June 30, 1955, the Secretary of State
redelegated his value determining powers to the Director of the then
newly established International Cooperation Administration, the of-
ficial responsible for coordination of all mutual-security programs.3
The separation of the value determining function from that of
actual physical control of the programs was clearly the intent of the
Mutual Security Act of 1955. While the function of determining
value was reserved to the President under the Act, the Secretary of
Defense is explicitly vested with operational control of military
assistance programs under section 524.
2. Effect of pricing policies upon mutual defense assistance program
Pricing policies until fiscal year 1956 were set in accordance with
section 545 (h) of the Mutual Security Act, which required the De-
partment of Defense to sell mobilization reserve items which the
Secretary of Defense had deemed "fully replaceable" at their replace-
ment cost whether or not the actual replacement would be the same
type of item or an improved and more expensive item. The law also
specified that items not currently in the procurement program for the
United States Armed Forces (i. e., mobilization reserves) were to be
charged according to the original production cost.
Justification for this procedure was explained by the Comptroller
of International Security Affairs, Department of Defense, in testify-
ing before a Subcommittee on Appropriations of the House of
Representatives:
The legislation was adopted at a time when procurement
prices were rising very rapidly, and in order that the services
would not be handicapped by the disposal of an item and
faced with the requirement to spend larger sums for its re-
placement the Congress, in its wisdom, decided to authorize
this kind of price formula."
In point of actual fact, this measure apparently failed to fully
realize its objective. Replacement costs charged by the armed services
inflated the cost of the mutual security program by a proportionate
amount. In a report by the Comptroller General to the United States
Senate on June 7, 1956, it was pointed out that the United States
Army charged equipment, described elsewhere as "World War II and
less-than-modern," at 170 percent of the 1945 prices at which it was
procured.5
This policy not only hurt the mutual defense assistance program,
but had detrimental effects on other programs such as reimbursable
aid as well.
During the calendar year 1955, West Germany faced the problem
of selecting 1 of 2 competing tank models for its armed forces, the
United States M-47 and the British "Centurion" tank. At the outset
and in spite of the fact that the two vehicles were of roughly equal
2 Executive Order 10610, sec. 202: The determination of value of the program for any
country under so much of ch. 2 of title I of the Mutual Security Act of 1955 as pertains
to the functions transferred by sec. 201 of this order shall be made by the Secretary of
State.
3 State Department authorization No. 85, June 30, 1955.
4 Hearings, Subcommittee on Defense Appropriations, House Appropriations Committee,
May 28, 1956.
Hearings, Subcommittee on Appropriations.
1014
THE MILITARY ASSISTANCE PROGRAM
6
combat value, the American model was offered at a price slightly more
than twice as high as the British counterpart. In December 1956,
the new German Army chose the British "Centurion" over its Ameri-
can competitor, and even over its improved M-48 version, which now
equips the United States Army. The new German Air Force likewise
decided against purchase of American-built F-84 jet fighters currently
used by North Atlantic Treaty Organization members. Similar in-
stances have occurred in connection with the deliveries of F-100
fighter planes to North Atlantic Treaty Organization allies. These
are but two examples for illustration of the problem. The Comp-
troller General, in the report cited above, stated when he concluded
that the pricing formula applied under section 545 (h) of the Mutual
Security Act of 1954, as amended, "resulted in an estimated 'over-
charge' to the military-assistance appropriation in excess of $1
billion."
The view that this pricing formula was not in the best interest of the
military-aid program was also shared by the Comptroller of Interna-
tional Security Affairs who reported:
We have come to the conclusion that it would be fairer if we
could base our prices of used and aged material on its actual
condition, and that is proposed as an amendment to section
545.7
At the time, the Congress concurred in these views and the sug-
gested amendment was incorporated in section 545 (h) of the Mutual
Security Act of 1956.
The old pricing policy-in the view of many responsible officials in
the departments concerned-has, in fact, proved a boon to the Military
Establishment. Obsolescent equipment included in military-aid
programs—in view of the quantities and the noncompetitive prices
involved-would have found few, if any, buyers on the commercial
arms market and would, no doubt, have been sold for scrap at a frac-
tion of its value. A fair appraisal of the realistic cost of the mutual
defense assistance program, therefore, would have to allow for the de-
duction of the overcharges made by the armed services to the program,
which would, in all likelihood, run far above the $1 billion mark set by
the Comptroller General.
3. The new pricing policy
The Mutual Security Act of 1956 was enacted on June 19, 1956. On
October 31, 1956, the Office of the Secretary of Defense released a draft
directive outlining a uniform pricing policy.
This directive (7510.1) was approved by the Secretary of Defense on
December 31, 1956, and appears to be in accordance with the intent of
the amending provision of section 545 (h) of the Mutual Security Act
of 1956.
Standard prices will be established for the pricing of all sales.
These will include not only transactions between the three service
departments, but for military aid as well. These standard prices do
not include costs of procurement, warehousing, etc., and will be the
prices of items as of the day when the order is placed by an authorized
• In fact, according to newspaper reports of December 15, 1956, the West German Air
Force purchased from Canada 200 jet fighters of the American F-86 type instead of
purchasing similar planes from the United States.
' Ibid.
THE MILITARY ASSISTANCE PROGRAM
1015
supply or procurement agency regardless of the length of the delivery
lag.
The new pricing policy embraces such major items as tanks, weapons,
and trucks, but does not include offshore procurement, plant, equip
ment, complete aircraft or ships, infrastructure, and the mutual
weapons development program.
Reimbursable aid sales to foreign countries and sales to the mutual
defense assistance program of excess material will continue to be
made at the fair value defined in the Mutual Security Act as follows:
Section 106 (b) :
The fair value for the purpose of this subsection shall not
be less than the value as defined in subsection (h) of section
545: Provided, That with respect to excess equipment or ma-
terials the fair value may not be determined to be less than
(i) the minimum value specified in that subsection plus the
scrap value, or (ii) the market value, if ascertainable, which-
ever is the greater.
Section 545 (h):
The term "value" means-(1) with respect to any excess
equipment or materials furnished under chapter 1 of title I
the gross cost of repairing, rehabilitating, or modifying such
equipment or materials prior to being so furnished; ***
Hence, in accordance with the directive, all aspects of military aid—
both reimbursable and grant-will be guided by a uniform pricing
policy which may prove beneficial to the execution of the mutual
defense assistance program.
As of this writing, it would be premature to assess the savings to
the mutual defense assistance program which can be expected from
the new pricing policy. It has been contended by the armed services
and considered as possible by the Comptroller General in his previously
mentioned report that the hitherto "hidden" charges might now
largely offset the savings that are expected to accrue to the mutual
defense assistance program under the new pricing policy.
On the other hand, the new pricing policy will no doubt encourage
more realistic and uniform procurement and accounting procedures
a factor not to be overlooked when considering the long-range objec-
tives of military aid, whether on a grant or a reimbursable basis.
VII. LEAD TIME AND RELATED PROBLEMS
A. SUMMARY
If military aid commitments to recipient countries actually are to be
fulfilled in accordance with programing schedules, the lead time nec-
essary to procure and deliver equipment must be appraised. The
current average lead time is approximately 22 years, which does
not include an additional period of 12 years required in the planning
cycle.
At present, the most important considerations bearing on lead time
are :
1. the depletion of World War II stocks of military items,
requiring procurement from current production;
2. the highly complex items of modern equipment which re-
quire longer lead time; and
3. the relatively short period available for contracting and
obligating funds.
B. CONCLUSIONS
1. Maintenance and operating costs on equipment are rising. Some
items are becoming functionally obsolescent in respect to the mis-
sions of the employing forces. The trend is toward more item re-
placements from new production with attendant increase in produc-
tion lead time.
2. There is evidence of slippage in deliveries. Lead time on newer
equipment has been underestimated in some cases.
3. The current practice of year-to-year congressional appropria-
tions is not conducive to economical long-range planning and imple-
mentation of military aid.
4. Continued maintenance costs may be consuming a dispropor-
tionate share of appropriations which might better be used for force
modernization equipment.
C. RECOMMENDATIONS
1. More attention should be given to correlating lead-time factors
with the realities of mutual defense assistance program requirements
since a large measure of program effectiveness depends on the delivery
of aid as promised.
2. The Congress should give consideration to providing funds on
other than a year-to-year basis, such as no year, several year, or a
revolving fund basis. Periodic checks should be provided for proper
use of such funds.
3. A detailed study should be undertaken on the problem of con-
tinued maintenance costs to determine the feasibility of continuing
maintenance versus replacement of old items by modern equipment.
1016
THE MILITARY ASSISTANCE PROGRAM
1017
4. More study of the types of equipment best suited to recipient
countries is necessary, particularly when replacements for future mili-
tary aid equipment come from new production.
1. Defining lead time
D. DISCUSSION
The term "lead time" used here means that period of time required
actually to deliver an item to its final destination after its programing
has been approved and the funds for procurement made available.
This time period is divided into three parts:
1. administrative lead time, during which contract negotia-
tions and obligation of funds occur;
2. production lead time-that period necessary to produce off-
the-line or to rehabilitate in-stock items; and
3. delivery lead time-the time required to ship an item from
its source of procurement to its destination.
Of these phases, the second is subject to the greatest variation.
Administrative lead time averages about 6 months and involves:
(1) the type of item, with associated number and complexity of pro-
curement negotiations; and (2) the source of supply-foreign or
domestic. Production or rehabilitation lead time required for an item
may range from a few weeks (small arms) to several years (naval
vessels), averaging from 18 to 24 months. Delivery lead time aver-
ages about 6 months and is affected by a number of variables. Prob-
lems inherent in each of these three components of lead time are
discussed below.
2. Administrative lead-time problems
Program finalization and funds allocation now take approximately
6 months. This rarely leaves more than 6 months for contracting and
obligating funds if the entire process is to be completed within 1
fiscal year. An additional restriction prohibits obligating more than
20 percent of the total yearly appropriation during the last 2 months
of the fiscal year. This further reduces the time left for contracting
and obligating funds, results in very tight scheduling, and increases
the chances of uneconomical operations.
Military aid items are procured from essentially three sources:

1. the armed services;
2. private business or industrial suppliers in the United States;
and
3. the offshore procurement program (OSP), by means of
which items are procured from suppliers in overseas countries
either for use in that country or for shipment to another recipient
country.
Each poses separate procurement problems.
When procurement orders are placed by the mutual defense assist-
ance program with the armed services, funds are reserved from
military aid appropriations. The services then place orders through
their own procurement channels. This avoids competitive bidding,
consolidates orders, and enables the services to plan smoother produc-
tion schedules. There have been occasions when military aid deliveries
have been slowed because the supplying service would not release
"on hand" items until receipt of replacements.
1018
THE MILITARY ASSISTANCE PROGRAM
The second source of procurement, direct purchase from private
suppliers in the United States, requires bidding procedures in most
instances. If a contract is not finalized in the current fiscal year,
negotiations usually are not resumed until the same item has been
approved for the next fiscal year.
The same timing problems are inherent in procurement from for-
eign suppliers. However, this type of procurement appears to be more
direct. Nevertheless, problems arise involving foreign government
interest and business customs.
Essentially, then, two factors deserve attention in respect to admin-
istrative lead time. First, the period in which negotiation can take
place is only about 6 months and is further shortened by the necessity of
obligating the bulk of available funds prior to April 30 in any fiscal
year. Second, the number of procurement sources, and the attendant
problem of negotiating separately for a number of components for
some end items, results in a wide variation in the length of time neces-
sary to follow proper procurement practices.
The provision of so-called "no year funds," revolving funds, or
other findings may be a solution to the administrative lead time
problem and result in more economical purchases and better phasing
of delivery requirements. However, no one solution can be recom-
mended without a more detailed study of the problem. It is apparent
on the other hand that lead time constitutes a major factor in the
long-range success of the military assistance program and thus is
highlighted as a problem for further congressional attention.
3. Production lead-time problems
Until recently, the bulk of military aid equipment and material
was supplied from excess or reserve World War II stocks. Conse-
quently, except for relatively few items, the administrative and de-
livery lead-time factors were the most important. In the future, pro-
graming problems will center upon replacements with newer conven-
tional equipment or the more advanced weapons and material, and
upon maintenance and rehabilitation of current equipment continued
in use.
The maintenance of weapons and equipment continually in use is
invariably a costly problem; especially when these items are not spe-
cifically designed for the conditions under which they operate. Such
has been the case with respect to much of the weapons and equipment
supplied to the free world. While improved local technical compe-
tence in maintenance may reduce costs, problems of spare parts in-
volved in maintenance are not so easily resolved. This is particularly
true since World War II stocks of spare parts are now largely depleted.
Consequently, the parts must be supplied out of new production in
the United States or through offshore procurement. New produc-
tion is obviously more costly than supplying the item out of excess
stocks, and it introduces a new lead-time problem as well. Delivery
requirements for spare parts for both old and new equipment must be
phased with production schedules at the source of supply.
In the program for fiscal year 1957, spare parts deliveries have been
placed on a regional basis. It is believed this will permit better tim-
ing and control in accord with actual requirements. Spare parts needs,
of course, include items for new as well as for old equipment. The
THE MILITARY ASSISTANCE PROGRAM
1019
cost of spare parts is considerable: for fiscal year 1957 alone, approxi-
mately $149 million have been set aside for this category, with little
prospect that this figure will diminish appreciably in the future.
Vehicles present an additional problem. Complete rehabilitation
is becoming necessary. Rehabilitation has been particularly required
in Asia where conditions of wear are at a maximum and capabilities
for maintenance at a minimum. This year a sizable contract was let
in Japan for the rebuilding (fifth echelon maintenance) of these ve-
hicles. It had a twofold purpose: keeping more vehicles operational
and permitting more flexibility in their reallocation. Rehabilitation,
however, does not entirely resolve the problem. Another lead-time
factor is involved for these vehicles to become available to meet require-
ments in the area.
At what time the maintenance or rebuilding of existing equipment
will reach the point of diminishing returns is a critical question in
military aid today. The factors of normal attrition, the simple wear-
ing out of equipment until it is beyond repair, and the increasing
obsolescence of some military aid items enter into consideration. In
this regard, the entire question of continued maintenance or rebuilding
of some categories of aid items, where replacements may become in-
evitable, needs further attention. It is directly related to the capabil-
ity of the program to even out replacement costs over a programing
period, while still maintaining desired levels of forces effectiveness.
Costs for maintenance promise to rise. Yet, because these mainte-
nance costs must be provided for within yearly appropriations, they
are a factor limiting how much of the appropriations can be allo-
cated for replacements of current (or advanced) types of weapons and
equipment. Inasmuch as newer items require longer production lead-
times (which in general means that funds must be available for obli-
gation at an earlier date), this factor is highly significant if peaks and
valleys are to be leveled off in the future delivery schedules.
As indicated above, the newer types of military aid, now felt to be
imperative to future program effectiveness, require more production
lead-time. (See chart, p. 131.) This chart is limited in coverage inas-
much as it does not reflect the lead-times for other items of equal or
greater significance to the program, nor does it indicate whether these
average schedules are met in terms of overall delivery requirements.
Longer lead-time applies particularly to such weapons as guided mis-
siles, transitional weapons, and to electronics and communications
equipment required to maximize overall effectiveness. Estimates on the
lead-time required vary from 2 to 3 years, but in view of the past record
on deliveries of newer type items, these estimates may be over-
optimistic.

1020
THE MILITARY ASSISTANCE PROGRAM
APPROPRIATIONS, EXPENDITURES and UNEXPENDED BALANCES
10
MILITARY
9
Billions of Dollars)
NON-MILITARY
10
9
8
7
ANNUAL
5
APPROPRIATION
TOTAL
UNEXPENDED
APPROPRIATION ON
JUNE 30
4
3
2
1
ANNUAL
EXPENDITURES
8
7
6
ANNUAL APPROPRIATION'
5
ANNUAL EXPENDITURES
3
TOTAL UNEXPENDED APPROPRIATION
ON JUNE 30
1949'50 '51 52 53 54 55 56 57
U.S. Fiscal Years
Eat
EAD
0
1949'50 '51 52 53 54 55 56 57
EoL.
Est.
2
0
THE MILITARY ASSISTANCE PROGRAM
1021


July
1956
LEAD-TIME ANALYSIS - MDAP
Funding
FY 1956
ADMINISTRATIVE
Programming
Objective
FY 1957 Plon
Dec
Dec
July
1957
SELECTED
ITEMS
Reorder Lead-Time
Delivery and Expenditure
ARMY
Truck-21/2 Ton
Howitzer Gun-155mm
Gun 90mm-AA
Light Tank
AIR FORCE
RF 84F a/c
F-100 a/c
T-33-A a/c
F86F a/c
NAVY
Destroyer
Ocean Escort
Minesweeper
24
July
1958
Fiscal Year
30
Dec
36
July
1959
Dec
1022
THE MILITARY ASSISTANCE PROGRAM
Evidence adduced in the course of this report indicates:
1. that successful economical maintenance of existing military
aid equipment cannot be accomplished unless accompanied by a
program of replacement of worn out or obsolescent items;
2. that the production lead-times necessary for replacement
items or modernization do not meet delivery requirements; and
3. that an improvement might be accomplished by a revised
funding program.
4. Delivery lead-time problems
As can be seen from the chart, delivery lead-time averages about
6 months. This time includes the final release of obligated or reserved
funds in payment for the items, a factor that especially applies to
the delivery of items from the military services, as they utilize their
own funds for procurement pending actual delivery of items. Many
factors may operate to extend the lead-time necessary for the de-
livery of the produced item. Among these are normal transportation
problems, inability of a country to absorb the item at the time of
scheduled delivery, the insistence of the service branches that an item
procured from stock be replaced before allocation to military aid, and
occasional labor troubles. It should be noted that delivery lead-time is
a relatively constant factor (see chart), however.
The problems just discussed are consonant with a realization in
recent years that a much longer-range view of military aid must be
taken if the policy objectives of the United States are to be maintained.
These problems, centering essentially around the need for replacement
of items and the modernization of forces built up during the early
years of the mutual defense assistance program, indicate a need for
an intensive and realistic study of aid requirements.
VIII. EXPERIENCE WITH CONDITIONS IN THE
MUTUAL SECURITY ACT
A. SUMMARY
Up to fiscal year 1957, 38 countries have signed mutual defense
assistance agreements with the United States. Various provisions of
the Mutual Security Act have been unacceptable to recipient or
potentially recipient countries for a variety of reasons. Seven coun-
tries receive military aid under agreements that do not specifically
contain all of the conditions set forth by Congress in the mutual
security legislation. (See appendix II.) One country revoked an aid
agreement based on this legislation.
The provisions of the act, relating to regional defense organizations,
have required broad interpretation.
Areas for improvement in the legislation are discussed.
B. CONCLUSIONS
1. The Mutual Security Act of 1954 is too detailed and specific to
lend itself to the varying administrative and operating requirements
of all recipient countries and the United States as well.
2. Specific stipulations in the act, i. e., membership or belief in
"common defense," in order to promote the "security and welfare of
the United States," etc., have been considered in certain instances as
controversial by countries uncommitted to either the Soviet bloc or
to the West.
3. Certain provisions of the act are contradictory in some areas and
overlap in others, making interpretation difficult.
C. RECOMMENDATIONS
1. Overly detailed and specific sections of the act which reduce
flexibility in meeting world conditions should be reexamined with a
view toward removal from the act or to broader interpretations.
2. Consideration should be given to the elimination of statements
of specific political intent from chapter 4 or their inclusion, if reten-
tion is deemed necessary, in the provisions on purpose of chapter 1 of
title I of the act.
3. Mutual security legislation should be reexamined with a view
toward elimination of overlapping or contradictory provisions.
D. DISCUSSIONS
1. Experience with conditions of military assistance
Thirty-eight countries are now, or have been in the past 7 years,
participants in the mutual security program. Their cultural and
political backgrounds vary widely. In at least one instance,
1023
1024
THE MILITARY ASSISTANCE PROGRAM
the actual wording of a projected assistance agreement proved objec-
tionable when interpreted in that country's language. In other coun-
tries, the definition of what constitutes "common defense," "peace
and security," "mutual aid" or what, in fact, is the "free world," is
subject to the widest interpretations, often at variance with the intent
of the legislation.
Major points of contention also have arisen when a foreign country,
though friendly toward the United States, believed that certain
provisions of the Mutual Security Act were incompatible with what
the country construed as its national sovereignty. In such cases, the
purpose of the act "to increase the defensive capacity of the free
world against Communist aggression and subversion" was defeated
by the stringency of the terms laid down in the law.
A country at first accepted all conditions laid down by the act.
Later, however, the country's legislature refused to accept the act's
provisions. Paragraph 10, section 142 (a) of the act which granted
the President of the United States unlimited power to inquire into a
foreign country's utilization of military aid proved particularly
objectionable.
In another case, Iran, United States mutual defense assistance can
be rightfully credited with having substantially contributed to saving
the country from Communist domination. Yet, it appeared for a
time that negotiations with Iran would break down entirely over
Iran's initial steadfast refusal to accept provisions in section 142 (a) of
the act.¹
The commitments which were finally signed with Iran use very
cloudy language with respect to several of the provisions of section 142
(a).2
While the Baghdad Pact appears to be an encouraging start, recent
events in other areas of the Middle East and Africa demonstrate that
the necessary political, psychological, and economic climates must be
created first-often on a bilateral basis. Only then can steps be taken
to build stable regional defense structures.
In the case of cooperation among the young Asian nations, congres-
sional intent specifically includes the nations of Cambodia, Laos, and
Vietnam in bringing about the creation of joint organization to estab-
lish programs of self-help and mutual cooperation for peaceful pur-
poses as well as to "protect their security and independence." "
4
Here, the act seeks to accomplish what the three States are reluctant
to do for various reasons, one of which is the character of the Geneva
accords of July 1954. Having been jointly administered by France
for more than 80 years, the 3 states have since their accession to full
independence in 1954 made strenuous efforts not to organize them-
selves jointly but, on the contrary, to become as independent and
separate from each other as feasible. Customs barriers are established,
1 For the full text of mutual security legislation provisions pertaining to the field of
military aid and a chart indicating the incorporation of specific conditions in the individual
country agreements see appendixes I and II.
2 In a communication of November 6, 1956, the Office of the General Counsel, Depart-
ment of Defense, expressed the view that:
"It seems advisable to secure from Iran a new commitment meeting in a more direct
fashion the requirements of sec. 142 (a), even though no objection has been raised upon
the reliance of the present Iranian commitments."
³ Par. 3, sec. 105 (b).
For full text of the Geneva cease-fire agreements, see Documents on American Foreign
Relations, New York, 1954, pp. 282-317. It must be pointed out, however, that the three
Indochina states are under the protective "umbrella" of the Southeast Asia Treaty
Organization (SEATO) created in September 1954.
THE MILITARY ASSISTANCE PROGRAM
1025
passports are required, and three different monetary units now cir-
culate.
2. Suggested amendments to existing legislation
It is recommended that provisions included in the mutual security
legislation be limited to those reasonably enforceable and to stipula-
tions which will make the act broadly consistent with the intent of
Congress subject to presidential confirmation that the particular
agreements are consistent with United States interests.
Latitude should be left to the President on the basis of congressional
intent, to negotiate agreements on a basis which proves mutually bene-
ficial. Pertinent provisions concerning regional aid or self-help
should be included whenever applicable.
With the present possibility of several hitherto uncommitted na-
tions evidencing a willingness to enter into aid agreements with the
United States, mutual security legislation must retain sufficient flex-
ibility to be able to include such areas or countries in the program
without compelling the executive branch to either technically violate
the letter, or extensively stretch the interpretation of existing legisla-
tion.
In addition to these deficiencies in the present act, the merger or
total removal of a number of provisions would make the wording of
the act more effective and less subject to divergent interpretations.
For example, Section 105. (a) Conditions to Military Assistance,
provides that "equipment *** shall be made available solely to
maintain the internal security and legitimate self-defense of the
recipient nation ***"
**" as well as for its participation in "measures
consistent with the Charter of the United Nations," while Section
141. Conditions of Eligibility for Assistance, provides that "no assist-
ance be furnished under this title *** unless *** furnishing such
assistance will strengthen the security of the United States and pro-
mote world peace.
""
While at first view there appears to be no inconsistency between the
purposes of the two sections cited, the wording of section 141: "No
assistance *** unless" would logically preclude military assistance
to areas where maintenance of a regime in power does not necessarily
lend itself to the security of the United States. In theory, a country
could invoke the wording of section 105 (a) to the effect that it would
use its armament "solely to maintain the internal security and legiti-
mate self-defense ***" in the event of an emergency requiring that
country's military assistance outside its borders.
In other provisions, the wording is equally ambiguous. For ex-
ample, section 105 (a) defines military assistance as "equipment and
materials," while section 106 refers to "equipment, materials, and
services," although it is the apparent intent of Congress to include
services under section 105 (a) as well.
Pending complete revision of present mutual security legislation, it
might be advantageous for the Department of State, as the actual
framer of international agreements, to determine which specific pro-
visions of Section 142. (a) Agreements, have met with objections or
even formal protests from recipient countries. Some countries, it is
understood, have accepted them only because little alternative was left
them save forsaking military aid altogether.
1026
THE MILITARY ASSISTANCE PROGRAM
The following paragraphs of section 142 (a) have been objected
to as incompatible with the national honor, sovereignty, or policies
of certain countries:
Paragraph (2), requiring recipient countries to take action to
"eliminate causes of international tension," has been interpreted by
some neutral countries to mean that they may be compelled to resort
to force against their will or in violation of their constitutional
processes.
Paragraph (3), requiring recipient countries to promise that they
would fulfill their other military treaty obligations with the United
States, constitutes an implication that countries allied with the United
States would not come to its assistance as stipulated in those other
treaties as a matter of course.
Paragraph (9), requiring recipient nations to "furnish * * * as-
sistance" to the United States or other nations "to further the pol-
icies and purposes of chapter 1 of this title," commits recipient na-
tions to share United States views on Asian regional organization and
on policy toward Communist China. Each national legislature feels
that the choice of such policies is its own privilege.
In actual practice-in the case of Great Britain's policy toward
Communist China, for example-some recipient countries are com-
mitted to certain policies incompatible with those of the United States
even though they are recipients of military aid under the Mutual
Security Act.
Finally, a survey by the executive branch with regard to the de
facto nonimplementation of specific provisions of the Mutual Security
Act of 1956 may yield factual material for a serious reappraisal of
existing legislation, shaping it closer to United States foreign policy
requirements.
IX. COUNTRY VERSUS REGIONAL PROGRAMS
A. SUMMARY
Sixty countries and three international or regional organizations are
now eligible for military aid on a grant or a reimbursable basis.¹ Of
this number, 36 countries, 1 regional organization, and 2 international
organizations receive aid.2
With the exception of the North Atlantic Treaty Organization,
regional defense organizations have not yet reached the stage of de-
velopment which will permit them to receive and administer mili-
tary aid.
B. CONCLUSIONS
1. The Congress has expressed, in mutual security legislation, views
toward a greater extension of regional defense organizations. Thus
far, only the North Atlantic Treaty Organization has reached a de-
velopmental state which can justify military-aid expenditures.
2. A major portion of military aid has been extended on a bilateral
basis.
3. Extension of military aid on a regional basis to countries outside
the North Atlantic Treaty Organization area has progressed slowly
due to many diverse political, cultural, and psychological factors out-
side the control of the United States.
C. RECOMMENDATIONS
None. (See "Discussion" for review of advantages and disadvan-
tages of both types of programs.)
1. Congressional intent
D. DISCUSSION
The Congress, in section 101. Purpose, of the Mutual Security Act
of 1956, states:
*** its previous expressions favoring the creation by the
free peoples of the Far East and the Pacific of a joint or-
ganization, consistent with the Charter of the United Na-
tions, to establish a program of self-help and mutual coop-
eration designed to develop their economic and social well-
being, to safeguard basic rights and liberties, and to protect
their security and independence.
Similar expressions favoring the establishment of regional organ-
izations are laid down in section 105. Conditions, of the Mutual Se-
curity Act, in which the Congress:
*** welcomes the recent progress in European cooperation,
and reaffirms its belief in the necessity of further efforts
1 See appendix III for a complete list of eligible countries and organizations.
Two Untied Nations organizations (see 2 (b) below) receive "nonmilitary" equipment
under sec. 535 (b) of the Mutual Security Act.
94413-57-66
1027
1028
THE MILITARY ASSISTANCE PROGRAM
toward political federation, military integration, and eco-
nomic unification * * *
Additional provisions of section 105 (b) (2), (3), and (4) fur-
ther emphasize the attitude of the Congress in favor of regional or-
ganizations in the Near East, Africa, Asia, and the Latin American
Republics.
The executive branch has sought to implement congressional in-
tent in this field by allocating an increasing amount of economic aid
to regional programs such as embodied in the President's Fund for
Asian Economic Development, special authorization for the Middle
East and Africa, and other international organizations. On the
other hand, these programs have not included military-aid expendi-
tures.
2. Regional and international military aid programs
Three regional and international organizations qualify for military
aid under present legislation: The North Atlantic Treaty Organiza-
tion; Supreme Headquarters, Allied Powers, Europe; and Supreme
Allied Commander, Atlantic; and two United Nations organizations
are eligible to purchase supplies; the United Nations Korean Rehabili-
tation Agency; and the United Nations Truce Supervision Organi-
zation.
(a) The North Atlantic Treaty Organization (NATO)
The North Atlantic Treaty Organization was created in 1949 and
is the oldest existing regional organization entitled to receive mili-
tary aid. A substantial amount of military aid expenditures for the
Organization is earmarked for the infrastructure program (the
system of military airfields and oil pipelines created during the past
7 years). Additional common funds are utilized for the new ad-
vanced weapons program, designed to provide Organization mem-
bers with the necessary research and development capability for the
production of guided missiles, supersonic aircraft, and other complex
modern weapons.
In the North Atlantic Treaty Organization area, preliminary steps
are also underway toward economic and political integration of the
member nations. The Organization's Council of Foreign Ministers,
which met in Paris in May 1956, appointed three of its members, the
Foreign Ministers of Canada, Italy, and Norway, to study the prob-
lem of further integration and to report their findings to the Council.
It is understood that further extension of the North Atlantic Treaty
Organization into political and economic areas, if decided, will be
in addition to its military purposes rather than as a substitute for
them.
Despite recent events in the Middle East and subsequent strains
on the relations between the United States, England, and France,
overall progress toward military integration between North Atlantic
Treaty Organization member nations is encouraging. In Europe
itself, progress toward regional economic integration has been made
by the European Coal and Steel Community, although much remains
to be done in other fields. Political unification is far from achieved.
The Council of Europe in Strasbourg, representing not only North
Atlantic Treaty Organization members but some non-Organization
countries, has failed to make significant gains over the past 5 years.
THE MILITARY ASSISTANCE PROGRAM
1029
Thus, the eventual development of a workable "European Parliament"
remains a point of conjecture.
No outright allotments of military aid-in terms of weapons and
equipment are supplied either to the Supreme Headquarters, Allied
Powers, Europe (SHAPE), or to the Supreme Allied Commander,
Atlantic (SACLÀNT). Áid to both these regional organizations
consists primarily of funding for headquarters construction and main-
tenance expenses.
(b) United Nations agencies [sec. 535 (b)]
Two United Nations agencies are at present entitled to purchase
items from the United States: The United Nations Korean Rehabilita-
tion Agency (UNKRA) and the United Nations Truce Supervision
Organization (UNTSO). The United Nations Korean Rehabilita-
tion Agency is an international agency concerned primarily with eco-
nomic rehabilitation in South Korea. Prior to 1955, the United
States contributed nearly $100 million to the Agency's activities. A
portion of this falls within the category of defense support. No actual
weapons or combat equipment have been supplied to the Agency.
The United Nations Truce Supervision Organization, organized
since 1949 to supervise the Arab-Israeli cease-fire, is also qualified to
purchase military-type items, like jeeps. Before the renewal of hos-
tilities in October 1956, the Organization received limited logistic sup-
port from the United States, and some United States military person-
nel still participate in the Organization's truce supervision activities.
With the termination of the recent fighting, the United Nations
Emergency Force (UNEF) was activated to enforce the truce between
England, France, and Israel on the one hand, and Egypt on the other.
Although the United States does not provide personnel to the United
Nations Emergency Force, it has promised logistic support and equip-
ment as may be required. Such support will be furnished under the
United Nations Participation Act. The United Nations Korean Re-
habilitation Agency and the United Nations Truce Supervision Organ-
ization were declared eligible to purchase supplies under section 535
of the Mutual Security Act in recognition of the fact that they are not
military or defense organizations. They have not been declared eligi-
ble to purchase under section 106-sale of military equipment, ma-
terials, and services.
3. Other regional programs
There are no military-aid programs on a regional basis outside the
North Atlantic Treaty Organization. Although the Southeast Asia
Treaty Organization was first established in 1954, it has at present
little more than a skeleton headquarters and no joint logistic organiza-
tion. Furthermore, such internal functions as the establishment of a
standing group for dealing with local subversion-a fundamental pur-
pose of this Organization-have lagged. The creation and mainte-
nance of other important headquarters commands have also failed to
materialize. As of this writing, no military-aid funds are allocated
to the Southeast Asia Treaty Organization.
Although the United States is a member of the North Atlantic
Treaty Organization, Southeast Asia Treaty Organization, and the
Organization of American States, it has not joined the Middle East
Treaty Organization (METO), commonly referred to as the Baghdad
1030
THE MILITARY ASSISTANCE PROGRAM
Pact. Recently, several Middle East Treaty Organization members
voiced their concern over United States nonparticipation in the pact.
Although the United States has bilateral agreements with all the
member nations within the pact and has announced its intention to
furnish equipment and economic support to the pact, the absence of
United States membership has slowed the development of this regional
defense organization.
4. Advantages and disadvantages of regional programs
From the purely military point of view, the North Atlantic Treaty
Organization has demonstrated the advantages of a regional program.
Primarily, it established the basis for a joint defense effort against an
outside enemy. Men, weapons, and equipment from many nations
have been welded into a common defense force. The tactical and
strategic organization of the many military forces has been improved.
Administratively, better coordination of supply and procurement pro-
cedures has been possible, and greater unification of organization and
equipment standards over a wide geographic area has been achieved.
On the other hand, total regional integration even within the North
Atlantic Treaty Organization is an ideal situation to which member
nations adhere only to a varying degree. Certain member nations.
retain individual force commitments and political objectives that do
not necessarily coincide with those of the larger body of which they
are a part.
Thus, in the case of the North Atlantic Treaty Organization, coun-
tries with overseas possessions (Britain, France, and Portugal³) are
faced with separate military commitments over which the North
Atlantic Treaty Organization has little control. Britain and France
in recent months, for example, "skeletonized" combat units committed
to the Organization in order to make available additional forces for
operations in the Mediterranean area. The North Atlantic Treaty
Organization has been able to do little else but to insure that its equip-
ment was not used for purposes for which it was not destined.*
West Germany, as another case, has failed to live up to previously
agreed force commitments. Here again, any type of sanction involv-
ing the withdrawal of aid would hurt the Organization as a whole,
perhaps even more than the individual country concerned. This is one
reason why no such sanctions have as yet been applied.
Such cases point up the many problems faced by regional organ-
izations. In areas of the world where the interests of the various
member powers may be more divergent than they are among North
Atlantic Treaty Organization members, the problem of realizing and
maintaining regional integration would increase accordingly.
This type of problem hinders regional growth in such organiza-
tions as the Southeast Asia Treaty Organization and the Baghdad
Pact. There, "white" nations some of them colonial powers-sit
side by side with fledgling Asian nations. Recent events in Egypt
underline this difficulty: Iraq-the sole Arab member of the pact-
threatened to walk out as long as Britain—also a member-took part
The Netherlands, Belgium, and Italy-the latter in the Somali trusteeship territory-
also have some overseas commitments, but these are not likely at present to have upsetting
effects on North Atlantic Treaty Organization force commitments.
• Accusations have been made recently in the press that such North Atlantic Treaty
Organization equipment had been used in operations against Egypt. Such reports have
remained unconfirmed.
THE MILITARY ASSISTANCE PROGRAM
1031
in the deliberations of November 1956. Britain abstained from in-
sisting, and Iraq refrained from withdrawing from the pact.
In these instances, bilateral agreements between the United States
and countries within regional organizations retain a certain measure
of advantage. The country which joins such a treaty feels that it has
become an "equal" partner of the United States and is not merely a
minute cog in a vast supranational machine. Furthermore, such
bilateral treaties allow for a certain amount of latitude as to mutual
objectives, while regional organizations must reach a common under-
standing on a minimum of common goals. In such a case, the common
objectives are often so "watered down" as to risk losing meaning. On
the other hand, important nations of the particular area may refuse to
join the organization because the common objectives contain pro-
visions which the particular country considers unacceptable.
To cite a concrete example, the United States has equally good rela-
tions with the Republic of Korea and Japan, and has separate treaties
with both countries. However, both Japan and Korea harbor less
than friendly feelings toward each other, and any hopes for, say, a
Northern Pacific defense treaty organization including Japan, Korea,
and Taiwan would be difficult to fulfill. Bilateral agreements with
other countries, therefore, have distinct advantages which should be
pursued regardless of parallel efforts made toward the creation of
regional organizations.
X. THE ROLE OF THE DEPARTMENTS OF DEFENSE AND
STATE IN POLICY DETERMINATION
A. SUMMARY
Military aid "policy" is, in fact, an expression of congressional
intent as set forth in mutual-security legislation. This legislation also
assigns definite policy areas to specific agencies of the executive branch.
The specific assignments are then implemented by Presidential or
departmental directives.
The Department of State has the responsibility for the coordina-
tion of all foreign-assistance operations. The International Coopera-
tion Administration, a semiautonomous agency within the Department
of State, is charged with the coordination of military, economic, and
technical aid programs.
The Department of Defense is entrusted with the administration of
the military aid program. Supervision and administration over mili-
tary aid is assumed by the Office of the Assistant Secretary of Defense,
International Security Affairs. The Joint Chiefs of Staff give advice
in problems of programs orientation and emphasis.
A high degree of coordination between the Departments of Defense
and State both in planning and implementing military aid is an abso-
lute necessity to program effectiveness. This coordination is necessary
both at the field as well as the departmental level.
B. CONCLUSIONS
1. In the past, relations between the Departments of State and
Defense lacked adequate coordination at early stages of military aid
planning.
2. Measures taken to speed the interdepartmental policy planning
and formulating process are too recent to permit long-term
assessment.
C. RECOMMENDATIONS
Recent changes reported in the interagency planning process should
be subject to further appraisal at a later date to determine whether or
not expected improvements have fully materialized.
1. Policy areas
D. DISCUSSION
Military aid policy falls into several major areas of decision. The
most important are:
1. should military aid be given;
2. to a region or a country;
3. purpose-internal security, national defense, or regional
defense;
4. magnitude of aid, within limits set by law;
1032
THE MILITARY ASSISTANCE PROGRAM
1033
5. type of equipment; ¹
1
6. type of financing-outright gifts (grants), reimbursable aid,
or loan aid.
Congress has defined in its mutual security legislation the particular
agencies of the executive branch which should be entrusted with the
various parts of this decision-making process.
2. Policymaking agents
A great part of what becomes military aid "policy" is, in fact, an
expression of congressional intent as set forth in the various Mutual
Security Acts. These acts also include specific allocations of policy
areas to various agencies of the executive branch. Within limitations
of the act, the executive branch is then free to delegate such powers
as it deems fit.
By virtue of the Mutual Security Act of 1954, as amended, the
President exercises his authority in the foreign-aid field "through such
agency or officer of the United States as he may direct." The same
act limits Presidential powers by specifically delegating responsibility
for technical assistance to the Secretary of State (sec. 521 (b)), mili-
tary aid to the Secretary of Defense (sec. 524), and by preserving the
traditional powers of the Secretary of State from any infringement
(sec. 523 (a)).
By Executive Order 10610 of May 9, 1955, the President transferred
to the Department of State responsibility for the coordinating of all
foreign assistance operations. In turn, the Department of State, by
Delegation of Authority No. 85 on June 30, 1955, established the Inter-
national Cooperation Administration (ICA) as a semiautonomous
agency within the Department under a Director to coordinate mili-
tary, economic, and technical aid programs.
The Department of Defense, under section 524 of the Mutual Secur-
ity Act, is entrusted with the administration of the military aid pro-
gram. This delegation of responsibility for military aid was imple-
mented by the President in section 201 of the Executive order, which
reads in part:
*
*** equipment, materials, or services which are delivered
or rendered directly to the military forces of the recipient
country or its agent for the exclusive use, or to be
under the exclusive control, of such military forces*** is
hereby transferred to the Secretary of Defense and the De-
partment of Defense, respectively.
Within the Department of Defense, supervision and administration
of the mutual defense assistance program (MDAP) is assumed by the
Office of the Assistant Secretary of Defense, International Security
Affairs (ASD-ISA).
This, in brief, is the legislative basis upon which the administration
of military assistance policy rests.
3. Agency interaction
While at least 34 Federal agencies are in some way related to the
actual implementation of the mutual defense assistance program, only
1 In the case of the recent renewal of military defense assistance program aid to
Yugoslavia under sec. 143, of the Mutual Security Act of 1956, Congress specifically
entrusted the President with making a decision as to whether such aid be continued at all
and in what form. On October 18, 1956, the President decided to continue certain types
of aid to Yugoslavia but to withhold additional deliveries of jet fighters to that country
until further notice.
1034
THE MILITARY ASSISTANCE PROGRAM
the Departments of State (along with the semiautonomous Interna-
tional Cooperation Administration) and Defense have actual policy-
formulating powers. However, the President benefits from the advice
of the National Security Council on mutual defense assistance pro-
gram policy matters. Other members of the executive branch, as well
as the Joint Chiefs of Staff, are often called upon to sit with the Na-
tional Security Council whenever their specialized knowledge is
required for the formulation of a decision in the form of "position
papers," which the President may use to make a final decision.
The Director of the International Cooperation Administration, in
contrast to his predecessor, the Director of the Foreign Operations
Administration (FOA), is no longer a permanent member of the Na-
tional Security Council. He is often called upon, however, to partici-
pate in the sessions of the Council, or he requests to attend on his own
initiative when he believes that a subject on the agenda is of concern
to his agency.
By virtue of Executive Order 10610, the Director of the Interna-
tional Cooperation Administration also attends the meetings of the
Operations Coordinating Board (OCB), whose purpose is to provide
for the integrated implementation of national security policies by the
agencies concerned. This insures that decisions made by the Presi-
dent or the Secretary of State affecting the military assistance pro-
grams are duly implemented through proper allocation of tasks to the
responsible agencies or offices.
4. The role of the Department of State
The Secretary of State's judgment normally prevails, both within
the National Security Council and with the President, in the field of
foreign-aid policy and also with respect to the selection of particular
country programs according to the political and strategic importance
of the area. The overriding criterion, of course, is whether or not this
particular program is in the interests of United States security.
The role of the Secretary of State is particularly vital at the early
stage of a program. No activities in the military aid field can begin
in a given country without the Department of State first agreeing with
the recipient country on the relations between the United States and
the recipient for the period the program is to be in force. These are
generally known as mutual defense assistance agreements. These are
not treaties in the true sense. They are primarily the responsibility of
the Department of State and are not subject to congressional ratifica-
tion. There are at present 38 such agreements in force.2
The Department of State's action in negotiating these agreements is
limited by the terms of the current mutual security legislation enacted
by Congress. It is the State Department's task, through its diplomatic
missions in the recipient countries, to see that the countries concerned
accept the commitments Congress deems necessary in order to entitle
them to aid under the mutual security legislation.
5. The role of the International Cooperation Administration
By Delegations of Authority Nos. 85 and 85-1,3 the Director of the
International Cooperation Administration coordinates mutual defense
assistance program relationships between the Department of State and
* See appendix II.
June 80 and October 12, 1955.
THE MILITARY ASSISTANCE PROGRAM
1035
the Department of Defense. The Director is responsible for the har-
monious integration of military aid policies of the Defense Depart-
ment with the political decisions of the Department of State and the
economic programs of the Administration itself. He is responsible
for determining the value of a given country program and for the
preparation and presentation to the Congress of the yearly military,
economic, and technical assistance programs.
4
This coordinating role has not been an easy one. Often, conflicts
arise as to what properly constitutes "military policy" as distinct from
"foreign policy." The wars in Korea and Indochina and the more
recent tensions in the Middle East point up areas of interdepartmental
differences.
A considerable expansion of a country's defense program has to be
shored up economically by a parallel expansion of the country's de-
fense support program. Coordination in such matters was achieved
during the past year by the creation of an informal steering group
composed of representatives of the Department of State, the Depart-
ment of Defense and the armed services, and the International Co-
operation Administration, with the latter chairing the group. Pro-
graming policy difficulties are generally resolved at that level, al-
though in certain cases, when deadlock occurs, final policy decision
reverts back to the Chief Executive via the National Security Council.
6. The role of the Department of Defense
The Office of the Assistant Secretary of Defense, International
Security Affairs (ASD-ISA) was given responsibility for all Depart-
ment of Defense military aspects of the mutual security program on
January 1, 1956.5 (See chart p. 147.)
Within the Office of the Assistant Secretary of Defense for Interna-
tional Security Affairs, the Office of Planning is responsible for long-
range planning for the development of military aid programs. It
also provides guidance to the regional directors and to the Office of
Programing and Control. Moreover, the Office of Planning evaluates
long-range political-military aspects of new and advanced weapons
and defense systems.
The regional directors initiate the preparation of country programs,
including those for countries newly eligible for military aid. Re-
gional directors detect excesses in programs and recommend appro-
priate revision. They monitor program performance in the field, and,
where necessary, request expediting through the Office of Programing
and Control.
The Office of Programing and Control directs, coordinates, and con-
trols all military aid programs. It coordinates both with the Joint
Chiefs of Staff concerning aid objectives and guidance, and with the
International Cooperation Administration and the Comptroller, In-
ternational Security Affairs, on budgetary matters. The Office of
Programing and Control is the focal point of the Assistant Secre-
tary of Defense for International Security Affairs.
4 The coordinating role of the Director of the International Cooperation Administration
is given in Executive Order No. 10575, as amended, sec. 102 (b) and (c), November 6, 1954,
and August 2, 1955 (Executive Order No. 10625).
5 See letter from Gordon Gray, Assistant Secretary of Defense, International Security
Affairs, of December 29, 1955, regarding reorganization of the Office of the Assistant Secre-
tary of Defense (International Security Affairs).
1036
THE MILITARY ASSISTANCE PROGRAM

i
ORGANIZATION OF OFFICE OF THE ASSISTANT SECRETARY OF DEFENSE
INTERNATIONAL SECURITY AFFAIRS
ASSISTANT SECRETARY OF DEFENSE
MILITARY
ADVISOR
(ISA)
DEPUTY ASSISTANT
SECRETARY
DEPUTY ASSISTANT
SECRETARY
SPECIAL
ASSISTANTS
EXECUTIVE
OFFICE
OFFICE, OF
PLANNING
OFFICE OF
NSC AFFAIRS
OFFICE OF
OCB AFFAIRS
OFFICE OF SPECIAL
INTERNATIONAL
AFFAIRS
OFFICE OF PRO-
GRAMMING AND
CONTROL
OFFICE OF ISA
COMPTROLLER
SPECIAL
AFFAIRS
SPECIAL
PROJECTS
REGIONAL
DIRECTORS
MIDDLE EAST.
EUROPE
FAR EAST
AFRICA
WESTERN
HEMISPHERE
PROGRAMMING, SCHED-
ULING AND EXPEDITING
DIVISION
PROJECTS
DIVISION
CONTROL
DIVISION
PROGRAMMING
BRANCH
SCHEDULING AND
EXPEDITING
BRANCH
PROGRAM
CONTROL
BRANCH
REPORTS AND
ANALYSIS
BRANCH
THE MILITARY ASSISTANCE PROGRAM
1037
The Offices of National Security Council Affairs and Operations
Coordinating Board* Affairs provide advice and information to De-
partment of Defense representatives in both groups.
The Office of Special International Affairs prepares Department
of Defense "positions" in matters concerning international organiza-
tions and conferences. It also concerns itself with defense problems
as related to strategic defense materials, trade agreements, and the
negotiation of bilateral or multilateral agreements such as the mutual
defense assistance agreements.
The Assistant Secretary of Defense, International Security Affairs,
in liaison with the Office of the Special Assistant for Mutual Security
Affairs, Department of State, and the Office of Military Program
Affairs of the International Cooperation Administration, arrives at
policy decisions at the operating level. They are then submitted for
final approval to the Director of the International Cooperation Admin-
istration as program coordinator.
7. Recent developments
Until the current fiscal year (1957), coordination as described above
was in many cases left to personal contacts between the operating
officials concerned. Programs were developed separately until an
advanced stage of planning, at which point formal interagency contact
occurred. This resulted in many cases of last-minute changes not
conducive to thorough planning and budgeting as well as in loss of
valuable planning time.
6
Teamwork now occurs at an early stage when evaluation of prog-
ress is made by the various Military Assistance Advisory Groups
(MAAGS) on mutual defense assistance programs in their countries.
Special instructions were sent out this year as a means of improving
cooperation between representatives of the various departments in
foreign countries in the preparation of the country program effective-
ness reports.
The Special Assistant for Mutual Security Affairs in the Depart-
ment of State now participates in the early evaluation of such pro-
gram reports (along with representatives from other interested agen-
cies such as the Bureau of the Budget) and final policies can be
modified accordingly without undue disruption of the overall plan-
ning process.
Policy frictions have occurred in the past between the Department
of Defense and the Department of State. The Joint Chiefs of Staff,
primarily concerned with the military aspects of the country program,
base their estimates in large part on the Military Assistance Advisory
Group reports. On the other hand, the Department of State is com-
pelled to look upon a program from its overall political and economic
effects both within the recipient country and also in the entire geo-
graphical area.
7
* According to an executive order of February 25, 1957, the Operations Coordinating
Board is included within the structure of the National Security Council.
Circular No. 12. July 10, 1956, by the Special Assistant for Mutual Security Affairs,
Department of State, to inost United States missions abroad.
Circular No. 12, op. cit., particularly stresses the importance of cooperation of the
United States diplomatic and economic mission with the local Military Assistance Advisory
Group in order to provide the latter with the necessary political and economic data for its
final report to the Department of Defense.
1038
THE MILITARY ASSISTANCE PROGRAM
In view of the recency of the improvement in policy determination
procedures—most of them dating from the current fiscal year-it is
difficult to evaluate their ultimate effectiveness. However, operating
officials in the Department of State, the Department of Defense, and
the International Cooperation Administration agree that the method
of policy determination has improved programing. Likewise, greater
cooperation between the field missions of the three agencies, if realized,
should result in more realistic estimates of military aid effectiveness.
XI. UNITED STATES RESOURCES AND THE CAPACITIES
OF RECIPIENT COUNTRIES
A. SUMMARY
Since the inception of the mutual defense assistance program in
1949, actual expenditures for military aid have averaged less than
1 percent of the dollar value of all goods and services produced in
the United States.
The military aid program-by absorbing on-hand, obsolete, or
excess weapons and equipment--has not had an appreciable adverse
effect upon United States production of military or civilian goods.
United States manpower requirements for the mutual defense
assistance program consist of a relatively small number of civilian
and military specialists.
The often limited capacity of recipient nations to utilize properly
the material furnished has been an impediment to the program. At-
tempts have been made to adjust the individual country programs
to the country's capacity to absorb them. A gradual expansion of
operations into lesser developed areas will accentuate problems of
this nature.
B. CONCLUSIONS
1. Up to the present time, the mutual defense assistance program
has not constituted a serious drain on United States production.
2. The long-range effects upon United States resources of newly
produced items of equipment scheduled for military aid programs
will require close examination.
3. As military aid emphasis progressively shifts to the lesser devel-
oped countries, problems of adequate economic support and technical
assistance will increase.
C. RECOMMENDATIONS
1. Thorough analysis should be made of the impact of military aid
on underdeveloped areas in order to determine the most effective
means for utilization.
D. DISCUSSION
1. Military assistance and United States resources
(a) The gross national product and military aid
A great deal has been said about the drain that foreign aid programs
in general and the military aid program in particular may constitute
upon the economic and resource base of the United States. The fol-
lowing table shows the cost of military aid programs in relation to
the United States defense expenditures and the gross national product
(GNP), the sum total of all goods and services produced in the United
States in a given year:
1039
1040
THE MILITARY ASSISTANCE PROGRAM
The gross national product and defense and mutual defense assistance program
funding
[All figures in billions of dollars]

1949.
1950..
1951...
1952..
1953..
1954
1955...
1956.
1957.
Total
Year
Gross
national
product
Actual de- Military aid Military aid
fense expend- appropriations expenditures
itures
257.3
11.6
285.0
11.7
1.3 1(1.3)
0.1 1 (0.1)
328.2
19.7
5.3
(5.2)
.9 (.9)
345.2
38.9
5.3
(5.7)
2.4
(2.3)
364.5
43.6
4.1 (4.2)
4.0
(3.8)
360.4
40.3
3.2 (3.2)
3.6
(3.3)
390.9
35.5
.9
(1.2)
2.3
(2.1)
2 409.0
35.7
1.0
(1.0)
32.5 (2.6)
* 415.0
2 36.0
43.0
(2.0)
22.5
(2.6)
3, 155. 5
273.0
24.1 (23.8)
8 18.3 (17.7)
¹ Revised figures in parentheses from OSD/ISA, January 1957.
? Estimated.
• Projected.
4 Requested.
Thus, military aid funds constitute only a very small fraction of the
gross national product and about 5 percent of the total United States
defense expenditures. (See chart.) In actual fact, however, the
burden of military aid upon the United States Treasury was even
lighter than that indicated by the above figures.
TOTAL U.S. DEFENSE EXPENDITURES AND
$ Billions
50
MILITARY ASSISTANCE TO OUR ALLIES

40
Total U.S.
Defense Expenditure
30
20
Military
Assist.
10
O
1950
1951
*MDAP Expenditures
་་ག་་་
1952
1953
CALENDAR YEARS
1954
1955
THE MILITARY ASSISTANCE PROGRAM
1041
For example, $1 billion was charged by the Department of Defense
to the mutual defense assistance program to represent the excess of
current replacement costs over the original procurement costs. An
additional $400 million of mutual defense assistance funds were re-
tained by the Department of Defense.¹ Further, about $200 million
worth of military equipment originally delivered to the French forces
in Indochina in 1953 and 1954 was eventually withdrawn for other
purposes.2
According to recently published figures, about 85 percent of all mili-
tary aid funds were spent directly in the United States through placing
defense orders with Ünited States manufacturers.³
Thus, the military aid program has provided-
(a) the free world with means to defend itself against Com-
munist aggression;
(b) American industry with substantial amounts of defense
orders which will probably increase as mutual defense assistance
program aid changes from excess equipment to current produc-
tion; and
(c) the Department of Defense with additional means for pro-
curing modern equipment to replace items released to the mutual
defense assistance program.
(b) Military aid and the United States production base
(1) Production base. With a rated yearly production capacity of
more than 110 million tons of steel, 75 million tons of pig iron, 750 mil-
lion tons of coal, and nearly 3 billion barrels of oil, the United States
today has the largest industrial production base in the world.*
In the face of such a production capacity, the equipment and mate-
rial requirements for military aid seem small indeed. To quote but
one example, the mutual defense assistance program until 1955 has
received a total of 44,000 tanks and other combat vehicles. The round
total of vehicles circulating in the United States today is well over 50
million passenger cars and 10 million trucks.
Over the past 10 years, military aid in the majority of cases has
drawn upon equipment either in production for or excess to require-
ments of the United States armed services. Bottlenecks due to simul-
taneous demands of the United States armed services and similar de-
mands by allied forces have been the rare exception. They did occur
in the early stages of the Korean hostilities in the case of antitank
rocket launchers ("bazookas"), recoilless cannons, and helicopters.
Procedures now exist for consultation between the Assistant Sec-
retary of Defense (International Security Affairs) and the Office of
Defense Mobilization (ODM) to resolve conflicts between home and
overseas requirements. The Office of Defense Mobilization is also
consulted with regard to oil imports and exports and with regard to
United States stockpile objectives of strategic materials when a mutual
defense assistance program provides for deliveries of raw materials
1 Joseph Campbell, Comptroller General of the United States, before the Senate Com-
mittee on Foreign Relations, May 21, 1956. Hearings, p. 779.
2 Admiral Radford. Cf., B. Fall, "L'Aide Américaine à la Corée et à l'Indochine," in
Politique Etrangère, Paris, April 1956.
8 New York Times (editorial), November 19, 1956.
4 J. Frederic Dewhurst and Associates, America's Needs and Resources, A New Survey,
The Twentieth Century Fund. New York, 1955.
1042
THE MILITARY ASSISTANCE PROGRAM
to the United States in exchange for equipment. In the words of a
comprehensive study of United States resources-5
We have reached a stage of economic development and
technical competence where inadequate industrial and com-
mercial capacity can be quickly overcome through the con-
struction of new facilities. We have more than enough man-
power and potential productive facilities to fulfill our re-
quirements under every conceivable circumstance.
6
(2) Manpower requirements.-Less than 3,000 United States Armed
Forces personnel are directly involved in the administration of the
mutual defense assistance program overseas as members of Military
Assistance Advisory Groups (MAAG's). The 35 Military Assistance
Advisory Groups employ approximately 750 United States civilian
employees in administrative or maintenance capacities. In addition,
a small number of Foreign Service officers are engaged in liaison work
between such military aid missions and the other United States.
agencies operating in foreign countries. About 2,300 foreign civil-
ians were attached to Military Assistance Advisory Groups as clerical
or maintenance personnel.
Such figures compare favorably with a total of more than 30,000
Americans and 84,000 aliens employed by other United States organi-
zations abroad (these figures do not include United States servicemen
stationed overseas), of which more than 20,000 Americans and 74,000
alien citizens work for the Defense Establishment."
United States manpower employed within the United States on
problems dealing with military aid is negligible compared to the total
Lumber of Federal employees.
(c) United States raw materials requirements
As pointed out previously, the mutual defense assistance program,
until now, has provided mostly equipment originally produced for
United States Armed Forces requirements. In most cases, surveys
have shown that rehabilitation or scrapping such equipment for
possible reuse in the United States would have been more wasteful
than its end-use by the mutual defense assistance program.
The United States is dependent upon many of its overseas allies
for vital strategic materials which are not available in sufficient quan-
tities in the United States or even in the Western Hemisphere. The
following table 8 shows the relative importance of the major materials:

Material
Percent
imported
Major area or country of origin
Mercury
Chromite.
Tungsten.
Industrial diamonds...
Beryl....
Manganese
Cobalt
Tin
Southeast Asia, Africa.
Turkey, southeast Asia.
2828
75
Spain.
89
42
99
86
93
89
South Africa.
Latin America, Africa.
Latin America, Africa, Asia.
Africa.
69 | Malaya.
Natural rubber.
Mica...
5 Ibid., p. 833.
95
Malaya, Indochina.
91
Latin America, Asia.
As of July 1956 approximately 8,000 U. S. Armed Forces personnel were involved in
administration and training functions.
H. Doc. 175 (Hoover Report on Overseas Economic Operations), June 6, 1955, p. 5.
8 Based upon hearings, Committee on Foreign Affairs, House of Representatives, June 8,
1955, p. 59.
THE MILITARY ASSISTANCE PROGRAM
1043
Strengthening the defense of such areas through the mutual defense
assistance program is obviously to the best interests of the United
States.
2. Technical and economic capacity of recipient countries
The foreign countries which receive American military aid fall into
two major categories: those whose economies contain a large indus-
trial element, and those which are based almost entirely upon an agri-
cultural economy in various stages of development. With the excep-
tion of Japan, all Asian countries fall into the latter category. With
the exception of Greece, Spain, Turkey, and Yugoslavia, all European
countries fall into the former.
Those marked differences between what is usually called the "devel-
oped" and the "underdeveloped" areas are reflected in the spread of
their per capita incomes. The annual per capita income in the United
States is close to $2,000. That of the North Atlantic Treaty Organi-
zation countries (outside Greece and Turkey) is just above $500. No
Asian countries including Japan-exceed $150. These facts, plus
concomitant differences in technological development, training, and
education are a measure of a country's capacity to absorb military aid
(or any other form of aid involving complicated machinery) in
required quantities.
(a) Absorptive capacity of recipient countries
No underdeveloped country receiving mutual defense assistance pro-
gram aid at present suffers from a manpower shortage. Thus, the
problem of maintaining balanced forces in such countries is one of
training indigenous manpower and of sustaining the local economy
to the extent that the military burden may be borne by the population
without impairing its living standards. The fact that such countries
often lack the basic infrastructure necessary to make proper use of aid
further complicates the problem. For example, heavy equipment such
as tanks or naval craft can find ready repair facilities and personnel
in nearly every European country. This, of course, is not the case in
Asia, where a strong influx of heavy equipment must be preceded by
a program of defense support designed to develop the secondary facili-
ties and train personnel to handle the equipment.
This explains why in terms of economic aid and defense support
only 1.3 percent given to Europe between 1948 and 1956 remains on
the books unexpended while nearly one-third given to Asia during the
same period remains unexpended.10 Reports from various Military
Assistance Advisory Groups in Asia, and at times even in Europe,
show that many delivery lags are due to lack of proper facilities and
personnel training in the recipient country.
(b) Productive capacity of recipient countries
The underdeveloped areas of Asia and Latin America have no appre-
ciable productive capacity, but are vitally important to the free world
in view of their contributions in essential raw materials.
⁹ J. Frederic Dewhurst & Associates, op. cit., p. 904.
10 International Cooperation Administration, Operations Report, data as of March 31,
1956, Washington, D. C., pp. 39-41, passim. Data provided by the Department of Defense
show that absorption-lag percentages for equipment of a purely military nature are higher,
about 19 and 23 percent, respectively. However, these figures may be misleading since
in many cases important work of a defense-support nature is required in a recipient
country before such military equipment can be usefully absorbed.
94413-57-67
1044
THE MILITARY ASSISTANCE PROGRAM
Western European productive capacity, on the other hand, equals
that of the United States in coal and steel, and economic progress there
has kept pace with rearmament.
Western European production capacity, however, rests upon a
fragile raw materials base. The recent events in the Suez Canal area
have shown that even a temporary cut in the flow of Middle Eastern
oil can create a grave crisis. It is likely that this incident will result
in a move among European nations to seek at least a partial alternative
to the dependency upon Middle Eastern oil, such as by development
of nuclear energy as a source of power. The recent creation of "Eura-
tom," an organization of practically all European nations outside the
Iron Curtain for the purpose of pooling atomic research for peaceful
purposes, appears to be a step in that direction.
In the lesser developed areas, the problem of being able to properly
use and maintain equipment furnished under military aid will no
doubt remain a major hurdle for years to come and will require the
cooperation of the recipient nations with the technically advanced
nations.
Military aid will, no doubt, continue to play a large role in strength-
ening the defensive power of these nations, unless a radical change
in the world political situation or weapons technology makes the use
of suitable alternatives advisable.
XII. ALTERNATIVES TO MILITARY AID
As pointed out in previous sections of this report, military aid has
made an important contribution to United States security. In the
words of Secretary of State John Foster Dulles in testifying before
the House Appropriations Subcommittee in May 1956:
Indeed, I would say this, that if we did not have this mutual
security budget of some $4 billion, we would probably have
to increase our national defense budget by considerably more
than $4 billion.
In other words, taking the thing as a whole, it is, I believe,
the most economical way to get the defense that we want.
This view underlies the entire concept of military aid. However,
in the light of the changing world situation, there have been repeated
inquiries, within the Congress and among the general public, as to
whether a more effective or perhaps less expensive alternative could be
found. The list of alternatives shown below is by no means an ex-
haustive one, but attempts to present the essential features of some of
the major proposals:
A. THE "FORTRESS AMERICA" CONCEPT
It has been repeatedly asserted over the past 10 years that the most
economical and at the same time the most effective solution to the basic
problem of American defense against Communist aggression would be
the withdrawal of United States forces from overseas bases in Europe
and Africa, concentrating instead on a defense perimeter consisting of
American Pacific possessions and the entire Western Hemisphere.
This solution is based on the view that military aid has failed to
build up a sufficiently powerful deterrent against Soviet danger and
that, therefore, United States defense can be effectively ensured only
through concentration upon a navy, long-range retaliatory weapons,
and aircraft not requiring overseas bases.
This proposed solution has thus far failed to gain popularity among
policy planning agencies. As Secretary of State Dulles expressed in
his above-mentioned testimony:
*** These expenditures make it possible to hold vital posi-
tions at less cost than in any other way which can be contrived.
These expenditures provide diversified locations around the
globe from which Russia could be struck with devastating
effect, should its rulers launch a war of aggression.
It is beyond the scope of this study to delve into the intricacies of
the strategic merits of either position. However, thus far, interconti-
nental bombers capable of hitting targets deep in the Soviet heart
land and of returning safely are in limited squadron service only.
Guided missiles of similar range have not yet been produced for op-
erational use.
1045
1046
THE MILITARY ASSISTANCE PROGRAM
In addition, the psychological shortcomings of an essentially de-
fensive policy concept must be fully considered. An American with-
drawal from the world scene could be followed within a short time by
Communist subversion and conquest of the remainder of the free
world.
B. INTERNATIONAL ORDER THROUGH THE UNITED NATIONS
In recent months, the role of the United Nations as a possible en-
forcement agency of peace has been enhanced through the creation of
a United Nations police force operating in the Middle Eastern trouble
zone. There are at present many advocates of international order who
point to this type of operation and to the forceful action taken by the
United Nations in the case of Korea as the way to an eventual elimina-
tion of aggression.
According to such views, the United States should support the
creation of a large United Nations force composed of members of the
armed forces of the smaller United Nations members. Such United
Nations forces then would be dispatched to various friction points of
the world and interpose themselves between the would-be aggressor
and the attacked nation, thus making military aid by the United States
to individual countries superfluous.
This solution, like the first one, lacks realism under the present
circumstances. United Nations action in Korea was possible only
because the Soviet Union, holding veto power, had absented itself
from the Security Council and thus afforded the United Nations
General Assembly an unexpected opportunity to act. This precedent
was followed in the Egyptian situation and was successful only be-
cause Britain and France were willing to bow to world opinion.
It is doubtful, however, that the Soviet bloc-and events in Hungary
in November and December 1956 have borne out this view-will prove
as responsive to moral coercion. United Nations police action, there-
fore, is not likely, in the near future, to develop into a sufficiently strong
peace factor so as to make regional defense organizations and military
aid unnecessary.
C. INCREASE OF WEAPONS PRODUCTIVITY
The solution of increasing productivity among the industrially
developed Allied Nations to the point where they can produce or pur-
chase commercially their own requirements in defensive weapons has
been one of the means effectively used over the past 5 years to reduce
the military aid burden borne by the United States taxpayer.
Great Britain and West Germany are cases in point of the successful
completion of that phase of military aid, with Britain now producing
a full line of weapons, while Germany is now in a position where it
can acquire its armament requirements commercially. France pro-
duces an almost full range of weapons to meet its own requirements,
and aid is limited mostly to advanced weapons (jet fighters and mis-
siles) and spare parts for previously delivered equipment. Italy and
the Benelux countries also produce a certain amount of limited types
of equipment.
Most industrialized North Atlantic Treaty Organization countries
also participate in the offshore procurement (OSP) program, under
which they build equipment for other members of the North Atlantic
THE MILITARY ASSISTANCE PROGRAM
1047
Treaty Organization. There are very few countries outside the North
Atlantic Treaty Organization which have at present similar industrial
capabilities.
Among the European countries outside the Soviet bloc, Sweden is
able to produce a full line of weapons, and Switzerland also manufac-
tures some excellent light weapons. Yugoslavia produces some light
weapons as well as mountain howitzers for its own needs.¹
Outside of Europe, only Japan is capable of eventual production
of its own needs in weapons and those of its Asian neighbors. While
actual production of new equipment is thus far only beginning, Japan
has become a major center for the overhaul of equipment used in
Korea as well as Indochina. Japanese truck-reconditioning centers
are among the largest installations of their kind.
It is likely that this trend of helping already industrialized nations
to become totally or partially self-sufficient will continue and will in-
creasingly liberate American military aid of commitments in
developed areas.
D. UNDERDEVELOPED AREAS AND MILITARY AID
The underdeveloped areas of the Near East, Africa, and Asia pose
the biggest problem as to the fundamental soundness of military aid
on a large scale. Obviously, no country such as Korea, Vietnam, or
Turkey can hope to maintain ad infinitum the very large forces needed
to deter or repel singlehandedly Communist aggression.
As a matter of fact, without extensive United States financial aid
to cover even the current maintenance expenses of those large forces,
those countries would collapse economically under the very weight of
their protective shield.
Studies have recently been initiated by the Department of Defense
and by the International Cooperation Administration as to the feas-
ibility of reorienting aid programs to such countries so as to make
the burden more bearable to the local economy without overly taxing
the foreign aid funds made available by the Congress. It has been
argued that, while such large standing armies in certain cases are a
burden on the economy, they also represent, as long as the United
States is willing to pay the costs of their upkeep, a welcome absorb-
ent for excess manpower which could not otherwise be put to use in
the essentially rural economies of those countries.
It is in those areas-where Soviet offers of economic aid have begun
to make strong inroads in the Western position-that an overall re-
appraisal of the aims to be achieved by foreign aid would be the most
helpful. In such a reappraisal, consideration should be given to the
feasibility of providing these underdeveloped countries with the neces-
sary means for internal security against Communist subversion, while
the larger problem of defense against a major external attack be left
to United States or regional defense forces.
In fact, such plans are in partial operation in various Asian areas,
as in the three Indochinese states of Vietnam, Cambodia, and Laos,
whose forces could not possibly resist an organized attack by Red
1 Within the Soviet bloc, only Czechoslovakia, outside the Soviet Union, produces a full
line of conventional weapons. Poland has a limited armament industry, and Red China
produces an increasing range of equipment patterned upon Russian models.
1048
THE MILITARY ASSISTANCE PROGRAM
China. In their case, the Southeast Asia Treaty Organization
(SEATO) powers have agreed to consider communist attack
against any of these states as an attack against their own territory.
Similar agreements on a bilateral basis exist between the United States
and Korea and Taiwan (Formosa). However, thus far, the logical
inference that such a treaty would permit a reduction of standing
forces to a level compatible with the countries' economy has not yet
been implemented and no doubt awaits further political consideration
of the problem as a whole.
An intermediate solution to the problem seems to be the creation
of regional treaty areas in which the United States does not directly
participate and thus is not committed to furnish military manpower
in case of hostilities but which it supports economically and techni-
cally. A case in point is the Baghdad Pact. The solution of substi-
tuting regional security guaranties for direct guaranties by the United
States would probably be the most favorable in the long run. Yet,
in the short run, the absence of the United States from such a regional
organization has proved detrimental to its psychological impact value
upon the area concerned and has possibly decreased the treaty's de-
terrent effect upon would be aggressors. [It is possible that the re-
cently approved "Eisenhower Doctrine" provides a partial remedy to
this situation. March 1957.]
E. ECONOMIC STRENGTHENING VERSUS MILITARY AID
Another substitute for direct military aid, elements of which are
in fact contained in the three directly preceding alternatives, could
be the strengthening of the economic structure of the recipient coun-
tries to the point that they can support adequate military establish-
ments with their own funds. Here, the very high cost of modern
armament precludes this alternative as a short-range solution for
underdeveloped areas. On the other hand, it already operates suc-
cessfully in countries like West Germany.
Therefore, it holds less promise for the underdeveloped areas of
Asia and Africa because its effects require the programing of vast
financial and technical resources over an extended period. The costs
of such an alternative would defeat the original purpose of finding
an alternative to military aid.
F. OUTLOOK ON MILITARY AID
Unless the world situation suddenly undergoes a radical change,
the alternatives to military aid that have been described above must
remain secondary to the main purpose of shoring up free world
defenses at points of stress around the globe.
This does not mean that military aid need be considered an eternal
"must." On the contrary, every effort ought to be made to speed
reappraisals in the light of technological or other developments which
may permit extensive reductions in the size of large standing armies
and their replacement with smaller and more mobile units with greater
firepower.
In the developed areas, stress must be placed upon rapid attainment
of self-sufficiency, with adequate living standards. Lack of the latter
always provides a convenient wedge for Communist infiltration. In
THE MILITARY ASSISTANCE PROGRAM
1049
other words, the "new look" of balanced forces over an extended period,
which the United States has adopted for its own forces, may eventually
prove equally beneficial for the forces of its allies. It has been argued
that making aid a permanent part of United States policy would be
construed by recipient nations (or potential recipients) to mean that
the United States is ready "to underwrite the world" for an indefinite
period. On the other hand, announcement of such a policy by the
Congress well could serve notice to the world on both sides of the Iron
Curtain that the United States is determined to oppose communism
until such time as proof is available that communism is no longer
a danger to the free world.
Such long-range military aid could perhaps operate on the same
incentive system that is now being used in relations between the
Federal Government and State governments, or between the United
States and various United Nations organizations, "matching funds"
on a country-by-country or regional basis, on a ratio related to the
amount of incentive deemed necessary. Aid proffered on such a basis
would be compatible both with the short-range view of cutting off
aid to a given country as soon as it is in a financial position to support
the weight of its own defense and with that of being able to continue
such aid on a long-range basis without being permanently committed
to a rigid military aid program. Such a flexible system of foreign
aid would require imagination and vigilance. The North Atlantic
Treaty Organization's motto "Vigilance is the price of freedom" may
well become the watchword of such a long-range program.
-IND
APPENDIXES
APPENDIX I
The Mutual Security Act of 1954, as Amended, Excerpts From
*
*
*
*
*
*
*
TITLE I-MUTUAL DEFENSE ASSISTANCE
CHAPTER 1-MILITARY ASSISTANCE
SEC. 101. PURPOSE OF CHAPTER.-The Congress of the United States
reaffirms the policy of the United States to achieve international peace
and security through the United Nations so that armed force shall
not be used except in the common defense. The Congress hereby finds
that the efforts of the United States and other nations to promote
peace and security require additional measures of support based upon
the principle of continuous and effective self-help and mutual aid.
It is the purpose of this chapter to authorize measures in the common
defense, including the furnishing of military assistance to friendly
nations and international organizations in order to promote the for-
eign policy, security, and general welfare of the United States and
to facilitate the effective participation of such nations in arrangements
for individual and collective self-defense. In furnishing such mili-
tary assistance, it remains the policy of the United States to con-
tinue to exert maximum efforts to achieve universal control of weapons
of mass destruction and universal regulation and reduction of arma-
ments, including armed forces, under adequate safeguards to protect
complying nations against violation and evasion.
The Congress reaffirms its previous expressions favoring the crea-
tion by the free peoples of the Far East and the Pacific of a joint or-
ganization, consistent with the Charter of the United Nations, to
establish a program of self-help and mutual cooperation designed to
develop their economic and social well-being, to safeguard basic rights
and liberties and to protect their security and independence.
The Congress hereby reiterates its opposition to the seating in the
United Nations of the Communist China regime as the representative
of China. In the event of the seating of representatives of the Chinese
Communist regime in the Security Council or General Assembly of
the United Nations, the President is requested to inform the Congress
insofar as is compatible with the requirements of national security,
of the implications of this action upon the foreign policy of the United
States and our foreign relationships, including that created by mem-
bership in the United Nations, together with any recommendations
which he may have with respect to the matter.
*
*
*
*
*
*
*
SEC. 105. CONDITIONS APPLICABLE TO MILITARY ASSISTANCE.~(a)
Military assistance may be furnished under this chapter to any
1050
THE MILITARY ASSISTANCE PROGRAM
1051
nation whose increased ability to defend itself the President_shall
have determined to be important to the security of the United States
and which is otherwise eligible to receive such assistance. Equipment
and materials furnished under this chapter shall be made available
solely to maintain the internal security and legitimate self-defense of
the recipient nation, or to permit it to participate in the defense of its
area or in collective security arrangements and measures consistent
with the Charter of the United Nations. The President shall be satis-
fied that such equipment and materials will not be used to undertake
any act of aggression against any nation.
(b) In addition to the authority and limitations contained in the
preceding subsection, the following provisions shall apply to particu-
lar areas:
(1) The Congress welcomes the recent progress in European co-
operation and reaffirms its belief in the necessity of further efforts
toward political federation, military integration, and economic uni-
fication as a means of building strength, establishing security, and
preserving peace in the North Atlantic area. In order to provide fur-
ther encouragement to such efforts, the Congress believes it essential
that this Act should be administered as to support concrete measures
to promote greater political federation, military integration, and
economic unification in Europe.
(2) Military assistance furnished to any nation in the Near East
and Africa to permit it to participate in the defense of its area shall
be furnished only in accordance with plans and arrangements which
shall have been found by the President to require the recipient nation
to take an important part therein.
(3) In furnishing military assistance in Asia and in carrying out
the provisions of section 121 of this Act, the President shall give the
fullest assistance, as far as possible directly, to the free peoples in
that area, including the Associated States of Cambodia, Laos, and
Vietnam, in their creation of a joint organization, consistent with the
Charter of the United Nations, to establish a program of self-help and
mutual cooperation designed to develop their economic and social
well-being, to safeguard basic rights and liberties, and to protect their
security and independence.
(4) Military assistance may be furnished to the other American
Republics only in accordance with defense plans which shall have
been found by the President to require the recipient nation to partici-
pate in missions important to the defense of the Western Hemisphere.
**
*
*
*
*
CHAPTER 4-GENERAL PROVISIONS RELATING TO MUTUAL DEFENSE
ASSISTANCE
SEC. 141. CONDITIONS OF ELIGIBILITY FOR ASSISTANCE.-No assistance
shall be furnished under this title to any nation or organization
unless the President shall have found that furnishing such assistance
will strengthen the security of the United States and promote world
peace. No such assistance shall be furnished to a nation unless it
shall have agreed to the provisions required by section 142, and such
additional provisions as the President deems necessary to effectuate
the policies and provisions of this title and to safeguard the interests
of the United States.
1052
THE MILITARY ASSISTANCE PROGRAM
SEC. 142 (a). AGREEMENTS.-No assistance shall be furnished to
any nation under this title unless such nation shall have agreed to—
(1) join in promoting international understanding and good
will, and maintaining world peace;
(2) take such action as may be mutually agreed upon to elimi-
nate causes of international tension;
(3) fulfill the military obligations, if any, which it has as-
sumed under multilateral or bilateral agreements or treaties to
which the United States is a party;
(4) make, consistent with its political and economic stability,
the full contribution permitted by its manpower, resources, facili-
ties, and general economic condition to the development and
maintenance of its own defensive strength and the defensive
strength of the free world;
(5) take all reasonable measures which may be needed to de-
velop its defense capacities;
take
(6) take appropriate steps to insure the effective utilization
of the assistance furnished under this title in furtherance of the
policies and purposes of this title;
(7) impose appropriate restrictions against transfer of title
to or possession of any equipment and materials, information, or
services furnished under chapter 1 of this title, without the con-
sent of the President;
(8) maintain the security of any article, service, or informa-
tion furnished under chapter 1 of this title;
(9) furnish equipment and materials, services, or other assist-
ance consistent with the Charter of the United Nations, to the
United States or to and among other nations to further the poli-
cies and purpose of chapter 1 of this title;
(10) permit continuous observation and review by United
States representatives of programs of assistance authorized under
this title, including the utilization of any such assistance, or pro-
vide the United States with full and complete information with
respect to these matters, as the President may require.
(b) In cases where any commodity is to be furnished on a grant basis
under chapter 2 or chapter 3 of title I or under title II of this Act
under arrangements which will result in the accrual of proceeds to
the recipient nation from the import or sale thereof, such assistance
shall not be furnished unless the recipient nation shall have agreed
to establish a Special Account, and—
(i) deposit in the special account, under such terms and con-
ditions as may be agreed upon, currency of the recipient nation
in amounts equal to such proceeds;
(ii) make available to the United States such portion of the
special account as may be determined by the President to be
necessary for the requirements of the United States: Provided,
That such portion shall not be less than 10 per centum in the case
of any country to which such minimum requirement has been
applicable under any Act repealed by this Act; and
(iii) utilize the remainder of the special account for programs
agreed to by the United States to carry out the purposes for which
new funds authorized by this Act would themselves be available.
THE MILITARY ASSISTANCE PROGRAM
1053
Any unencumbered balances of funds which remain in the Account
upon termination of assistance to such nation under this Act shall be
disposed of for such purposes as may, subject to approval by Act or
joint resolution of the Congress, be agreed to between such country
and the Government of the United States.
SEC. 143. Notwithstanding any other provision of law, no assistance
under this title or any other title of this Act, or under any provision
of law repealed by section 542 (a) of this Act, shall be furnished to
Yugoslavia after the expiration of 90 days following the date of the
enactment of this section, unless the President finds (1) that there has
been no change in the Yugoslavian policies on the basis of which assist-
ance under this Act has been furnished to Yugoslavia in the past, and
that Yugoslavia is independent of control by the Soviet Union, and
(2) that it is in the interest of the national security of the United
States to continue the furnishing of assistance to Yugoslavia under
this Act.
*
*
*
*
*
*
*
*
TITLE V-MISCELLANEOUS PROVISIONS
*
*
*
*
*
CHAPTER 3-REPEAL AND MISCELLANEOUS PROVISIONS
*
*
*
*
*
SEC. 545 * * * (h). The term "value" means-
*
(1) with respect to any excess equipment or materials fur-
nished under chapter 1 of title I the gross cost of repairing,
rehabilitating, or modifying such equipment or materials prior
to being so furnished;
(2) with respect to any nonexcess equipment or materials fur-
nished under chapter 1 or title I which are taken from the mobi-
lization reserve (other than equipment or materials referred to
in paragraph (3) of this subsection), the actual or the projected
(computed as accurately as practicable) cost of procuring for the
mobilization reserve an equal quantity of such equipment or mate-
rials or an equivalent quantity of equipment or materials of the
same general type but deemed to be more desirable for inclusion
in the mobilization reserve than the equipment or materials
furnished;
(3) with respect to any nonexcess equipment or materials fur-
nished under chapter 1 of title I which are taken from the mobi-
lization reserve but with respect to which the Secretary of
Defense has certified that it is not necessary fully to replace such
equipment or materials in the mobilization reserve, the gross
cost to the United States of such equipment and materials or its
replacement cost, whichever the Secretary of Defense may spec-
ify; and
(4) with respect to any equipment or materials furnished
under chapter 1 of title I which are procured for the purpose of
being so furnished, the gross cost to the United States of such
equipment and materials.
In determining the gross cost incurred by any agency in repairing,
rehabilitating, or modifying any excess equipment furnished under
chapter 1 of title I, all parts, accessories, or other materials used in
1054
THE MILITARY ASSISTANCE PROGRAM
the course of repair, rehabilitation, or modification shall be priced in
accordance with the current standard pricing policies of such agency.
For the purpose of this subsection, the gross cost of any equipment
or materials taken from the mobilization reserve means either the
actual gross cost to the United States of that particular equipment
or materials or the estimated gross cost to the United States of that
particular equipment or materials obtained by multiplying the number
of units of such particular equipment or materials by the average gross
cost of each unit of that equipment and materials owned by the fur-
nishing agency. Notwithstanding the foregoing provisions of this
subsection (h) and for the purpose of establishing a more equitable
pricing system for transactions between the military departments and
the Mutual Defense Assistance Program, the Secretary of Defense
shall prescribe at the earliest practicable date, through appropriate
pricing regulations of uniform applicability, that the term "value"
(except in the case of excess equipment or materials) shall mean—
(1) the price of equipment or materials obtaining for similar
transactions between the Armed Forces of the United States; or
(2) where there are no similar transactions within the meaning
or paragraph (1), the gross cost to the United States adjusted as
appropriate for condition and market value.
THE MILITARY ASSISTANCE PROGRAM
1055
APPENDIX II
Country compliance
Conditions set forth in sec. 142 (a), Mutual
Security Act, 1954, subsec.-
Country and type of agreement
Effective date

1
2
3 4 5 6 7 8 9 10
Belgium:
MDA1
MSA 2
Brazil: MDA.
Cambodia:
MDA.
MSA
Chile: MDA…….
Colombia: MDA..
Cuba: MDA.
Denmark: MDA.
Dominican Republic: MDA
Ecuador: MDA..
Ethiopia: MDA
France:
MDA..
Mar. 20, 1950
X
X
X
X
Jan. 7, 1952
May 19, 1953
X X
X
X
X
X X
кх
X X X X X X
X X X
хх
Dec. 23, 1950,
and
X X X
X
X
X
X
X
X X
May 16, 1955
Dec. 28, 1951
July 11, 1952
Apr. 17, 1952
X
X
X X
Mar. 7, 1952
MSA..
Germany: MDA.
Greece: MSA.
Jan.
Guatemala: MDA..
Haiti: MDA.
Honduras: MDA.
Iran: MDA..
Iraq: MDA..
Italy:
MSA.
MDA.
Japan: MDA….
Korea:
MSA.
MDA.
Laos:
MDA.
Jan. 27, 1950
June 10, 1953
Jan. 20, 1952
May 22, 1953
Jan. 27, 1950
Jan. 5, 1952
Dec. 27, 1955
7, 1952
June 18, 1955
Jan. 28, 1955
X
May 20, 1954
May 23, 1950
Apr. 21, 1954
X X
и каких
X
× ××××ר×
X X
X X
X
Jan.
7, 1956
Jan. 27, 1950
May 1, 1954
X X X X
X
X X X
× ×
X
X
хх
X
X X
X
X
X
X
× ×××××××
* ХХХХХХХ
X
X X
X X
XX
XX
X
X
Jan.
7, 1952
Jan. 26, 1950
Dec. 23, 1950
Dec. 31, 1951
X
❤
X
X X X
X X X
XX X X X
X X
X X X
MSA..
Luxembourg:
MSA..
MDA.
Netherlands:
MSA...
MDA.
Nicaragua: MDA
Norway:
MDA.
MSA..
Pakistan: MDA..
Peru: MDA.
Philippines: MDA
Portugal:
MSA..
MDA.
Spain: MDA.
Taiwan (China): MSA….
Thailand:
MSA..
MDA
Turkey: MSA..
United Kingdom: MDA
Uruguay: MDA.
Vietnam:
MDA..
MSA
Jan. 8, 1952
Mar. 28, 1950
Jan. 8, 1952
Jan. 27, 1950
Aug. 21, 1952
Jan, 8, 1952
May 17, 1954
Apr. 26, 1952
July 5, 1953
Jan. 8, 1952
Jan.
5, 1951
Sept. 26, 1953
Jan. 2, 1952
Dec. 29, 1951
Oct. 17, 1950
Jan. 7, 1952
Jan. 27, 1950
June 11, 1953
Dec. 23, 1950
Jan. 3, 1952
Yugoslavia: MDA.
Nov. 14, 1951
* ** **** *** **** **
Apr. 23, 1954 X X X X X X
X X X X X X X X X X
X X X X X X X
хи
× ×
X
X
X X
X
X
X
X
хххх
× -XX
КККК
X
кки
× ××
× ××
X
X X X
X
X
×××
кккх
хххх
×
X
Кких
хххх
X
× ××
× × ¦
X
X
X
X
X XX
хххх
X
X
× ××
X
× ×××
× ×××
Уких
X
× ××
X
× ××
X
X
кккк
× ×××
X X X
X X X X X
X 4
XXX
× ×
хх
X X X X X
X
X X
1 Mutual Defense Assistance agreement.
2 Mutual Security Agreement.
* Substantially complied with through other agreement
3
• Not applicable.
1056
THE MILITARY ASSISTANCE PROGRAM
APPENDIX III
Countries and international organizations eligible for receipt of military
assistance

Grant
Sales of
Country or international
organization
military
military
assist-
ance
equip-
ment
Country or international
organization
Grant
military
Sales of
military
assist-
ance
equip-
ment
Argentina.
X
Laos..
Australia.
X
Lebanon.
Belgium
X
Liberia
Bolivia..
Brazil..
Burma.
- Cambodia.
Canada
Chile..
----------
Luxembourg-
X
X
X
X
Mexico.
NATO 1
X
Netherlands….
New Zealand….
X
Nicaragua
Colombia.
Costa Rica….
Cuba...
Deumark...
X
Norway.
X
Pakistan
X
X
Panama.
X
Paraguay
X
X
Doininican Republic.
Peru
Ecuador.
Egypt.
El Salvador.
Ethiopia.
Philippines..
Portugal.
SACLANT 2.
X
Saudi Arabia.
France.
Federal Republic of Germany.
-Greece.
Guatemala.
SHAPE 3
X
Spain...
X
Sweden
Switzerland.
X
Haiti
Honduras
Taiwan.
-Thailand.
Iceland...
India...
Iran.
Iraq.
Israel..
Turkey
Union of South Africa.
Xxx
United Kingdom.
X
Uruguay
X
Italy.
Japan...
Korea.
X
X
Venezuela.
Vietnam
Yugoslavia..
X
X
X
1 North Atlantic Treaty Organization.
* Supreme Allied Commander, Atlantic.
'Supreme Headquarters, Allied Powers, Europe.
STUDY NO. 11
FOREIGN AID ACTIVITIES OF
OTHER FREE NATIONS
BY
STUART RICE ASSOCIATES, INC.
MAY 1957
1057
CONTENTS
Page
Letter of transmittal.
Summary of findings___
Conclusions and recommendations_
Chapter I. Size and character of foreign aid by other free nations_-
A. General summary..
B. Bilateral aid by other free nations_
1. The free nations of Western Europe.
2. France..
3. The United Kingdom.
4. Other free countries_
1061
1
1063
11
1
1067
1069
1069
1
1073
I
11
1
1073
1075
1077
I
1082
1
C. Multilateral assistance..
1086
I
1. Technical assistance..
1087
!
2. Relief and rehabilitation.
1092
3. Economic aid through the International Bank for Recon-
struction and Development__
1094
4. Economic aid through the International Monetary Fund_
D. Economic and technical assistance through regional organi-
zations___
1095
1096
1. The Colombo plan_-
1096
1
2. The Organization of American States..
1099
3. Commission for Technical Cooperation in Africa South
of the Sahara____
1100
4. Caribbean Commission_.
1100
B. Coordination within other regional aid programs.
C. Coordination of multilateral technical assistance
5. South Pacific Commission..
E. Assistance through regional defense organizations.
1. North Atlantic Treaty Organization
2. Organization for European Economic Cooperation..
3. Inter-American Treaty of Reciprocal Assistance.
4. Southeast Asia Treaty Organization..
5. The Baghdad Pact...
Chapter II. Existing relations among aid programs of free nations
A. Mutual aid in Europe and the North Atlantic -
D. Coordination of United States and other aid programs in the field-
E. Factors now making for effective coordination__
ST
Chapter III. Lessons from the experience of other free nations.
Chapter IV. Objectives and motivations of foreign aid
A. Humanitarian motivations…….
B. Economic motivations.
C. Motivations of defense.
D. Motivations related to national prestige__
programs.
E. Motives affecting the choice of assistance channels_-
F. Aid objectives of United States and other free nations compared.
G. Limitations upon progress in attaining objectives.-
Chapter V. Possible changes in United States foreign aid relationships.
A. Interrelations between American military and economic aid.
B. Needed coordination within geographical and program areas.
C. United Nations channels for economic and technical aid__
Appendixes
A. Computation of relative capacity to extend foreign aid..
B. Supplemental statistical data..
I. Contributions pledged by governments to the United
Nations expanded program of technical assistance for
the years 1952-56-
1101
1102
1103
1107
1108
1108
1
I
I
I
1109
1111
1111
1
1114
I
1114
1117
1119
1121
1127
1127
1127
1
1
# 1
1
|
I
1129
1130
1
1
1
1131
1132
1133
1137
1138
1144
1
1147
1153
1155
1155
II. United Nations expanded program of technical assist-
ance project costs by region and country.
III. United Nations expanded program of technical assist-
ance: Amounts obligated for country projects, by
agency, 1955__
1157
1159
C. Committee staff outline.
1159
94413-57-68
1059
The CHAIRMAN,
LETTER OF TRANSMITTAL
STUART RICE ASSOCIATES,
Washington, D. C., December 31, 1956.
Special Committee To Study the Foreign Aid Program,
United States Senate, Washington, D. C.
The period we cover in this report is in general 1952-55; though
data for 1956 are included when available. During these years much
the larger part of the foreign aid extended by other free nations was
attributable to a few European powers which were deeply concerned
with unrest in their present or former colonial possessions. Their aid
was primarily extended to these territories, which at the same time
contain the bulk of the free world's economically underdeveloped
areas. Substantial amounts of economic assistance, as we define it,
were also channeled by these powers through capital subscriptions to
the International Bank for Reconstruction and Development, but re-
turned to them in the form of their own borrowings.
In assembling our data, great latitude of interpretation has been
required and this necessity has reduced the precision of many of our
findings. The terminology used in our sources is not always clear and
may differ among nations. The classification and even the identifica-
tion of "foreign aid," as distinct from other forms of expenditure or
activity, must often be arbitrary. For example, there may be doubt
whether a particular international loan should be regarded as aid to
the borrower, as an ordinary business transaction, as a means of
political pressure, or as some combination of these. In this instance,
we have followed the usual practice of classifying as foreign aid those
loans to other governments or their nationals which are made to run
for 5 years or longer; but it is often impossible to distinguish between
investments yielding profit and loans (or grants disguised as loans)
for some political, welfare, or other objective.
Within the veritable maze of foreign assistance activities we have
sought to maintain, as consistently as possible, several major but cross-
cutting distinctions. The first is between military, economic, and
technical assistance programs. The first is often difficult to separate
from expenditures for the direct defense of the country making them.
Military costs to the United Kingdom in Kenya and to France in
North Africa provide illustrations. Moreover, much economic aid
is in the form of "defense support" and may be regarded as either mili-
tary or economic in character, according to the point of view.
Economic assistance may take several forms: (1) government
grants, loans, and investments; (2) private investments; (3) relief and
rehabilitation to individuals. Technical assistance is usually ex-
tended through public channels, though private activities for this pur-
pose as well as for relief and rehabilitation must be recognized; and
there are various cross-cutting or intermediate categories.
1061
1062
LETTER OF TRANSMITTAL
A second major distinction throughout the report is based upon the
vehicle, or channel, of assistance. These are of three main forms:
(1) Bilateral, in which aid is extended from one nation to another
without an intervening medium of consultation or administration;
(2) Multilateral, through the United Nations and its specialized and
regional agencies; (3) Regional, in which the mechanism is not usu-
ally regarded as part of the United Nations system. These categories
are somewhat overlapping; thus the Colombo plan, which we cite as a
regional vehicle of assistance, has often been termed "coordinated
bilateralism.”
Still another basis for grouping our data pertains to the country or
group of countries in which the aid originates. Under our assignment
nonfree countries are excluded; and the United States is considered
only for purposes of comparison with other free nations. Africa, too,
is usually missing in our summaries, for the simple reason that aid
if extended by most of the countries in that continent is negligible.
This leaves the following groups of countries which, though not in
all cases contiguous, can usefully be considered together; (a) West-
ern Europe; (b) developed countries of the Commonwealth; (c)
South Asia and the non-Communist countries of East and South-
east Asia-which, for convenience, we have frequently designated the
"Western Pacific"; (d) Latin America; (e) the Middle East. We
have sought to avoid the use of terms which, like "Far East," imply a
Western point of reference which is sometimes offensive to Eastern
peoples.
Our indebtedness for assistance received, especially in obtaining the
data employed in our report, is extensive. It includes members of the
staff of the Senate Special Committee To Study the Foreign Aid
program, colleagues engaged in other committee studies, representa-
tives of international organizations and foreign governments in Wash-
ington, and personnel of Federal agencies concerned with foreign aid
problems. The sources of some of the data we present are classified.
Wherever possible, our sources are indicated at the points where
data first appear.
Participating in the study were Philip G. Beck, Lila C. Cornwall,
Libert Ehrman, Helen O. Molnar, Denys P. Myers, Jeremy C. Ulin,
Leslie A. Wheeler, and the undersigned as study director.
Sincerely yours,
STUART A. RICE, President.
I
SUMMARY OF FINDINGS
1. Total public foreign assistance by free nations other than the
United States during the years 1952-55 was in the neighborhood of
$6 billion, or $12 billion per year. Of this, economic and technical
assistance amounted to 53 percent, relief and rehabilitation to 3 percent
and military aid to 44 percent. Western European nations provided
approximately 69 percent of the total; Canada, Australia, and New
Zealand together 26 percent and other nations of the free world 5
percent. More than half of the $6 billion was contributed by France
and the United Kingdom.
2. Of the foregoing, military aid totaled about $2.6 billion, of
which $560 million was extended by the United Kingdom, France,
and Spain, largely to their overseas territories; Canada gave $1.2
billion to NATO nations and to support of NATO. The largest por-
tion of the remainder represents contributions to NATO infrastruc-
ture and administration.
3. Aid programs of other free nations have been directed primarily
to their overseas territories. Thus, 90 percent of the bilateral public
aid extended by the United Kingdom and France, the largest con-
tributors, was so directed.
4. Relative to their estimated capacities, the combined public
expenditures for foreign aid of other free nations are about two-thirds
as great as those of the United States. Nations with limited inter-
national interests spent proportionately smaller amounts. France and
Canada expend relatively more than the United States-especially
noteworthy in the case of Canada because it lacks the global respon-
sibilities and political power of the United States and the extensive
colonial interests of France.
5. In 1955, the aggregates of net bilateral public economic and tech-
nical assistance, together with aid in the form of net private investments.
and long-term loans, were approximately equal for the United States
and for other free nations combined. Contributions to capital funds
of the International Bank for Reconstruction and Development, made
several years earlier by the United States and some other members,
are not included in this equation. If by some valid accounting pro-
cedure they could be included, there would be a substantial excess on
the side of the United States. The approximate equivalence noted as
now existing seems likely to continue.
6. Net foreign investments by Western European nations and
Canada, totaling somewhat above a half billion dollars in 1955, slightly
exceed those of the United States. The United Kingdom, more than
any other country, has employed private investment as a channel for
assistance to other countries.
7. Other free nations make principal use of United Nations chan-
nels for technical assistance, relief, and rehabilitation. Their contri-
butions to United Nations technical assistance programs have
increased more rapidly, both in amount and relatively, than have
those of the United States. In relation to capacity to extend foreign
1063
1064
SUMMARY
aid, Australia, Italy, the Netherlands, New Zealand, Norway, and the
United Kingdom have contributed more than the United States to
United Nations relief and rehabilitation programs. The United
States makes principal use of bilateral channels of assistance for these
purposes.
8. Capital subscriptions and investment funds from the United
States supply about 70 percent of the capital available for loans by
the International Bank for Reconstruction and Development. Capital
subscriptions to the bank from the free nations of Western Europe
are their largest international channel for extending economic aid to
other countries. However, their borrowings from the bank exceed
their paid-in subscriptions to it.
9. The Colombo plan for regional coordination of assistance activi-
ties brings donors and recipients together for the development of
economic and technical programs. It reconciles the sensitivities of
newly formed nations with the national interests of the United King-
dom and the more advanced nations of the Commonwealth. Its con-
ceptions and techniques are consistent with the provisions of the
Mutual Security Act of the United States and could be borrowed for
the more effective administration of that act.
10. Regional defense pacts have encouraged cooperation with the
United States by nations whose defensive interests are more narrowly
limited than our own. On the whole, they are well organized and
coordinated in their activities.
11. Factors responsible for the existing degree of successful co-
ordination of aid programs among the United States, other free
nations, recipient countries, and multinational organizations include:
the utilization of certain formal coordinating mechanisms; initiation
of projects within the countries to be aided; the creation of regional
coordinating procedures within such organizations as the OEEC
and the Colombo plan; the development of "interlocking directorates"
among the agencies extending aid; and the development of informal
habits and patterns of consultation among them in the field. Parallel
instructions to resident missions of different countries or organizations
facilitate these devices.
12. Lessons for the United States from the experience of other free
nations include the following: Agreement should be reached on an
overall development plan before aid is extended; funds should be
committed for periods long enough to insure completion of the pro-
gram undertaken; technical assistance should include training and
apprenticeship, should usually precede economic development, and
should operate on a continuing and not on a year-to-year basis; and
funds should be available for emergencies if development is not fre-
quently to be set back.
13. Foreign aid is a means of implementing foreign policy but is not
an end in itself; it is motivated by national self-interest, "enlightened"
or otherwise. Unless it seeks the security of friendly peoples, or assists
in raising levels of living in underdeveloped nations, or helps to create
the conditions of a peaceful world order, or all of these goals, it is
neither enlightened nor in the self-interests of peaceful and industrial-
ized nations.
14. A wish to preserve or develop economic relationships has been
an important motive in the aid programs of other free nations. The
SUMMARY
1065
prospect of future economic advantages has provided strong incen-
tives. However, political considerations have been even more promi-
nent in their motivations. These considerations relate to threats of
military aggression and ideological penetration; and also to the main-
tenance of national influence and the privileged status of the donors'
nationals in the recipient country.
15. Population growth, unless checked, may outrun improvements in
levels of living in underdeveloped areas. Capital investments on a
greatly increased scale, programs to further family limitation, and
liberalized immigration policies on the part of underpopulated nations
are possible devices to prevent this. Explosive possibilities are latent
in a failure to find solutions.
16. The military and economic aid required under defense pacts
cannot always be sharply distinguished. The importance for defense
of the economic and social well-being of peoples within the security
system was early recognized. Slower of recognition has been the im-
portance to western nations of the sympathetic and moral alignments
of uncommitted peoples of Asia and Africa. The well-being and
development of these peoples, although outside the system of military
and political alliances, is increasingly understood to be, as the Mutual
Security Act asserts, an integral element in free world security.
17. Continued support of United Nations programs of technical
assistance is in the national interest of the United States. There is
no existing international agency to make grants and loans of economic
infrastructure types. While such an agency is needed, the proposed
Special United Nations Fund for Economic Development (SUNFED)
is open to serious objections. It might not be able to resist pressures to
finance enterprises of questionable character, since this would require
standards of "banking" type, equivalent in their rigor to those em-
ployed by the International Bank in advancing funds for self-liqui-
dating projects.
CONCLUSIONS AND RECOMMENDATIONS
In the light of findings in this report, the Special Committee To
Study the Foreign Aid Program may wish to consider recommending
that the Congress:
1. By amendment of the Mutual Security Act or other means of
expression, seek to create among other peoples a clear understanding
of the motives of self-interest which prompt the United States to
extend foreign aid, together with the limitations to which that aid is
subject; seek to bring about an identification by economically under-
developed peoples of their own well-being and self-esteem with those
interests of the United States which impel it to extend foreign aid;
express the desire of the United States to assist these peoples to achieve
their aspirations for economic and social development through self-
help, cooperative effort, and the formulation of comprehensive and
realistic development plans; express its hope for their ultimate libera-
tion from needs for foreign aid as a result of their constructive efforts
and their development of sound foundations for domestic institutions.
2. By amendment of the Mutual Security Act, by resolution or by
other appropriate means, reiterate and emphasize its intent that all
foreign assistance programs of the United States should be so planned
and scheduled as to make the greatest possible contribution to the
economic development of the countries receiving aid; to this end pre-
scribe closer coordination between military and civilian agencies of
the United States Government in planning and processing aid pro-
grams under their respective jurisdictions; prescribe the maximiza-
tion of offshore procurement under all aid programs to the greatest
practicable extent.
3. By amendment of the Mutual Security Act or by request ad-
dressed to the President, attempt to secure a closer coordination within
specific regions of the bilateral economic and technical assistance
programs of the United States with the interests and activities of local
governments, multinational agencies and private organizations; to the
end that the conceptions and type of relations embodied in the Co-
lombo plan be utilized in the administration of foreign aid programs
of the United States.
4. Take steps to explore the possibility that the charter and proce-
dures of the International Bank for Reconstruction and Development
might be so interpreted or altered as to enable it to supervise the exten-
sion of grants and nonself-liquidating loans intended to provide the
infrastructure of development in underdeveloped countries; and mean-
while withhold Senate approval of the proposed Special United
Nations Fund for Economic Development.
5. By appropriate action, initiate a request through diplomatic
channels for membership of the United States in the Commission for
Technical Cooperation South of the Sahara, as a preliminary step
toward participation by the United States in an enlarged regional pro-
gram of multilateral technical assistance within that area.
1067
1068
CONCLUSION
6. By appropriate action, initiate steps to be taken through diplo-
matic channels to bring about a regional plan for economic and techni-
cal assistance in the Middle East, involving as participants the United
States, interested Western European nations and governments within
the region.
7. By appropriate action, seek assurance that in all United States
programs of economic and technical assistance to underdeveloped
areas attention is given to the importance of obtaining improvements
in levels of living at a faster rate than population increase; and that
exploration is made of available measures to secure such a net gain
in levels of living.
8. Establish as policies governing appropriations of foreign aid
funds: (1) that funds remain available for sufficient periods of time
to complete projects undertaken; (2) that preference be given by the
President, in his allocation of funds, to projects related to overall
plans of economic development in countries receiving them; (3) that
preference be given to projects designed to develop competent tech-
nicians and administrators and to provide the infrastructure of eco-
nomic development; and (4) that the President be requested to obtain
assurances that competent economic surveys have validated the sound-
ness of projects before they are undertaken, together with assurances
that statistical and accounting procedures in the countries concerned
are adequate to permit such surveys and to record the progress and
results of projects undertaken.
FOREIGN AID ACTIVITIES OF OTHER FREE
NATIONS
CHAPTER I
SIZE AND CHARACTER OF FOREIGN AID BY OTHER FREE
NATIONS
The findings of fact upon which we base our conclusions and recom-
mendations are presented in this chapter. Section A is an overall
summary of the expenditures and activities of free countries of the
world, apart from the United States, to assist countries other than
themselves. It also compares the aid they extend with their capacities
to extend it, using the aid given by the United States as a standard of
comparison. Sections B, C, and D deal with the principal channels
through which aid is given, referred to as "bilateral," "multilateral,"
and "regional," respectively. In section B on bilateral aid, data are
separately grouped together for the Western European nations as a
whole, for some individual European and non-European free nations,
and especially for France and for the United Kingdom-these two
being the largest single contributors of foreign assistance other than
the United States.

A. GENERAL SUMMARY
During the period 1952–55, inclusive, other free nations expended
through public channels approximately $6 billion, or about $1.5 billion
per year, to assist countries other than themselves. This total excludes
private investments and such nonpecuniary forms of assistance as
trade preferences, to which no precise monetary value can be attached.
It includes many separate estimates for which accurate data are lack-
ing. Of the estimated total, economic and technical assistance
amounted to 53 percent, relief and rehabilitation to 3 percent, and
military aid to 44 percent. Western European nations provided ap-
proximately 69 percent; Canada, Australia, and New Zealand to-
gether, 26 percent; other nations of the free world, 5 percent. These
figures are shown in table 1. More than half of the $6 billion total
was contributed by France and the United Kingdom.
1069
1070
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
TABLE 1.—Total amounts of public foreign assistance by other free nations
during the approximate period 1952–55¹
[Millions of dollars]

Economic and technical
assistance
Relief
and
Geographic area
rehabil-
Mili-
tary 3
Total
itation 2
Total
Economic Technical
Total, all "other free nations".
3, 229.6
3, 167.0
62.6
162. 4
2, 651.8
6, 043. 8
Bilateral...
2, 630. 1
2, 630. 1
2.2
559.5
3, 191.8
International..
393.0
346.0
47.0
160.2
553.2
UN agencies.
47.0
47.0
160.2
207.2
IBRD..
346.0
346.0
346.0
Regional...
Western Europe.--
Bilateral.
International.
206.5
190.9
15.6
2,092. 3
2,298. 8
2,737.5
2,707.2
30.3
106.7
1, 336. 4
4, 180. 6
2, 567.2
2, 567.2
(4)
557.4
3, 124. 6
165.0
140.0
25.0
106.7
271.7
UN agencies "
25.0
25.0
106.7
131.7
IBRD 6
140.0
140.0
140.0
Bilateral...
Regional..
Developed commonwealth countries.
International..
5.3
(7)
5.3
8 779.0
784.3
279.8
262.8
17.0
23.9
1,275.0
1, 578.7
1.4
1.4
2
•
81.0
73.0
8.0
23.7
1.6
104.7
UN agencies.
8.0
8.0
23.7
31.7
IBRD..
73.0
73.0
73.0
Regional.....
197.4
188.4
9.0
8 1, 275.0
1, 472. 4
Other free nations..
212.3
197.0
15.3
31.8
40.4
284.5
Bilateral...
61.5
61.5
2.0
2.1
65. 6
International.
147.0
183.0
14.0
29.8
176.8
UN agencies-
14.0
14.0
29.8
43.8
IBRD...
133.0
133.0
133.0
Regional..
3.8
2.5
1.3
38.3
42.1
1 Note explanation and qualifications in text.
2 Contributions to ICEM, UNICEF, UNKRA, and UNWRA, plus a small amount of bilateral emer-
gency aid.
3 A large part of the figures in this column pertain to NATO. See discussion in sec. E of this chapter.
• Included with economic.
• Includes technical assistance under the U. N. expanded program plus estimated contributions through
regular budgets of the U. N. specialized agencies.
• Estimates for Western Europe made after study of unpublished analyses by OEEC.
? United Kingdom economic aid under Colombo plan is classified as bilateral.
8 Estimates of regional military expenditures include contributions to cost of infrastructure and adminis-
tration. Compare our discussion in sec. E of this chapter. Canadian figures include military aid given by
Canada to NATO nations.
Although private investment is not included in table 1 and esti-
mates of its volume may be in error by as much as 50 percent, no
picture of the outside resources available to underdeveloped countries
can be complete without it. Studies by European organizations, the
International Cooperation Administration and other United States
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1071
agencies support the estimate that net foreign investments by Western
European nations, including the United Kingdom, were between
$500 million and $600 million in 1955; and by Canada, some $10 mil-
lion in the same year. The aggregate $510 million to $610 million-
is of a magnitude at least 40 percent as great as that of the foreign
assistance extended in 1 year from public funds by free countries
other than the United States. The comparable estimate of new private
investment by the United States is $500 million, or slightly less than
the figure for Western European nations and Canada combined.
The giver of aid should be judged not alone by the size of his con-
tribution but also by the resources out of which he contributes. We
have attempted to measure the foreign aid extended by certain free
nations against the yardstick of their capacity to extend it, using the
contributions of the United States as a standard. The expenditures
which would represent the same relation to a nation's capacity as do
those of the United States, we have termed its "parity." The indexes
of relative capacity to extend foreign aid, by means of which parities.
have been calculated, are as follows:¹
United States-
Australia_
Austria___
Belgium
Canada.
Denmark.
Finland---
France
100. 0 Japan
2.3
Netherlands..
0.5 New Zealand.
1.7 Norway-
6.2 Portugal.
0.9 Spain_
Sweden.
2.8
1.2
0.6
0.7
0.3
1.6
2. 1
1.6
10.7
0.7
Germany (West)
Italy
0.6
7.9
Switzerland____
5.8 United Kingdom---
2.9 Union of South Africa___
Table 2 shows the estimated public expenditures for foreign
aid actually extended by several free nations, the expenditures that
would have represented their "parity" in conformity with our indexes,
and the ratios between these figures. France appears as the nation
with the heaviest public expenditures for foreign aid, relative to
capacity. On this basis they are half again as large as those of the
United States. French assistance has been directed mainly to its pres-
ent or former dependent territories, which have been seething with
unrest. At the opposite extreme, relatively small amounts have been
expended by nations with limited political, economic or strategic
interests exterior to their own boundaries. Between extremes is the
United Kingdom, whose assistance expenditures appear in table 2
as only one-half of its "parity." However, it must not be overlooked
that long-term private investments, of which the table takes no ac-
count, have a larger role in the foreign assistance programs of the
United Kingdom than in any other nation.
1 See appendix A for an account of the data and procedures upon which these indexes
are based and some of the limitations to which their application in this report are subject.
No indexes have been calculated in the case of nations for which the required data were
deemed inadequate.
1072 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
TABLE 2.—Estimated public expenditures for foreign aid compared with national
capacities, 1952–55, inclusive
II
1

III
IV
V
Country 2
Relative
capacity to
extend aid &
Total
expendi-
tures 1
Parity
expendi-
Ratio: Ex-
penditures
tures 3
to "parity"
Percent
Millions
Millions
United States.
100.0
4 $20, 300
$20, 300
100.0
Australia..
2.3
81
467
17.3
Belgium.
1.7
100
345
28.7
Canada
Denmark.
France
6.2
1,466
1,259
116. 4
.9
40
183
21.8
7.9
2,425
1,604
$151. 2
Italy
New Zealand..
Netherlands..
Norway.
Portugal.
2.9
100
589
17.0
.6
13
122
10.7
1.2
62
244
25.4
.7
36
142
25.4
.3
23
61
37.7
Spain..
Sweden.
1.6
30
325
9.0
2.1
9
426
2.1
United Kingdom.
10.7
1, 064
2,172
6 49.0
Union of South Africa…….
Total (United States excluded).
.7
8
142
5.6
5, 457
8, 081
67.5
1 Total public expenditures include (a) contributions to United Nations technical assistance; (b) bilateral
and regional economic and technical assistance; (c) subscriptions to the capital of the International Bank
for Reconstruction and Development as follows: 2 percent downpayment, plus that part of an additional
18 percent of the initial subscription actually loaned prior to June 15, 1955, plus certain upward adjustments
(aggregating $10 million) to reconcile these amounts with certain data obtained from other responsible
sources; (d) expenditures for relief and rehabilitation through United Nations agencies; (e) military assist-
ance, bilateral and through NATO. Certain of these data have been obtained from classified sources and
cannot therefore be presented in detail.
2 Only free countries which have extended appreciable amounts of aid, or for which summarization has
been possible are included. It should be noted that several of these nations were nonmembers of the organi-
zations granting aid at the time the expenditures here recorded were made.
* The relatives in column II are based upon data for the period 1951-53, inclusive. They are applied to
the expenditures in column III, which relate to the period 1952–55 inclusive. This factor and others intro-
duce an undetermined amount of error into the figures in columns IV and V. The use of United States aid
as a basis for comparisons, with its expenditures equaling 100 percent of" parity," does not imply an opinion
that its capacity to extend foreign aid has reached its maximum, or could not be increased.
4 The total of United States aid has been taken from chapter II of "Administrative Aspects of United
States Foreign Assistance Programs" by the Brookings Institution, in this series of reports, by combining
figures for separate years there given.
As pointed out in the text, the relatively high expenditures of France are attributable in large part to its
developmental efforts and military relationships with dependent territories.
• More than any other country, the United Kingdom has employed private investment as a channel for
assistance to other countries. Its private investments abroad, which do not appear in this table, have been
reliably estimated as net $300 million in the year 1955. This compares with an aggregate of nearly the same
net volume of investments by the rest of Europe, with an average of about $500 million of net investment in
each of the years 1953-55 by the United States and $10 million net in 1955 by Canada.
In relative terms, the second largest expenditures for foreign aid by
any nation are made by Canada. Without colonies like France and
without the worldwide responsibilities inhering in the United States
by virtue of power and size, Canada's expenditures for foreign aid in
relation to its capacities exceed our own by one-sixth.
The United States supplies a huge proportion-perhaps as much as
half-of the industrial production of the world. It receives a cor-
responding share of world income. When measured against its huge
concentration of capacity to contribute, the scattered contributions to
foreign aid of other and weaker free nations total up to amounts not
notably disproportionate to our own.
This is best shown by comparisons of bilateral economic and tech-
nical assistance, which are relatively free from the political and stra-
tegic considerations that affect military expenditures. In 1955, total
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1073
bilateral economic and technical assistance was divided somewhat as
follows:
By the United States.
By other free nations..
Total...
[Millions of dollars]

From
From
public
private
Total
sources
sources
910
800
500
510-610
1,410
1, 310-1, 410
1,710
1,010-1, 110
2, 720-2, 820
The question frequently raised as to the extent to which the rest of
the free world is carrying its "fair share" of the burdens of foreign
aid is illuminated by these figures.
B. BILATERAL AID BY OTHER FREE NATIONS
1. The free nations of Western Europe
2
About $3 billion were provided by free nations of Europe to
underdeveloped areas through bilateral channels of public assistance
during the 4 years 1952-55. This includes both economic and mili-
tary aid but excludes contributions through the United Nations, the
International Bank for Reconstruction and Development, and such
regional bodies at NATO. The 4-year totals for individual countries
for which data are available during the period are shown in table 3.
TABLE 3.-Bilateral public economic and military assistance by free European
nations to overseas territories and other underdeveloped independent coun-
tries, 1952–55, by country totals
[Millions of dollars]


Amount Percent
Amount
Percent
Belgium: Economic..
32.0
France:
Economic.
1,816. 3
82.1
United Kingdom:
Economic.
Military.
640.8
80.4
156.8
19.6
Military...
395.8
17.9
Others: Economic..
8.0
Italy: Economic...
17.6
Norway: Economic.
4.9
Total..
3, 124. 6
100.0
Portugal: Economic.
23.0
Spain:
Economic.
24.5
83. 6
Economic.
Military....
2, 567.2
82.2
557.4
17.8
Military..
4.8
16. 4
Behind the totals in table 3 are significant shifts between the mili-
tary and economic components of European bilateral assistance.
These are largely due to changes in the expenditure pattern of
France. Of the 4-year figure shown for military aid by that country,
$314.3 million pertains to the first half and only $81.5 to the second
half of the period. Although the military expenditures of the United
Kingdom increased in the 2 periods from $73.1 million to $83.7 million,
and those of Spain from $2 million to $2.8 million, the effect for the
area as a whole is given the appearance of a transfer from military to
economic forms of bilateral assistance. Whereas in 1952 the first was
Based upon unpublished information compiled by the International Cooperation Ad-
ministration. Gaps and duplications in the data undoubtedly exist, while the conversion
of local currencies to dollar equivalents introduces further error, próbably in the direction
of understatement of the purchasing power of the aid given.
1074 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
one-fourth of the total, by 1955 it was little more than one-tenth.
Moreover, between these years the total Western European bilateral
assistance expenditures increased, though irregularly, by approxi-
mately 10 percent.
A more detailed breakdown of figures roughly equivalent to those
shown in table 3 but for the single year 1955 is presented in table 4.
This throws light upon both the form of aid extended and its
destination. More than 90 percent of the total was given to present
or recent overseas territories of free European nations. Of this,
France supplied about two-thirds and the United Kingdom about one-
fourth. The larger part was in the form of public investment for
economic purposes, along with the technical assistance necessary to
guide its expenditure.
It seems likely that the upward trend of public economic assistance
by Western Europe as a whole, previously noted, will continue. This
expectation results from new economic assistance programs now under
consideration in Germany, the Netherlands, and elsewhere; and from
the potential economic commitments of France and the United King-
dom in the Middle East and Africa.
It is noteworthy that of the total volume of bilateral foreign assist-
ance included in tables 3 and 4, approximately 96 percent was con-
tributed by 2 countries, France and the United Kingdom, to which
individual attention will now be given.
TABLE 4.—Bilateral public economic, technical, and military assistance to over-
seas territories and other underdeveloped independent countries, by major
European donors, and type of aid, 1955 ¹
1
[Millions of dollars]

France United
Other
free
Kingdom European
countries
Known
total
Total assistance.
561.2
223.7
32.7
817.6
Economic and technical assistance to----
522.0
180.4
31.1
733. 5
Overseas territories..
519.2
150.1
28.4
697.7
Investment..
505. 2
79.8
8.0
593.0
Grants..
196.4
53.2
8.0
257.6
Loans..
277.0
26.6
303.6
Miscellaneous..
31.8
31.8
Budget support.
14.0
70.3
20.4
104.7
Grants.
Loans..
(2)
48.5
10.6
21.8
9.8
Other countries.
2.8
30.3
2.7
35.8
Grants
Loans..
Military assistance to...
83
24.3
2.7
27.0
6.0
6.0
39.2
43.3
1.6
84. 1
Overseas territories..
Other countries.
39.2
15.3
1.6
56. 1
28.0
28.0
1 Does not include contributions to the United Nations and the International Bank for Reconstruction
and Development, nor the administrative costs of bilateral programs.
2 Not available.
Sources: Unpublished International Cooperation Administration report of Apr. 4, 1956, Western Euro-
pean Bilateral Economic Assistance to Less Developed Non-Metropolitan OEEC Areas, and unpublished
Organization for European Economic Cooperation studies.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1075
2. France 8
In recent years France has spent about twice as much for economic
assistance to underdeveloped areas as the rest of Europe combined.
From 1952, its annual appropriations for this purpose increased about
one-third to $522 million in 1955 (table 5), exclusive of direct
military assistance to Vietnam, Laos, and Cambodia, which totaled
$396 million during the years 1952-55. Nor do they include France's
current expenditures in dependent and associated states for its direct
national purposes. These averaged $145 million per year for civil
functions and about $1 billion per year to equip and maintain its own
forces in those areas. We are informed that there have been no mili-
tary expenditures by France in these categories in Vietnam, Laos,
and Cambodia since 1955.
The political and military disturbances in several French overseas
territories continue to have a profound effect on the nature and extent
of French economic assistance abroad. In 1952, North Africa ac-
counted for only 38 percent of French economic assistance expendi-
tures, but the same area received 52 percent of the total amounts
appropriated for these objects for 1956. Private capital investment
in the territories has become discouraged. According to information
supplied by the Embassy of France in Washington, annual private
investment in North Africa from all sources has fallen from 70 or 80
million dollars in 1953 to 14 or 17 million dollars in 1956. It appears
that many present investors in this area are attempting to liquidate
their holdings. In consequence, the three North African dependen
cies of France have become more dependent than ever upon public
financing for their economic development.
TABLE 5.-Economic and military assistance by France to overseas territories
and other countries'
1
[Millions of dollars]

1952
1953
1954
1955
1956
Economic assistance:
To overseas territories.
379.7
458. 3
429.8
519.2
(2)
Investment .
377.9
448. 5
418. 5
504. 4
453.0
Subsidies 4
121.5
140. 4
131. 0
196.0
Loans.
162. 4
228. 6
277.7
250.0
276.6
Other...
275.7
27.9
30.4
37.5
31.8
14.9
Budget support...
1.8
9.8
11.3
14.0
(2)
To other countries...
Yugoslavia..
Libya..
Technical assistance..
11.0
9.1
6. 4
2.8
(2)
10.0
8.0
5.0
1.0
(2)
.6
.7
1.0
1.0
.7
.4
.4
.4
.8
1.7
Total, economic assistance.
Military assistance '
Grand total…….
390. 7
467.4
436. 2
521.2
145.7
168.6
42.3
39.2
536.4
636.0
478.5
560.4
(2)
9|Êཆུ
1 Includes technical assistance; does not include administrative costs connected with these programs.
2 Not available.
3 Investments are on budget-appropriations basis; actual expenditures were $386.3 million in 1952, $424.3
million in 1953, and $393.7 million in 1954. In addition, quasi-public credit institutions loaned $12.6 million
in 1952, $2.6 million in 1953, and $3.1 million in 1954, to North Africa.
Partly grants, partly "advances" against a technical obligation for repayment.
To Associated States of Indochina.
* In the text and tables of this section, France includes continental France in Europe and
Corsica. Algeria and other overseas departments which are technically part of metropoli-
tan France are included with dependent and associated areas.
94413-57-69
1076 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
Public economic and technical assistance to French overseas terri-
tories from the mother country during the period 1952-55 absorbed
$1.79 billion. These funds were expended for grants and loans for
economic development, investments in institutions and business enter-
prises, technical assistance, and budget support to make up territorial
deficits. Administrative costs connected with these programs are not
included in the figure given. In addition, loans to North Africa from
quasi-public credit institutions totaled $18.3 million. The greater
part of the total of public funds expended was apparently in payment
for ownership rights accruing to the French Government or involved
some form of commitment to repay, often without much hope that
repayment would ever be made.
Economic assistance from French public funds is also given to
Libya, Yugoslavia, and several other independent countries, prin-
cipally in the Middle East and South America. Annual contributions
to the Libyan Development and Stabilization Agency since 1952 have
varied between $571,000 and slightly over $1 million per year. French
payments to Yugoslavia under the Tripartite aid program (with the
United States and the United Kingdom) have approximated $24
million in the 1952-55 period.
Technical (as distinct from economic) assistance to dependent and
associated areas is financed directly by Ministries within the French
Government (Public Works, Public Education, Health and Sanita-
tion, etc.). Their programs are extensive, and public expenditures
for the purpose are probably included in the figures for economic
assistance in table 5. By themselves (though the Government main-
tains no separate record), the costs may total as much as $25 million
per year. A considerable volume of technical assistance is also given
to less developed non-French countries. The overall content and geo-
graphic scope of technical assistance activities supported by the
French Government in 1955 was somewhat as follows:

Country assisted 1
Technical assistance.
Purpose
Pilot agricultural school.
Amount
Libya.
$143,000
Syria, Lebanon.
200,000
Iran, Iraq, Syria, Lebanon, Yemen, Peru,
Venezuela.
229,000
Sent approximately 85 French experts.
Principally Middle East and South Amer-
ica.
143,000
45,000
Brought to France approximately 200 students
and trainees for technical studies.
Other expenditures.
Total...
$760,000
1 Some assistance to southeast Asian countries is also noted in sec. E.
Private investment by French residents in dependent and associated
territories is believed by the French Government to have been more.
than balanced by inward capital movements from them, thus making
no net contribution to those areas during the period 1952-55. In the
same period, new investment outside of the French Union amounted
to some $30 million to $40 million per year. An increase in the first
half of 1955 to about $52 million is largely explained by a payment
of $28 million for the purchase of German coal mines by a French
steel syndicate.
Governmental aid to exporters has indirectly provided economic
assistance to foreign countries. The Banque Française du Extérieur
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1077
(BFCE) is a publicly owned institution something like the Export-
Import Bank in the United States. It extends short-term credits for
foreign-trade transactions, but also credits for longer term arrange-
ments between French exporters and foreign buyers including, in a
number of cases, foreign governments. Private investment banks
may also participate; and through the financing arrangements which
the BFCE develops, such large-scale projects as construction of a
steel mill or a hydroelectric plant may be undertaken by a French
enterprise for the foreign interest involved.
The credit extended in such cases may run as long as 7 years.
Among the financing arrangements by the BFCE reported in the press
have been a $34 million credit to Indonesia, a $14 million credit to
Iran, credits to Brazil totaling some $100 million, and credits for
financing the construction of the Paz-del-Rio steel mill in Colombia.
A type of foreign aid that indicates the breadth of French influence
is the large number of French patents and processes that are being
utilized throughout the world. The average yearly income to France
from this source was $15.5 million in the period January 1, 1952. to
June 30, 1955, having increased steadily during that period. The
breadth of French cultural influence also appears in French educa-
tional assistance. Approximately 20,000 foreign students were en-
rolled in French universities, secondary. and technical schools in
1955, only about half of whom came from French overseas territories.
Approximately 4,500 scholarships were awarded, of which 1.200 were
received by students from underdeveloped independent countries and
2,000 by students from French overseas territories.
Military assistance.-In the years 1952 and 1953, as shown in table
5, France spent large sums for assistance to Vietnam, Cambodia, and
Laos in building up their military forces, at that time engaged with
the French Expeditionary Corps in Indochina in hostilities against
the Vietminh. Part of these funds were employed to procure equip-
ment and supplies-mainly in France-which were furnished to the
three states on a free transfer basis. Another part provided cash
subsidies for their military budgets, including troop pay and operat-
ing expenses, payable in Indochina.
At the same time, the French were spending close to $1 billion a year
to equip and maintain the French Expeditionary Corps in Indochina.
These expenditures were such a drain on the French economy that
the United States agreed to pay the entire cost of the contribution
to the Associated States forces in 1954, as well as some of the cost of
the French Expeditionary Corps. French military assistance to the
states of Indochina has now been discontinued.
3. The United Kingdom
After France, the United Kingdom is the largest European con-
tributor of public funds for the economic development of under-
developed overseas areas. Its expenditures for this purpose during
the 4 fiscal years 1952-53 to 1955-56 approximated $641 million, of
which some 83 percent was directed to its own overseas territories.
An additional $43 million per year for overseas military assistance
was largely expended in helping Malaya and Kenya with their
internal security problems and in subsidizing Jordan for support of
the Arab Legion.
1078 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
These figures, presented in tables 6 and 7, convey no more than
a partial impression of the United Kingdom's role in foreign aid. Its
financial and economic relations within the Empire and more recently
within the Commonwealth and with other countries of the sterling area
have furthered overseas economic development in ways which are
often incapable of precise measurement but which were long of almost
unique importance in the world economy. In the case of no other
country has the national growth of private foreign investment, ship-
ping, foreign trade, and international banking been of equal signifi-
cance for the economic development of other countries. Table 6 sum-
marizes the disposition of funds formally expended by the United
Kingdom from its treasury for economic and technical assistance to
other countries; but this summary omits some items of public expendi-
ture for economic aid to which special reference must be made sepa-
rately.
TABLE 6.—Public economic and technical assistance by the United Kingdom to
1
overseas territories and other countries ¹
[Fiscal year-millions of dollars]

Economic assistance
1952-53 1953-54 1954-55
1955-56 4-year
total
Overseas territories..
Investment.
Loans.
Grants..
Budget support.
Loans.
Grants.
Other countries...
125.5
102.5
160.2
150. 1
538.3
63.6
57.7
57.7
79.8
258.8
20.2
16.0
13. 1
26. 6
75.9
43. 4
41.7
44.6
53.2
182.9
61.9
44.8
102.5
70.3
279.5
3. 1
14.0
48.7
21.8
87.6
58.8
30.8
53.8
48.5
191.9
27.0
22.0
23.0
30.3
102.3
Jordan.
Libya..
Yugoslavia.
Colombo plan-technical assistance.
Total..
3.4
5.3
7.0
7.3
23.0
4.2
10.9
10.9
10.9
36.9
18.8
5.0
3.4
10.4
37.6
.6
.8
1.7
1.7
4.8
152.5
124.5
183. 2
180.4
640.6
1 So far as possible, the administrative costs of programs have been excluded.
Public assistance (other than military) to the overseas dependencies
of the United Kingdom (table 6) was approximately half and half to
assist in their economic development and for financing their budget
deficits. Approximately two-thirds of the aid given was in grants,
the remainder in loans. Capital expenditures in the colonies were
made principally through three public channels: The Colonial Devel-
opment Corporation, the Overseas Food Corporation, and the Colonial
Development and Welfare Acts; while current expenditures were
mainly provided in the colonial services vote.
Support to the budget of Jordan in the form of grants accounted for
$19 million of the $23 million it received. All of the funds granted to
Libya and Yugoslavia were intended to assist in economic develop-
ment. A number of public credits to other countries are not included
in the foregoing figures because their terms and utilization are un-
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
1079
known, or partially so. Thus in 1954-55 Pakistan drew $7 million of a
$28 million credit from the Export Credit Guaranty Department for
the purchase of equipment to increase agricultural production. Con-
tracts expected to utilize the remaining $21 million had been placed
before the end of fiscal year 1955-56. A similar credit of $28 million
was extended to Iran in 1953 but seems not yet to have been disbursed.
A credit of $56 million to Argentina in 1955-56 is to be used to support
its sterling balances in making payments to the sterling area.
Public technical assistance to overseas territories is included under
Colonial Development and Welfare Act projects, the costs of which are
included in table 6. While its total magnitude has not been reported,
this appears to be substantial. Among other objects, direct grants to
the territories are made for educational purposes, usually for capital
costs on the understanding that local budgets will bear the recurrent
costs. Actual expenditures for such purposes under the act are now
said to approximate $8.4 million annually. During 3 recent fiscal
years they were (in millions of United States dollars) as follows:

For primary and secondary schools..
For technical and vocational schools.
For higher education……….
Total..
1951-52
1952-53
1953-54
4.2
3.9
3.1
1.7
2.2
1.4
3.9
3.1
2.2
9.8
9.2
6.7
Under these educational grants or in addition to them, the United
Kingdom offers professional advisory services, recruits staff and pro-
vides training for large numbers of students and teachers at advanced
levels. Three universities, six university colleges, and three colleges
of higher technology have been developed in the dependencies since
the war with extensive professional and financial help from the United
Kingdom. Of approximately 25,000 foreign students receiving edu-
cation in the United Kingdom in 1955, 10,500 were from United
Kingdom overseas territories.
A large amount of technical assistance has also been given by the
United Kingdom to nondependent areas through its participation in
the Colombo plan technical cooperation scheme (see sec. D). As
shown in table 6, $4.8 million has been expended through that chan-
nel. It has been used for the training of residents of Colombo plan
countries in the United Kingdom and for the provision of United
Kingdom experts to them. A further commitment of $19.6 million
has been made, to be spent through this channel between April 1956
and March 1963.
Net private investments overseas by British citizens are officially be-
lieved to have been increasing significantly in recent postwar years.
Information on the subject is difficult to compile and subject to large
errors. The available official estimates are not broken down by geo-
graphic areas and distinguish only roughly between "overseas terri-
tories" and "other countries." Comparing Government estimates of
annual averages during the 8-year period 1946-53 with the averages

1080 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
estimated for the last 3 years of the same period, and deducting totals
calculated from the second from totals calculated from the first, indi-
cations of growth in private investment are shown as follows:
Annual average
[Millions of dollars]

1946-53
1946-50
1951-53
United Kingdom gross investment overseas ¹
588
571
616
United Kingdom disinvestment overseas plus overseas net
investment in the United Kingdom.
252
336
112
United Kingdom net investment overseas..
336
235
504
¹ Long-term investment, excluding intergovernmental lending but including United Kingdom loans for
commercial projects and borrowing by overseas governments in the London market.
No breakdown of the preceding figures can be made between equity
capital and long-term loans. It is believed that about three-quarters
of the new investment is in the sterling area and of this portion about
three-quarters in the Commonwealth. A Government white paper
states: "Capital flowing into the territories (excluding Hong Kong)
for private investment, including ploughed back profits" was about
$182 million. It estimates that about three-fourths of this came from
the United Kingdom.
Applying such judgment as we can to these unrelated and diverse
figures, we think it safe to conclude that United Kingdom net invest-
ment in underdeveloped countries is currently of the order of $300
million per year.
There is now virtually no United Kingdom exchange con-
trol restrictions on the length of credit an exporter of capital
goods may offer on his own account. Where the exporter is
unable to finance the credit entirely from his own resources,
he can apply to the Credit Export Guarantee Department
for cover which both safeguards against loss and may also
facilitate the raising of finance.*
4
Among important economic projects to which the United Kingdom
may give support in the future are the following: (a) A British con-
sortium has agreed to construct a 1 million ton steel plant in India, to
which country the Government of the United Kingdom has offered a
loan of $42 million to assist in construction costs. A syndicate of
British banks has agreed to a credit of $32.2 million to cover additional
costs; (b) British participation in the Volta River project is being
discussed with the Government of the Gold Coast. In a white paper
of 1952, United Kingdom contributions of around $140 million were
mentioned as a possibility; (c) continued assistance through the
colonial service vote to colonies which run into special difficulties
seems probable. Such assistance was required recently in Malaya and
Kenya and estimates for 1956-57 will reflect some additional aid for
Cyprus as well as Kenya.
Military assistance.-Of $156.6 million expended by the United
Kingdom for military assistance in the years 1952-53 to 1955-56,
The Colombo Plan for Cooperative Economic Development in South and Southeast
Asia, Fourth Annual Report of the Consulative Committee, Singapore, November 1955,
p. 161.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
1081
inclusive, about one-third went to overseas territories for the direct
support of their forces. African expenditures, mostly for Kenya,
have risen steadily. In addition to the military assistance to Kenya
and Malaya, grants were given them in aid of the emergency. The re-
maining two-thirds of military assistance went mainly to Jordan
for support of the Arab Legion. Some additional went to Yugo-
slavia, to the Persian Gulf Security Force, and to Middle Eastern
countries, as indicated in table 7.5
United Kingdom military expenditures for its own forces stationed
abroad (excluding NATO common infrastructure and several other
small items) have averaged about $385 million annually in the same
4-year period.
TABLE 7.-Military assistance by the United Kingdom to overseas territories ¹
[Fiscal year-millions of dollars]
1

1952-53 1953-54 1954-55 1955-56
4-year
total
Overseas territories:
Malaya 2
Africa 2
West Indies.
Aden (estimates)
Total...
Other countries:
1.1
2.2
8.1
2.2
9.8
5.5
10.4
.6
11.2
.6
39.5
.6
· 6
.6
.6
· 6
2. 4
1.1
2.9
9.3
12. 1
13.8
15. 1
50.3
Jordan (Arab Legion)
23.5
23.2
25.5
26.4
98.6
Yugoslavia.
2.2
1.7
.3
4.2
Persian Gulf Security Force..
.3
.8
.8
.8
2.7
Gifts of arms to Jordan, Iraq, and Libya_
.8
.8
Total...
26.0
25.7
26.6
28.0
106.3
Grand total.
35.3
37.8
40.4
43. 1
156.6
1 Does not include expenditures for British forces in overseas areas.
2 Excluding emergency aid given to Kenya and Malaya, included with economic assistance.
The political status of a number of overseas territories of the United
Kingdom is currently in a state of change. Distinctions between the
assistance given them and that given to Commonwealth countries is
becoming more difficult and less meaningful. Malaya is due to become
an independent nation within the Commonwealth by 1957. The Gold
Coast is now possessed of a constitution as a step toward its imminent
entry into the Commonwealth as an independent nation, with which
will be incorporated British Togoland, until now under a United King-
dom trusteeship that was terminated by vote of the United Nations
General Assembly on December 13, 1956. Discussions of a "British
Caribbean Federation" have just been completed in London. Discus-
sions on the future political status of Singapore are about to begin and
the completion of similar discussions on Nigeria are scheduled. Malta
recently voted to become self-governing in internal affairs while at the
same time deciding to send members to Parliament. The Cyprus issue
remains in undetermined status.
At the same time, distinctions between Commonwealth and non-
Commonwealth nations are also becoming less clear and less significant.
Perhaps the disappearance of traditional lines of cleavage within the
once farflung British Empire foreshadows the disappearance from the
› See also assistance in the SEATO area, sec. E.
1082
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
world of distinctions between independent and dependent peoples, and
of reasons to distinguish between economically developed and under-
developed peoples.
4. Other free countries
West Germany is a latecomer in extending foreign aid but is develop-
ing its interests in that field very rapidly. Until recently it had ex-
pended no public funds in underdeveloped countries and it has no bi-
lateral military assistance program, though in 1956 it became a member
of NATO. Its most conspicuous development of foreign assistance
has been in the form of private investment. New postwar foreign in-
vestments by German enterprises were not authorized until 1952 and
they are subject to approval by the economics ministry in concurrence
with the Bank Deutscher Laender. Licenses have been issued in the
main for the establishment of foreign branches of German companies
or for buying into the ownership of existing concerns. About one-
third of the German capital involved in license applications has been
in the form of currency claims on foreign debtors. Unlike British
practice, long-term loans to foreign debtors have been granted only on
a very small scale.
Table 8 indicates the growth of German investments abroad
and the geographical areas in which they have been made. Almost
30 percent have been in Latin America, with roughly equivalent pro-
portions in Europe and in the United States and Canada. However,
there are indications that German investors are widening their areas
of interest. Thus, the "first West German toehold in Middle Eastern
oil exploitations" was reported by a New York Times correspondent on
December 14, 1956. A leading oil-producing company in Hamburg
was said to have obtained a 5,800 square mile petroleum development
concession in northeast Syria, upon which it had agreed to invest up to
$5 million in exploration during the next 3 years. Reference was
made to "the relative popularity of German businessmen in the Arab
world."
TABLE 8.-New private foreign investments by West Germans¹
[Millions of dollars]

1952
1953
1954
1955 Total
United States and Canada………….
0.5
Europe...
2.0
Latin America……….
2.5
Middle East (including Greece, Turkey).
.2
Africa..
.9
South Asia..
.2
Western Pacific..
.3
6052¬~~
5.8 11.0
30.2
47.5
11.1
13.3
32.9
59.3
7.8
14.2
33.5
58.0
.3
1.1
3.3
4.9
2.2
7.7
4.4
15.2
.5
3.6
.9
5.2
1.5
1.4
2.5
5.7
Total....
6.6 29.2
52.3 107.7
195.8
1 Value of foreign investment licenses granted less value of cancellations or expirations.
The German Government's encouragement of exports deserves men-
tion in this connection. The rebate on corporation and income taxes
granted to exporters expired on December 31, 1955, and was not re-
newed in accordance with the Butler-Erhard agreement of May 1954;
but substantial rebates to exporters from the turnover taxes continue
in effect. It is understood that the ceiling for credit insurance financed
with Government funds has recently been raised and that other gov-
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
1083
ernment aids to exporters are available. Meanwhile, income from the
use of German patents and licenses abroad has been increasing rapidly,
being estimated at $17 million in 1954 as compared with $2.1 million
in 1950 and $5.5 million in 1952.
Consistent with the preceding developments of trade relations has
been an interest by the West German Government in the restoration of
Germany's time-honored role in international education. The equiva-
lent of $476,000 has been allocated for the instruction of foreign stu-
dents in the German language. Approximately 5,900 foreign students
are now studying in Germany, of whom about 500 are provided an-
nually with scholarships averaging $75 each. A 10-percent increase
in the number of scholarships granted is expected in 1957.
The West German Government is considering legislation to estab-
lish a program to aid "economic development in backward areas."
This is in addition to increases in its contribution to the United Na-
tions technical assistance program, a doubling of which was expected
in 1956. The expanded aid program would provide an exchange of
economic specialists in foreign countries, supply model equipment
and workshops, as well as economic information and construction
materials, and provide scholarships for the training of nationals from
underdeveloped countries. The Bundestag (lower house) recently
approved funds of $834,000 for an aid program of this type.
Italy is responsible for the administration of Italian Somaliland
under a United Nations trusteeship, expiring in 1960. To this terri-
tory the greater part of Italy's public funds devoted since the war to
bilateral foreign aid has been directed. From 1950 through 1955 Italy
expended annually upon the territory amounts ranging from $8.2
million to $9.6 million, of which approximately half represented the
costs of Italian administration and security. The remaining half
covered the annual Somali budget deficit, including some expendi-
tures for economic development. It has been estimated that total pub-
lic investment in Italian Somaliland was $1.4 million in 1952 and $2.5
million in 1954. Some of this was devoted to the development of the
cattle industry and improving the water supply. Italian private
investment in the territory may have totaled about $2.8 million in
1952, a figure not likely to be reached again because of limited invest-
ment opportunities. However, in 1954 some 70 Somali began training
in Italy in subjects which included medicine, agriculture, teaching,
political science, and administration.
Italian private investment in other largely underdeveloped coun-
tries since the war has been more substantial than in Somaliland.
Official authorizations for "economic participation overseas" were in-
creased from $3.3 million in 1954 to $35.2 million in 1955. The second
amount included an investment of $25.1 million in the petroleum in-
dustry in Egypt. Other investments were authorized in Argentina,
Brazil, and Mexico. Their form was largely that of machinery, equip-
ment, and products supplied, together with credits and a limited vol-
ume of actual currency transfers.
Belgium's overseas interests are concentrated in Belgian Africa—
the Congo and Ruanda-Urundi. The latter, a small densely populated
area contiguous to the Congo, is under United Nations trusteeship.
Both territories are tranquil and receive no military assistance; al-
though Belgium does maintain training bases in the Congo which
1084 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
provide a potential nucleus for a defense force. The Congo receives
no assistance from Belgian public funds. A budget deficit of about
$8 million annually in Ruanda-Urundi is met by Belgium in the form
of loans which carry no interest and no terms of repayment. Public
technical assistance in the area is supported by the local economy and
is substantial. In the Congo, 432 agricultural engineers and some 200
other specialists are employed by the state-subsidized agricultural re-
search organization, without cost to Belgian taxpayers.
The new private investment which has flowed into Belgian Africa
has been estimated by the Ministry of Colonies to total $540 million
during the 7-year period 1948-54, with about $290 million in the last 3
years. About 90 percent of these amounts were from Belgian sources.
They were almost entirely in the form of equity capital, with only
about 5 percent being loans. Liquidations and reductions in invest-
ments totaled only $24 million during these years. The popularity of
public and private capital issues of the Congo resulted on at least two
postwar occasions in the exclusion of the colony from access to the
hard-pressed capital market of the mother country.
Apart from the Congo and Ruanda-Urundi, some Belgian invest-
ment funds have probably gone to other parts of Africa and to Iran,
Indonesia, Malaya, and South America. A joint Belgian-Portuguese
syndicate to build a $60 million oil refinery in Angola was recently
announced. Credits extended to Belgian exporters by the Société
Nationale pour Crédit a l'Industrie (SNCI) range from 2 years to as
long as 7. Of $19 million of its credits outstanding on December 31,
1955, about $12 million covered exports to less-developed countries. In
addition, the official foreign commerce fund for export promotion will
finance technical firms working abroad if this seems likely to increase
Belgian industrial exports to the area. A Belgian technical mission to
the Sudan is reportedly financed in part from this fund.
Social welfare in Belgian Africa receives assistance from the mother
country through 2 semiofficial mechanisms: (a) The Native Welfare
Fund receives the proceeds of the biweekly Belgian "Colonial Lot-
tery” estimated at $36 million over the next 10 years. Most of its ex-
penditures are on permanent rural housing and water supply for
native populations; (b) the recently created King's Fund, also des-
tined for the improvement of native housing, has received contribu-
tions from the Congo and Ruanda-Urundi Governments of $36 million
and $4 million, respectively.
The Netherlands' once-vast colonial empire has now been reduced to
Surinam, in northern South America; the Netherlands Antilles, of
which the most important is Curacao; and Netherlands New Guinea,
still a source of contention with the new Indonesian nation. These
territories receive some assistance bilaterally from the mother country
for their economic development. A 10-year aid program for Surinam,
which is to include a contribution of $45 million from the Netherlands,
has been announced. Economic ties with the former colonies also
remain. Thus in 1955 the Netherlands loaned Indonesia $26 million
for the purchase of capital goods, the loan to be repaid in 5 to 7 years.
The net private investments of Netherlands nationals in overseas ter-
ritories during a recent year were reported to be around $4 million-
a surprisingly small figure, suggesting the likelihood of considerable
disinvestment. For the same year net investments in other countries
were reported as $30 million.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1085
More impressive than these fragmentary and nonadditive bits of
information are Dutch activities concerning technical aid. Experts
in spinning and weaving have been sent to Indonesia. Other techni-
cians are giving help to Burma, Iraq, Nigeria, and the Gold Coast.
At two universities the Dutch Government operates centers especially
designed for training technicians from underdeveloped areas; and at
a third it has established the Netherlands Economic Institute to con-
duct research on priorities in economic development. In 1956 the Gov-
ernment established the "Dutch Organization for International As-
sistance," a foundation to be financed half and half by public and other
funds, which is to cooperate in the United Nations technical assistance
program. Further particulars concerning this last venture have not
been announced.
Spain, earlier than some other European powers, has seen its colonial
and overseas interests narrowed to comparatively small dimensions.
It continues to have cultural, commercial, and even political interests
in Latin America and the Philippines; but its expenditures for foreign
aid are concentrated upon its former dependency of Spanish Morocco
and its few small colonies on the African coast. Its support to the
former grew steadily during the years 1952-55, aggregating nearly
$30 million for the period. From this sum it met about one-half
of the Spanish Moroccan budget. The aid extended was in the form
of non-interest-bearing loans. Of the total cited, nearly $25 million
can be reasonably regarded as economic aid. Two authorizations,
totaling $14 million, were made during the period for that specific
purpose. A 5-year development plan to total $10 million was an-
nounced in 1955.
Except for Portugal, with its African and Asian colonies, the over-
seas interests of other West European countries are minor. None
have contributed importantly to underdeveloped countries through
bilateral channels during recent years. Estimates of Portugal's public
expenditures for its colonies range from 2 to 7 or 8 million dollars
annually. Its private investments within them may also be appre-
ciable. Switzerland, too, is believed to have substantial foreign in-
vestments, but of unknown extent. The Swiss Government in 1950
and 1951 sent teams of technical experts to Iran and Nigeria and dur-
ing 1952-56 appropriated $230,000 for scholarships to students from
underdeveloped countries. Austria contributed a school building with
some equipment to Ethiopia. More notable, and long to be remem-
bered, has been its reception and shelter to Hungarian refugees.
Somewhat unusual is a project directed from Norway. Since 1952
about $5 million of public funds have been appropriated to the Nor-
wegian Foundation for Assistance to Underdeveloped Areas, supple-
mented by private contributions of about $600,000. With this support
the foundation operates a project in a fishing village in India, in
which health improvement and the paraphernalia and techniques of
fishing are demonstrated.
Three developed countries of the Commonwealth-Canada, Aus-
tralia, and New Zealand-together contributed $194 million in eco-
nomic and technical aid to underdeveloped countries in the period
1951-55. Nearly all of this was extended through the Colombo plan
("regionally coordinated bilateralism") and will be discussed in con-
nection with regional assistance in section D, below. A proffer of aid
•
1086
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
by Australia to nations in southeast Asia is noted in our discussion of
SEATO in section E. We have found no information to suggest that
the Union of South Africa extended any foreign aid during the period
named.
South Asia and the non-Communist Western Pacific. The known
bilateral foreign assistance since 1950 by countries in this category
includes a $10 million economic credit by Singapore to the Federation
of Malaya, a $2.2 million economic credit from Sarawak to North
Borneo, a $13.3 million "free loan" by Brunei to the Federation of
Malaya for economic and military assistance, and a $2 million relief
grant by the Philippines to Korea. Other similar items make up a
total of $30.6 million, all of which is additional to approximately $44
million of military costs to the Philippines and Thailand for main-
taining troops in Korea. It is probable that many instances of eco-
nomic aid and technical assistance to each other among the nations
within the area have been unrecorded in our sources. For example,
it is known that the Government of India grants fellowships to ad-
vanced students from other Asian countries as well as to its own for
study at the International Statistical Education Center in Calcutta.
Some inconspicuous traces of Japan's prewar program of economic
and technical aid within the "East Asian coprosperity sphere" may
still be found.
Middle East and Africa. As of 1955, Middle Eastern countries had
given little foreign aid of record, and that of military character.
Military grants to Jordan of about $1.5 million by Egypt and $220,000
by Saudi Arabia are known. The press has reported aid to Egypt
by Saudi Arabia in 1956. Reported also have been various "assistance"
activities within the region that reflect its unsettled political and
military situation. African countries have made some slight techni-
cal contributions to their neighbors through the Commission for Tech-
nical Cooperation in Africa South of the Sahara, described below in
section D.
Latin American countries during the postwar period have con-
tributed bilaterally about $42 million to assist other countries in the
region. All but $6 million of this was for a railway in Bolivia, the
cost of which was advanced by Brazil. Several other bilateral agree-
ments to extend credit have been signed, notably by Argentina, but
never implemented. The major assistance expenditures in Latin
America have been undertaken on a regional basis and are described
below in section D.
C. MULTILATERAL ASSISTANCE
The types of aid summarized in this section fall within the United
Nations system, a somewhat loose aggregate of intergovernmental
organizations centering around the United Nations per se, but includ-
ing "specialized" agencies in such fields as agriculture and health. It
also includes an extensive Secretariat at United Nations Headquarters
and various subordinate "organs," commissions, affiliates, and con-
sultative private organizations. The actual status of some intergov-
ernmental organizations, especially the International Bank for Recon-
struction and Development (IBRD) and the International Monetary
Fund (IMF), is one of autonomy within the system.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
1087
Within this complex structure assistance programs are numerous
and varied. They include technical assistance to underdeveloped na-
tions by the United Nations itself, by its specialized agencies, and by
both conjointly. Other programs deal with relief and rehabilitation
of individuals. Both types of program, being multilateral, differ from
the bilateral programs discussed in section B in the significant respect
that the funds of contributing nations are merged, at which point those
nations lose direct control over the expenditures. Thus, in taking ac-
count of the foreign aid extended by other individual free nations, that
part which is given through multilateral channels cannot be precisely
allocated to particular objectives.
This is only partly true, however, of loans extended through the
IBRD. To date, the larger part of economic assistance through the
United Nations system is a function of the IBRD and, in less tangible
ways, of the IMF. There has been much discussion of another instru-
ment for economic assistance within the United Nations of which we
will say more later.
Although all United Nations assistance is regarded in this report as
multilateral, however localized in its application, it does not follow
that all multilateral aid is generated within the United Nations. Sev-
eral intergovernmental organizations outside the system conduct multi-
lateral aid programs; but since their memberships are limited to par-
ticular regions, their assistance activities will be considered in section
D below.
1. Technical assistance “
6
The beginnings of this form of multilateral aid are found in the
work of the International Labor Organization, starting in 1919; and
that of the United Nations Relief and Rehabilitation Administration
in devastated liberated countries after World War II. A resolution of
the United Nations General Assembly in 1948 provided for United
Nations advice on economic development, for fellowships to train tech-
nicians, and for short-term training institutes in underdeveloped
countries. A second resolution called for an international center for
training in public administration.
Meanwhile, the "specialized" agencies were giving technical assist-
ance within their respective fields. Their earlier activities, like those of
the United Nations proper, are now known as the "regular" as distin-
guished from the "expanded" technical assistance program set up in
1950. The "expanded" program is a cooperative instrument of co-
ordination among the United Nations and its specialized agencies.
The technical assistance extended under both headings by the United
Nations itself and by its specialized agencies, as estimated by the De-
partment of State in 1954, is shown in table 9.
Funds for the expanded program have been more than doubled since
1950, amounting to about $29 million for calendar year 1956. It is
probable that in the future no less than 80 percent of technical assist-
ance activities by the organizations included in table 9 (with the
• Cf. "Multilateral Technical Assistance Programs," Staff Study No. 1, Senate Committee
on Foreign Relations, Subcommittee on Technical Assistance Programs, 84th Cong., 1st
sess., March 11, 1955.
1088 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
possible exception of the World Health Organization) will be con-
ducted through expanded program channels.
TABLE 9.—Total expenditures for technical assistance by the United Nations and
its specialized agencies as estimated in 1954
[Millions of dollars]

Agency
United Nations (UN)
World Health Organization (WHO).
Food and Agriculture Organization (FAO)..
United Nations Educational, Scientific and Cultural Organization
(UNESCO).
International Labor Organization (ILO).
International Civil Aviation Organization (ICAO).
International Telecommunications Union (ITU)…..
World Meteorological Organization (WMO)…….
Total.
Regular
program
Expanded
program
1.8
4.4
4. 1
4.7
0.4
3.8
1.0
2.3
0.05
2.0
0.8
0.2
0.1
7.35
18.3
The United States contribution to the expanded program has ranged
from $12 million (60 percent) in the first 18-month period to a pro-
posed $15.5 million for 1956, an amount which, however, carries the
proviso that it not exceed 50 percent of total contributions. The con-
tributions of other countries have varied in the aggregate from about
$8 million to approximately $14.5 million in 1956. The contribution
pledged to the program by each United Nations member for each of
the 5 most recent years is set forth in annex I of the Eighth Report
of the United Nations Technical Committee and is reproduced in this
report in appendix B, table I.
Table 10 shows the contributions pledged to the United Nations
expanded program of technical assistance by a number of selected
countries during the period 1952-55, together with the amounts
that would have represented "parity" with the United States,
i. e., the same contribution as the latter in relation to capacity to
extend foreign aid. Although the United States contributed 56.1
percent of the total over the whole period, the table suggests that 10
other free nations have pledged sums to the program in excess of those
of the United States, if capacity to contribute be used as the criterion.
7
See sec. A of this chapter and appendix A.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1089
TABLE 10.-Contributions pledged by selected countries to the United Nations
expanded technical assistance program for the years 1952–55 compared with
their relative capacities¹


Western Europe:
Total...
Austria...
Belgium.
Denmark.
France.
Italy.
Netherlands...
Norway.
Sweden..
Switzerland……
United Kingdom..
West Germany.
Developed countries of the Common-
Relative
Pledges Percent of
(millions) total
capacity
Parity ex-
to extend
aid
penditures
(millions)
Ratio of
pledge to
United
States con-
tribution
regarded as
par (100)
$20.97
22.2
.09
0.5
0.265
38
1.24
1.7
.901
138
1.53
0.9
.479
32
4.93
7.9
4. 187
118
.48
2.9
1.537
31
2.08
1.2
.636
327
.60
.7
.371
162
1.81
2.1
1.113
163
.92
1.6
.848
108
6 72
10.7
5.671
118
.57
5.8
3.074
19
wealth:
Total..
6.59
7.0
Canada..
4. 55
6. 2
3. 286
138
Australia.
1.49
2.3
1.219
122
New Zealand.
.55
.6
.318
173
Union of South Africa.
.7
.371
United States.
53.00
56. 1
100.0
53.000
100
Rest of world..
13.99
14.7
Total----
94.55
100.0
1 See Appendix A.
The well-advised determination of the Congress to hold the con-
tributions of this Nation to 50 percent of the total compels increases,
percentagewise, in the contributions of others. It is therefore en-
couraging that the pledges of other nations are steadily increasing,
both in their share of the total and in amount. Notable among coun-
tries recently increasing their support are Canada, Belgium, Sweden,
Germany, and the Netherlands. As a group, these nations increased
their pledges by about 22 percent from 1955 to 1956.
The data seem to demonstrate that while the United States is placing
main emphasis upon its own bilateral technical assistance programs,
other free nations are making increasing use of the United Nations
as a vehicle for the technical aid they extend.
1090 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
The nature of United Nations technical assistance.-When re-
quested, the United Nations sends experts to a country to advise;
awards fellowships for training purposes; furnishes equipment for
technical or pilot projects; and in some cases (particularly through the
World Health Organization, in cooperation with the United Nations
Children's Fund), actually supplies material, equipment, and admin-
istration of projects. Illustrations of the last are mosquito and fly
control and the building and equipment of pathological laboratories.
Increasingly, United Nations technical assistance takes the form of
regional and interregional training centers located in the area in which
assistance is being given.
Table 11 shows the relative amounts expended on United Na-
tions technical assistance in particular fields of interest in some major
geographic areas. Agricultural production leads in all areas except
Africa, where health services receive greater support. Health services
involved the second highest costs in Asia and the Western Pacific and
in the Middle East. Assistance to governments in the formulation
and implementation of development plans had high priority, par-
ticularly in Europe and Latin America.
The distribution of expenditures among assisting agencies is shown
in detail for 1955 in appendix B, table III. FAO there appears as
the largest spender, followed in order by the United Nations Tech-
nical Assistance Administration, WHO, UNESCO, and ILO.
TABLE 11.-Percentage_distribution of U. N. technical assistance project costs
by field of activity and region, 1955

Field of activity
I. Assisting governments with the
formulation and implementation
of development plans-basic sur-
veys of resources and building up
of administrative services.
II. Development of public utiities-
power, transport, and communi-
cations.
Africa
Asia and
Western
Latin Middle Inter
Europe America East regional
Pacific
9.7
10.4
18.9
17.4
9.0
2.2
6.5
7.9
3.9
4.9
14.6
III. Industrial production..
3.5
9.7
11.9
7.2
8.5
23.1
IV. Agricultural production.
20.9
25.7
27.8
25. 2
23.0
56.9
V. Auxiliary services to industry and
agriculture..
10.4
7.1
19.0
7.8
4.6
12.5
VI. Health services..
26.2
19.7
7.6
14.5
18.4
3. 1
VII. Education….
12. 2
8.8
6.0
7.5
8. 1
VIII. Community development.
10.2
7.2
2.0
7.3
10.4
0.4
IX. Other social services..
0.4
3.5
2.9
8.2
3.4
1.8
Total...
100.0
100.0
100.0
100.0
100.0
100.0
A significant shift in the distribution among expenditures for ex-
perts, fellowships, and equipment and supplies is indicated by table
12, which compares 3 recent years. A change of emphasis from
experts to fellowships is indicative of progress in recipient countries
and of recognition in experience of the imperative need for competent
personnel in a developing economy. Increased expenditures for
equipment and supplies seem also to reflect the practical needs for
teaching materials and demonstration in the countries to which experts
are assigned.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
1091
TABLE 12.—Distribution of U. N. technical assistance by type of assistance
expenditures

Type of assistance
1953
Experts..
Fellowships...
Equipment and supplies.
Total.
Experts..
Fellowships.
Equipment and supplies...
Expenditures
Number of
individuals
Millions of
dollars
Percent
1, 825
1, 195
13.585
76. 2
2. 532
1.701
14.2
9.6
17.818
100.0
1954
1,652
11. 194
74. 1
1,524
2.540
16.8
1.377
9.1
15. 111
100.0
2, 108
14. 250
66.9
2, 431
4.670
21.9
2.390
11.2
21.310
100.0
Total..
1955
Experts...
Fellowships..
Equipment and supplies.
Total..
Some shifts have also occurred in the geographical distribution of
United Nations technical assistance. That increased assistance is
being given to Asia and the Western Pacific and to Europe (largely
Turkey, Greece, and Yugoslavia) with relatively diminished aid to
Africa, Latin America, and the Middle East is suggested by a com-
pilation of the Department of State (appendix B, table II) which
shows the following percentage distributions of expenditures under
the United Nations expanded program during its initial period and
as programed for 1956:

Africa
Asia and Western Pacific..
Latin America_
Europe
Middle East.
Total
1950-51 Programed
1956
10.7
9.6
34.4
37.4
28. 4
25.2
4.0
6.8
22, 5
21.0
100.0
100.0
Further analysis reveals that 74 percent of the programed 1956
expenditures were in independent countries outside the British Com-
monwealth; 25 percent in British Commonwealth countries and terri-
tories; and 1 percent only in French and Belgian territories, some of
the major of which are in Africa. Unlike the United Kingdom and
other nations of the Commonwealth, France, Belgium, and Portugal
have not welcomed technical assistance to their dependencies, either
from the United Nations or the United States.
Although not its primary function, the International Bank for
Reconstruction and Development has sent survey missions into some
20 areas at the request of governments. These have examined general
economic development problems or special phases of development.
94413-57———70
1092
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
Staff of the bank have helped Ecuador to start its National Board of
Economic Planning, Uruguay to solve agricultural problems, and
Japan to deal with questions pertaining to livestock imports and land
reclamation. They have also assisted in recruiting experts for na-
tional development programs.
During 1955 the bank organized the Economic Development Insti-
tute at its Washington headquarters, with financial assistance from
the Rockefeller and Ford Foundations. The Institute is designed to
meet the need of less-developed countries for managerial improve-
ment in economic development. Its first 6-month course began in
January 1956 with a distinguished international faculty. During
the preceding year the bank provided training to eight persons who
contemplated careers relating to its work. In addition, it arranged
training programs for governmental officials. These activities are
financed out of its regular funds.
The International Monetary Fund, like the International Bank, has
primary functions not directly related to technical assistance. It is
concerned with international exchange, international trade, central
banking, and other related monetary and fiscal matters. It has never-
theless given much technical assistance in connection with these pri-
mary interests. Technical missions have been sent to a number of
countries and training programs for Government officials have been.
arranged. Like the bank, the fund finances all of its own operations,
including its technical assistance.
The United Nations Children's Fund, though not itself providing
technical assistance, cooperates with agencies which do. Thus it
joins with the World Health Organization in many cooperative proj-
ects, for which it may provide transportation of mobile teams, anti-
biotics, and other medical supplies, diagnostic and laboratory equip-
ment, and supplies for fly control.
2. Relief and rehabilitation
8
The original United Nations agency in this field, the United Nations
Relief and Rehabilitation Administration (UNRRA), has been fol-
lowed by four successor and more specialized relief and welfare bodies:
The United Nations Children's Fund (UNICEF), the Intergovern-
mental Committee for European Migration (ICEM), the United
Nations Korean Reconstruction Agency (UNKRA), and the United
Nations Works and Relief Agency for Palestine Refugees in the
Near East (UNWRA). Their expenditures and the major contribu-
tors to their programs are shown in table 13 below. Of the total funds
disbursed in the period 1952-55, the United States contributed 58.9
percent, the free nations of Western Europe 25.2 percent, the Com-
monwealth nations 5.6 percent, and all other nations 10.3 percent.
The percentage distributions by separate agencies are shown in table
14. In both tables 13 and 14 the extremely minute size of contribu-
tions for these humanitarian programs of the United Nations by its
Communist members is especially noteworthy.
The predecessor of the United Nations Children's Fund (UNICEF),
was the United Nations International Children's Emergency Fund,
established in December 1946, to provide emergency feeding, clothing,
and care for children made needy by World War II. In 1950 it
was directed to assist underdeveloped countries in the creation of
8 Cf. House Document 337, 84th Cong., 2d sess., for detailed information.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
1093
maternal and child welfare programs with long-range benefits. In
1953 the change was made to its present name, though the former
initials are usually retained. The contributions shown in table 13
as received in the years 1952-55, totaling some $53 million, do not
include amounts contributed voluntarily by individuals and private
organizations.
TABLE 13.-Contributions pledged to United Nations relief and rehabilitation
programs, 1952-55
[Millions of dollars]

Western Europe...
Austria
Belgium
Denmark.
UNICEF ICEM UNKRA UNWRA
Total
6. 24
32.96
32.90
34.61
106.71
.07
1.84
18
.003
•
2.093
.25
.60
40
.10
1.35
.19
.10
.29
.19
.77
France..
Germany.
1.79
.54
.14
6.67
9.14
.55
10.03
.02
10.60
Italy.
Netherlands.
.27
14. 58
1.69
.09
16.63
.14
4.80
1.05
.08
6.07
Norway..
.18
.06
1.73
.14
2. 11
Sweden.
.77
.19
.32
.19
1.47
Switzerland.
.49
.22
.26
.03
1.00
United Kingdom..
1. 54
26.84
27.10
55.48
Developed countries of the Common-
wealth...
4. 43
11.12
4.69
3.50
23.74
Australia..
1.69
7.78
3.62
1.27
14.36
Canada..
2.04
3.30
.51
1.63
7.48
New Zealand...
.70
.C4
.56
.60
1.90
South Africa.
Middle East….
.43
2.50
.03
12.50
15.46
Asia and Western Pacific.
4.90
.01
.67
5.58
United States.
33.78
24. 48
92.90
97.70
248.86
Communist bloc__
1. 19
.13
1.32
Rest of world, including unidentified con-
tributors..
2.34
5.54
72
12.51
21.11
Total...
53.31
76.60
131.25
161.62
422. 78
TABLE 14.—Percentage distribution of contributions pledged to United Nations
relief and rehabilitation programs, 1952–55, by major areas

UNICEF ICEM
UNKRA UNRWA
Total
Western Europe...
11.7
43.0
25. 1
21.4
25.2
Developed countries of the British Com-
monwealth..
8.3
14.5
3.5
2.2
5.6
United States.
63.4
32,0
70.8
60. 4
58.9
Communist bloc..
2.2
1
.03
Rest of the world ¹.
14.4
10.5
.6
15.9
10.27
Total.
100.0
100.0
100.0
100.0
100.0
1 Including unidentified contributors.
The Intergovernmental Committee for European Migration
(ICEM) is charged with the transportation of migrants and refugees
from certain European countries having surplus population to coun-
tries overseas which offer opportunities for orderly immigration.
Administrative expenses are assessed upon member governments but
contributions to operating expenses are voluntary and include cash,
grants, and credits of various kinds. The United States contributes
relatively less and Western Europe relatively more to ICEM than to
any of the other three United Nations agencies in this group.
1094 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
The United Nations Korean Reconstruction Agency (UNKRA)
was established in 1950 to plan and execute a broad program of relief
and reconstruction. The United States has been by far the largest
contributor and except for the United Kingdom and Australia, other
contributions have been small. UNKRA is now in process of liquida-
tion.
The United Nations Works and Relief Agency for Palestine Refu-
gees in the Near East (UNWRA) was established in December 1950.
Its purpose is to provide subsistence for refugees until it can help them
to become self-sustaining. Substantial contributions have been made
by the United States, the United Kingdom, France, and the Arab
countries of the Middle East. The last of these are reflected in table
14 above in the figure for "Rest of the world."
The contributions of certain other free nations to United Nations
programs for relief and rehabilitation compare favorably with those
of the United States when relative populations and resources are taken
into account. Relative to their capacities to extend foreign aid,
Australia, Italy, Netherlands, New Zealand, Norway, and the United
Kingdom have contributed more to United Nations relief and re-
habilitation programs than has the United States. The relationships
are shown by the following figures:
9

Australia..
Italy..
Netherlands.
New Zealand..
Norway
United Kingdom.
United States.
Amounts
Relative
pledged
capacity to
(millions of
"Parity"
expenditure
Ratio of
pledge to
parity"
extend aid
dollars)
(millions of
expendi
(from table
dollars)
ture
13)
2.3
$14.36
$5.72
251
2.9
16.63
7. 21
231
1.2
6.07
2.99
203
.6
1.90
1.49
127
.7
2. 11
1.74
121
10. 7
55.48
26.63
208
100.0
248.86
248.86
100
3. Economic aid through the International Bank for Reconstruction
and Development (IBRD)
The IBRD was set up to make economic development loans to all
member countries of the world requiring them. It secures its capital
from (a) the required downpayment in United States dollars or gold
of 2 percent of members' total capital subscriptions; (b) further pay-
ments equal to 18 percent of members' total capital subscriptions,
payable in their own currency, but available to the bank only as
released by the subscriber; (c) sale of part of the bank's loans to
investors; (d) sale of the bank's bonds. In all, about one-half of
the money loaned to date has been obtained from investment markets.
As of recent date, 55 members, in addition to the United States,
had paid to the IBRD the required 2 percent of total subscription.
Of these 14 had paid all or part of the 18-percent subscriptions. The
latter are usually not paid to the bank until an effective demand arises
for the currency called for. From its total capital resources the bank
now has outstanding loans totaling slightly more than $1 billion,
or their equivalent, to 32 nations in all parts of the world except the
⁹ See appendix A.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1095
Communist bloc.10 About 8 percent of the total loans now outstand-
ing have been repaid.
The countries from whose 18-percent subscriptions loans were
derived numbered 14, among whom all but two were also borrowers.
Some of the largest loans were extended to some of the more highly
developed and financially strong countries; thus demonstrating the
essential character of this agency as a banking institution, with bank-
ing criteria for its operations. Through it as a medium, nations in
effect may borrow from and lend to each other without regard to
political or sentimental considerations. Loans are made either directly
to governments or to corporations with a government guaranty of
repayment. The economic purposes of loans made have included such
objects as the rehabilitation of highway, telephone, and telegraph
systems in Ethiopia; highway construction in Colombia; and the
expansion of iron and steel production facilities and electric-power
development in India.
About 70 percent of the capital subscriptions made available to the
bank have come from the United States. Western European contri-
butions can be unofficially and roughly estimated at about $35 mil-
lion per year during the period 1952-55, an amount larger than the
area contributed to economic development through any other inter-
national channel. However, loans to European countries have to-
taled considerably more than the European loan funds made available
to the bank.
The International Finance Corporation was formed in July 1956
as an affiliate of IBRD, with an authorized capital of US$100 mil-
lion. As of August 1956, $78.4 million had been subscribed by the
governments of 32 countries. Its basic objective is to further eco-
nomic development by encouraging the growth of private enterprise,
particularly in less developed areas. It proposes (a) to invest in pro-
ductive enterprise in association with private investors, without gov-
ernment guaranty of repayment, where sufficient private capital is not
available on reasonable terms; (b) to serve as a clearinghouse to bring
together investment opportunities and experienced management; and
(c) to help stimulate the investment of private capital, both domestic
and foreign.
The IFC expects in its early years to emphasize investments in
industry. It will not invest in enterprises primarily social in char-
acter nor in operations essentially for the purpose of refinancing.
4. Economic aid through the International Monetary Fund (IMF)
The IMF is an association of nations organized to promote inter-
national monetary cooperation and the expansion of world trade.
Among the ways in which the members of the fund work together
to accomplish these goals are: by promoting exchange stability and
providing a procedure for orderly adjustment of foreign-exchange
rates; by insuring that any major changes in exchange practices will
be submitted to international consultation before being put into
effect; and by working toward the removal of restrictions on current
exchange transactions. On April 30, 1956, there were 58 members
of the fund, an increase of 14 over the number represented at the
Bretton Woods Conference, at which it was created. Fund member-
10 Yugoslavia is the only Communist country holding IBRD membership and is not here
included as a member of the Communist bloc.
1096
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
ship is a prerequisite to membership in the International Bank for
Reconstruction and Development. Each member of the fund is as-
signed a quota, equal to the amount of its subscription. This deter-
mines its voting power and the amount of foreign exchange it may
purchase from the fund. Subscriptions are payable partly in gold
and partly in the member's own currency.
Meetings of the Board of Directors permit continuous consultation
on monetary and exchange matters. Upon request, expert technicians
from the fund's staff advise and assist member countries upon such
questions. By making foreign-exchange resources available, under
proper safeguards, the fund enables its members to meet short-term,
current payment requirements. The foreign exchange is sold to mem-
bers out of currencies held. Normally, such sales in any 12 months are
limited to 25 percent of a member's quota. A waiver sometimes permits
larger purchases and such a waiver for the United Kingdom, as a
result of curtailment of its oil supplies from the Middle East, was
being discussed in December 1956.
D. ECONOMIC AND TECHNICAL ASSISTANCE THROUGH REGIONAL
ORGANIZATIONS
1. The Colombo plan
In January 1950, the Foreign Ministers of the Commonwealth coun-
tries met in Colombo, Ceylon, to consider the needs of the countries of
south and southeast Asia. A Consultative Committee was set up to
survey these needs, to assess the resources available, and to focus world
attention on the development problems of the area. The original
members of the Consultative Committee were Australia, Canada, Cey-
lon, India, Pakistan, and the United Kingdom, together with Malaya
and British Borneo. It was agreed that the Commonwealth countries
in the area should draw up programs for their development, covering
a 6-year period; and that other countries in the area should be invited
to do likewise. 'In the following September in London, the programs
of the Commonwealth countries were reviewed and incorporated in a
report, The Colombo Plan for Cooperative Economic Development in
South and Southeast Asia. Annual meetings have been held since, most
recently in New Zealand in December 1956.
Cambodia, Laos, and Vietnam became full members of the plan
shortly after its inception; Burma and Nepal in 1952; Indonesia in
1953; Thailand, the Philippines, and Japan in 1954. The United
States attended the 1951 meeting as a full member of the Consultative
Committee.
The Colombo plan provides a flexible and convenient framework:
for the exchange of technical assistance among the countries within
a vast and vastly important but underdeveloped region; for contribu-
tions by more highly developed states outside the region to economic
development within it; and for the coordination of the foregoing
assistance activities, both among themselves and with still others de-
veloped through the multilateral channels of the United Nations sys-
tem. The flexibility of the plan is exhibited in the expression describ-
ing it as "coordinated bilateralism." Its convenience and realism are
attested by the support it receives and the general satisfaction with its
operations.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
1097
Capital aid, arranged bilaterally within the Commonwealth, to-
gether with loans from the International Bank and assistance from
the United States and other sources, has provided about one-fourth
of the requirements of the Colombo plan countries for development
within the public sectors of their economies. Such aid has financed
imports of machinery, other equipment for development projects, and
essential consumer goods. Imported commodities like wheat and flour
are usually sold on local markets to provide governments with cur-
rency for employment of their nationals on development projects. The
capital amounts pledged and committed directly under the Colombo
plan have been as follows:
[In millions of dollars]

Australia..
Canada
India.
New Zealand..
United Kingdom...
To overseas territories..
To other countries.
Total..
Pledged
1951-56
Committed
through 1955
76.72
145. 64
61. 15
117.70
18.00
2.52
13. 24
9.56
179.20
160. 16
151.20
140.00
28.00
20. 16
432.80
351.09
Except for minor portions of the funds attributed to the United
Kingdom, all of the foregoing pledges and commitments were in the
form of grants. Presumably not included is an offer by the Canadian
Government to provide an NRX atomic reactor to India. This is to
be a high-powered research and experimental unit of the kind now
in operation in Canada. In accepting the offer, the Indian Govern-
ment has indicated its willingness to allow accredited foreign scien-
tists, including those from other Colombo-plan countries in South
and Southeast Asia, to work with the reactor at the atomic energy
center to be developed.
During the period 1951-56, to which the preceding figures relate,
the IBRD made loans to Colombo-plan countries of $251.9 million
net, of which $106.0 million net had been used by the end of 1955.
Other inputs of capital have been made by private investors or
through semipublic agencies. An example of the second is the Com-
monwealth Development Finance Co., Ltd., incorporated in 1953 with
capital provided jointly by the Bank of England and private business
firms. It has loaned Pakistan $28.0 million for the development of
food production; India, $410,000 to assist in the establishment of the
Industrial Credit & Investment Corp. This corporation, which will
provide financial and managerial and technical assistance to private
industry, also has as subscribers Canada and the United States, and
has an IBRD loan of $10 million.
Technical assistance under the Colombo plan is coordinated by a
council for technical cooperation and by a bureau of technical coop-
eration, the latter a small staff agency in Colombo reporting to the
council. Representatives of the United Nations Technical Assistance
Board, the Government of the United States, the International Bank
and the U. N. Economic Commission for Asia and the Far East
(ECAFE) attend council meetings; the first and second as liaison
officers, the third and fourth as observers.
1098 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
The technical assistance program is designed to supplement capital
assistance under the plan, as well as to supplement the technical as-
sistance activities of the United Nations. Most arrangements for tech-
nical cooperation are made bilaterally. The program envisages ex-
penditures of approximately $19 million over a 7-year period, of which
nearly $10 million had been spent as of June 30, 1955. The largest
contributors (commitments plus expenditures) have been Australia,
$6 million; the United Kingdom, above $5 million; Canada, $1.5
inillion; New Zealand, $1 million; and India, about $0.7 million.
Major elements in the technical assistance program have been the
supply of experts to countries in the region and the training given in
other countries to selected nationals from them. Prior to June 30,
1955, 392 experts were sent to 13 south and east Asian countries and
from them 2,676 trainees were awarded fellowships. To those who
have noted the postwar influx of foreign students to western educa-
tional institutions it may come as a surprise that more than half of
these fellowships were for training in Asia and Australasia. More
than one-third of the trainees (916 of the 2,676) were received in
Australia, a larger number than the 853 who went to the United
Kingdom. New Zealand's quota (226) approached that of Canada
(311), while those trained in India were exceeded in number only by
those going to Australia and the United Kingdom. Of India's 340
trainees, 188 were received from Nepal, 76 from Ceylon, and 26 from
Pakistan.
In spite of the preponderance of outside financial support and the
fact that 95 percent of the experts supplied have been from without
the region, there are clear indications that the conception of intra-
regional cooperation embodied in the Colombo plan is inducing intra-
regional contributions; further, that cooperation and regional self-
help are on the increase. Thus—
Japan is enlarging its Agricultural Research Institute and its
International Student Institute facilities in order to handle more
trainees; has sent 10 experts to Ceylon, India, and Malaya; and
has organized the semigovernmental Society for Economic Coop-
eration in Asia (Asia Kyokai) to organize all matters relating to
technical cooperation which involve that country.
Malaya is providing training facilities in public administra-
tion, agriculture, and other fields.
Pakistan is providing training facilities for 12 to 15 persons
in varied fields.
Ceylon has been host to 12 trainees in the field of cooperative
enterprise, is offering training facilities in nursing and rural
development work, and has furnished one expert in handwriting
to Singapore.
The 14 technical experts supplied by India to its neighboring coun-
tries represent such diverse fields as education, agriculture, engineer-
ing, industry and trade, transport and communications, and finance.
As might be expected, the assistance given to relatively underdevel-
oped members of the Colombo plan by those whose economies are more
advanced has reflected some degree of specialization. Australia has
contributed almost 60 percent of its total for the development of agri-
culture and power, 22 percent for transportation, including equipment
for road construction, and 11 percent for telecommunications and
broadcasting equipment. Canada's aid to Pakistan has been largely
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1099
for irrigation and power, and railroad equipment. Of its $55 million
aid to India, $21 million was for railroad locomotives. New Zealand
has contributed heavily to physical plant for schools and training
centers.
2. The Organization of American States (OAS)
The technical aid program of this regional multilateral system was
inspired by the United States "point 4" and has been developed by the
Inter-American Economic and Social Council, a permanent organ of
the OAS. Its organization and procedures are coherent, reflecting
long association of the American States in the Pan American Union.
Because of the groundwork of association already laid within PAU,
a permanent program of technical assistance could be organized at
high technical and operating levels on a continental or international
basis. While assistance to particular states was being provided by
the United Nations and United States under their programs, the
OAS was in an advantageous position to organize projects in which
several states were joined in a common interest.
When the OAS was created a number of regional organizations were
already in existence in addition to the Pan American Union, which
became its Secretariat. The following have been incorporated in the
system through agreements of affiliation with the OAS:
Inter-American Statistical Institute, Washington;
American International Institute for the Protection of Childhood,
Montevideo, Uruguay;
Inter-American Institute of Agricultural Sciences, Turrialba,
Costa Rica;
Inter-American Indian Institute, Mexico City;
Pan American Institute of Geography and History, Mexico City;
Pan American Sanitary Bureau, Washington, regional office of
the World Health Organization.
The program of technical cooperation, OAS, is controlled by the
Technical Cooperation Board which consists of representatives of these
specialized organs and other American agencies which may be invited.
It reports to the Economic and Social Council, which appoints the
executive director. Projects are initiated by the cooperating agencies.
To date, the program has consisted of 9 projects, 2 of which were for
definite periods and have been terminated; the remaining 7 continued
in operation under the 1956 program.

The completed projects are:
"Workshops on Teaching of Communicable Disease Nursing,
a 6-week seminar in Guatemala City, under the auspices of the
Pan American Sanitary Bureau.
"Training Centers for Directors of the Cooperative Movement,"
carried out by the Pan American Union. This consisted of 3
successive 6-month training courses in San Juan, Puerto Rico,
Bogota, Colombia, and Santiago, Chile.
The seven projects which have continued during 1956 are:
Inter-American Training Center for Economic and Financial
Statistics, at Santiago, Chile, under auspices of the Inter-Ameri-
can Statistical Institute and the Pan American Union.
Inter-American Housing Center, at Bogotá, Colombia, under
auspices of the Pan American Union.
!
1100 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
Inter-American Rural Normal School, at Rubio, Venezuela,
under auspices of the Pan American Union.
Pan American Center for the Evaluation of Natural Resources,
at Rio de Janeiro, Brazil, under auspices of the Pan American
Institute of Geography and History.
Workshops on Administration of Children's Services, at Monte-
video, Uruguay, under auspices of the American International
Institute for the Protection of Childhood.
Technical Education for the Improvement of Agriculture and
Rural Life, at San José, Costa Rica, under auspices of the Inter-
American Institute of Agricultural Sciences. For the purposes.
of this project, America has been divided into three zones, each
with a center which includes an area for demonstration purposes.
The northern zone office is in Havana, Cuba; the Andean zone
in Lima, Peru; and the southern zone in Montevideo, Uruguay.
Pan American Aftosa Center, at Rio de Janeiro, Brazil, under
auspices of the Pan American Sanitary Bureau and the Inter-
American Institute of Agricultural Sciences.
The program is financed by voluntary contributions by member
states. The following pledges, in United States dollar equivalents,
have been announced in the 1956 budget:
Argentina__
Bolivia_-_-
$33, 330 | Honduras__.
7,388 Mexico____
150, 000 Nicaragua-
47, 143 Panama.
$6,000
24, 000
5,000
3, 991
5,000
5, 786
Brazil.
Colombia...
Costa Rica_-_-
3, 571
Paraguay.
Cuba..
17, 143
Peru_
Chile---
34, 452
Dominican Republic___.
Ecuador__‒‒
4,500 Uruguay_.
20, 571
El Salvador__
6, 722 Venezuela.
30,000
United States_
Guatemala---
Total___
1, 914, 237
Haiti__
1,500, 000
7,000
2, 640
The United States contribution of $1.5 million is dependent upon this
being not more than 70 percent of the total contributions.
3. Commission for Technical Cooperation in Africa South of the
Sahara
This Commission, established in January 1950, led to an inter-
national agreement signed in London in January 1954. It includes
the following governments: Belgium, Federation of Rhodesia and
Nyasaland, France, Portugal, Union of South Africa, and the United
Kingdom. Its general functions are, first, to assist in coordinating
technical assistance in territories for which the member governments
are responsible; and, second, to administer the African research fund.
It is financed by voluntary contributions of the member governments
and it operates a small technical assistance program in the area south
of the Sahara.
A subsidiary organization, Scientific Council for Africa South of
the Sahara, composed of distinguished citizens of member States,
has been set up for the coordination of scientific research.
4. Caribbean Commission
This was formally organized by an agreement of October 30, 1946,
between France, the Netherlands, the United Kingdom, and the
United States. It is an advisory and consultative body to study,
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
1101
formulate, and recommend measures which will advance the economic
and social well-being of the 6 million people in 14 nongoverning ter-
ritories within the area, together with the Commonwealth of Puerto
Rico. Its efforts are chiefly concentrated on agricultural, forestry,
and fisheries development, industrial development, housing, and basic
education.
The Caribbean Research Council operates under the Commission's
direction and the biennial West Indian Conference brings together
representatives of the member states and of the administrations of the
territorial governments.
The budget of the Commission is composed of contributions from
the member states. Approved projects may be financed by grants
from the Commission and by contributions from international organ-
izations, local governments, or private enterprises in the territory con-
cerned. Technical assistance programs in some territories are sepa-
rately maintained by member states and by the United Nations. All
the member states support projects of economic development in their
respective territories in addition to those initiated by the Commission.
5. South Pacific Commission
This was established by agreement between Australia, France, the
Netherlands, New Zealand, the United Kingdom and the United
States on February 6, 1947. Its territorial scope comprises-
All those non-self-governing territories in the Pacific Ocean
which are administered by the participating governments
and which lie wholly or in part south of the Equator and
east from and including Netherlands New Guinea.
It studies, formulates, and recommends measures for the development
and coordination of services affecting the economic and social rights
and welfare of the inhabitants, particularly in respect of agriculture,
animal husbandry, communications, transport, fisheries, forestry, in-
dustry, labor, marketing, production, trade and finance, public works,
education, health, housing, and social welfare.
The Commission is served by a research council and is advised by
the triennial South Pacific Conference, which rotates its place of
meeting and which is composed of two delegates each from the local
inhabitants of the designated territories. The Commission itself is
composed of 2 commissioners appointed by each of the 6 member
states. The administrative budget is voted in fixed quotas by the
senior commissioners, who must be unanimous in approving supple-
mentary budgets.
Among the broad functions of the Commission are coordination
of local projects having regional significance, provision of technical
assistance and promotion of cooperation with nonparticipating gov-
ernments. Research publications within the scope of the Commis-
sion's functions have multiplied and some of their recommendations,
as well as other specific programs, are executed by subsidiary bodies
of the Commission. The states members of the Commission, in addi-
tion to the programs under its auspices, provide both technical assist-
ance and economic development in their own territories. Both the
United States and the United Nations have supported technical coop-
eration programs in the territories within the scope of the
Commission.
1102
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
E. ASSISTANCE THROUGH REGIONAL DEFENSE ORGANIZATIONS
Among truly united nations, the mutual defense of some against
others would be a contradiction in terms. In the world as it is, mutual
defense may hopefully be regarded as a stage in progress toward world
order short of the actual international control of armament. In deal-
ing with "collective security" the United Nations Charter (art. 2)
prescribes that all members-
shall refrain in their international relations from the threat
or use of force against the territorial integrity or political
independence of any state
and that the United Nations—
shall insure that states which are not members of the United
Nations act in accordance with these principles so far as may
be necessary for the maintenance of international peace and
security.
The undertaking by all members (art. 43) to negotiate agreements
with the Security Council to make available "armed forces, assistance
and facilities" for that purpose has been frustrated by the Soviet
Union's "veto." This has been partially overcome by a General As-
sembly resolution (377 v, November 3, 1950) which enables that
plenary body to recommend concerted action in the event that the
Security Council cannot reach a decision. The formation of the
United Nations Command in Korea, 1950-53, and of the United
Nations Emergency Force in Egypt in 1956 shows that the principle of
collective security has possibilities even on an ad hoc basis.
In default of the program for collective security provided in the
Charter, the United States and the free world generally have relied,
under article 51, on-
the inherent right of individual or collective self-defense if
an armed attack occurs against a member of the United Na-
tions, until the Security Council has taken the measures neces-
sary to maintain international peace and security.
Regional arrangements consistent with the charter are authorized by
article 52, and a number of multilateral treaties for regional self-
defense have been concluded. All of these are explicit applications
of the above thesis and all provide that an armed attack upon any
of
the parties is to be considered an attack against all of them, each being
obliged to act in accordance with its constitutional processes. The
United States is bound to 43 other states by such treaties:
Inter-American Treaty of Reciprocal Assistance, Rio de Ja-
neiro, September 2, 1947: The geographical region of the West-
ern Hemisphere to which the treaty refers extends from the
North to the South Pole and takes in wide expanses of the At-
lantic and Pacific Oceans adjacent to the North and South Amer-
ican continents.
The North Atlantic Treaty, Washington, D. C., April 4, 1949:
Its geographic scope comprises Western Europe, North America,
islands of the parties north of the Tropic of Cancer in the
North Atlantic, Greece, and Turkey, and the Mediterranean and
North Atlantic Oceans. NATO is articulated with the Western
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
1103
European Union established by the Brussels Treaty of March 17,
1948, as revised by the Paris protocol of October 23, 1954.
Security treaty (ANZUS), San Francisco, September 1, 1951,
between Australia, New Zealand, and the United States.
Southeast Asia Collective Defense Treaty, Manila, September
8, 1954: The "treaty area" is the general region of Southeast Asia
and of the Southwest Pacific, the territories of the Asian parties,
and excludes the Pacific area north of latitude 21'30° N.
Each of these treaties provides for a Council, composed of Min-
isters of Foreign Affairs or members designated by them. The Coun-
cils may meet at any time; but must be convened for the purposes of
the treaties. Except for NATO, however, the machinery established
is somewhat passive and more political than technical, without much
direct relation to the defense policies of the parties.
1. North Atlantic Treaty Organization
The North Atlantic Treaty Organization (NATO) is the most ac-
tive, extensive, and elaborate system of regional self-defense, though
established by one of the shortest of international documents. This
states the determination of member governments to-
safeguard the freedom, common heritage, and civilization of
peoples founded on the principles of democracy and the rule
of law.
The Council of NATO meets at stated intervals and has developed
a number of subsidiary bodies, directed by the permanent representa-
tives of the parties to the treaty, resident at headquarters. Coordina-
tion of their national armed forces, including adoption of common
technical standards, is a prime objective.
The North Atlantic Treaty was signed in Washington, D. C., on
April 4, 1949, by the Foreign Ministers of Belgium, Canada, Den-
mark, France, Iceland, Italy, Luxembourg, Netherlands, Norway,
Portugal, United Kingdom, and the United States. Greece, Turkey,
and West Germany (in 1955) later became signatories. By the time
of the fifth session of the Council in September 1950, it was clear that
military security required the "creation in the shortest possible time
of an integrated military force adequate to the defense of freedom in
Europe." This force, "subject to political and strategic guidance by
the appropriate agencies of the organization," would be under a su-
preme commander supported by a multination staff. In May 1951,
the Council absorbed what were previously the Defense Committee
and the Defense Financial and Economic Committee and became the
sole ministerial body in the Organization. It announced the cre-
ation of a financial and economic board to be located in Paris where
it might utilize certain facilities provided for the Organization for
Economic Cooperation.
In addition to its command of armed forces, NATO has responsi-
bility for the military construction (infrastructure) necessary to sup-
port its command. The common costs, shared on a percentage basis
by all members, include total planned expenditures for infrastructure,
$2 billion; civil and administrative costs at Paris headquarters, about
$4 million in 1955; support of military headquarters staff (not in-
cluding salaries), about $25 million annually; new headquarters build-
ing, about $7 million. It is difficult to place monetary amounts upon
1104
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
other less tangible costs, such as the waiver of taxes normally charge-
able and the land and utilities furnished by a country in which NATO
infrastructure facilities are built.
Nor is it easy to differentiate between national expenditures on be-
half of NATO and expenditures for purely national defensive pur-
poses. It might even be said that the purpose of NATO is to make
these indistinguishable. The summary figures for military aid by
other free nations presented in table 1 (see p. 2) divide the total
of $1,336.4 million for Western European nations during the 4 years
1952-55 into 2 parts: bilateral and regional. Some of the bilateral
and all of the regional ($779 million) can be assumed to apply to
NATO programs.11 The total $1,275 million of military aid from
"developed Commonwealth countries" is wholly attributable to Can-
ada. The Canadian Government estimates that its NATO contribu-
tion through 1957 will approximate $1,418 million. The military
assistance by "other free nations" included in table 1, estimated at
$38.3 million, was also for NATO purposes, made by Turkey and
Greece. Not shown in these figures are military aid contributions
upon which, as indicated above, no precise monetary value can be
attached, made particularly by the United Kingdom and France.
The total contributions of NATO members other than the United
States to its current infrastructure budget approximate 57 percent
of the total; those to its headquarters administrative budget approxi-
mate 66 percent. The separate shares of individual members cannot
be precisely determined, or estimated for any particular year, since
their infrastructure funds are budgeted in "slices" and the distribu-
tion of costs among them is not disclosed. Moreover, Germany's ad-
mission to NATO in 1955 is resulting in a reallocation of costs for
subsequent years.
A conception of the character and breadth of NATO responsibili-
ties and activities can perhaps best be conveyed by the following out-
line of its organization:
The North Atlantic Council: Foreign Ministers, as representa-
tives of member states, with Permanent Representatives as alter-
nates. Rotating Chairman, Vice Chairman (Secretary General)
presiding in his absence, usually meets once, often twice a week,
with authority "in no way altered by the presence or absence of
ministers." Decisions by unanimous agreement.
Council Committee and Working Groups advise Council
on specific matters and recommend appropriate action.
The Military Committee: Supreme military authority
in NATO, under the Council, composed of Chiefs of
Staff. Meets when necessary to give military advice to
Council and direct subordinate military bodies, which
are in permanent sessions. Chairmanship rotates
annually.
Standing group: Chiefs of Staff of United King-
dom, France and United States, or their representa-
tives. Superior body to which Supreme Com-
manders are responsible. Is continuously in session
The figures in table 1 are in part themselves based on the assumptions that NATO
expenditures on infrastructure were approximately $1 billion and that NATO adminis-
trative expenses were constant over the period. The figures in table 1 do not, of course,
include contributions by the United States.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1105
in Washington. Chairmanship rotates quarterly.
Members represent their countries on Military
Representatives Committee and together compose
its executive body. Coordinates and integrates de-
fense plans of NATO commands and Canada-
United States Regional Planning Group, with
appropriate recommendations. Maintains perma-
nent liaison officer with small staff of officers drawn
in rotation from all member nations at Council
Headquarters thus maintaining close cooperation
between NATO civilian and military authorities.
Military Representatives Committee: In continu-
ous session in Washington; composed of representa-
tives of Chiefs of Staff of NATO nations. Author-
ized to deal with many military matters which
would otherwise await full meeting of Military
Committee.
The Military Commands:
European Command-under Supreme Allied Com-
mander, Europe (SACEUR). Headquarters_at_Su-
preme Headquarters Allied Powers, Europe (SHAPE).
Paris.
Atlantic Ocean Command-under Supreme Allied
Commander, Atlantic (SACLANT). Headquarters,
Norfolk, Va. Operational rather than administrative,
and no forces permanently attached. Subordinate com-
manders directly responsible for Western Atlantic Area,
Eastern Atlantic Area, Eastern Atlantic Area (Air),
Striking Fleet Atlantic.
Channel Command-Covers the English Channel and
the Southern North Sea. Two Commanders: "Allied
Commander-in-Chief Channel" and "Allied Maritime
Air Commander-in-Chief."
SACEUR, SACLANT, and the two Commanders of
the Channel Command are responsible for development
of defense plans in time of war; for determination of
force requirements in their areas; and for deployment
and exercise of forces assigned or earmarked to them.
All Command reports and recommendations are
made through Standing Group from which political
guidance obtained. Organized along flexible lines al-
lowing mutual support and rapid shifting of land, sea,
and air forces to meet tactical situations which might
confront North Atlantic Community.
Other Military Agencies receiving guidance and direction
from Standing Group:
Canada-United States Regional Planning Group.
NATO Defense College-Paris (training of individ-
uals needed to serve in key capacities in NATO).
Military Agency for Standardization-London.
Communications Agencies in Europe-London and
Paris.
Advisory Group on Aeronautical Research and Devel-
opment-Paris.
1106 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
The International Staff/Secretariat:
Secretary General-responsible to Council (of which Vice
Chairman); organizes its work; directs the International
Staff/Secretariat.
Deputy Secretary General-shares responsibility over whole
field of work of International Staff/Secretariat.
Division of Political Affairs—(Assistant Secretary Gen-
eral for Political Affairs). Three sections:
Political liaison with Delegations; preparation of re-
ports on political subjects for Secretary General and
Council.
Liaison with other international organizations whether
inter-governmental or not.
Activities connected with strengthening free institu-
tions and economic collaboration (Article 2 of Treaty).
Division of Production and Logistics-(Assistant Secre-
tary General for Production and Logistics). Most officers
specialists in production of major items of military equip-
ment; work coordinated by Review and Liaison Section; In-
frastructure Section is attached. Four main categories of
work:
Technical Services: supply of information to meet
production problems.
Procedures: planning long-term production shared by
Member States.
Participation in Annual Review: analyzing produc-
tion programs and capacities of Member States in rela-
tion to national force programs.
Engineering and financial supervision over infra-
structure program, as agent of Infrastructure Commit-
Division of Economics and Finance-(Assistant Secretary
General for Economics and Finance): plays important part
in Annual Review. Three sections:
Economic Studies: continuous survey of politico-
economic capabilities.
Emergency Planning: supplies of raw materials, pri-
mary products, general commodities.
Costing and Screening: costing of national defense
programs.
Office of the Secretary General-Under direction of Execu-
tive Secretary, who is Council Secretary but responsible to
Secretary General for arranging program of work and see-
ing that action is initiated on Council decisions; supervises
Secretaries of Council Committees; maintains liaison with
the Standing Group Liaison Officer; is responsible for gen-
eral administration of International Staff/Secretariat.
Information Division-Cooperates with national In-
formation Services.
Office of the Financial Controller-Preparation of
the Budget; collection of contributions; disbursements;
maintenance of budgetary and cash accounts; internal
control of expenditure.
Office of Statistics.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
1107
The Communique of the North Atlantic Council, issued on Decem-
ber 14, 1956, at the end of a 4-day meeting, for the first time expressed
concern for a geographical area and a type of aid beyond those of
previous NATO responsibilities. It urged a permanent settlement
between Israel and the Arab States and recognized "the need for ade-
quate support for economic development for the area."
The role of NATO as an agency for the coordination of aid pro-
grams among free nations is discussed in more specific terms in chap-
ter II.
2. Organization for European Economic Cooperation
The Organization for European Economic Cooperation (OEEC)
has developed a role in European economic affairs which in many ways
resembles that of NATO respecting military and defense functions.
Both provide vehicles for mutual assistance among their members
within the same general area. Neither is primarily concerned with
the welfare of other areas. Although members of NATO, the United
States and Canada are "associated" with the OEEC. The types of
activity in which the OEEC engages, however, are even less capable
of summarization in monetary or other quantitative terms than are
those of NATO.
The OEEC was set up under the leadership of France and the
United Kingdom in 1948, initially to allocate funds for a European
recovery program to be supplied by the United States in accord with
the proposals of Secretary of State Marshall. These contemplated
that the program would be developed by the participating countries
themselves. All countries in Europe except Spain were invited to
take part and 14 accepted, with 17 ultimately becoming members of the
permanent organization.
The OEEC members (article 2) continue to "promote with vigor
the development of production, through efficient use of the resources
at their command, whether in their metropolitan or overseas terri-
tories." The Organization finds that many of the economic problems
of postwar Europe must be met "by a combination of international
action, governmental action and action on the part of private individ-
uals and firms in the different countries." Under the rule of unanim-
ity laid down in the OEEC Convention, conflicts of interest between
different countries have "sometimes held up a decision"; but the "at-
mosphere of mutual confidence within the Organization" that this
rule has created "has in many cases eventually assisted in the attain-
ment of agreement." Cited by OEEC in this respect are "the alloca-
tion of American aid during the Marshall plan period, the institution
of the Code of Liberalization of Trade and the drafting of the Euro-
pean Monetary Agreement which is to come into force when monetary
convertibility is reestablished."
Speed as a fundamental characteristic of OEEC's method of work
is emphasized: "As the governments participate directly in all de-
cisions, from the drafting stage onwards, it takes no longer to finalize
a project than it does to shape a national decision. Once taken, the
decision becomes binding on all the member countries and has the
force of law." Thus are incorporated "within the European frame-
work national policies which might otherwise find themselves at
variance with each other."
94413-57————————71
1108 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
Among the more important subordinate agencies established by the
OEEC are the European Payments Union (1950) and the European
Productivity Agency (1953). The first "acts as a clearinghouse for
the settlement of all visible and invisible transactions between each
metropolitan country of Western Europe which is a member ***
and all other member countries, their overseas territories, and the
countries which are associated with them in the matter of currency."
The second "undertakes and promotes measures tending to the accept-
ance and adoption of the best and most modern techniques, and to the
removal of factors limiting their adoption." In addition, OEEC
maintains an elaborate series of "working parties" and committees
both "horizontal" and "vertical." Among the latter are committees
responsible in each case for the study of production and trade in a
given raw material, basic product or service, and for following the
trends of development therein.
The work of the OEEC has provided essential foundations for a
closer union of the nations in Western Europe. It is the best illustra-
tion known to us of the type of regional self-help which we suggest
as a goal of United States assistance programs in a later chapter of
this report.
3. Inter-American Treaty of Reciprocal Assistance
The Inter-American Treaty of Reciprocal Assistance, first of the
regional defense pacts above noted to be established (1948), created
an Organ of Consultation to "characterize aggression" and designated
the Meeting of Consultation of Ministers of Foreign Affairs to serve in
that capacity. An armed attack upon a member calls without delay
for a Meeting of Consultation and a simultaneous convocation of
the Council of the Organization, its plenary body composed of the
same members. The Organ of Consultation is assisted by the Advisory
Defense Committee, which has a permanent staff and which informs
the former on "problems of military cooperation that may arise in
connection with the application of existing special treaties on collec-
tive security."
The Inter-American Defense Board, charged with planning the
collective defense of the Western Hemisphere, has numerous im-
portant defense assignments. It visits military installations in all
member countries; arranges meetings and deliberations of military
experts; studies complex questions of transportation, communication,
intelligence, and terminology; and as its major task perfects the "Gen-
eral Military Plan for the Defense of the American Continent."
4. Southeast Asia Treaty Organization
The Southeast Asia Treaty Organization (SEATO) grew out of
the treaty previously mentioned and came into force February 1955,
with eight member countries: Australia, France, New Zealand,
Pakistan, Philippines, Thailand, the United Kingdom, and the United
States. Three of these-Australia, New Zealand, and the United
States-which earlier (1951) had adopted a security treaty (ANZUS)
among themselves, seem largely to have merged their mutual defensive
interests within SEATO, as a later and wider instrument.
In the treaty creating SEATO-
The parties undertake to strengthen their free institutions
and to cooperate with one another in the further develop-
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1109
ment of economic measures, including technical assistance,
designed both to promote economic progress and social well-
being and to further the individual and collective efforts of
governments toward these ends.
This promise was repeated in slightly different language in the
"Pacific Charter" proclaimed at the signing of the treaty:
they will earnestly strive by every peaceful means to promote
self-government, and to secure the independence of all coun-
tries whose peoples desire it and are able to undertake its
responsibilities; they are each prepared to continue taking
effective practical measures to insure conditions favorable to
the orderly achievement of the foregoing ***; they will
continue to cooperate in the economic, social and cultural
fields in order to promote higher living standards, economic
progress, and social well-being in this region.
Staff of SEATO have discussed possibilities of standardization,
methods of military training, and problems of military equipment.
Officers and cadets from SEATO countries have received training in
the United Kingdom and the United States. Military advisers assist
the SEATO Council on measures for common defense and through
subcommittees make plans to resist potential aggressions against mem-
ber states. In addition, advice has been received from committees of
security experts, economic experts, and experts on information, cul-
tural, educational, and labor affairs. In these functions, United
States representatives take an active part.
To date no economic aid has been administered by the SEATO
Council, although there has been some discussion of pooling economic
aid through the Organization, in accordance with the conception of
"defense support." Outside the strictly military field, the only sig-
nificant economic aid has been proffered on a bilateral basis by Aus-
tralia, which has indicated the availability of equipment and supplies
valued at some $4.5 million which it is willing to furnish to the South-
east Asia nations under bilateral agreements. As far as can be learned,
only one-half this amount has been definitely allocated. Apparently,
the French also have contributed some cultural and educational
assistance.
It is understood that the military contributions of members have
been bilateral. Thus military assistance has been given by the United
States to Pakistan, the Philippines, and Thailand, in the form of free
equipment, financial assistance in meeting defense costs, and training
of personnel in the United States and in their own countries. Officer
cadets from Thailand have also attended military schools in France.
The United Kingdom, too, has trained military personnel from the
treaty area.
A weakness of SEATO appears to reside in the absence from it of
several important nations within its area. One consequence is that
arrangements for a permanent secretáriat have not been made. The
SEATO secretariat is now lodged in Bangkok under an official of
the Thai Ministry of Foreign Affairs.
5. The Baghdad Pact
The Baghdad Pact is in a different category than the regional de-
fense organizations previously discussed, so far as the United States
1110
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
is concerned. Its members are the United Kingdom, Turkey, Iran,
Iraq, and Pakistan. The United States, which is generally understood
to have suggested the pact, is not a member but belongs to two of its
committees: the Counter Subversion Committee and the Economic
Committee. There is no infrastructure budget, such as that of NATO.
All aid going into the treaty area is on a bilateral basis. The United
States has 5 officer observers in Baghdad and 7 civilians in the secre-
tariat of the committees to which it belongs.
To date, no outright economic assistance or assistance of "defense
support" types has been given under this pact. However, the Eco-
nomic Committee has made studies of measures for pest control
and standardization of road signs. A report from Paris on Decem-
ber 16, 1956, by William H. Stoneman of the Chicago Daily News
Foreign Service, asserts that, as a sequel to the December meeting of
the North Atlantic Council of NATO-
it is hoped that the character of the Baghdad Pact can be
altered from that of a military grouping into a much larger
grouping designed primarily to promote economic develop-
ment.
Behind the pact lies implicitly the support of American military
power; and this undoubtedly gives weight to the efforts of United
States representatives to secure through the pact an effectively co-
ordinated defensive cordon against threats to the area of aggression
from the north.
CHAPTER II
EXISTING RELATIONS AMONG AID PROGRAMS OF FREE
NATIONS
Chapter I has described and summarized the foreign aid extended
by other free nations, much of which is channeled through multilateral
and regional organizations. To examine the relations among these
programs requires attention also to the foreign assistance activities of
the United States.
This country has concluded military pacts and alliances, collectively
or bilaterally, with sovereign nations in all areas where its defensive.
interests seemed involved. Their military aspects and the assistance
extended under them are intermingled with political, economic, and
social considerations. The importance for mutual defense of advanc-
ing the economic and social well-being of peoples within these security
systems has been continuously recognized. The form of assistance by
this country has consequently varied with circumstances. Exchanges
of military information have sometimes been mutually useful. When
the equipment of armed forces has seemed essential, more tangible aid
from the United States has been invoked. The United States supports
the structure of regional defense in accordance with quota schedules,
but at the same time it often extends assistance to its treaty partners
on a bilateral basis. Through flexibility it seeks to encourage the
maximum cooperation by countries whose defensive interests are more
narrowly limited than our own. Armament is a substantial factor in
the total cost but large amounts have been expended for "defense
support," infrastructure, and economic aid to allies.
Pacts for mutual defense have not replaced support by the United
States of the United Nations and the United Nations system of
specialized agencies. Such support is a cardinal tenet of American
foreign policy and it necessitates our participation in the multilateral
aid activities of these organizations. The free world, with the United
States as its foremost member, is thus bound together by interlocking
arrangements for assistance to members needing it, in the interest
of all.
The general problem here considered is the extent to which these
arrangements are consistent with and reinforce each other. In chap-
ter V we will examine the possible desirability for the United States
of altering its participation, or the degree of its participation, in par-
ticular programs of seeking a greater or lesser degree of coordinated
effort with some of them.
A. MUTUAL AID IN EUROPE AND THE NORTH ATLANTIC
As indicated in the last section of chapter I, NATO and OEEC,
with material and moral support from the United States, have helped
to lay practical foundations for types of relationships among the free
1111
1112
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
nations of Western Europe which have long been the dream of
enlightened statesmen of that Continent. To the extent that the
United States and Canada have participated in building these founda-
tions, the "North Atlantic Community" has become a reality; but a
more significant evolution has taken place within the Western
European region itself.
The Council of Europe was created in 1949 by Belgium, Denmark,
France, Ireland, Italy, Luxembourg, the Netherlands, Norway,
Sweden, and the United Kingdom, with the aim of achieving—
a greater unity between its Members for the purpose of safe-
guarding and realizing the ideals and principles which are
their common heritage and facilitating their economic and
social progress.
Its active headquarters at Strasbourg, under the direction of the Com-
mittee of Ministers, guides the work of 6 committees which have pro-
duced 8 conventions in working toward this aim. Its representative
Consultative Assembly works with the Common Assembly of the
supranational European Coal and Steel Community, established be-
tween West Germany, Belgium, France, Italy, Luxembourg, and the
Netherlands, with the United Kingdom as an associate.
The Coal and Steel Community has become the motivating center
of economic coordination looking to a European "common market."
It works with all European economic bodies, and its Common Assem-
bly was the laboratory which in 1952 produced the European Defense
Community. This was intended to consist of common institutions,
common armed forces, and a common budget to support them, for
West Germany, Belgium, France, Luxembourg, and the Netherlands.
These agencies and mechanisms have been supported by the United
States. The Mutual Security Act of 1952 states that-
The Congress welcomes the recent progress in political fed-
eration, military integration, and economic unification in
Europe and reaffirms its belief in the necessity of further vig-
orous efforts toward these ends as a means of building
strength, establishing security, and preserving peace in the
North Atlantic area.
The act authorized provision of funds to any of the following organ-
izations: (a) NATO, (b) the European Coal and Steel Community,
(c) the organization which might evolve from current international
discussions concerning a European Defense Community. The Mutual
Security Act of 1954 authorized transfer of equipment and materials
to any state that had ratified the treaty constituting the European
Defense Community and was developing a collective defense program.
The failure of the treaty for the European Defense Community
brought the United States directly into negotiations for a substitute.
The substitute was found by reverting to the 1948 treaty of economic,
social, and cultural collaboration and collective self-defense between
the United Kingdom, Belgium, France, Luxembourg, the Netherlands
and later West Germany and Italy, by which was created the Western
European Union. The Council of this body functions continuously,
establishes subsidiary bodies and in particular an Agency for the Con-
trol of Armaments. The armed forces of the Western European
Union are under the Supreme Allied Commander for Europe of
NATO, and are suitable for assimilation to NATO forces.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
1113
Accretions to NATO or peripherally associated with it are not at an
end. The atoms-for-peace program of the United States finds a ve-
hicle in the European Organization for Nuclear Research, which is
supporting an international laboratory at Geneva under a convention
of 1952 among 10 European nations. Its research will be of a purely
scientific and fundamental character "with no concern for military
requirements." In May 1956 the Common Assembly of the European
Coal and Steel Community proposed a European Atomic Community
(Euratom) for the rapid, flexible, well-ordered and long-range
development of atomic power for peaceful endeavors. Negotiations
begun in September look toward the creation of an organization to
operate in cooperation with OEEC, the Council of Europe and the
International Atomic Agency of the United Nations, under a com-
mission with powers parallel to those of the United States Atomic
Energy Commission.
In the light of these developments NATO has recently sought to
reappraise its functions. Its qualitative organization as a military in-
stitution is high; though its quantitative production of unified forces
has lagged behind the blueprints, more particularly in respect of
ground forces. In December 1956 the Council considered investing
its directorate with some political as well as military authority. Un-
der discussion were closer liaison with the Council of Europe and the
establishment of economic cooperation with the OEEC and its two
offspring, the European Payments Union and the European Produc-
tivity Agency, also with the European Coal and Steel Community and
the projected European Organizations on Nuclear Energy and Com-
mon Market.
The United States Government is independently in touch with all
these bodies through the United States Mission to NATO and Euro-
pean Regional Organizations (USRO) which succeeded the Special
Representative in Europe. The head of the USRO team is the per-
manent representative of the United States on the NATO Council and
is responsible to the Secretary of State. The Secretaries of Defense
and Treasury and the Director of the International Cooperation Ad-
ministration are represented by advisers to the mission upon relations
in their fields. The mission has a representative to the Ministerial
Council of OEEC and it maintains contact and relations with all the
multilateral or supernational organizations of Europe.
Among these organizations, NATO, because of its system of affilia-
tions, its responsibilities for defense, its resources, the relative per-
fection of its organization and the direct participation in its adminis-
tration of the United States and Canada, seems likely to become and
to remain for some time the most effective existing agency for overall
coordination. A detailed appraisal of its present effectiveness in this
role would require an extensive study in which we have not engaged.
Under Lord Ismay, who was appointed Secretary General on March
12, 1952, it appears to have gained general recognition as a coordi-
nating mechanism. Paul-Henri Spaak, appointed to succeed Ismay
in December, 1956, is expected to maintain NATO's reputation for
efficiency and to extend the breadth of its coordinating responsibili-
ties. This would accord with policies of the United States expressed
in the Mutual Security Act.
In a carefully worded and possibly inspired article by Kenneth
Miller datelined from Paris and appearing in the Wall Street Jour-
1114 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
*
nal of December 21, 1956, "American officials" are quoted as saying
that they will "put a high premium on 'coordination' among European
NATO members to insure the most practical use of American help.
The idea will be to try to avoid expensive and unnecessary duplica-
tion." Defense Secretary Wilson is quoted as saying "Countries in
the best position to proceed" with producing a given weapon "should
do so; but they should also welcome participation of other nations
** through subcontracting and licensing." Mr. Miller continues:
"Still another effort at closer collaboration among the NATO partners
is taking shape under wraps here. It's the idea of a fund financed by
member nations 'according to their ability' to be used on projects too
expensive for a smaller NATO member to undertake alone.' A 24-
hour radar warning screen, evaluating centers, and fast communica-
tions in Norway are cited as an example of a possibility too expensive
for Norway to provide from its own resources but which "would pay
dividends for the whole alliance.”
""
Although these suggestions fall within the scope of mutual defense,
the particular province of NATO, they could scarcely be effectuated
without drawing the other organizations of Western European coop-
eration into closer operating relationships.
B. COORDINATION WITHIN OTHER REGIONAL AID PROGRAMS
Little can be added to the descriptions given in chapter I of
SEATO, ANZUS, and the Baghdad Pact and Inter-American De-
fense arrangements to indicate their effectiveness as coordinating
mechanisms. Perhaps this could be fully disclosed only by the ap-
pearance of emergencies which they were created to prevent. Their
primary responsibilities are defensive in a military sense. The Car-
ibbean Commission, the South Pacific Commission, and the Commis-
sion for Technical Cooperation in Africa South of the Sahara, while
devoted to economic development, have until now been relatively
inconspicuous in their activities and achievements. We have no reason
to doubt their value or the success of their coordinating functions
within the limited scope of their activities.
Notably successful in our judgment have been the efforts of the
Organization of American States and the members of the Colombo
plan to achieve effective relationships among the separate activities.
which are furthering economic and social development within their
regions. Together with the instruments for European cooperation
previously described, they demonstrate in many ways the increased
value to all when separate but related projects are made to reinforce
each other. They also demonstrate the value, in our opinion, of a
regional approach to programs of economic and technical as well
as military assistance. We shall amplify this opinion below.

C. COORDINATION OF MULTILATERAL TECHNICAL ASSISTANCE
United Nations mechanisms and procedures for coordinating tech-
nical assistance to underdeveloped countries have been adapted to
an unusual variety of interests entitled to consideration. These in-
clude the national governments extending and receiving aid and the
international specialized agencies in particular fields, such as labor
(ILO), health (WHO), and agriculture (FAO). The specialized
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
1115
agencies themselves represent member governments, not all of which
have been members of the United Nations but some of which are
members of such regional organizations for technical and economic
assistance as the Colombo plan and of such regional defense bodies
as NATO. Some of the specialized agencies (e. g., ILO) have pro-
grams of technical aid that are older than the United Nations itself.
It is clear that problems of coordination may arise not only at field
operating levels but with respect to a variety of national and interna-
tional interests.
When the United Nations expanded program of technical assistance
was launched, its operations were placed within the Technical Assist-
ance Administration (TAA). This administers United Nations activ-
ities related to economic development, social affairs, human rights,
and public administration, in cooperation with the United Nations
specialized agencies. The seven of these which participate in the
expanded programs are: the International Labor Organization (ILO),
the World Health Organization (WHO), the Food and Agricultural
Organization (FAO), the International Civil Aviation Organization
(ICAO), the Educational, Scientific and Cultural_Organization
(UNESCO), the International Telecommunication Union (ITU)
and the World Meteorological Organization (WMO).
وو
The costs of expanded program administration are carried in part
IX of the United Nations budget for "technical programs.' The
operating funds, which are distributed among the participating spe-
cialized agencies, are pledged by United Nations member states at
a "pledging conference" in October each year, under the aegis of
the United Nations General Assembly's Negotiating Committee for
Extra Budgetary Funds. Broad supervision is maintained by the
Assembly's Administrative Committee on Coordination (ACC), com-
posed of the United Nations Secretary General and the Directors
General of the participating specialized agencies.
Two new instruments of coordination for the expanded program
were established: The Technical Assistance Board (TAB) is com-
posed of representatives of the seven specialized agencies that have
been named, under a chairman designated by the United Nations
Secretary General. The International Bank for Reconstruction and
Development (IBRD) and the International Monetary Fund (IMF)
participate in TAB as observers but do not receive funds from the
expanded program. The Technical Assistance Committee (TAC)
is composed of the governments currently serving upon the 18-member
Economic and Social Council.
TAB has immediate responsibility for proposing allocations from
the operating fund to the specialized agencies in accordance with
the overall program that it compiles. Its decisions are usually reached
by general agreement. If no agreement is reached, the matter may
be referred to the TAC, by which, in principle, it may be referred
to the Economic and Social Council and thence to the General Assem-
bly. TAB has resident representatives in 45 countries. They are
expected to provide administrative service and orientation for the
field representatives of the specialized agencies and to help pull related
projects together through direct contacts with the foreign offices or
other ministries concerned in the recipient country. They have the
main United Nations responsibility in the field for coordinating the

1116 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
expanded program of technical assistance with the bilateral programs
of the United States or any other nation.
The way in which the overall U. N. program of technical assistance
is developed can best be described by the following outline:
Formulation of U. N. Technical Assistance Program by Calendar Year
1st quarter: TAB-formulates country target programs
(worked out on basis of country's needs as presented by U. N.
resident representatives).
2d quarter: U. N. Resident Representative transmits target
to recipient government, consults with government and Specialized
Agencies on program formulation.
Requesting Government-determines program, formulates re-
quests, establishes priorities in consultation with Resident Repre-
sentative and Specialized Agency representatives.
to
3d quarter: U. N. Resident Representative-transmits requests
TAB-which compiles total program and recommends alloca-
tions to cooperating Specialized Agencies.
4th quarter: TAČ-reviews and approves programs, authorizes
allocations to agencies.
General Assembly-confirms allocation to agencies.
Pledging Conference-Governments pledge funds to support
recommended program.
"In
The United States has its own technical aid program and is simul-
taneously the largest contributor to that of the United Nations. Co-
ordination between them is a matter in which the governments of
recipient countries have a primary interest and it thus takes place
largely "in the field." In many countries a system of committees has
been developed to supplement informal conferences between United
States and United Nations mission chiefs. Particular projects are
tentatively assigned to whichever organization can handle them most
easily and effectively, with the final decision resting with the recipient
government. However, direct consultation looking toward coordinated
efforts between United States and United Nations officials at top levels
of program administration have also been developed. By agreement
no project will be undertaken on either side without the exchange of
information between United Nations and International Cooperation
Administration Headquarters.
The following chart portrays the relationships through which
coordination takes place between United Nations and United States
Headquarters and in the field, together with the lines of administrative
responsibility of each:
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1117
U. S. AND U. N. COORDINATION OF TECHNICAL
ASSISTANCE PROGRAMS
ICA
Washington
HEADQUARTERS COORDINATION
TAB-U. N.
New York
1. Consultation
2. Exchange of documents
3. Parallel instructions to field
Director
U. S. Mission
ICA
Ministries
Agriculture.
Health__
Education.
Other_..
FIELD COORDINATION
RECIPIENT GOVERNMENT
U. N. Resident
Representative
U. N. Specialized
Agencies
FAO
WHO
UNESCO
Other
D. COORDINATION OF UNITED STATES AND OTHER AID
PROGRAMS IN THE FIELD
Responsibilities for the coordination of United States assistance
with that of multilateral organizations and other nations rest heavily
upon the chiefs of diplomatic missions and their staffs. It involves
many negotiations through ordinary diplomatic channels, together
with related contacts with military and civilian officials. The process
can be observed most easily in the case of technical and economic
assistance, in part because "technical cooperation" had its origins in
the United States, receiving its first formal expression in point 4 of the
President's inaugural address in 1949.
Bilateral technical cooperation by the United States with other
countries operates as a result of general and specific agreements be-
tween the governments. Provision is made in each of the other coun-
tries for a resident United States Operating Mission (USOM), which
is under the direction of the chief of the diplomatic mission and is
often manned by its officers. In consequence, the customary lines of
diplomatic intercourse are utilized in the development of programs.
•

1118
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
The two governments "undertake to cooperate" and will "consult,
upon the request of either of them," on the application of the general
agreement to particular projects. The agreement is sometimes sup-
plemented by the establishment of a joint commission for the economic
development of the recipient country.
* * *
Projects are broached in relations between the USOM staff and the
interested government and cleared with the chief of the diplomatic
mission before transmission to the Department of State for consider-
ation by its International Cooperation Administration (ICA). The
Americans on the ground must satisfy themselves that the project will
contribute in a constructive way to the welfare of the recipient coun-
try, is within the proper scope of American activity, and is appropri-
ately coordinated with other projects under way or contemplated.
Thus in May 1952, a joint State-Mutual Security Agency airgram
to diplomatic and consular officers called for coordination in the field
between United States and United Nations technical assistance pro-
grams.¹ United States representatives were asked "to support
by all appropriate means" the undertaking of useful and feasible
projects within the United Nations system "whenever recipient gov-
ernment so desires." Further, they were instructed "to prevent either
system from starting similar projects or programs in a specific field."
The stated purpose was "the development of working cooperation in
which we shall do everything possible on our side to promote both
in planning and in operations the best use of total available resources."
An informal working group was recommended for "bringing to-
gether at regular intervals the recipient government interest, the
United States interest, and the United Nations agency interest, for the
discussion of requests and program proposals for technical assistance."
The recipient government should "be itself so organized as to present a
single point of contact to outside sources of assistance. In some gov-
ernments an interministerial committee is functioning for this purpose.
In others a special ministry has been created."
The working group so recommended is typically composed of the
appropriate representative of the recipient government, the designated
United States representative (now the chief of USOM) and the resi-
dent representative of the United Nations Technical Assistance Board
(TAB). It was suggested in the airgram that consultative groups in
specialized fields, such as health, should similarly have tripartite
representation. To such groups should be added representatives of
any other suppliers of technical assistance in the area, such as the
Colombo plan, the Organization of American States, United Nations
agencies other than the Technical Assistance Board, and private
agencies such as the Ford, Near East, and Rockefeller Foundations.
The United States instructions emphasized further:
To insure the necessary minimum of consultation, it is re-
quested that henceforth proposed requests for experts and
training grants and the substance of significant proposals for
technical asistance be discussed with the U. N. TAB resident
representative or appropriate U. N. agency official if one is
available in the country concerned.

It
¹ At that time the United States program was partly under the Mutual Security Agency
and partly under the Technical Cooperation Administration, Department of State.
has since been consolidated in ICA, to which the 1952 instructions still apply.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1119
Consultation, the airgram continued, should be early, before a pro-
posal is submitted to Washington, and an explanation was required
if such discussion had not taken place.
Cognate instructions to United Nations officials also require their
efforts toward coordination in the field. On neither side are con-
sultations to be regarded as clearance or approval of projects, but the
comments on the other's proposals are to be reported to their respective
headquarters. The ultimate aim—
is the development by the recipient government concerned,
after consultation with United Nations and United States of-
ficials, of a general statement of program proposals encom-
passing technical assistance needed from all sources.
Programs of technical cooperation have resulted in many countries
in the formulation of general plans of development. These have not
reduced the number of requests for aid, but have permitted requests
to fall into more distinct patterns, with cumulative effects on the de-
velopment of the country or area concerned. The relationship of par-
ticular projects to the recipient's whole program is an increasing factor
in appraising requests, and a constant criterion in the field for recom-
mending favorable consideration of projects.
Nonproject types of economic assistance are conceived and handled
in a somewhat different manner than projects, both in the field and by
the ICA in Washington; but the essential processes of coordination
are similar.
E. FACTORS NOW MAKING FOR EFFECTIVE COORDINATION
Possibilities of substantial duplication or overlapping between the
existing aid programs of the United Nations and the bilateral assist-
ance activities of the United States exist only in the area of technical
assistance. The relations of the United States to its allies under
mutual security pacts involve quite different problems of coordina-
tion. Nevertheless, similar factors in both situations have contributed
to the degree of successful coordination achieved. Five of these will
be noted.
(1) A number of formal coordination mechanisms already in being
or created for the purpose are utilized, among them the Foreign Serv-
ice of the United States. Others include the Technical Assistance
Board of the United Nations, through which the expanded program
of technical assistance is administered; the consultative committee of
the Colombo plan, whose meetings the United States attends as an
associate but with the privileges of full membership; the regional
economic commissions of the United Nations, in whose meetings the
United States is represented; and the Economic and Social Council
of the Organization of American States, with a Secretariat perma-
nently located in Washington.
(2) Our Government insists upon coordination by those to be as-
sisted. Responsibility for allocations of "Marshall plan" aid was fixed
upon the nations which were to receive it. Consultation among them
produced the OEEC as the agency to make the allocations. With
modified functions the OEEC remains as a "permanent coordinating
body," with procedures of coordination that have been carried over
1120 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
into several other assistance programs. Thus the conceptions of coop-
eration and coordination which inspired the Colombo plan are essen-
tially similar to those which evolved in the OEEC.
(3) Assistance programs originate in the field, rather than at head-
quarters of the country or organization extending the aid. It is recog-
nized that a headquarters staff cannot easily take into account all of
the actual conditions which affect field operations; further, that related
operations should be intermeshed in the field, both when they are
planned and as they are carried on.
(4) Informal habits and patterns of consultation concerning proj-
ects sponsored from different sources have developed in the field.´ In-
formal coordination of this type is often the most effective. Formal
procedures cannot replace the sincere efforts of responsible project
leaders to cooperate for common objectives.
(5) Interlocking directorates of aid programs facilitate the ex-
change of information and the uncovering of potential relationships
among them. Members, deputies, associates, delegates, and observers
participate in the work of councils, boards, commissions, conferences,
congresses, working parties and delegations. Full and formal mem-
bership in such bodies is often less important in determining the actions
they take than the opportunities for mutual understanding and coop-
eration that they provide. The role of the United States within and
among them illustrates the point. The occasions on which this country
does not in some manner participate in their deliberations are so
exceptional as to arouse comment. The recent Bandung Conference
of Asiatic and African nations was widely noted as such an exception.
The United Nations and the United States have representatives at
meetings of the Consultative Committees of the Colombo Plan, look-
ing toward cooperation among them. The agreements establishing the
Caribbean and South Pacific Commissions have identical articles stipu-
lating that each-
while having no organic connection with the United Nations,
shall cooperate as fully as possible with the United Nations
and with appropriate specialized agencies.
The ILO Committee of Experts on Social Policy in Nonmetropolitan
Territories collaborates with the regional Commission for Technical
Cooperation South of the Sahara. The International Statistical In-
stitute, an autonomous scientific and professional body of elected indi-
vidual members, has joined with UNESCO and with European,
Asiatic, and Middle Eastern governments in providing centers for
statistical education in Calcutta and Beirut. The Pan American
Union, the Inter-American Statistical Institute and the Government
of Chile have joined in establishing a center for training in economic
and financial statistics at Santiago.
These are only a few of the many such arrangements that are seeking
through united and coordinated effort to make the most effective use
of available resources to provide technical aid where it is needed.
CHAPTER III
LESSONS FROM THE EXPERIENCE OF OTHER FREE
NATIONS
The circumstances leading to the economic and technical assistance
programs of other free nations have not closely resembled those affect-
ing the United States. In general, aid by European countries is con-
centrated upon their dependent territories or upon nations within their
traditional spheres of political influence. When these dependencies
were acquired by discovery, conquest, or the leverage of power—the
motives were those of exploitation. The relationships of these suze-
rain powers to their present or former colonies have changed; but not
uniformly. By their programs of assistance the donors hope-as do
we-for an enhancement of their national interests; but there are wide
differences among them in their expectations of immediate benefits to
themselves.
At one extreme, assistance to territorial peoples is intended for the
direct benefit of the home country and its industries. Concern for the
welfare of the former is secondary. At an opposite extreme, best
illustrated by the United Kingdom, the donor country considers its
best interests to be served by programs leading to increasing self-gov-
ernment in the territories and their eventual partnership with the home
country. Between these are countries which assume a more parochial
attitude than the United Kingdom, but realize that improvement in
local living and working conditions is essential if they are to continue
to benefit from territorial resources.
The colonial development schemes now being carried out by a num-
ber of European powers are, like the economic and technical assistance
programs of the United States, of fairly recent origin. The limited
experience gained from them thus far seems to justify expectations,
but also emphasizes the need for frequent reappraisal of methods, of
economic results and of the effects in shaping the ideas of territorial
peoples. Some programs have been drastically revised because the
original diagnosis did not take account of such factors as the attitudes
of the people and the availability of labor.
The types of development programs have had to vary according to
practical possibilities, in particular the resources available. To select
examples from Africa, French Somaliland has very limited resources
and its chief value is as a port of entry for Ethiopia.¹ Programs in
this colony have perforce been limited to small improvements in food
production and the development of limited resources in other fields.
There is not much hope for a well-balanced viable economy. On the
other hand, the Belgian Congo has almost unlimited resources and
1 Development Programs in Africa South of the Sahara, Staff Study No. 8, Senate
Committee on Foreign Relations, Subcommittee on Technical Assistance Programs, 84th
Cong., 2d sess., November 23, 1956. Following paragraphs make considerable use of
material in this study.
1121
1122 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
requires only economic know-how and capital for development. The
Belgian Government spends no money for grants, because the colony
can pay its own way.
In view of the great number of variables affecting economic develop-
ment, generalization is difficult. However, the following lessons from
European experience would seem to have importance for the United
States:
(1) Agreement on an overall development plan, based on a realistic
appraisal of the available human and physical resources, is essential.
A realistic appraisal often indicates that in the early stages of develop-
ment (a) ordinary budgets must be supplemented by grants in order
to maintain the minimum social services of health, education, and
welfare, basic to development; and (b) budgets for basic construction
of roads, schools, docks, power facilities, etc., must be supplemented
by grants or long-term loans. Except for the territories which are
given economic aid (e. g., defense support) for political or strategic
reasons, economic and technical aid cannot be justified except as it
supplements resources developed within the territory and encourages
the people to give their energies and support to the program.
For example, the program of the United Kingdom in Uganda,
developed in 1955, provided for a 5-year plan of capital development,
two-thirds of the expenditures to be drawn from territorial revenues.
As the main source of wealth is agriculture, a large part of the pro-
posed spending is in this field, along with provision for improved
communications, local rural government, education, and public
health. Features of the plan are the encouragement given to the
cooperative movement and the establishment of credit facilities for
farmers and traders.
In contrast to the Uganda plan, that for Northern Rhodesia places
emphasis upon the development of mineral resources as the chief
economic assets of this territory. The plan places particular emphasis
on improvements in transportation and the development of electrical
power necessary for minerals exploitation. Little is spent on agricul-
ture because of the presence of the tsetse fly and because the territory
is not well suited climatically to it.
The Tanganyika Trust Territory is a region capable of a diversified
agricultural economy, which can be greatly expanded with the de-
velopment of water resources. It is also rich in some minerals. Fol-
lowing World War II, a grandiose scheme for the production of
peanuts on previously untilled land was inaugurated. The failure
of this scheme reacted unfavorably on development plans, but it did
bring a realization in United Kingdom Government circles that
before areas such as this can be brought to full production, it first
will be necessary to develop and expand communications, power re-
sources, and irrigation; and to build up a competent local labor supply.
Although it is axiomatic that before development can succeed an
accurate diagnosis of the problems involved must be made, the numer-
ous failures and false starts can usually be traced to lack of accurate
diagnosis. Through experience, other free world nations have become
increasingly aware of this. Two important problems are likely to be
encountered: (a) As health and welfare work reduces the death rate,
unless the development program keeps food production abreast
or ahead of the increasing population, it will confront hungry, dissat-
isfied people; (b) unless the program is developed in such a manner

FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1123
that the residents of the territory can understand it and identify them-
selves with it, the chief result may be a better fed, more alert leadership
of dissident elements ready and trained to turn on those who have
made their improved economic status possible.
In brief, although funds in the form of loans and grants are funda-
mental to development, they are wasted from the standpoint of the
country extending the aid unless the people affected are convinced
that their interests, as well as those of the donor country, are being
served. It is also important for them to understand that, although
the donor country is acting in its own national interest, it identifies
that interest with the improved welfare which will grow out of the
economic development of the territory. The Gold Coast, which on
March 6, 1957 will become Ghana, an independent member of the
Commonwealth, appears to provide an excellent example of rapid,
well-balanced and generally successful development.
(2) Funds must be committed for periods long enough to insure
completion of the program undertaken; 3- to 5-year periods have been
found generally sufficient; 10-year plans have been found useful as
goals, but too long to be useful as working plans, particularly in the
early stages of development.
Two principal means of committing funds for sufficient periods have
been used. First are long-term appropriations, as provided, for
example, under the British Colonial Development Act of 1940, which
was ancestral to subsequent colonial development legislation. An
appropriation of £5 million per annum, plus £500,000 for research on
colonial problems, was made for the 10-year period 1941-51. Expe-
rience gained during World War II was embodied in a second Colonial
Development and Welfare Act in 1945. Assuming that each of the
dependencies would be prepared to enter upon a 10-year development
plan, the second act appropriated a total of £120 million applicable to
the years 1946-56, including £20 million carried forward for commit-
ments under the act of 1940. The accomplishments of the program
led to a further extension of the benefits of the act for 5 years beyond
1956. For the fiscal period 1955-60 £80 million has been specified, to
which £40 million remaining unspent from the previous period will
be added.
The second means of committing funds for periods of sufficient
length has been through banking types of financing. France and the
United Kingdom both provide examples. The French Fond de
Développement Economique et Social (FIDES) is maintained both
by Government grants and by contributions from the territories them-
selves, the amounts being fixed each year. In principle, the metropoli-
tan country assumes responsibility for all research, two-thirds of the
cost of social betterment and one-half of the cost of economic devel-
opment. The remainder is to be supplied by the territories. In prac-
tice, the French treasury has supplied the territories with the major
portion of their share in the form of long-term loans at a nominal rate
of interest. Public development plans thus are financed almost wholly
by the metropolitan country through grants supplemented by loans.
The Caisse Centrale de la France d'Outre-Mer (CCFOM), intrin-
sically a banking institution, is responsible primarily for managing
the FIDES accounts. Its operating funds are provided by periodic
treasury advances which are utilized for long-term loans to the terri-
94413-57-72
1124
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
tories or for short- medium- or long-term loans to public, semipublic,
or private companies operating in the territories.
In the United Kingdom the Colonial Development Corporation
was given power, under the Overseas Resources Development Act of
1948, to borrow from the Government up to the equivalent of $280
million for development schemes of a commercial nature in United
Kingdom dependencies. All expenditures are in the form of loans.
Private banks have also been encouraged to set up special financing
arrangements. For the encouragement of business expansion in the
overseas territories, Barclay's Bank (Dominion, Colonial, and Over-
seas) was prompted to set up a special Overseas Development Corpo-
ration to assist in financing economic projects particularly in
Africa-through loans to colonial governments. This was a boon to
those colonies which, being unable to raise appreciable sums by in-
ternal loans, were compelled to go to the London money market.
(3) A third lesson is that training, apprenticeship, and technical
assistance programs, operated on a continuing and not on a year-to-
year basis, must usually precede any significant economic development.
It is through such programs that the people of an underdeveloped
country may learn not only the skills and techniques of operating a
new piece of equipment, but also how to live under changing com-
munity conditions as development proceeds; how to meet the health
and welfare problems of densely settled communities; how to educate
themselves and their children to meet and benefit from changing con-
ditions; how to set up and operate a government by law which enables
them to meet changes democratically. Only through continued train-
ing and apprenticeship can a competent group of civil servants be
developed to carry on the day-to-day functions of government, so
essential to economic and political stability. Without stability the
financial climate prerequisite to attracting development capital on any
large scale will be absent, and resources cannot be developed.
The success of the United Kingdom in creating these conditions is
attested; first, by assertions of European economists that among the
colonies of European nations only for those of Britain can accurate
annual balance-of-payments figures be secured; and, second, by the
continued presence in the Commonwealth, except for Burma, of all
territories that have become independent in recent years. The United
Kingdom record with respect to its former colonies has been analyzed
by G. F. Hudson in this language:
In India, Pakistan, and Ceylon, historic traditions are, of
course, entirely alien to the British way of life, and national-
ism in recent years has tended to reassert indigenous values
against all kinds of western influence; yet the preindepend-
ence apprenticeship of the educated classes in British law and
politics has deeply affected their entire approach to the prob-
lems of the modern world. When power was handed over to
leaders of Asian peoples formerly under British rule, there
were many who took it for granted that Commonwealth ties
with them could not be more than nominal and would prob-
ably be terminated as soon as the new states gained full con-
fidence in themselves. But up to now the Asian members of
the Commonwealth have shown no inclination to break away
from it, and it is a striking fact that none of the issues which
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1125
involve serious conflict within the Commonwealth ranges the
British origin and Asian members in groups on opposite
sides.2
The United States can probably benefit most from United Kingdom
experience in this field. Their aims are similar: both work to live in
peace, to have beneficial trade relationships, and to gain the political
friendship of all free nations. The United Kingdom seeks to conduct
the affairs of its dependencies in such a manner that when they inevi-
tably become free nations they will continue to cooperate with her,
economically and politically.
(4) A fourth lesson is the importance of having funds available for
emergencies in areas being assisted, if development is not at times to be
set back. The United Kingdom has made budgetary provisions of this
kind for Kenya and plans to make additional special aid available as
a result of the recent Mau Mau troubles.
Related to several of the preceding "lessons" is a major difference
between the administration of aid to overseas territories by European
nations and the foreign aid administration of the United States.
Whereas our Government administers programs through a single
agency created for that purpose alone, European governments have
placed the administration of their programs of assistance to territories
in the various departments concerned with colonial problems. This
has several advantages: it assures continuity to programs and utilizes
a career civil-service staff rather than personnel recruited for short-
term assignments.
These are important considerations, in view of shortcomings of
United States programs in these latter respects. The advantages of
continuity and permanence of staff tenure that have impelled Euro-
pean governments to organize their colonial offices on a permanent
basis, should appeal to the United States if it embarks on a long-term
foreign economic assistance program. Should it do so, a permanent
organization, staffed with career personnel, both at headquarters and
abroad, would be most advisable. Meanwhile, our aid programs will
be severely handicapped in their effectiveness, both because of inability
to commit funds for the duration of projects and because of inability
to put experts in the field and keep them there as long as they are
needed.
2 How Unified Is the Commonwealth, Foreign Affairs, July 1955, p. 680.
CHAPTER IV
OBJECTIVES AND MOTIVATIONS OF FOREIGN AID
PROGRAMS
Reference to the motives and objectives of a nation are metaphysical
but convenient figures of speech. National motives are attributed to
official actions and inferred from national interests and policies, which
are sometimes consistent over long periods. The Tsarist and Soviet
drive for a Russian outlet to the Mediterranean is an example. In
this chapter the terms motive, objective, interest, and purpose are
used interchangeably.
We think it axiomatic that national aid programs are means of
implementing foreign policies and not ends in themselves. They
are motivated by national self-interest; but they may be more or less
enlightened in serving it, more or less beneficial to the recipients, more
or less in the interest of world peace and security. Moreover, they
contain admixtures of altruistic and humanitarian intentions. Our
own foreign aid would be neither enlightened nor in our national
self-interest if we did not intend that it should further the well-
being of other peoples, promote their social and economic develop-
ment, raise their levels of living, and contribute to a peaceful world
order.
A. HUMANITARIAN MOTIVATIONS
Human sympathy, in its more abstract and extended forms, pro-
duces desires to help disadvantaged peoples and to build a peaceful
and humane world. In nations having a history of colonial expan-
sion, sympathy may be mixed with feelings of guilt for the deeds of
ancestors. Inequalities in wealth similarly may touch the conscience
of well-to-do people and encourage efforts to close the gap. Mingled
with altruism is a human desire to prove the superiority of values
embodied in a "way of life." This enhances self-esteem and renews
faith in our own institutions. Motivations of these varied and uni-
versal types, whatever their praiseworthiness, are of little aid in
explaining variations in the aid programs of different nations.

B. ECONOMIC MOTIVATIONS
Present or potential economic advantages provide strong incentives
for many foreign aid programs. Aid may help to maintain a flow
of essential raw materials to the donor nation and to develop or
expand markets in the recipient country. The two economies may
have become so interdependent that aid by one to the other tends to
promote economic growth and preserve stability in both, thus serving
as an economic flywheel.
The economies of colonial powers and their dependencies have often
been highly integrated and the economic relationship may survive
1127
1128
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
when the colonies achieve independence. Its survival is facilitated
if aid from the former "mother country" is continued. Indications
of economic interdependence between the United Kingdom and its
present and former dependencies are contained in trade statistics.
In 1955 its world imports were nearly $11 billion, its exports above
$8 billion. Almost half of the first and 40 percent of the second were
accounted for by sterling area countries, among which underdeveloped
countries in Asia, Africa, the Middle East, and Latin America sup-
plied about half. One quarter of French imports and one-third of
exports in the same year were exchanged with its colonies and
dependent areas.¹
Belgium receives from the Congo most of the copper, tin, and metal
ores that are vital to its industries. This fact overshadows in eco-
nomic importance its seemingly lesser dependence than France and
the United Kingdom upon foreign trade. As pointed out in chapter I,
the Belgian Congo is self-sufficient to an unusual degree, perhaps more
so than the mother country. Only 5 percent of the exports of Belgium
and Luxembourg in 1955 were to the Congo and Ruanda-Urundi,
while imports from those territories comprised 8 percent of their com-
bined total. Portugal, on the other hand, apparently sent more to its
colonies than it received from them-20 percent of its exports, 13 per-
cent of its imports, respectively.
Germany, Italy, Spain, and the Netherlands have lost political
control over most if not all of their former possessions and have been
forced to seek new economic orientations which may well lead to
foreign aid activities in the future. In the first two of these countries,
especially, these tendencies may already be observed. Their indus-
tries are cramped for expansion within domestic markets and are look-
ing abroad. German interest in Syria (see p. 14), in South America
and elsewhere has been reported at the same time that the Bonn gov-
ernment has set aside funds for a program of foreign assistance.
Future economic prospects seem as important as present gain in this
context. According to the London Economist, private foreign capital
has recently been settling in Brazil-
not perhaps because of the hope of quick returns but because
of a reluctance to be left out of a market with such poten-
tialities.
Undeveloped resources in many parts of the world are tempting
to investors in more highly developed countries. The impediments
may be of types that can be removed or mitigated by programs of
economic and technical assistance. Foreign technicians may initiate
surveys to determine what resources exist and how they can be profit-
ably developed. Training programs may provide the technical and
managerial skills that would be required by new industries. Public
policies and attitudes that discourage the entry of outside capital for
resource development may be modified in the course of assistance for
hospitals, schools, highways, or other projects having value readily
apparent to local leaders.
1 Throughout our discussion Algeria, which is technically a part of Metropolitan France,
is included with dependent territories. The pattern of interdependence to which we refer
is partially absent from economic relations between France and its African territories.
especially Algeria. The latter compete in the production of wine, wheat, palm oil, rum, and
other products which are in oversupply in France, which has levied import duties against
them, with further protection to domestic producers in the form of price supports and
output restrictions.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1129
In all such cases, although the basic motive of profit to foreign
nations and their citizens may underlie the assistance given, substan-
tial benefits accrue to the recipient country. The greatest value to the
latter usually results when technical assistance is combined with long-
term loans or other forms of external investment that permit the plow-
back into the domestic economy of the returns from new productive
enterprises.
C. MOTIVATIONS OF DEFENSE
Probably the greatest total volume of foreign aid in history has
been extended in recent years between free nations to assure their
common defense against worldwide Communist aggression. The
strength of this motive, and the degree to which it has been diluted
by other motives-political, economic, or otherwise has varied with
the extent to which the Communist danger has been perceived. In
some extreme cases the most to be hoped from the aid given has been
to keep nations with uncertain loyalties in a state of neutrality between
the Communist and the free worlds. In less extreme instances, foreign
aid may have served to retain the alinement with the free world of
nations which have some doubt whether communism is the greatest
of the dangers confronting them.
The Communist menace has various forms, both external and in-
ternal, and defensive measures have varied accordingly. In Western
Europe, parts of Asia, and the Middle East, the dangers have been
overt. Mutual assistance pacts have brought about military postures
which seek to deter an aggressor from armed invasion of any of their
members. In the Americas, south Asia, Australasia, and Africa the
most immediate dangers have been from internal subversion. Military
defenses have not been neglected but foreign aid has been strongly
motivated by the desires to remove the social and economic conditions
in which communism might take root and flourish.
The most conspicuous outgrowth of World War II has been a bi-
polarity in international affairs. While much discussed, there is no
"third force" to hold the balance between the Western and the Com-
munist power systems. Aggressive encroachments by the second com-
pel the nations included in the first to identify their own security with
resistance to Communist aggression wherever it may occur. De-
pendent territories and uncommitted states must be "kept on our
side" if possible. Correspondingly, these same areas provide ob-
vious targets for attempts at Communist penetration and subversion.
Free nations which remain aloof from Western military and de-
fense arangements fall in three groups: the small European coun-
tries which have traditionally had neutral attitudes in world con-
flicts (such as Sweden and Switzerland); underdeveloped nations in
Latin America and Africa, still largely beyond the perimeter of the
current battlefield; and a number of Asiatic and Middle Eastern
countries which retain strong resentments against the Western colonial
powers. These resentments may outweigh the fear of Communist
domination, of which they have had no direct experience and may
have little knowledge; and they discern opportunities for gaining
prestige and competitive advantage by playing off one side against
the other. Dissident elements easily allow themselves, sometimes un-
wittingly, to be used as "fronts" or "cats-paws" for Communist con-
spiracies.
1130 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
Even when aid to resist or forestall Communist aggression takes
different forms, its basic motivation and objectives are similar. Thus
direct military support, economic aid to encourage internal stability
and technical assistance to improve public administration, may all
comprise elements of a program designed to accomplish the same basic
objective. Military aid to Communist Yugoslavia and economic
support to Communist Poland can be justified on the same grounds.
Even aid programs of a more intangible and long-term character,
such as university and library development, may hope to achieve the
same result by favorably influencing the convictions of tomorrow's
leaders.
The direction, form, and amount of aid so motivated are all affected
by strategic considerations. Many underdeveloped areas have as-
sumed an unfamiliar significance for western defense. This is es-
pecially in evidence in the Western Pacific, the Middle East, and, in-
creasingly, in Africa; in all of which location, manpower, and re-
sources have strategic value.
The strategic importance of all countries fronting Communist
boundaries is magnífied in the case of Asia by enormous potentials
of military and industrial manpower; by resources, including many
basic raw materials; and by the implications should more of the area
be lost to the Communist bloc. The Middle East, also adjoining the
Communist perimeter, is the connecting bridge between three con-
tinents. The economic and logistic importance of the Suez Canal
and the oilfields of Arab States, containing over half of the world's
proven oil reserves, is now being demonstrated. Africa south of the
Sahara is somewhat removed from the primary scene of East-West
conflict. Yet its very remoteness gives it strategic value beyond its
still greater significance as a source of raw materials. Comparatively
immune to Communist influences, it offers a fairly reliable base and
staging area for western forces in the event of another world con-
flict.
Foreign assistance may also be prompted by western defensive
considerations in the Pacific islands, because their locations may be
useful for bases to backstop action in primary areas. Central and
South America have abundant unexploited resources and flank the
vital Panama Canal.
D. MOTIVATIONS RELATED TO NATIONAL PRESTIGE
The possibility that violent conflict may upset established political
institutions in underdeveloped countries can provide a primary moti-
vation for assisting them. While the Communist threat is seldom
absent from any situation involving political unrest, the current or
recent tensions in the Arab States, in the French dependencies of
North Africa, and in Indonesia have had their genesis in nationalistic
aspirations. When confronting nationalistic movements in such areas,
the present or former colonial powers have a strong motive to retain
an effective political position within them, if for no other reason than
in order to lead from positions of strength when dealing with other
nations in world power relations. Stated negatively, they fear a loss
of prestige represented by a sphere of control or infiuence. While
support of native nationalist aspirations might be in the long-run
interest of these powers, this approach is often difficult to adopt. Po-
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
1131
litical change means uncertainty. Even if satisfactory relations can
be established with a new political order, a long period of instability
may await the eventual readjustment. If the foreign state is identi-
fied with the native leadership which is also threatened, there is often
no practical middle ground upon which to settle, unless the foresight
has existed to develop it before an explosive situation develops.
An important consideration in such situations may be the interests
of donor-country nationals in preserving the status quo. A change in
regime may result in their loss of invested capital, of privileged social
and political status in the local community, of livelihoods, and even of
their lives. Motivations of the above nature undoubtedly have had
much to do with Dutch military assistance in a lost cause in Indonesia,
and, more currently, with rising French expenditures for aid in North
Africa. In the case of Indochina, to quote a recent study by Herbert
Luethy:
France, having never known how to make the necessary
concessions to her chosen partners, was finally forced to grant
them to the enemy whom she was fighting.
E. MOTIVES AFFECTING THE CHOICE OF ASSISTANCE CHANNELS
Wide differences distinguish the United States and other free na-
tions with respect to the means by which their foreign aid is distrib-
uted. Excluding foreign investment, other free nations seldom use
bilateral channels except for assistance to their dependent territories.
Their aid to nondependent countries is primarily by multilateral
means. American aid, by contrast, is primarily bilateral, though the
portions going to its limited number of dependencies are of minor
amounts.
Motives of self-interest for extending aid bilaterally seem obvious.
A large measure of control is left in the hands of the donor country.
In the case of dependencies over which the continuance of control is
desired, this factor may seem especially important. The mother coun-
try can decide for what particular objects and under what specific
conditions aid is to be used, thus protecting its suzerain relationship.
The United Kingdom, France, Belgium, Portugal, Spain, and the
Netherlands are all aware of and make use of this advantage. As a
corollary, bilateral assistance by other nations to the dependencies of
colonial powers is unwelcome. The mother country jealously guards
her prerogatives and thus seeks to discourage her offspring from devel-
oping romantic interests outside the family.
An example of this solicitude is afforded by the relations between the
United States, France, and her North African colonies. It is under-
stood that this country recently indicated its readiness to extend tech-
nical and economic aid in substantial amounts to several French de-
pendencies. The offer was politely but firmly rejected by France on
the ground that American influence in her colonies might give impetus
to nationalist ambitions. It was not felt appropriate by the United
States to approach the dependencies directly on this proposal.
To a lesser degree, the same motives are operative where political
sovereignty is not involved but where close ties of long standing are
recognized. In the Latin American Republics, for example, bilateral
aid from European countries is minimal and in some cases nonexistent.
1132 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
This is largely for the reason that the aid objectives of European pow-
ers give higher priority to other continents; but it also reflects their
recognition of American interests which have long been embodied in
the Monroe Doctrine and the good neighbor policy.
The element of control which bilateral assistance gives to a donor
nation has a corollary in the equivalent lack of control by the country
aided. It confronts a dilemma: Are the benefits of aid greater than
the limitations upon its freedom to administer the aid, and the loss of
face in the implication that it is unable to manage its own affairs?
It may discern real or fancied motives of self-interest in the giver and
feel that it is being used to further these alien interests. This is re-
sented, especially if the recipient is ambitious for recognition and
prestige as a new nation. In a number of instances involving the
United States, intended recipients have rebelled against proposals to
attach conditions to our aid.
National sensitivities provide strong reasons for the use of multi-
lateral channels of assistance, in which the aid to be given by one
nation is pooled with that of others in a neutral fund. Somewhat
different considerations affect the aid extended by the smaller nations
of the world, almost all of which is multilateral. Individually they
are too weak to bring effective political power to bear in aid relations
and their contributions are too small to have importance when stand-
ing alone. Their influence is strengthened by joining in collective
efforts to which prestige is attached. Further, from the viewpoint of
small and otherwise neutral nations, participation in multilateral
programs enables them to remain uncommitted in the cold war.
An ingenious reconciliation of the motivations actuating bilateral
and multilateral programs has been achieved in the Colombo plan.
Within it, the sensitivities of new Asian nations and the national in-
terests of the United Kingdom and the advanced nations of the Com-
monwealth are harmonized. Of perhaps even greater consequence, the
Colombo plan reinforces the tenuous political ties among Common-
wealth countries, the formerly associated dependencies, and other na-
tions in the southeast Asia region for the more general purpose of
promoting good will among them and building a favorable psycholog-
ical and economic climate against Communist influence.
F. AID OBJECTIVES OF UNITED STATES AND OTHER FREE NATIONS COMPARED
Both similarities and differences distinguish the objectives of Ameri-
can aid and that of other free nations. All seek to stem Communist
aggression and promote better ways of life in countries aided. Dif-
ferences appear in the approaches toward these goals, and some fac-
tors motivating aid from other free countries do not fully apply to
the United States.
The leading European nations have vital national interests in pres-
ent and former colonies. These are economic and political and apply
as well to private interest groups which have a strong influence on aid
programs. The fortunes of the mother countries are closely linked
to their dependencies, whose loss would inflict serious wounds at home.
To almost the same degree they have economic dependence upon re-
cently emancipated colonies. The allocation of European aid almost
entirely to past or present colonies is evidence of their importance to
European nations.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1133
By contrast, the United States has matured politically and eco-
nomically without support from colonial development. Thanks to a
varied and plentiful resource base, it is relatively independent eco-
nomically and could, if necessary, with some adjustments, maintain in
isolation a thriving economy. With a few temporary exceptions
(Philippines, Puerto Rico, trust territories), it has never had de-
pendencies abroad, nor has it reason or desire for such dependencies
now. America's foreign aid is therefore not conditioned to the same
extent as that of Europe by needs to maintain enduring economic
relations with aid recipients. The Swedish economist, Gunner Myr-
dal, has even expressed surprise at the virtual absence of ulterior mo-
tives behind American aid.
An additional distinction lies in the greater emphasis of the United
States on military assistance. American aid is heavily weighted on
the military side, while that of the major European governments
is less so.
Explanations for this differing emphasis are probably to be found
in American relations with the Communist world since the Korean
war. More directly involved in that conflict than other nations, we
perhaps have developed a greater awareness of the military peril, if
not also a desire to let others do some of the fighting should another
outbreak occur. Further, as the largest and most powerful western
nation, we stand juxtaposed with the Soviet Union as protagonists.
in the cold war: in fact and in symbol, the United States is the back-
bone of the free world's defense. At the same time the desire of Euro-
pean nations to avoid the terrible implications of an atomic attack
to which they are directly exposed, their modest economic circum-
stances, and certain negative reactions in undeveloped countries have
all combined to play down in European thinking the military ap-
proach to deterring communism. For the European countries, the
economic approach is cheaper and better, as well as the easy way out.
And it returns immediate political and economic benefits.
G. LIMITATIONS UPON PROGRESS IN ATTAINING OBJECTIVES
While genuine economic development, stimulated by aid from the
West, is in evidence in all underdeveloped countries, population in-
creases seem to counteract these gains at almost every point. General
levels of prosperity in many underdeveloped countries, particularly
in Asia, have risen little, if at all, since the Second World War and
may actually have declined. Since that time the huge gap in levels of
living between the industrialized and underdeveloped countries has
been widening. With rapidly increasing populations, equally rapid
improvement in economic conditions is necessary merely to keep liv-
ing standards from falling. Perhaps ironically, some important aid
programs actually contribute to a lowering of levels of living by in-
creasing population through improved sanitation, health, and medical
care.
Several competent authorities have noted that present levels of
capital investment in underdeveloped countries fall markedly short
of development needs, and even short of making inroads on depressed
living conditions. A recent United Nations study estimated that
Asia alone requires $4.8 billion of net new capital annually merely to
1134 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
maintain existing per capita income, and $10.8 billion to increase per
capita income by an annual rate of 2 percent. Yet even the lower of
these figures is well above the level of current investment. Given
these circumstances, how can political stability under democratic
institutions be effectively stimulated by the free world's help? There
appear to be three possible and mutually compatible means:
(1) A vastly expanded program of technical and economic
assistance, primarily through large-scale capital investment;
(2) A program to limit the rate of population increase through
acceptable measures of family limitation; and
(3) A liberalized immigration policy by countries whose re-
source base would permit them to absorb surplus peoples from
overpopulated areas.
There are obvious political as well as practical limitations upon
these potential remedies. The financing of expanded aid programs
would fall largely on taxpayers in free world countries who are
already chafing at public expenditures and striving for improvement
in their own living standards. Further, there is skepticism in many
western countries, including the United States, of present levels of
foreign aid, if not of the programs themselves. In any case, economic
assistance levels cannot be sharply increased in a short period of
time. Recipient countries are limited by administrative deficiencies,
by a shortage of skilled manpower and by other factors in their
ability to absorb additional capital rapidly.
Effective programs to promote family limitation, even if practica-
ble, would require much time and their benefits would be deferred
even longer. As a remedy for overpopulation such programs must
be regarded as long-term in character.
Finally, liberalized immigration policies have limited political ac-
ceptability. Most of the industrialized nations which could absorb
additional population have traditionally discriminated to greater or
less degree against migrants from underdeveloped countries with
predominantely nonwhite populations. Canada, Australia, and the
United States are all examples of western nations, capable of sup-
porting increased populations, which have been inhospitable to non-
white immigration. An Asiatic economist has even suggested that
several western nations regard aid to underdeveloped countries in
part as a defensive measure against the feared day when stronger
nonwhite nations will demand to use the underpopulated areas of
their countries.
As if such practical difficulties were not enough, there are also
theoretical-we might say philosophical, and moral-questions which
intrude upon reflection on these problems. Thus it is doubted by
many students of history that improvements in economic conditions
and the levels of living in underdeveloped countries will result in
greater social stability and resistance to communism. Guy Wint, a
prolific writer on foreign political problems for the Manchester
Guardian, asserts:
It is in countries where improvement is taking place and
where there is a certain optimism that the true revolutionary
situation develops, not in those which are stagnant and in
despair. This is borne out by study of many of the great
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
1135
convulsions of history. The Bolshevik revolution in Russia
might never have taken place but for the remarkable indus-
trialization and general economic advance in Tsarist Russia
in the 20 years before the First World War.
We have no solutions of these difficult and crucial problems to
propose; but we urge that they not be ignored in any formulation of
American assistance policy and programs. Whatever the solutions,
they will not be easy; but any peaceful solution will be preferable
to the international explosion which is latent in an indefinite con-
tinuation, without remedy, of the basic situation represented by
population growth in excess of the rate of economic development.
Meanwhile, it is clear to us that economic aid cannot, as a practical
matter, be discontinued. We must continue to hope that the advanced
nations of the free world, by serving their own political and economic
interests in the extension of foreign aid, will be able to channel the
strivings of underdeveloped peoples in directions compatible with
free and democratic institutions within a peaceful world.
CHAPTER V
POSSIBLE CHANGES IN UNITED STATES FOREIGN AID
RELATIONSHIPS
Should greater use be made of multilateral channels for the dis-
tribution of foreign aid by the United States? Should its aid pro-
grams be more closely-or less closely-coordinated with those of
other free nations and international organizations? Would greater
effectiveness result from expenditures by the United States for foreign
aid if they were administered through procedures similar to those of
the Colombo plan? Or should the status quo be maintained in United
States foreign aid relationships?
Our preceding chapters should be useful as a background for con-
clusions upon such questions. When answers are reached they may
call for legislation, administrative actions, changed viewpoints, or all
of these. Before answers become specific, various aspects of United
States policy and procedure respecting foreign aid should be given
further attention.
The foreign aid which the United States now extends, or is likely
to extend in the future, may be grouped in four categories:
1. Military aid, which includes the "hardware"-i. e., the guns,
tanks, vehicles, etc., needed in modern warfare.
2. Direct forces support, which includes what is ordinarily called
"quartermaster items," ranging from food for soldiers to gasoline for
trucks, medical supplies, etc.
3. Economic assistance, which, in countries with which we have
bilateral or multilateral defensive agreements, is largely "defense
support." Without such economic aid the armed forces of allies could
not be maintained by the indigenous economies at the levels that they
and we deem essential.
4. Technical assistance: This includes the provision of experts to
underdeveloped countries, fellowships for training, and supplies and
equipment for laboratories and pilot projects.
Since World War II in Europe and since 1950 in the western Pacific,
our aid program has been concerned primarily with questions of mili-
tary defense and defense support, including elimination of the "dollar
gap" in Europe, an effort in which Canada has shared. Economic
aid per se to Europe has been discontinued. In the western Pacific
and Middle East, all forms of aid are being provided to Korea, For-
mosa, Indochina, the Philippine Republic and, more recently, to the
nations of the Baghdad Pact. Economic aid in the form of defense
support to both groups of countries rests upon agreement, first, that
defense establishments in the mutual interests of both countries are
required; second, that the defense requirements exceed the capacities
of the country in question, even though the United States furnishes
a large part of essential "hardware" and "quartermaster items."
1137
1138
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
Differences among America's allies respecting their needs for "de-
fense support" and respecting its relation to their economies are rela-
tive but significant. There is no doubt about the economic viability
of those which are highly industrialized, as in Europe. We can be
assured that they will make reasonably good use of our aid and the
only question about giving it is whether it directly serves our own
defense interests. These allies have no reason to suspect imperialistic
motives on our part.
At the opposite extreme, some allies are almost completely depend-
ent upon the support of their economies that accompanies our military
establishments. In these instances economic assistance is distinctly
subordinate to military requirements, as in Korea, where UNKRÅ
has been "phased out" and all forms of aid are channeled through
military or civilian agencies of the United States with military re-
ponsibilities. In the Ryukyu Islands (Okinawa) a withdrawal of
American military forces would have catastrophic effects upon the
economy of nearly 1 million native inhabitants.
In very recent years approximately one-half of United States eco-
nomic aid, including defense support, has gone to a group of countries
which includes the Republic of Korea, Formosa, Vietnam, Laos, and
Cambodia. In fiscal 1956, Turkey, Pakistan, Greece, and Iran, which
belong to an intermediate group of countries between the extremes we
have indicated, received another 22 percent. Some of the countries
last named could easily become economically viable in a peaceful
world, in which their resources could be used for development rather
than for maintaining the large armies that they and we think necessary
for our mutual defense.
In another large group of countries, including India, Burma, Cey-
lon, Indonesia, and independent countries and European dependen-
cies in Africa, the United States has made no defense commitments.
Our correct approach to this group would seem to be that of promot-
ing common interests; of making clear that we consider our future to
be tied to their own; and of giving assurance that we are willing to
work together cooperatively as equals to fulfill common aims.
We
should recognize that friendship cannot be bought with money and
that it is only through developing recognition of a community of
interests that our Nation can retain friends.

A. INTERRELATIONS BETWEEN AMERICAN MILITARY AND ECONOMIC AID
Within the foreign aid programs of the United States we think it
desirable to shift the emphasis in the direction of economic assistance
wherever and to the extent practicable. We believe this consistent
with the intent of the Congress in the Mutual Security Act of 1954,
as amended. That act expresses a common objective for all aspects
of the program it outlines:
It is the sense of the Congress that assistance under this
act shall be administered so as to assist other people in their
efforts to achieve self-government or independence under
circumstances which will enable them to assume an equal
station among the free nations of the world and to fulfill their
responsibilities for self-government or independence.
***the Congress believes it essential that this act
should be so administered as to support concrete measures
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1139
to promote greater political federation, military integration,
and economic unification in Europe.
In furnishing military assistance (and Direct Forces
Support) in Asia *** the President shall give the fullest
assistance *** to establish a program of self-help and
mutual cooperation designed to develop (its) economic and
social well-being. * * *
Other provisions of the act confirm the interpretation that the Con-
gress intended the development of close interrelationships among mili-
tary assistance, defense support, development assistance, and tech-
nical cooperation. Some commentators have suggested administra-
tive arrangements which would separate these program elements
widely; for example, by placing all aid to economic development by
the United States under the administration of the International Bank
for Reconstruction and Development.
The shift of emphasis we suggest would not call for a wholly new
conception but only a somewhat altered weighting of policies already
expressed in the Mutual Security Act and applied among the various
programs administered under it. Obviously no shift from military to
economic objectives would be required in the case of countries for
which no American military aid programs exist. However, our em-
phasis would more easily permit the assimilation of nonmilitary
assistance in these countries into regional programs of economic and
technical assistance, with advantages to American taxpayers and
to the areas concerned.
All foreign aid, whatever its character and however earmarked, in-
evitably affects both the economy of the recipient and its capacities
for defense. Our own objectives for extending it should be compat-
ible with the policies and national aspirations of the peoples aided.
Wherever possible our assistance should help them to establish self-
sustaining economies, if now lacking, which ultimately will be inde-
pendent of foreign support. This implies that military end items,
construction materials, services, and commodities required for direct
forces support, and technical know-how required for assistance pro-
grams of all kinds, should be produced, bought, or developed locally,
to the maximum extent possible.
We are aware of the progress already made in this direction in the
case of our western allies. The authorization in fiscal year 1955
of $35 million for manufacture in the United Kingdom of military
aircraft provides an example. Great Britain's capacities for this type
of production are not found among many other of our allies and even
weapons and materiel of lesser complexity are beyond the present pro-
ductive capacities of many recipient nations. They will continue for
some time to be supplied from the United States. However, a large
number of common-use items and commodities could, given time, or
even at present, be produced and purchased locally. Many of the
"quartermaster items" to be procured, such as clothing, are produced
by small or even cottage industries in relatively underdeveloped areas,
in which they are marketed by "small business." If purchased
locally as a part of "direct forces support," the advantages to both
the local economy and to the American taxpayer seem evident.
One way the United States hopes to keep its military aid
spending in Europe from climbing is to tie a gift of new
94413-57-73
1140
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
weapons to a demand that Europeans take over from the
United States more of the cost of maintenance of their con-
ventional arms. This means that the French, for example,
would buy from the United States or produce themselves
the spare parts to keep American-donated tanks, trucks, and
other equipment rolling.¹
The force goals of allies like Korea have been set at levels which
their own economies could not possibly support without our assist-
ance. We cannot now foresee the time at which they will become
entirely self-sustaining; but if an increasing part of our contributions
to their defense is devoted to enabling them to produce within their
own economies the materiel they require, their dependence upon us
will correspondingly diminish.
It is not difficult to envision an analogous emphasis in the case of
friendly, underdeveloped but nonallied nations outside of our military
defense arrangements. In fiscal year 1956, ICA expended in its for-
eign aid programs over $1 billion for commodities, almost 70 percent
of which was paid out in the United States for food, feed, fertilizer,
cotton, fuel, machinery, and vehicles. Surely much of this could have
been procured, if not in the particular country aided, then in some
other country which was also receiving our aid in some other form.
Such a policy is embodied in offshore procurement, but we believe
that the latter can and should be extended. By deliberate effort off-
shore procurement could be placed more definitely upon a regional
basis. Agricultural surpluses in assisted country X could be pro-
cured for use in assisted country Y, from which industrial products
required by X could simultaneously be procured. Whether in either
case country X or country Y was an ally would not need be a factor
in the exchange.
A regional conception of economic development has been slow to
develop within United States assistance philosophy and procedures.
Without it there is a constant possibility that measures to assist one
country will reinforce its tendencies to develop economic nationalism
and defeat the overall purposes of our program. When the markets
of one country are impaired by assisting another country to produce
for them, we have begun the promotion of economic nationalism, have
aggravated the needs for aid of the first country, and have entered a
vicious circle to which there is no end.
At an opposite extreme from military assistance in our overall aid
program is technical cooperation. For example, through college-to-
college contracts, financed through mutual security program funds,
the services of teachers and other experts from the United States are
made available to colleges and universities overseas. Some 52 Ameri-
can universities have entered into 81 separate contracts in 36 countries
under this program. The instructional staffs of American institutions
of higher learning have been seriously depleted since World War II
by the demands of industry and government, while the corresponding
professional ranks in some other free countries have been more fully
maintained. Could not the policy we are suggesting be applied in this
field as well? For example, could not professional and scientific ex-
perts from Japan be engaged under the mutual security program at
1 Kenneth Miller, Wall Street Journal, December 21, 1956.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1141
American expense and under American supervision to perform tech-
nical and educational services in underdeveloped areas of southeast
Asia?
In the case of our allies, a broad zone of activities lies between "mili-
tary aid," as used above, and "technical assistance." Within this zone
are activities which we have classified as "direct forces support" and
"economic assistance." The last two are so intimately interwoven that
it is difficult to identify many of them either in purpose or in results
as clearly military or economic. The artificiality of the manner in
which certain expenditures have been categorized as either defense
support (under title I of the Mutual Security Act, which includes mil-
itary assistance) or economic development assistance (under title II
of the act) is illustrated by the fact that budget accounts are shifted
from title II to title I whenever the United States enters into a new
mutual security arrangement.
Since the Korean war there has been increased emphasis among the
administrative agencies of the United States upon the military aspect
of the mutual assistance program. Military criteria and political con-
siderations have been increasingly applied to decisions concerning eco-
nomic aid. Proposed expenditures are not infrequently classified as
"military" when they might equally well be classed as "economic,'
presumably in the belief that the former category is more likely to be
favored.
""
A reversal of this emphasis has become due. We suggest that prog-
ress toward self-sufficiency in the economies of friendly peoples, in
the sense of freeing them from needs for foreign aid, become a guiding
philosophy of our aid program of equal force with that of arming our
allies for self-defense. From "self-sufficiency" we exclude forms of
economic nationalism inconsistent with the fullest possible develop-
ment of international trade and cultural relations.
Our suggestion would mean that all assistance extended to other
peoples, whether military or economic, would be regarded as an oppor-
tunity to further economic development. Offshore procurement would
be regionalized and increased to all practicable extent. Between 1952
and 1955 offshore procurement by the Department of Defense rose
from 3 to 31 percent of its total expenditures. As of mid-1956, prob-
ably as a result of military expenditures in western Pacific areas, the
ratio had dropped back to 16 percent and we should hope that its past
upward trend might be resumed. The possible economic impacts of
offshore procurement are indicated by the fact that its volume in 1955
was 21½ times greater than all expenditures for development assistance
during the current fiscal year.
Among our western allies and possibly some others, the proposed
shift of emphasis would mean that infrastructure projects, with their
requirements for materials and equipment, would be given an enhanced
role as consumers for local or regional industries, in a manner already
made familiar by the conceptions underlying the organization of the
OEEC. The development of local and regional capacities needed
for the production of defense support items, such as replacement parts,
would receive every possible encouragement in the mutual defense
budget of the United States. If, as some observers believe, standards
for many items of military materiel should be geared to wide differ-
ences in area requirements, a further reason is found for the produc-
1142
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
tion and maintenance of military items on a local or regional basis.
A precaution must be noted here. An industrial complex designed
exclusively for the production of military items incurs the risk of
collapse should its market cease to exist as a result of the disappear-
ance of threats to national security. The possibilities of conversion
to forms of production useful in times of peace should not be neglected
by the governments and industrial managers concerned. The recon-
version of American industry following the Second World War pro-
vides considerable assurance in this regard.
It would be foolhardy to appraise all defense support and military
assistance from the standpoint of their effects upon economic develop-
ment. Overseas defense requirements are sometimes urgent. How-
ever, not all of our military assistance is premised upon a need to build
up the military strength of allies immediately. Much of our planning
can be placed within a framework of long-term strategy. When this
is the case as it is likely to be when the economies of our allies are
relatively underdeveloped our objectives may best be advanced
through the development of local and regional productive capacities,
accompanied by trade and economic growth within the area as a whole.
We may in this way serve best the tactical requirements of the future
through the advance provision of simplified logistics and shortened
lines of communication and supply.
In the action of the Congress upon the President's request for mu-
tual security funds for fiscal year 1957, the possibility of support for
this view may be discerned. Of $4.9 billion requested by the Presi-
dent, the Congress appropriated $3.8 billion. Within this overall
reduction, funds for defense support and for development assistance
were increased; technical cooperation funds were cut only slightly;
while military assistance funds were slashed by about $1 billion, one-
third of the amount requested. The inference seems permitted that
the Congress intended to stress the long-term economic orientation
of our aid, rather than its short-term military and political aspects.
A need for closer coordination among the executive agencies in
planning the military and economic schedules of the mutual security
program is implied by the emphasis we suggest. This need would
extend to the personnel in the field through whom the details of the
program are negotiated and administered. New directives might be
needed calling for closer cooperation by military attachés and military
assistance advisory groups with ICA personnel, U. N. and regional
organization representatives, and counterpart personnel of recipient
governments. The common purpose, from the standpoint of the
United States, would be a system of coordinated relationships within
which its own bilateral programs would contribute to both the defen-
sive strength and the economic development of its allies and to the
economic advancement of non-allied recipient peoples.
Our view differs from that of some distinguished observers who
believe that a sharp distinction should be made between the adminis-
tration of military and economic forms of foreign aid. They note
that Burma has refused our assistance, ostensibly because of its mutual
defense implications, and that Indonesia also refused until we dis-
associated assistance from defense. In India and Ceylon it is tacitly
understood that military commitments will not be sought in return
for the aid we extend.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
1143
To argue from this that economic and military aid should be dis-
associated in the case of nations with whom we are allied for mutual
defense seems to us fallacious. If it be agreed that these allies are
in need of both forms of assistance and most thoughtful students
so agree either will be effective in furthering our aims only to the
extent that both are interrelated to serve common and consistent
objectives.
The disadvantages in the case of our allies of a sharp administrative
separation between military and economic assistance would extend
to the uncommitted and underdeveloped peoples. It would tend to
shut them off from possibilities of regional economic development
that might include both allies and nonallies to the benefit of both,
as well as ourselves. It would tend to encourage economic national-
ism among nations which received our assistance but which felt
impelled to remain aloof from neighbors with whose advancement
we are also concerned. Our national interest lies in reducing the bar-
riers between peoples and not in increasing them.
We must face the fact that some nations desire our military support
while others reject it. By stressing military objectives in dealing
with the first we arouse suspicions among the second that we have
similar objectives with respect to them. In the Middle East old resent-
ments have been revived against colonizing powers which are now
among our closest friends. Among African dependencies of Euro-
pean nations any American assistance must be in concert with nations
which, while our allies and friends, are jealous of their prerogatives.
In neither case do we see an advantage in pretending to a sharp divi-
sion among our motives between those which are disinterested and
those which embody self-interest in our security.
Our answer to the dilemma posed by apparently conflicting moti-
vations in our program may be expressed as follows: We should be
genuinely cooperative, emphasizing our mutual interests (and not
merely mutual defense) with all free peoples (whether or not our
allies). We should indicate our intention to continue both military
and economic assistance as long as they serve a mutual interest, but
our hope to discontinue military aid as soon as the demands of mutual
security permit. We should stress the importance to ourselves of
economic development in other free nations whatever their military
relations to us. We should take into account more fully the economic
and social aspirations of other peoples and look to them for the great-
est possible development of self-sufficiency and self-help.
The United States should not covet affection or gratitude in return.
for the aid it extends to other peoples. It should hope for their
respect and seek to earn it, while yielding respect in turn to the people
who are aided. Respect is most likely to be gained when we candidly
pursue a policy of "enlightened self-interest." Military assistance
by itself tends to arouse suspicions of imperialistic ambitions. Eco-
nomic aid, detached from an understanding by other peoples of the
practical importance to the United States of their own well-being,
may easily be self-defeating. Were we successful in establishing
an identification in the minds of other peoples between the national
interests of the United States and their own economic and social
well-being, our country would gain in respect and prestige through-
out the world. We believe the shift in emphasis among mutual
1144 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
security programs that we have suggested would do much to further
that result.
B. NEEDED COORDINATION WITHIN GEOGRAPHICAL AND PROGRAM AREAS
In some geographical areas as well as program fields, the existing
coordination of United States assistance activities with those of other
free nations seems to us satisfactory and adequate. We think this true
of the military aid and defense support that we extend to our Euro-
pean allies through NATO. We also think it true of the technical
assistance we extend in many underdeveloped countries where, as
shown in chapter II, there is close cooperation "in the field" between
our representatives, those of intergovernmental agencies, recipient
governments, and some private organizations. In the particular case
of the United Nations expanded program of technical assistance, the
mechanism for communication and "clearance" between United Na-
tions Headquarters in New York and ICA in Washington seems
effective.
The location of headquarters of the IBRD and the IMF in Wash-
ington also facilitates their close cooperation with United States finan-
cial agencies. The importance in this instance of close acquaintance by
officials on both sides with the purposes and aims of the other organiza-
tion cannot be overstressed. Mr. Eugene R. Black, President of the
IBRD, through long experience in American banking institutions,
has outstanding qualifications in this respect. The "interlocking di-
rectorates” cited in chapter II as a factor in existing coordination, is
particularly exemplified in the IMF, whose Board of Executive Direc-
tors includes as its United States member Mr. Frank A. Southard, Jr.,
a special assistant to the Secretary of the Treasury.
On the other hand, there are parts of the world in which the United
States interests are great but in which it lacks corresponding influence
largely, in our opinion, because it has not found means through which
its assistance activities might be effectively coordinated with those of
other free nations and with those of native populations and local
governments. The colonies and protectorates of European nations in
Africa are an outstanding instance. At the threshhold of its economic
development, with independent nations beginning to emerge, the
African continent contains many possibilities both of future crises in
which American national interests may be affected and of cooperative
relationships with ourselves remaining to be developed.
The problem for the United States in Africa is complicated by the
intrenched political and economic interests of the European nations.
whose controls over dependent peoples are progressively being loos-
ened. The extension of American economic or technical assistance
will be a delicate operation, involving not only relationships with
the peoples aided but also with allies to whom we are closely bound for
mutual defense on the European Continent. To date, except for the
United Kingdom, aid to African dependencies by either the United
States or the United Nations has not been welcomed by these allies,
although private capital from the United States has been gladly
received in the Congo. It seems only a matter of time until the people
of all these African areas will assert a right to increased autonomy.
They will then look for assistance either to those who have been help-
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
1145
ing them or to those others who make glittering promises in the hope
of hastening the downfall of the Western World.
The question is how to do it. It is possible that we might secure
more cordial cooperation from European nations that administer
African dependencies if we assured them that our assistance would be
limited to technical assistance and the extension of long-term loans in
situations that are not fully "bankable." The Export-Import Bank
might conceivably be used as a vehicle for the latter. In that event,
close coordination of its proposed loans and credits with those of the
International Bank (IBRD) would be essential. Grants, which tend
to carry with them political implications, would then be left within
the purview of the dominant European nation.
The possibilities of this approach, while uncertain, should perhaps
be explored at diplomatic levels. However, we believe the most effec-
tive method by which American assistance could be directed to African
territories has been demonstrated in the operations of the Colombo
plan; and that a vehicle through which initially to direct our efforts
already exists in the Commission for Technical Cooperation South of
the Sahara. As pointed out in staff study No. 8 of the Senate Sub-
committee on Technical Assistance Programs:
it would not be in keeping with the character of American
foreign relations to advance a program of technical or eco-
nomic assistance for any territory politically dependent upon
another state without the invitation or the express approval of
the government in question.
Nevertheless, we believe the United States is in a position to secure an
invitation to membership in this Commission. At the same time we
should seek the extension of its membership to all of the territorial
governments in the area.
The particular advantage which we see in a "Colombo plan" type of
operation for aid to African dependencies is that it would bring to-
gether around the same table representatives of the native peoples,
the European nations which control them, the United States and,
perhaps, the United Nations and the International Bank. The success
of the Colombo plan lies not in any complicated system of bureaucratic
coordination but in the fact that givers and receivers together canvass
the needs of the receivers, the resources available to supply them, and
then agree upon the allocation among the givers of responsibilities
for meeting these needs. The responsibilities agreed upon and ac-
cepted are then administered upon a bilateral basis, directly between
the particular giver and the particular receiver.
The Commission for Technical Cooperation South of the Sahara
seems still sufficiently embryonic in organization and purpose to be
easily capable of adaptation to a Colombo plan type of activity for
African dependencies. Participation in it by the United States would
involve a minimum of "interference" by this country in affairs which
are frequently regarded as "internal" by sensitive European powers.
Another geographical area in which the United States has large
interest and in which the coordination of its aid programs with others
seems to us ineffective and in need of strengthening is the Middle East.
The importance of the area to ourselves and our allies need not be
argued. The ineffectiveness of past aid from the free world in giving
1146 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
direction to events also seems to require no demonstration. Senator
Hubert H. Humphrey has been recently quoted in the New York
Times (December 21, 1956) as calling the Middle East a "power
vacuum" with problems "so complex that one hardly knows where to
start." It "desperately needs economic development, not simply for
its own sake, but as a constructive endeavor to occupy the minds and
energies of the people and their leaders." Senator Humphrey's pro-
posal that a "Middle East Development Authority" be placed under
the United Nations was attributed to the fact that "most of the eco-
nomic, as well as the other, problems of the area are international in
their scope." His proposal seems to us a recognition that the assist-
ance efforts of free nations in that region have not been but should
be more adequately coordinated, to the end that the peoples of the area
should be enabled to identify their own interests with those of the
West.
Both in Africa and the Middle East the advantages of a regional
approach to economic and technical aid seem apparent. It is diffi-
cult to conceive of a successful regional assistance program without co-
ordination of its elements in a number of particular respects: The
aid extended to each country must be planned in relation to further
development not only in that country but in other countries of the
region. In each country, and in the region as a whole, the program
must be intermeshed with the assistance programs of other nations
and other intraregional or international organizations. These re-
quirements, in turn, call for even more intensive and persuasive nego-
tiations with governing authorities, local and absentee, and with other
national leaders in the territories concerned. The Colombo plan type
of procedures appears to be the best so far developed to achieve these
forms of coordinated effort in the areas we have discussed. Should
it appear to raise problems not involved in direct bilateral assistance,
we believe they would be far outweighed by the advantages of the
regional approach for which it calls.
Our advocacy of a Colombo plan type of procedures for the coordi-
nation of United States assistance programs within geographic regions
does not necessarily call for (though it does not exclude) the creation
of new organizations by this Government. The aims and objectives
of the Colombo plan and of the present and past foreign aid pro-
grams of the United States exhibit much in common. Thus, the dis-
positions of American agricultural surplus through Public Law 480,
one of this Nation's largest economic assistance programs, to the tune
of $3 billion, would lend itself nicely to a Colombo plan type of opera-
tion.
Perhaps the main differences between the United States foreign aid
programs and the Colombo plan are: (1) the former are more heavily
financed; (2) they operate over a broader geographic area; and (3)
they are subject to exclusive control by a single country.
What seems to us essential is that the conceptions underlying the
Colombo plan, its flexible procedures and the type of relations that
it embodies be given more prominence in the administration of Ameri-
can foreign aid programs. The Congress appeared to be looking in
the same direction when, in the Mutual Security Act of 1956, it
authorized special development funds for three regions: South Asia,
Africa, and Latin America. It provided further that when 2 or more
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1147
nations in 1 of these regions should be involved, the limitation,
otherwise applicable, of 20 percent upon the amount that might be dis-
bursed in the form of grants, should be removed. Existing law thus
seems to pave the way for a form of regional cooperation between this
and other countries that would have benefits for all.
Some administrative steps have already embodied the conception
of regional aid. To be financed from assistance funds at the disposal
of the President, plans for a regional Nuclear Center for Research
and Training in the Republic of the Philippines were presented by
the United States at a recent meeting of the Colombo Plan Consulta-
tive Committee. Seven other regional programs to be financed from
the President's funds are under study. The Jordan River develop-
ment scheme is another conspicuous illustration of a regional proposal
in which the resources of the United States may be applied to the
economic development of a plural number of nations simultaneously.
We refer once more to the intent of the Congress as expressed in
the Mutual Security Act of 1956. Section 201 (a) authorized funds—
to promote the economic development of free Asia, the Mid-
dle East, and Africa based on self-help and mutual coopera-
tion of friendly nations, and to maintain economic and
political stability in these areas. [Italics added.]
C. UNITED NATIONS CHANNELS FOR ECONOMIC AND TECHNICAL AID
There can be no doubt that in general underdeveloped countries
would rather receive aid and small free nations would rather extend
it through United Nations channels than through bilateral arrange-
ments. These attitudes, disclosed in United Nations debates and else-
where, underlie a widely held belief that the United States-without
abandoning its bilateral programs-should encourage the expansion
of multilateral assistance efforts.
In discussing this viewpoint, we find it necessary to draw a sharper
distinction between technical and economic assistance than we have
previously made. In our opinion, the case is stronger for encourage-
ment and utilization by the United States of United Nations programs
of technical assistance than for its use of new multilateral vehicles
for the extension of economic assistance-by which we refer to grants
and loans of "nonbankable" character. By the adjective "new" we
exclude the International Bank for Reconstruction and Development,
of which the United States is a member and supporter and whose
loans are made on a banking basis.
There has been much criticism in the United States of the United
Nations expanded program for technical assistance-some of which
is justified, but most of which is not. There is, for example, the con-
tention that, for an international cooperative project, the United
States pays too much of the cost. There was sufficient merit in this
contention for the Congress, in its latest appropriation for the pro-
gram, to place a ceiling of 50 percent on the United States contri-
bution.
There is also an opinion that, being operated through the United
Nations, which is primarily a political organization, political con-
siderations play a major role in the allocation of funds to particular
countries and in the determination of individual projects. This opin-
1148
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
ion arises largely out of the fact that the program formally comes
under the aegis of the United Nations Economic and Social Council
(ECOSOC). But an objective study of the way the program is
actually organized should demonstrate the lack of validity of this
allegation. We have described this elsewhere but will elaborate here.
When the total contributions to the program have been determined,
the task of deciding how the total will be divided among the operating
agencies-the United Nations Technical Assistance Administration
and the specialized agencies-is turned over to the Technical Assist-
ance Board (TAB). This is composed of representatives of the
operating agencies-not of governments under the chairmanship of
a designee of the Secretary General of the United Nations. The
decisions of TAB are reviewed by a Technical Assistance Committee
(TAC), which is composed of government representatives and is sub-
sidiary to ECOSOC. Finally, the broad determinations of allocations
as approved by TAC are formally ratified by ECOSOC. No evidence
has come to our attention that either TAC or ECOSOC has ever upset
the allocations of TAB. Consequently, it is difficult to find substantia-
tion for the charge that "political" considerations enter into the allo-
cation of United Nations technical assistance money.
Another charge, not to be taken too seriously, is that the national
citizenship of certain key figures tends to favor the allocation of funds
to projects in which certain governments are interested and to favor
the assignment as technical experts of citizens of those countries. The
answer to this lies in the way the allocation procedure is organized
and in the fact that most of the "experts" are selected by the specialized
agencies themselves. The latter, in response to a recent request, ad-
vised U. N. authorities that they are satisfied as to the fairness and
equity of the present procedure.
Finally, there is the more serious allegation that the United Nations
technical assistance program is ineffective; that it doesn't get a real
job done; and that the main results consist of highly technical reports
which are now gathering dust in the departmental files of the govern-
ments of the underdeveloped countries. Such assertions, because of
their nature, should be analyzed.
It is our view that the charge, in general, is unjustified. It must be
admitted that the U. N. technical assistance program has not achieved
spectacular results in bringing about overall economic development in
the underdeveloped countries. It is also true that, in numerous
instances, the advice of technical experts has not been followed up by
recipient governments. This is particularly true in the field of govern-
ment organization and administration. On the other hand, there
are many more instances, particularly in the fields of agriculture and
health, where the advice of experts has resulted in practical programs
for the elimination or control of serious human and animal diseases,
for locust control, for specific agricultural production projects, etc.
Actually the failure of the United Nations technical assistance
program to achieve far-reaching results does not stem from the way
in which it is organized and administered. It stems from the simple
fact that no money is available to pay for the capital goods and equip-
ment, without which the work and advice of the most talented and
devoted "experts" can yield but meager results. This was learned
early in the United States point 4 program with the result that that
program is now merged in an overall International Cooperation Ad-
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1149
ministration (ICA) program involving the provision of large sums
of money as well as of technical experts.
The weakness we mention in the United Nations technical assist-
ance program has long been recognized in its own circles and there
has been much agitation in favor of establishing a Special United
Nations Fund for Economic Development (SUNFED), a proposal
to which we will return below. Up to the present, nothing has come
of this project. The United States and United Kingdom have held
back, although they have not spoken against the principle involved.
They have contended that they are not in a position to contribute
to such a project until the financial burden of their armanent pro-
grams has been greatly reduced.
These countries (United States and United Kingdom) have pro-
posed alternatively that, so far as multilateral action is concerned,
capital be provided through the World Bank and its recently estab-
lished subsidiary, the International Finance Corporation. The weak-
ness of this position lies in the fact that neither the bank nor the
corporation is prepared to loan large sums of money for non-self-
liquidating public works-such as roads, hospitals, and schools.
These must form the broad foundation for economic development in
the underdeveloped countries.
This brings our discussion to a consideration of the practical advan-
tages to this country of employing the United Nations as a vehicle
for the coordinated extension of economic assistance in situations to
which the procedures of the World Bank are not adapted. It must
be remembered that if such aid is to have a substantial impact upon
development in the many areas requiring it, the funds to be raised and
administered must be of large size. Without American participation
any scheme could scarcely be successful.
On behalf of various persuasive proposals for United States par-
ticipation in extended United Nations efforts in this direction, it is
pointed out that a number of free nations would either like to give
more economic aid than they are now giving or have earmarked funds
that remain unspent for lack of a satisfactory vehicle. It is in our
national interest that they should find such a vehicle. Bilateral aid is
suspect is open to old charges of colonialism and imperialistic am-
bitions on the part of the nation extending it. The IBRD is not
designed to meet the requirements because it operates within a frame-
work of banking conceptions and cannot finance many important social
and cultural undertakings which underlie economic development. A
new international vehicle, it is contended, would bring more money
forward; would eliminate suspicions of our intentions, because we
would not be the only contributor; and would correspondingly save
embarrassment to recipient governments by eliminating opportunities
for anti-American propaganda.
Clouding such considerations are many hurdles of a practical char-
acter related to the independent sovereignty of 80 United Nations
members. Each has separate interests-political, economic, and
social-which would have to be reconciled in a large number of situa-
tions. The fact that underdeveloped nations are in favor of receiv-
ing funds for economic development through an international channel
should perhaps be weighed against the fact that their votes, if alined
together, would control the decisions of the United Nations General
Assembly.
1150
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
2
The pros and cons of the argument have been assembled by Prof.
Eugene Staley, who writes from an unusually full and varied inter-
national experience. In addition to the case for multilateral assist-
ance that we have already presented, he notes that the removal of
political suspicions attached to bilateral aid helps "in getting the job
done." United Nations missions are less vulnerable to popular denun-
ciation and are thus better able to secure needed reforms and to advise
in such sensitive fields as public administration. As members of the
United Nations and its specialized agencies, the recipient countries
would feel self-respect and a "sense of responsibility" were they to par-
ticipate more actively in the planning and administration of aid pro-
grams. Moreover, "multilateral agencies can draw on a greater variety
of experience and technical personnel than can any single country.
For all of these and other reasons "a United Nations agency can
usually get more development results for a dollar's expenditure, in
most underdeveloped areas, than can the United States operating
singly."
While Professor Staley believes that "the total of international de-
velopment aid is likely to be greater with bilateral arrangements than
without them," his preference on balance is clearly for the multilateral
approach. The same position is taken in a thoughtful analysis by
James P. Warburg, who proposes a "United Nations Development
Authority." 3
Most of the arguments, as we state them, neglect the primary crite-
rion by which we feel they should be appraised by the Congress: Are
the proposals in the national interest of the United States? Granted
our interest in securing the most effective and efficient program of eco-
nomic assistance to free peoples who require it, this must not be at the
sacrifice of other more vital and immediate interests which we value
more. Among these is a substantial degree of unilateral freedom of
action. Its conservation is entirely consistent with a national policy
which aims at the economic development and social betterment of all
free peoples, especially of those in greatest need. The question of na-
tional interest concerns the means by which to express this policy and
not the end.
The issue tends to center upon the proposal to establish a Special
United Nations Fund for Economic Development, commonly known
from its initials as SUNFED. It would parallel the World Bank
(IBRD) and its subsidiary, the International Finance Corporation
(IFC), both of which are essentially limited in their financing activ-
ities to governments which are members by reason of subscriptions to
the bank's capital stock. IBRD may loan to nationals but under
governmental-member guaranty. SUNFED as contemplated would
have no fixed capital but would operate with an annually replenished
fund controlled by a council composed of representatives of the con-
tributing states. The fund would be available for either grants or
loans at low interest intended to develop the infrastructure of economic
advancement (roads, hospitals, schools, etc.). Such financing opera-
tions are beyond the present capacity of existing international agencies
like IBRD because they are not self-liquidating.
The Future of Under-Developed Countries, 1954.
'Danger and Opportunity, 1956.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1151
The SUNFED proposal was reviewed by an ad hoc U. N. committee.
In response to its survey of governmental opinions, a variety of view-
points were expressed. In general, the countries which might be ex-
pected to apply to the fund for aid were wholeheartedly in favor of it.
This was also true of a number of the smaller European countries,
who indicated willingness to make substantial contributions im-
mediately.
The views of the United States have been influenced by the obvious
dangers in a fund possessed of necessarily limited resources which
would be unable to meet the heavy demands made upon it. On the
other hand, there is recognition of an unmet need and a willingness to
agree that if the responsibilities of SUNFED were carefully circum-
scribed, it might serve a useful function.
The United Kingdom supported the SUNFED proposal in princi-
ple, but suggested that its establishment should await the fulfillment
of the following conditions:
1. A program of internationally supervised worldwide disarma-
ment under the auspices of the United Nations should have been em-
barked upon.
2. A certain minimum of money should be available to the fund be-
fore it embarks on any operations.
3. The membership of the fund should embrace the bulk of the
members of the United Nations.
Canada, New Zealand, and Australia took the general position that
until the fund can have the support of the large industrial nations, it
should not be established. They also pointed out that they already
are making heavy contributions to the Colombo plan and the UNTAA.
Similar views were expressed by West Germany in the following
cogent and well-reasoned statement:
The Government of the Federal Republic of Germany
states that it has again examined the plan to establish a
Special United Nations Fund for Economic Development.
As is shown by its participation in the World Bank, the
technical assistance program of the United Nations and re-
cently, the International Finance Corporation, it is interested
in the economic development of countries capable of develop-
ment. If a new institution-SUNFED is now to be
created in addition to already existing institutions or those
in process of being established (IFC), very careful consid-
eration should be given to the question of whether the said
institutions could not also fulfill the tasks intended for the
special fund. According to investigation so far, this possi-
bility would seem out of the question without amending the
statutes of the above-mentioned institutions. Alterations
in the statutes could also cause considerable difficulty; but it
does not seem impossible that existing institutions such as
the World Bank could act as agents in procuring the addi-
tional funds required—perhaps in the form of "grants-in-
aid" from friendly governments-for important develop-
ment projects. In this way a connection could be established
with the existing national aid programs without the necessity
of creating a new organ within the framework of the United
Nations. Furthermore, the establishment of the special
1152
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
fund should only be considered provided the participation of
the most important world trade countries-particularly the
United States of America, Great Britain and France-is as-
sured.
It thus appears that a number of the financially stronger nations
have doubts about the advisability of establishing a special fund and
about the need to create new instruments for the purposes it would
serve. It also appears that the United States holds the key to a de-
cision upon it.
The SUNFED proposal has been developed to fill an important gap
among economic assistance programs a means of financing projects
of economic infrastructure types which, although non-self-liquidating,
are of basic importance for development in underdeveloped areas.
However, whatever the agency to satisfy this need may be, it will
encounter strong pressures to finance enterprises of questionable
character. SUNFED, as proposed, would not seem to be in a political
position to resist such pressures by the application of standards equiva-
lent to those employed by the IBRD in advancing funds for projects
expected to produce a direct economic return and be repayable there-
from. We agree with those who regard such standards as essential;
and we agree with the West German Government in thinking that
the facilities of IBRD and IFC might be so adapted as to place an
appropriate mechanism under their overall control. It is significant
in connection with this suggestion that voting powers in the adminis-
tration of IBRD are proportional to the capital subscriptions made.
to it by its members.
Our skepticism about the desirability of multilateral instruments
for economic assistance does not extend to multilateral programs for
technical aid. The sums involved are smaller, the character of tech-
nical aid is quite different and the projects developed are subject to
greater and more continuous administrative supervision. The argu-
ments for multilateral vehicles of assistance maintain their force in the
case of technical aid without the counterbalancing considerations that
apply particularly to large-scale grants and loans. The question here
is largely one of the extent to which any one nation-meaning the
United States should contribute a preponderant share of the costs.
This question has already been answered by the Congress through its
limitation upon contributions of the United States to the United Na-
tions Expanded Program of Technical Assistance to 50 percent of the
total.
We regard this decision as an appropriate and sufficient answer to
the question whether the United States should expand or contract its
participation in multilateral programs for technical assistance. To
the extent that these programs continue to demonstrate their value, we
would favor American support for an orderly and therefore gradual
rise in their magnitude within the limitation named. This assumes
further that the present, largely informal, devices for coordination
among multilateral, regional, and bilateral programs would be con-
tinued and developed.
APPENDIXES
APPENDIX A
COMPUTATION OF RELATIVE CAPACITY TO EXTEND FOREIGN AID
Indexes of national capacity to expend resources for any specific
purpose are of dubious theoretical validity. Expenditures involve
choice among alternatives and the comparative utilities among these
are likely to defy quantitative measurement. The indexes we have
developed involve even greater difficulties because we apply them to
comparisons between nations. Not only theoretical limitations but
many inadequacies of statistical information must qualify the results,
a fact of which we are acutely aware. We have sought a numerical
basis upon which to determine the "fair shares" of nations contribu-
ting to foreign aid-a question about which there has been much
discussion and expression of opinion; but the conception of fair
shares is itself questionable, since it implies obligations extending
beyond the interests upon which the policies and programs of each
nation are based.
In calculating our indexes, we have made certain assumptions that
have been adopted for other purposes with some degree of agree-
ment; and we have borrowed from the United Nations certain data
and procedures that were developed to serve these other purposes.
The groundwork for our indexes has been laid during the past
decade by the Committee on Contributions of the United Nations
General Assembly, working under Assembly directives. The Com-
mittee is responsible for recommending a scale of assessments upon
United Nations members to meet the administrative expenses of that
organization. These expenses are to "be apportioned broadly accord-
ing to capacity to pay"—a capacity for which "comparative estimates
of national income * * * appear prima facie to be the fairest guide."
The General Assembly and the Committee on Contributions have
recognized, however, that assessments directly proportional to esti-
mates of the national incomes of member nations would be "anomo-
lous." On the average, every 3 or 4 persons in the United States
have together as much income as 100 or more persons among many
Asiati and African peoples. In most countries of the world, the
margin of income above the costs of subsistence for their people, out
of which international obligations must be paid, is proportionately
far lower than in countries like the United States and Canada.
The Committee on Contributions in recommending national assess-
ments therefore prepared a sliding scale of allowances for low per
capita income, somewhat similar to the "brackets" of a "progressive”
income tax system. This scale provides an exemption from assess-
ment of 50 percent of national income in the theoretical instance in
which per capita income sinks to zero. Actual exemptions for the
1153
1154 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
poorer countries approach 50 percent. The exemption of national
income from assessment declines as per capita income rises until
national income becomes fully assessed at a per capita annual income
of $1,500.
Other departures by the Committee on Contributions from the use
of simple comparisons of national income totals as a basis for United
Nations assessments were made simultaneously. Adopting a proposal
of the late Senator Arthur Vandenberg, the United States assessment
was limited to no more than one-third of the total. Its "ceiling" has
been accompanied by other related "ceilings," and by "floors" to assure
certain minimum contributions from the smallest United Nations
members. Still other criteria, resulting from its studies of relevant
data or enjoined upon the Committee by the General Assembly, have
sought to assure the greatest possible equity among the assessments of
United Nations members in accordance with the "capacity to pay"
principle.
The "ceiling" from which the United States benefits was based upon
Senator Vandenberg's fear that a "preponderance" of contributions to
the administrative expenses of the United Nations by a single country
might lead at some future time to its "preponderance" of influence in
the counsels of the organization. Since this consideration seems inap-
plicable to the purpose we set ourselves, our indexes of relative national
capacity to extend foreign aid employ data in which the national in-
comes of the United States and of other countries subject to "ceilings"
and "floors" are fully expressed. In calculating our indexes, however,
the procedures of the Committee on Contributions have been otherwise
followed. Our indexes, like the national income estimates from which
they were derived, pertain to the 3 years 1951-53. The capacity of the
United States is set at 100 and the capacities of other free countries
are shown as relatives thereof.
In compiling the indexes, we have made use of a number of tables.
which were prepared by the United Nations Statistical Office for the
confidential use of the Contributions Committee at a time that one of
our senior associates was a member thereof. Certain of these tables
contained data for nations not then members of the United Nations,
but for which recommended assessments were requested by specialized
agencies of the United Nations. In using the figures which were thus
obtained, the former Committee member has exercised every precau-
tion to preserve their confidential character. The fact that the United
Nations General Assembly has uniformly adopted the scale of assess-
ments recommended by its Committee for United Nations members,
without exception, may be regarded as an evidence of the care with
which the data at the Committee's disposal were employed and the
credence that they merit. This credence, we believe, may be extended
in corresponding degree to the indexes we have based upon them and
which are cited in chapter I, section A.
The fact that the indexes pertain to a different time period than
that to which they have been applied, as in table 10, introduces further
regrettable qualifications upon inferences drawn from the results.
Economic changes in all countries are constantly in process, and even
the expenditure data in the table cited may contain errors for the years
it covers amounting to as much as 10 or 15 percent. It is impossible
to say to what extent all of these sources of error and inaccuracy may
compensate or reinforce each other. We can only express the belief
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1155
that the applications of our indexes reflect in a broad and general man-
ner the extent to which certain other free nations, in comparison with
the United States, have used their available public resources to assist
other peoples.
The indexes referred to, already presented in chapter I but repeated
here for convenience, are as follows:
United States__
Australia.
Austria_
100.0 Japan___
2.3 Netherlands_.
.5 New Zealand___.
1.7 Norway--
6.2 Portugal_
2.8
1.2
.6
Belgium
.7
Canada_
.3
Denmark_-_.
1.6
2.1
7.9 Switzerland.
1.6
Germany (West)
Italy.
5.8 United Kingdom__
10.7
2.9 Union of South Africa___
.7
Finland--
France.
.9 Spain__
.6 Sweden__.
APPENDIX B
SUPPLEMENTAL STATISTICAL DATA
Because of the oft-heard contention that technical assistance activ-
ities by the United States should be transferred to the United Nations,
detailed data pertaining to the U. N. expanded program of technical
assistance are here presented in appendix tables I, II, and III.
These are reproduced from the Eighth Report of the U. N. Technical
Assistance Board, Supplement No. 5, Annex I. Table I shows in dol-
lars the amounts pledged to this program by each U. N. member
during each of the years 1952 to 1956, inclusive. Table II shows for
the same years (but combining the first 18-month period) regions and
areas for which project expenditures were made. Table III, for the
single year 1955, shows the distribution by regions of the amounts
obligated for country projects by the United Nations and by each of
its specialized agencies.
TABLE I.-Contributions pledged by governments to the United Nations expanded
program of technical assistance for the years 1952–56
[United States dollar equivalent]

Country
1952
1953
1954
1955
1956 1
Afghanistan...
Argentina..
Australia
Austria...
Belgium..
Bolivia
Brazil.
Bulgaria
Burma..
$7,001
$10,000
$10,000
$10,000
200,000
200,000
300,000
300,000
190,000
400,000
400,000
500,000
19, 231
19, 231
19, 231
38, 462
270,000
297,000
12,500
25,000
459, 459
374, 551
337,500
7,895
219, 135
337, 500
7,895
270,270
$10,000
100,000
2312, 520
38, 462
437,500
10,000
324, 324
Byelorussian Soviet Socialist Republic.
8,000
14 706
12,000
12,000
18,000
18,000
Cambodia...
Canada..
Ceylon.
50,000
50,000
50,000
5,000
5,000
2,000
750,000
5,000
800,000
1,500,000
1,500,000
Chile.
15,000
1,800,000
15,000
15,000
18,000
174, 194
China
209, 032
18,000
58,909
100,000
Colombia...
10,000
110,000
10,000
15,000
15,000
Costa Rica..
100,000
20,000
100,000
140,000
140,000
Cuba...
5,000
140,000
5,000
6,000
7,000
Czechoslovakia…….
50,000
8,400
50,000
25,000
Denmark...
69, 444
Dominican Republic..
108, 585
434, 342
434, 342
69, 444
550, 166
69, 444
6,000
579, 123
Ecuador
10,000
10,000
20,000
Egypt..
6,300
24,000
6, 400
6,400
10,000
81, 850
10,000
86, 157
86, 157
100, 517
100, 517
See footnotes at end of table.
94413-57-74
1156 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
TABLE I.-Contributions pledged by governments to the United Nations expanded
program of technical assistance for the years 1952-56-Continued
[United States dollar equivalent]

Country
1952
1953
1954
1955
1956 1
El Salvador.
$5,000
Ethiopia.
$6,000
$6,000
$7,000
20,000
$7,000
Finland.
20,000
20,000
20,000
10,000
20,000
France.
10,000
10,000
15,000
15,000
1,064, 643
Germany, Federal Republic of..
1, 207, 500
1,207, 500
1, 450, 357
1,448, 571
119, 048
Greece..
148, 810
148,810
148, 810
238, 095
20, 295
Guatemala.
20, 295
5,000
5,000
5,000
7,500
Haiti...
7,500
7,500
7,500
7,500
12,000
Honduras.
12,000
12,000
12,000
8,000
14,400
Iceland..
9,600
8,000
8,000
2,500
India
Indonesia...
2,800
2,806
2,806
3,684
275,000
275,000
300,000
400,000
450,000
43, 860
Iran...
Iraq.
63, 585
65, 790
65, 790
40,000
40,000
50,000
50,000
65, 790
50,000
5,000
Ireland...
11, 201
13, 953
13, 928
28, 003
14, 002
Israel...
14,001
14,002
28, 003
Italy.
40,000
50,000
27,778
50,000
93,000
Japan
93,000
96,000
* 112,000
112,000
80,000
Jordan.
80,000
80,000
90,000
90,000
Korea, Republic of.
2,815
Laos---
5,000
3,000
3,000
3,000
3,500
5,000
Lebanon.
2,823
2,857
1, 429
1, 429
6, 846
Liberia..
6,846
6, 846
6,846
6, 846
12,000
Libya..
12,000
15,000
15,000
20,000
Luxembourg.
Mexico..
3,000
3,600
4,000
5,000
2,500
2,500
2,500
2,500
3,000
34, 682
Monaco...
34,682
34, 682
24,000
Netherlands…………
New Zealand…….
2,857
400,000
421, 053
1, 143
1,429
600,000
1, 143
660,000
33,600
1,429
760,000
126, 015
Nicaragua
125, 593
125, 593
168, 020
168, 020
5,000
Norway
5,000
5,000
3, 571
6, 500
55, 999
Pakistan..
Panama..
69, 999
97,998
380, 792
380, 792
151, 103
166, 213
166, 213
166, 213
166, 213
3,000
3,000
Paraguay.
3,000
3,000
3,600
5,000
5,000
Peru
Poland..
8,000
8,000
12,000
Philippines...
10,000
12,000
50,000
50,000
55,000
55,000
66,000
Rumania.
75,000
75,000
75,000
75,000
Saudi Arabia..
16, 667
Spain
15,000
15,000
15,000
25,000
25,000
Sweden
10,000
357, 336
Switzerland….
386, 623
483, 279
579, 934
695, 921
218, 862
Syria...
231, 852
233, 372
233, 372
233, 645
11, 410
Thailand
11, 410
11, 410
11,867
11,867
Turkey.
34,000
182,000
40,000
40,000
Ukranian Soviet Socialist Republic.
183, 571
201, 495
Union of Soviet Socialist Republics.
United Kingdom of Great Britain and
1,000,000
125,000
1,000,000
40,000
201, 495
125,000
1,000,000
40,000
201, 495
125,000
1,000,000
Northern Ireland...
United States of America…….
Uruguay.
Vatican City
1, 260, 151
11, 400, 000
50,000
1, 400, 168
12, 767, 145
1,820, 218
13, 861, 809
2,240,000
15,000,000
2,240,000
415, 500, 000
75,000
75,000
100,000
120,000
Venezuela..
2,000
Vietnam
20,000
25,000
45,000
2,000
150,000
2,000
66,000
7,500
Yemen...
7,500
7.500
50,000
Yugoslavia..
Total....
1 Provisional, to Mar. 31, 1956.
• Amount pledged for the 1st half of 1956.
This pledge, previously recorded at the equivalent of $200,000, has been adjusted in accordance with the
appropriation action of the Italian Parliament.
Maximum pledge subject to the condition that the United States contribution shall not exceed 50 percent
of the total contributions from all governments.
In addition, a contribution equivalent to $467 was pledged by the Government of Liechtenstein and ac-
cepted under financial regulation 7.2.
2,100
2,100
62, 500
82, 500
18,797, 232 22, 320, 725
82, 500
25,020,589 $27,882,907
|
* | | ³ 28, 940, 563
110,000
རྩྭ
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
1157
TABLE II.—United Nations expanded program of technical assistance project costs
by region and country
Region and country
[United States dollar equivalent]

Calendar year
Approved
program
calendar
1950-51
1952
1953
1954
1955
year 1956
Africa:
Algeria.
Bechuanaland..
Belgian territories in Africa.
British East Africa..
Ethiopia....
$13,749
$11, 575
$2,257
33, 052
7,578
18, 900
$10, 922
Gold Coast..
Ivory Coast....
Kenya..
Liberia..
Libya.-----
Mauritius..
Morocco---.
Nigeria..
Federation of Rhodesia and Nyasa-
land.
France (nonmetropolitan territories)..
French West Africa (Cameroons).
Gambia..
$139, 035
21, 660
10,000
237,873 $264, 794
251, 529
293, 833
372, 229
1 4, 514
1 64
8, 518
45, 424
5,000
4,885
17,438
16,780
41, 588
15, 645
39
19, 423
21, 012
10, 732
28, 982
36, 110
128, 580
7,066
2,030
87,802
8, 694
302, 697
2,500
268, 950
206, 012
165, 062
188, 104
257, 386
654, 443
771, 960
584, 163
602, 421
733, 163
11, 974
51,768
14, 164
49, 493
Portuguese territories in Africa
4, 514
35, 180
8, 668
33,593
62, 054
Reunion Island………
Saint Helena..
Seychelles..
Sierra Leone.
18, 213
27, 195
962
2,675
1, 200
Somaliland.
Spanish Guinea.
Sudan.
Tanganyika.
Tunisia..
Uganda..
Zanzibar.
Regional projects.
Total.
17,819
29,950
74, 832
59, 682
50, 731
18, 756
46,783
38, 380
759
4, 514
10,029
51, 484
146, 423
8, 582
37, 721
83, 842
126, 500
22,784
47, 258
68,880
80, 316
11, 648
33, 134
2,214
33, 511
58,424
36, 807
145, 287
122, 338
444, 891 1,347, 082||1, 463, 727
1, 278, 896|
1,762,088| 2,430,530
Asia and the Far East:
Brunei...
Burma.
7,862
9,000
Cambodia.
164, 679
430, 803
2, 133
484, 879
533, 262
Ceylon
38,871
57, 387
40, 127
95, 936
706, 950 1,041, 035
180,776
China (Taiwan).
190, 817
259, 679
456, 029
545, 422
348, 246
495, 735
826,225
Hong Kong.
136, 543
199, 749
257, 309
249, 442
214, 417
India
7, 335
14, 423
23,884
30, 644
Indonesia.
148, 058
13, 250
1,045, 248
945, 696
562, 802
Japan.
138, 880
565, 232
944, 726 2, 679, 171
754, 132
590, C04
778, 542
993, 833
Korea (South)
31, 750
12,975
15, 844
86,375
9, 147
95, 350
Laos..
53,923
29, 610
32, 839
38, 900
Malaya...
22, 109
41, 897
42, 351
73,592
111, 269
Nepal..
7,200
32, 024
56, 256
44, 662
53, 465
138, 748
Netherlands New Guinea.
200
48, 628
35, 686
58,791
119, 020
173, 596
North Borneo….
2,582
2,358
Pakistan..
31, 351
33, 850
34, 974
35, 325
Papua and New Guinea.
268, 312 1,041, 574
36, 681
910, 425
756, 210
929, 083
1,075, 712
Philippines.
2,000
1,706
Sarawak..
63, 080
3, 450
363, 394
306, 475
316, 742
357,057
377, 624
Singapore-----
1, 179
42, 630
33, 831
26, 119
24,798
Thailand
Vietnam.
2, 763
262,876
39, 067
14, 083
51, 362
49, 105
50, 378
47,748
608, 021
542, 536
457,981
536, 394
Samoa
50, 542
599, 760
53, 227
37, 464
1,760
104, 100
132, 378
United States Trust Territories.
2,257
2, 976
Regional projects..
80, 781
881, 402
422, 457
397, 534
6, 324
664, 434
574, 180
Total..
1, 435, 24 |75, 933, 950| 5, 474, 357 4, 650, 460 6, 461, 705| 9,472, 073
Latin America:
Alaska (United States).
Argentina...
4, 514
Barbados..
15, 291
97,500
Bolivia..
1, 236
24, 977
Brazil...
290, 077
304, 116
266, 814
341, 615
British Guiana.
106, 550
383, 722
495, 262
833, 021
366, 025
429, 070
British Honduras…………….
11, 907
458, 956
32, 319
21, 486
21, 088
29, 300
British West Indies..
7,021
Chile.
143, 488
18, 954
Colombia..
255, 385
50,448
222, 150
251, 676
138, 633
407, 027
547, 470
232, 712
163, 746
209, 439
341, 507
386, 934
1 Southern Rhodesia.
* Nyasaland.
1158 FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
TABLE II.—United Nations expanded program of technical assistance project costs
by region and country-Continued
[United States dollar equivalent]

Region and country
Calendar year
Approved
program
calendar
1950-51
1952
1953
1954
1955
year 1956
Latin America—Continued
Costa Rica..
$44,821
Cuba..
$186, 752
$126, 761❘ $115, 461
$114, 529
Dominican Republic.
4,632
$187, 563
24,306
13, 586
24,007
13,750
88,984
Ecuador.
52,000
43, 612
52, 696
51,904
102, 938
526, 490
El Salvador.
348, 440
268, 993
298, 114
345, 641
123, 041
304, 099
French Guiana…
201, 726
150, 613
158, 599
196, 764
Guadeloupe..
3.316
Guatemala………….
10,000
35, 247
174, 526
Haiti..
126, 551
92, 236
191,488
270, 350
80, 638
272, 278
168,488
Honduras.
152, 914
310, 243
248. 633
38, 011
57, 407
67, 375
Jamaica..
59, 329
125,909
243, 453
2, 193
52, 148
Leeward Islands.
57,979
19, 168
64, 580
76, 830
2,257
Mexico..
3,500
129, 604
487,900
184, 305
Nicaragua.
177, 181
309, 376
358, 519
933
34, 700
37,836
Pacific Island (United States)……….
78, 403
129, 434
224, 700
2, 257
Panama..
4, 611
62, 030
140, 045
Paraguay.
112,050
105, 811
109, 134
55, 147
228, 961
228, 743
Peru...
198, 733
298, 663
372, 325
62, 688
165, 843
Puerto Rico (United States)
198, 130
141, 337
66,889
141, 888
4, 514
St. Lucia.
890
229
Surinam...
Trinidad..
3, 136
Curacao.
4,767
9, 184
9, 333
30, 324
17,500
Uruguay.
5, 179
22, 971
Venezuela.
Virgin Islands (United States)
Regional projects..
14,799
31, 751
143,608
156, 468
3, 314
4,047
23, 138
105, 170
176, 304
292, 507
4,514
79, 203
910,790 1,069, 860
1,025, 202
1, 295, 982
1,172, 594
Total..
1, 181, 559
4,915, 762
4, 616, 350|
3,920, 784
5,482, 384
6,437, 919
Europe:
Austria.
Cyprus.
Finland..
Greece....
163
80, 421
45,899
35, 533
49, 674
20,000
6,523
18, 939
3,647
3,500
18,813
42,706
10,820
190, 431
62, 003
27,147
39, 182
18,650
21,592
Iceland.
Italy.
213, 056
98,424
62,268
112, 149
160, 672
4,359
44, 880
42, 736
4,417
7,820
2,827
Luxembourg..
Malta..
Portugal.
Spain..
12,948
47, 833
41, 951
1,886
3, 905
5, 759
122
1, 520
2,744
95,000
2,972
6, 415
1,039
18, 802
Trieste.
19,661
322
10,853
14, 894
19, 250
11, 542
Turkey.
7,813
61, 383
Yugoslavia.
277, 513
421, 266
531,954
567,862
49, 374
1,053, 687
673, 130
633, 242
791, 859
591, 265
683, 535
4, 176
98,867
148, 453
66,456
168, 607
15, 166
233, 866
81, 922
90,272
Jordan.
Regional projects.
Total..
Miudle East:
Afghanistan
Egypt...
Iran
Iraq-
Israel..
91,000
163, 918| 1,940, 089|| 1,522, 440 1,499, 640 1,665, 519] 1, 729, 898
587, 108
275, 560
1,153, 536|
547, 869
408, 654
319, 457
473, 397
701,364
218, 522
458, 586
791, 261
891, 196
1.043, 221
793, 210
991, 709
838, 484
432, 195
321, 786
444, 206
486, 922
601, 252
450, 742
246, 332
345, 713
401, 366
22, 747
99, 619
164, 846
219, 473
Lebanon....
334, 034
383, 341
94, 423
225, 971
153, 573
95, 595
162, 553
Saudi Arabia.
212, 472
56, 260
160, 072
197, 819
108, 389
Syria...
103, 193
135, 020
108, 754
284, 705
275, 294
299, 834
Yemen.
402, 487
612, 980
3,457
4,441
17,976
Regional projects..
46,625
152, 517
66, 478
439, 429
58,035
371, 643
470, 808
526, 418
Total.
941,952| 4,375, 121 3, 407, 342 3, 252, 281|
4,565, 986
5,342, 080
Interregional projects..
28,036
319, 542
117, 229 1, 333, 931
171, 310
509, 165
547,900
Other project costs..
Total project costs..
Indirect operational costs..
Administrative costs..-
Technical Assistance Board (including
resident representatives).
Total obligations...
4, 515, 145 18, 800, 543 17, 818, 147
952, 393|| 2,069, 591| 1,967,300
789, 233 1,622, 479|| 1, 725, 475
179, 480 475, 516 1,299, 500|
838, 892
469, 152
15, 111, 226|21, 245, 726|25, 960, 400
1,723, 932 1,827,815 2, 163, 000
1,352, 273 1,383, 510 1,611,000
1, 277, 311| 1,356, 082 1,642,000
6, 436, 251|22, 968, 129 22, 810, 422 19, 464, 742 25, 813, 133 31, 376, 400
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS 1159
}
TABLE III.—United Nations expanded program of technical assistance: Amounts
obligated for country projects, by agency, 1955
[Thousands of dollars]


United Nations Technical As-
Total
Africa
Asia and Europe
Far East
Latin Middle
America East
Amount Percent
sistance Administration….
157.8
1, 534. 1
576. 4
1, 138. 3
857.7
4, 264. 3
21. 4
International Labor Organiza-
tion...
178.5
597.4
290.0
754.0
364.2
2, 184. 1
10.9
Food and Agriculture Organi-
zation..
497.5
1, 877.5
480. 7
1,733.8
1, 279. 7
5, 869. 2
29.5
United Nations Educational,
Scientific and Cultural Or-
ganization.
284.2
816.3
121.0
757.8
656. 0
2,635. 3
13.3
International Civil Aviation
Organization.
77.3
191.0
34.8
164.6
384.8
852.5
4.3
World Health Organization.
490. 6
1, 333.8
129. 2
884.2
872. 1
3, 709. 9
18.6
International Telecommunica-
tion Union...
32. 6
63.5
18.6
1.8
88.9
205.4
1.0
World Meteorological Organi-
zation..
43. 6
48.1
14.8
47.9
62.6
217.0
1.0
Total.....
1, 762. 1
6, 461.7
1, 665. 5
5, 482. 4
4, 566. 0
19, 937.7
100.0
NOTE.-Does not include the costs of interregional programs.
Source: United Nations Technical Assistance Committee, 8th Report of the Technical Assistance Board
Economic and Social Council, Official Records: 22d Session, supplement No. 5, New York, 1956.
APPENDIX C
(This outline was prepared by the staff of the special committee
to serve as a guide for Stuart Rice Associates, Inc., in preparation
of its report to cover subjects of interest to the committee.)
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
Purpose. This project will examine the activities of free nations
(other than the United States), especially those of Western Europe,
in providing military, economic and technical assistance to other
countries. It will survey the extent of assistance which is provided
by these free nations either directly or through international or
regional cooperation, differentiating between aid to their politically
dependent areas and to independent countries. It will examine the
objectives and methods employed in extending assistance. Finally,
it will consider the extent and implications of coordination between
the aid programs of other free nations and those of the United States
with a view to more effective employment of United States aid re-
sources in serving our national interests.
1. How much assistance do other free countries extend to the rest of
the world?
A survey of the current aid programs of the principal free nations
(other than the United States) which will throw light on the follow-
ing matters:
(a) Free countries extending military, economic, and techni-
cal assistance and nations receiving such assistance.
1160
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
(b) Kind and amount of assistance being extended on a bi-
lateral basis by other free nations to their dependent areas and
to independent countries (separately treated).
(c) Kinds and amount of assistance being extended by other
free nations on a regional basis, as, for example, through the
Colombo plan, Baghdad Pact, Southeast Asia Treaty.
(d) Amount being extended through programs of the United
Nations and agencies thereof.
II. Why do other free countries extend foreign assistance?
An analysis of the political, strategic and economic objectives
which motivate other free nations in extending assistance to other
countries. The section should cover the following:
(a) The range of objectives which motivate aid to dependent
areas.
(b) The range of objectives which motivate aid to independent
countries.
(c) The range of objectives in extending aid through the
United Nations and regional organizations.
(d) Comparison of objectives of other free nations in extend-
ing aid and those of the United States (coordinate with project 2).
III. What kinds of assistance do other free countries extend to the
rest of the world?
An analysis of the types of foreign assistance provided and the
principal methods employed by other countries in extending it. It
would include, but need not be limited to, the following:
(a) Relative importance of military, economic, and technical
assistance in the aid programs of selected foreign countries.
(b) Relative importance of types of aid in programs of other
countries (i. e., loans, commodity grants, cash grants, arms grants,
low-price arms sales, etc.).
(c) Techniques and extent to which other free nations en-
courage private enterprise to extend foreign aid.
(d) Comparison of the types of techniques of foreign aid ex-
tended by other free countries, and by the United States, with
analysis of the significance of similarities and differences.
IV. To what extent are United States aid programs presently coordi-
nated with those of other free nations?
An examination of the present coordination of United States assist-
ance programs with those of other countries. The section should
cover the following:
(a) Coordination through United States' and other free na-
tions' participation in programs of the United Nations and its
agencies.
(b) Coordination through United States participation in
regional organizations including NATO, Southeast Asia Treaty
Organization, relationship to Colombo plan.
(c) Informal coordination.
FOREIGN AID ACTIVITIES OF OTHER FREE NATIONS
1161
V. Would it serve the national interest of the United States to enlarge
or restrict the coordination of American aid programs with those
of other free countries: If so, under what circumstances?
An analysis of the implications of an increase or decrease in coordi-
nation of United States economic, military, and technical assistance
with that of other countries. To consider the implications in terms
of-
(8) Merits or drawbacks
88
(a) Merits or drawbacks of further use of the United Nations.
Merits or drawbacks of further use of existing or potential
regional organizations as an instrument for coordination.
(c) The rate of development of underdeveloped areas.
(d) The capacity and need for other countries to contribute to
development.
(e) The effect of coordinated assistance by the United States
and other free countries in stimulating intraregional self-help.

!
SURVEY NO. 1
GREECE, TURKEY, AND IRAN
BY
FORMER AMBASSADOR NORMAN ARMOUR
FEBRUARY 1957
1163
CONTENTS
!
Letter of transmittal_.
I. Summaries of major conclusions and recommendations on Greece,
Turkey and Iran
A. Greece
1. General_.
2. Nonmilitary
3. Military.
-
B. Turkey
1. General.
2. Nonmilitary.
3. Military.
C. Iran
1. General.
!!!!!!!!!!
1
1
1
1
1
2. Nonmilitary--.
3. Military
II. Conclusions and recommendations affecting more than one of the
countries visited.
A. The Baghdad Pact-
B. Defense Support
III. Country analyses-
A. Greece__
1. United States interests in Greece_
2. Basic situation in Greece-
!!!
3. Nature of United States aid programs..
4. Effectiveness of aid programs and conclusions__
B. Turkey.
C. Iran
1. United States interests in Turkey.
2. Basic situation in Turkey.
3. Nature of United States aid programs..
I
1
4. Effectiveness of aid programs and conclusions.
1. United States interests in Iran..
2. Basic situation in Iran_
3. Nature of aid programs.
I
4. Effectiveness of aid programs and conclusions.
1
f 1
1
I
I
1
1
I
1
1
I
1
t
Page
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1172
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1173
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1176
1176
1177
1178
1179
1179
1180
1181
1181
1181
1183
1187
1188
1191
1191
1193
1197
1201
1204
1204
1207
1211
1216
1165
LETTER OF TRANSMITTAL
JANUARY 11, 1957.
To the Chairman and Members of the Special Committee To Study the
Foreign Aid Program:
I am submitting herewith for the consideration of the committee
my report on the area assigned to me: Greece, Turkey, and Iran.
The report was written completely on the basis of my impressions
while in these three countries during November and early December
1956. Comment on events which have taken place since then has
not been included.
I was accompanied on this trip by Mrs. Armour, who, of course,
traveled independently, and by Mr. David Hitchcock, assigned to me
by the committee to provide staff assistance.
Throughout our trip, every assistance and thoughtful consideration
were given to us by the Ambassadors and the staffs of the Embassies
and by the members of the other United States Government missions
in the countries visited. To the officials of our Government and to
the officials of the countries visited, I wish to express my deep appre-
ciation for their helpfulness and friendly hospitality.
The purpose of the trip, as expressed by the special Senate com-
mittee itself, was to study the extent to which the present aid programs,
both military and nonmilitary, in Greece, Turkey, and Iran serve, can
be made to serve, or do not serve the national interest. With this in
mind, I have attempted on this mission to review and study the
fundamental aims of American foreign policy in these three countries;
the extent to which those aims are valid in terms of the national
interest; the effectiveness or ineffectiveness of the aid programs in
advancing those aims; and ways in which those interests might be
promoted by appropriate changes.
Arriving in Greece on November 4 last, we spent 6 days in that
country, 2 weeks in Turkey, and 10 days in Iran. In each country
we conferred with many people, including our Ambassadors and their
staffs, members of our military, the International Cooperation Ad-
ministration and the United States Information Agency missions, high
officials of the countries visited, local and American businessmen, news-
papermen, representatives of United States private humanitarian foun-
dations, universities and churches and in some instances local political
leaders presently not in office.
In all these countries an attempt was made to see at firsthand repre-
sentative areas other than just Athens, Ankara, and Teheran, the
capital cities. With this in mind special trips were made to northern
Greece, including Salonika and some of the surrounding towns, to
Izmir, Istanbul, and Eskisehir in Turkey and, in Iran, to Isfahan,
Shiraz, and to several towns in the Teheran area.
1167
1168
LETTERS OF TRANSMITTAL
Both going and returning, helpful conversations were held with
United States and NATO officials in Paris concerning NATO prob-
lems in Greece and Turkey.
Finally, I wish to express my warm and sincere thanks to my
companion on the journey, Mr. David Hitchcock, for his intelligent
and helpful cooperation at all times. Having dealt with various as-
pects of the mutual-aid program over the past several years, he was
well acquainted with the main problems in the areas visited and, as a
result, was able to elicit information and to have light thrown upon
aspects of the program that would otherwise probably not have been
forthcoming.
1
If, as it is hoped, this report shall prove useful to the members of
the committee and thus serve the purpose for which it was intended,
it will, in large measure, be due to the devoted labor and thought that
Mr. Hitchcock has put into its preparation.
Sincerely yours,
NORMAN ARMOUR.
GREECE, TURKEY, AND IRAN
I. SUMMARIES OF MAJOR CONCLUSIONS AND RECOMMENDATIONS ON
GREECE, TURKEY, AND IRAN
1. General
A. GREECE
It can be stated, I think, without serious question, that the defense
of Greece, the maintenance of Greek independence, and its alinement
with the free world are all vital to the security interests of the United
States and are important to western defenses throughout the Mediter-
ranean. The defense of Greece is important to the military and naval
forces of the United States and Great Britain in that area and is also
important to the defense of Turkey and the straits. Greece, in Com-
munist hands, would threaten the entire Middle East and would also
endanger the security of Western Europe.
The life of the present prowestern Greek Government depends
largely on the settlement of the Cyprus issue, and if this government
should fall, the coalition with pro-Communist representation would
probably take its place.
The Cyprus issue has seriously affected the efficacy of Greek
cooperation with Turkey and Great Britain. Until some solution to
this crucial problem is found, United States security interests and
political stability in Greece will remain uncertain, and the Balkan
Pact between Greece, Turkey, and Yugoslavia a virtually dead letter.
It must be remembered that while most countries were able to pro-
ceed to reconstruction after 1945, Greece was not able to begin work
on her recovery until 1950, after her victory over the Communists.
This makes her progress since then the more remarkable. But Greece,
in spite of this recovery and of some potential mining development
and production increases of certain basic foods, remains basically a
poor country.
The United States aid program to Greece-with that to Turkey-
was the first of such programs in Europe, and while the cost to the
United States has been high, the results in Greece certainly appear to
have justified the investment in money and effort. As I was told by
almost all Greek officials and others I met, had it not been for American
aid, Greece would now be behind the Iron Curtain.
Continued United States assistance to Greece is in the security
interests of the United States, and it remains necessary for Greece to
devote a large portion of its budget (at present about 30 percent) to its
military defense and in order to meet its NATO obligations. The
extent to which this sizable outlay may weaken the Greek economy
and its development is uncertain. In the long run, United States
military aid objectives for Greece and NATO force goals and require-
ments will be self-defeating, if at the same time a weakened Greek
economy is the result. Fulfillment of United States military aid
1169
1170
GREECE, TURKEY, AND IRAN
objectives would be a Pyrrhic achievement if United States non-
military aid objectives of helping Greece to stabilize and develop its
economy were defeated in the process.
United States aid to Greece continues to be generally well-received
by all major political groups. But military aid is not easily seen by
the average Greek, while nonmilitary aid is now almost entirely in the
form of surplus agricultural commodity proceeds absorbed by the
Greek Government's budget and thus leaves little trace for the country
at large to see of any American participation or contribution toward
the country's economic welfare.
It is also true that there is increasing pressure in many Greek
quarters to get away from United States tutelage and control over
the use of United States assistance.
In the final analysis, the future of Greece and of its economy lies
with the Greeks themselves. A greater feeling of self-confidence and
a greater sense of civic, individual responsibility for the operation of
the Government as a whole must continue to develop. There must
be a further return of capital from abroad, in which an encouraging
beginning has been made. The Greek people, understandable as their
hesitations may be, based upon bitter experience, must be persuaded
to overcome their lack of confidence in the Greek drachma. Taxa-
tion must be enforced at all levels, banking procedures improved, and
private foreign and domestic capital investment increased. The
Government's 5-year plan revised in 1956 will, if kept within work-
able bounds, be an important step in the right direction, although the
goal of a 5 percent a year increase in the gross national product seems
overambitious.
But with the progress that has been made in the past 6 years, with
a much-needed settlement of the Cyprus issue and increased political
tranquillity over a period of time, Greece should be able to hold her
place in the free world and assume, as time goes on, a greater part of
the burden of its military defense and economic development.
2. Nonmilitary
(a) Conclusions
Technical assistance to Greece (at present, less than $1 million)
has been generally effective, but in some areas was perhaps terminated
before its lessons had fully taken root.
Other than technical assistance, nonmilitary aid consists of about
$17 million in local currency generated from the sale of title I, Public
Law 480, surplus agricultural commodities, allocated by the United
States Operations Mission to the Greek Government's investment
budget for development purposes. All title I, Public Law 480, funds
are in loans.
The United States is also providing title III, Public Law 480, surplus
agricultural commodities for distribution to school children and to the
indigent.
The United States nonmilitary aid objective of helping the Greeks
achieve economic stability and prosperity may be somewhat ambitious
on the basis of the relatively small amount of nonmilitary aid in the
program at present. Much remains to be done before United States
objectives in this field will be achieved at the present rate of non-
military aid.
Because nonmilitary aid is, with the exception of technical assist-
ance, all in proceeds from the sale of surplus agricultural commodities,
GREECE, TURKEY, AND IRAN
1171
which are released to the Greek Government, the United States Oper-
ations Mission's control to assure maximum use of funds in develop-
ment projects is quite limited. However, it is questionable whether
the United States Operations Mission could exercise more control
without risking increased resentment.
(b) Recommendations
That technical assistance funds be increased with more emphasis or
agriculture, reclamation, and methods of attracting private
investment.
That technical assistance in helping the Greek Government establish
farm schools similar to the American Farm School at Salonika be
considered.
That certain commodities such as farm machinery be provided
in the aid program, with the proceeds from their sale furnishing cheap
agricultural credit to the Greek farmer.
That care be taken in the future not to terminate technical aid in
certain areas before the lessons taught have firmly taken hold.
That serious study be given to finding improved methods of assuring
adequate control over commodity proceeds accruing to the Greek
Government.
That International Cooperation Administration efforts to use the
withholding of commodity proceeds to discourage Greek inflation be
discontinued.
3. Military
(a) Conclusions
From the military point of view Greece's strategic location, member-
ship in NATO and position in the Mediterranean render its defense
vital to the whole area. Communist control of Greece would threaten
the entire Middle East and would increase the dangers to Western
Europe.
United States military aid is aimed at helping Greece provide
internal security, fulfill its NATO commitments, and deter aggression,
thus preserving Greece to the free world.
Although the Greeks understand the value of NATO to them, some
sentiment exists to cut further the size of Greece's army, now num-
bering more than 100,000 men in uniform. About 30 percent of the
total Greek budget is for military purposes.
It is difficult to judge whether Greece's present forces and military
budget are well adjusted to Greece's security needs without further
knowledge as to the amount and kind of exterior aid that would be
forthcoming in event of war, and without further study of whether
the present Greek military effort is or is not too heavy a burden on the
country's economy.
The caliber of the Greek forces is good, but there is a shortage of
trained specialists and also of certain military equipment.
The Joint United States Military Advisory Group in Greece is at-
tempting to reinforce and modernize Greek forces and generally to
protect earlier United States military "investments."
United States aid to Greece for primarily military purposes amounts
to about 90 percent of all United States current aid to Greece, in dol-
ars appropriated or in local currency proceeds. Most military aid is
either in end items, spare parts, or in local currency proceeds from the
94413-57——————75
1172
GREECE, TURKEY, AND IRAN
sale of agricultural commodities which are allocated to the Greek mili-
tary budget. Some of the latter funds, considered defense support,
have been in loans.
Greece lacks defense production resources and capabilities in most
items. Thus Greece must rely on the United States for almost all
end items and spare parts.
Greece would probably cut its military expenditures if nonmilitary
aid were substantially reduced and would use those funds for economic
purposes.
(b) Recommendations
That careful study be given to assure that United States military
aid objectives and NATO objectives coincide.
That more long-range planning be given to assure that NATO re-
quirements for Greece are realistic and sound in terms of Greece's
economy.
That all primarily military aid be in the form of grants, including
defense support to the extent that it continues to be for military pur-
poses.
That every effort be made to assist Greece in training technical
specialists needed for their military establishment.
1. General
B. TURKEY
Turkey's economic situation today is an extremely difficult one.
Its combined internal and external debts total about $2 billion and
credit with other countries is shrinking. Its currency is grossly
overvalued and there is a serious shortage of foreign exchange.
The situation is largely caused by overdevelopment-too fast with
too little. The Government has instigated certain policies to correct
the situation, but it balks at taking the most vital step, devaluation.
It has thus far compromised on a special exchange rate for tourists.
The Government's position is, apparently, that the solution lies in
stepping up economic development, increasing domestic production,
and thus reducing imports.
The United States Operations Mission is attempting to discourage
new large-scale development projects and to induce the Government
to concentrate on completing existing projects.
On the positive side, the country is virtually self-supporting in
food except for tea, coffee, wheat, etc., and there would appear to be
a considerable potential in natural resources.
Lack of skilled manpower, an antiquated educational system,
inadequate and poorly enforced taxation, heavy farm subsidies and
slowness in deemphasizing state control of industry are further factors
affecting economic development. Also, shortage of foreign exchange
prevents Turkey from importing the raw materials and equipment
required to complete existing projects.
Politically the Government appears stable, with 455 seats out of a
total of 541 in the Grand National Assembly. Restrictions on freedom
of the press and assembly have caused resentment, but these and other
grievances do not, to date, appear to be sufficiently serious to threaten
the Government. All groups, Government and opposition, favor the
United States aid program, although some of the latter feel that it
inevitably, although not deliberately, helps the Government in power.
GREECE, TURKEY, AND IRAN
1173
Some slowness in bringing the knowledge of the full extent and
nature of the United States aid program to all sections of the country
will, it is hoped, be corrected by an intensive United States Informa-
tion Agency program which is planned for this year's 10th anniversary
of the United States aid program to Turkey.
Except for a United Nations technical assistance program and some
military assistance from Canada, there is little foreign assistance
other than from the United States.
While there are no substantial Communist-bloc activities in Turkey
today, there is traditionally considerable commercial trade in non-
strategic commodities with that area.
2. Nonmilitary
(a) Conclusions
Plans to increase technical assistance to Turkey in the coming few
years are well justified, especially if greater emphasis is given to educa-
tional projects. However, until such time as Turkey is able, with
present levels of United States assistance, to catch up on its over-
expansion and take the steps it knows must be taken to straighten
out its economy, it would not be in United States interests or in fact
in Turkey's own long-range interests to increase substantially
economic assistance to Turkey over present levels.
But it is quite probable that, as Turkey takes the steps necessary
to set its economic house in order, there will be a need for additional
capital assistance.
For the present there would seem to be no great benefit in burdening
the Turkish economy with additional dollar debts and it would there
fore seem inadvisable to recommend an increase in loans over grants;
Especially in the light of Turkey's existing economic difficulties, loans
should not be allocated to generally unproductive-type activities.
Following this reasoning, consideration should be given to rearranging
the allocation of defense support funds so that the portion which
goes to the Turkish military budget is in grants and not loans.
(b) Recommendations
That no substantial increase in economic aid to Turkey over present
levels be made available and that the present United States Opera-
tions Mission policy of discouraging any new, large-scale develop-
ments, and of making productive the existing projects, be continued.
That nonmilitary assistance, including defense support, where not
strictly military in character, be on a loan basis.
That a gradual increase in the technical assistance program en-
visaged by the United States Operations Mission be given favorable
consideration, with particular emphasis on educational projects.
That increased attention be given to methods of encouraging in-
creased private investment, both foreign and local.
That every effort be made to encourage the investment guaranty
program where commercial projects will not conflict with the United
States Operations Mission policies of holding down, for the present,
any new large-scale capital development.
That, with a view to not burdening Turkish economy with addi-
tional dollar debts, there should be no substantial increase in loans
over grants.
1174
GREECE, TURKEY, AND IRAN
That consideration be given to rearranging the allocation of
defense support funds so that the portion which goes to the Turkish
military budget is in grants and not loans.
That, in the light of Turkey's existing economic difficulties, loans
should not be allocated to generally unproductive-type activities.
That, where new funds are programed or contemplated, care
should be taken that these funds do not run counter to present United
States nonmilitary aid objectives in Turkey, aimed at completing
existing projects and discouraging new capital development.
3. Military
(a) Conclusions
Turkey is the only country to hold membership in the NATO,
Baghdad, and Balkan Pacts.
While her membership in the Baghdad Pact has political and
psychological value, the present military value of the pact is relatively
small. There is no question, however, that the pact can, and in the
Suez crisis did, play an important role in keeping the pact members
in a close consultative relationship. The Balkan Pact (Greece,
Turkey, and Yugoslavia) because of the Cyprus issue and other
factors is not, for the time being at least, playing an active role.
While the Turkish Army furnishes a substantial proportion of
NATO ground forces and its splendid fighting qualities are universally
recognized, its effectiveness in modern warfare would depend upon
various factors referred to in this report. Also, it must be recognized
that Turkey is, after all, a relatively undeveloped country, and the
caliber of existing Turkish armed forces is limited primarily by the
lack of trained and trainable personnel, especially in the technical
fields.
In Turkey the army ranks high; the country is determined to be
strong militarily and would make almost any sacrifice before it would
reduce its defense effort. If all United States aid were cut off it
seems fairly certain that Turkey would slow down its economic
development to keep the military establishment at full strength.
One stated objective of United States military aid is to help Turkey
in the defense of the Middle East. Frankly, it is difficult to under-
stand fully what this really means and to what extent this objective
differs from the stated objective of deterring Soviet aggression.
Turkey is the southern flank of NATO. Beyond Turkey lies Iran.
As a member of both NATO and the Baghdad Pacts, Turkey is
supposedly a link between Europe and Asia. It is, in a sense, a
United States military objective to strengthen this link. But, up
to the present, there is little evidence available that would indicate
that this "link" strategy has developed very far. One important
question is, for example, what plans exist for NATO to provide
assistance to Turkey if Turkey goes to the defense of Iran or any
Baghdad neighbor, not having herself been attacked? Or, for that
matter, to what extent would Turkey be militarily prepared to give
such assistance?
It will not be easy to bring this link strategy into actuality until
agreement is reached, and more coordinated action is taken by the
United States, by NATO, and by the Baghdad countries themselves.
In some fields, it is felt that NATO objectives for Turkey are some-
what overly optimistic. Effort should constantly be made where
GREECE, TURKEY, AND IRAN
1175
United States military aid is substantially involved to aline United
States aid objectives with NATO objectives and vice versa.
One wonders also whether it is not possible that existing military
aid objectives in Turkey may partially run counter to existing non-
military aid objectives: whether Turkey can fulfill present military
objectives and at the same time achieve a stable and expanding
economy. One could envisage a situation, I do not say that it exists
now, where Turkey's military effort plus United States military aid
might be working against the United States purely economic objectives
in Turkey.
Turkey's defense budget is about 23 percent of its total budget,
and this has probably contributed somewhat to the present economic
instability of the country. However, sight must not be lost of the
indirect beneficial effect through technical training and education,
road building, etc., which the defense effort exercises on the general
economy. Military aid to Turkey totals more than twice nonmilitary
aid and the figure would be still higher if the portion of defense support
funds, primarily military in character, were added.
The two main functions of United States military activities in Tur-
key are furnishing equipment for the Turkish armed forces and training
and advising those forces. In spite of many difficulties to overcome,
it is felt that our missions have done a most effective job.
(b) Recommendations
That in view of the need for strengthening Turkey's defenses to
meet demands beyond her NATO commitments (for example, assist-
ance to Iran and countries of the Baghdad Pact group) and the more
recent preoccupation over the Syrian border, no decrease in military
aid to Turkey is recommended.
That a study by United States defense officials and NATO officials
be made with a view to better control, programing, and cooperation
for Turkey.
That more responsibility be placed initially in the hands of the
United States military mission in the field and more consideration be
given its recommendations; that there be greater flexibility and a
constant review of future end-items for Turkey.
That where United States aid is substantially involved, every effort
should be made to aline United States aid objectives with NATO and
vice versa.
That cognizance be taken of Turkey's role as a link in the defense
between Europe and Asia and that consideration be given to more
coordinated action between the United States, NATO, and the
Baghdad Pact countries in strengthening this link.
That in deciding upon Turkey's military objectives care be taken
to see that these do not proceed beyond her ability to meet them
without making it impossible for her to achieve a stable and expanding
economy.
That it would be in United States interests to place in the hands
of the military mission in Turkey the annual Joint Chiefs of Staff
Guidance Instructions at an earlier date than at present, with a view
to giving the field mission more time to prepare program recom-
mendations,
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GREECE, TURKEY, AND IRAN
1. General
C. IRAN
The general overall objective of the United States aid policy in
Iran-of preserving Iran for the free world is certainly valid.
A politically stable, economically healthy Iran, in which adequate
progress is made toward meeting the aspirations of the Iranian
people for economic development will, it is felt, be an Iran alined
with the West, opposed to communism, internally secure, and better
able to defend itself against external threats.
Whether this kind of an Iran will be built in the future will depend
in a considerable measure on the success of the Plan Organization,
which is in charge of the country's economic development.
This ambitious project was originally established as part of a
7-year plan in 1949, to be financed from this country's oil revenues,
by far the largest source of the country's wealth. During the years
of political unrest under the Mosadeq Government and stringency
resulting from cessation of oil exports after nationalization, the
progress of the Plan Organization was restricted. About a year ago
a second 7-year plan was approved, calling for the expenditure of the
equivalent of $1 billion to be financed primarily from oil revenues.
The revived Plan Organization is now drawing 60 percent of the
total Iranian oil revenue, to be increased in 1958 to 80 percent. The
income from this source alone in 1956 will amount to about $86
million.
The defense of Iran is of paramount importance to the United
States strategic objectives in the Middle East of maintaining free and
independent prowestern governments, limiting the expansion of
Communist-dominated areas and insuring Western access to strategic
raw materials of the area.
There is no question that our military, technical, and economic
assistance to Iran has been of vital importance to the country. With-
out it, Iran would today be in a serious position, politically and eco-
nomically. In fact Iran might well be under complete Communist
domination.
As it is, the present Iranian Government is an unusually stable one
by Iranian standards. This contribution toward Iran's stability is,
I believe, generally appreciated and accounts in no small measure for
the position of trust and confidence enjoyed by the United States in
Iran today.
While the Government appears stable, certain internal grievances
do prevail, especially with regard to lack of tangible progress to date
by the Plan Organization. Freedom of assembly and press to an
extent exist and considerable private, individual criticism is freely
expressed, although this freedom is limited to activities which do not
threaten the existing Government. Elections are in many instances
controlled and the courts are not entirely independent of other
branches of the Government.
The Communist (Tudeh) Party is now outlawed, and a vigorous
campaign by the Government has made its survival as a semiorganized
force extremely difficult.
GREECE, TURKEY, AND IRAN
1177
2. Nonmilitary
(a) Conclusions
Whether economic development in Iran will succeed depends pri-
marily on the operation of the Plan Organization. I can only conclude
from my observations-admittedly brief-that I was sufficiently
disturbed over the lack of organization, planning, and accounting
within the organization to have some doubts about its ability to carry
out its program and to make the most effective use of the very con-
siderable funds available to it.
What is more important than my own doubts, which I sincerely
hope will prove to be without basis, is that the lack of progress to
date to produce substantial tangible results is causing increasing
discontent in the country. This is disquieting for maintenance of
political stability in Iran depends heavily upon the Plan Organization's
success. Fortunately, Plan Organization officials are increasingly
willing to accept guidance and administrative assistance from the
United States aid mission.
Besides the above obstacles to economic development, other
inhibiting factors exist. Among them are a shortage of skilled labor,
political uncertainties in the general area which tend to discourage
long-term investment, shortage of private capital, limited bank credit,
and exorbitant interest rates. But lack of an effective taxation
system is perhaps the most important inhibiting obstacle.
It is the general conclusion, however, that these inhibiting factors
can be eliminated by Iran itself. One step toward creating a more
favorable climate is the passage of a more liberal foreign investment
law, although an investment-guarantee program with the United States
covering both convertibility and expropriation will probably be signed
shortly. But confidence in continuing political stability within Iran
and the Middle Eastern area as a whole is the most important factor
in attracting foreign investment.
One of the largest technical assistance programs under the Mutual
Security Act is operating in Iran today, and to some extent this pro-
gram is moving under the momentum of previous years, when even
greater funds were available.
The nonmilitary objective picture has in the past been greatly
colored by military and political considerations resulting from the
critical situation which developed in Iran under the Mosadeq regime.
As a result of that crisis, large emergency grants were made to Iran
which unavoidably changed for a time the character, size, and purpose
of our technical assistance program. But conditions in Iran are more
stable today and the nonmilitary programs are properly diminishing
in size as the oil revenues increase.
Other than technical assistance, United States nonmilitary aid to
Iran today consists largely of defense support. Under defense sup-
port, funds are being made available for various types of projects and
uses to such an extent that in Iran, as elsewhere, defense support
resembles a fund out of which any mission can draw for almost any
aid purpose.
The stated objectives of our nonmilitary programs in Iran have at
their roots political and military factors.
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GREECE, TURKEY, AND IRAN
(b) Recommendations
That leveling off and reducing funds for technical assistance would
be more than fully justified.
That further budgetary aid to the Iranian Government should no
longer be necessary-unless, as a result of the Suez crisis, substantial
losses in oil revenue are incurred.
That wherever possible, the nonmilitary program in Iran should be
in the form of loans, with the exception of technical assistance.
That the efforts now being made by the United States Operations
Mission in Iran to narrow the number of projects in which it is involved
should be encouraged with a view to concentrating its assistance more
in certain defined areas.
That the present "integration," under which the United States aid
projects are being turned over to Iranian Ministries with United
States personnel playing an advisory role, while eventually desirable,
should not proceed more rapidly than can be efficiently implemented
That effort be made to keep a proportional representation of United
States Operations Mission and United States Information Agency
technicians and information specialists in the field with the view to
avoiding too great a concentration of personnel and effort in Tehran.
That consideration be given to having some of the administrative
work now performed in Tehran for the United States Operations Mis-
sion handled in Washington, one of the reasons being to avoid having
too many United States personnel concentrated in the capital, with
the attendant expense to the United States and with the political
repercussions of such a large American colony.
That with more stable conditions now prevailing in Iran, and with
a reduction in the size of the program, consideration be given to re-
vising somewhat its objectives, giving greater emphasis to the positive
side of helping the people of Iran in their efforts to achieve better
living conditions, and placing less emphasis on the essentially negative
objectives of preventing the spread of communism, vitally important
as this latter objective is.
That more planning and expedition be shown in not permitting
unexpended technical assistance funds to reach the $10 million figure.
That study be given to the possibility of financing, at least par-
tially, future International Cooperation Administration contracts
through long-term loans.
3. Military
(a) Conclusions
The objectives of the military program in Iran are to equip and
train the Iranian forces to enable them to maintain interna security
and to provide some resistance to external aggression. In order to
gauge the extent to which these objectives are capable of accomplish-
ment, some reappraisal of them would seem advisable, with a view to
meeting the need for increased clarity in planning and fitting our mili-
tary objectives in Iran into an overall defense pattern for the area
In doing this, particular consideration should be given to the role that
Iran would be expected to play in the event of Soviet aggression or
military incursion into the area, and what support it could expect to
receive from other friendly nations, particularly the United States.
The validity and relevance of current United States military
assistance objectives in Iran depend to an important extent on
GREECE, TURKEY, AND IRAN
1179
our political objectives in that country. There is some doubt as to
whether Iran could absorb very much of an increase in the level of
military assistance over what is already being furnished. The problem
is not so much one of magnitude, but rather of deliveries and program
approvals. Long delays in the military construction program and
delivery of planes have political as well as military repercussions.
Also, there undoubtedly exists, especially among the highest officials,
some feeling that Iran has not received all that it expected in the way
of military equipment. I was given to understand that substantial
increases were particularly expected as a result of Iran's adherence to
the Baghdad Pact. This criticism was not minimized by the delay
in delivery of certain important military items and in the military
construction program under funds appropriated some time ago.
The size and caliber of Iran's defense forces can only be realistically
considered in relation to the fact that Iran is an underdeveloped
nation, and its ability to provide itself with a modern fighting force
with modern equipment and techniques will inevitably be, for some
time, limited-regardless of how much equipment and advice may be
forthcoming from friendly nations.
United States assistance to the Iranian Gendarmerie has been very
successful to the extent that internal security, with the cooperation.
of the Army, would seem to have been well assured.
Finally, although the strategic importance of Iran's border with
Soviet Russia between the Caspian Sea and Afghanistan has perhaps
been overstressed, the border between the Caspian and Turkey, the
right flank of NATO, cannot be overestimated.
(b) Recommendations
That in view of need for increased clarity in planning and in fitting
our military objectives in Iran into an overall picture, there be a full
appraisal of military assistance objectives in Iran with particular ref-
erence to the role it will be expected to play in the event of war and
what support it will receive from the United States and from friendly
nations in the Iran area.
That in view of the fact that the Iranian Gendarmerie would seem
to have reached its goal of maintaining adequate internal security,
consideration should be given to terminating in the near future United
States aid in this field, with the exception of replacement of spare
parts and the continuance of a skeleton advisory group.
That military aid to Iran should continue to be on a grant basis.
That every effort be made to speed up programing and deliveries
of military end items under funds already appropriated.
That military construction in Iran, with funds already appropriated,
proceed without further delay.
II. CONCLUSIONS AND RECOMMENDATIONS AFFECTING MORE THAN
ONE OF THE COUNTRIES VISITED
A. THE BAGHDAD PACT
In both Turkey and Iran the most insistent appeal made by practic-
ally all officials with whom I spoke was that the United States should
join the Baghdad Pact. They pointed out that we were already mem-
bers of the economic and counter-subversive committees of the pact
and that the effect of our becoming officially a member would, in their
1180
GREECE, TURKEY, AND IRAN
opinion, be the one practical step required to make it an effective force
for peace in the Middle East. Many of them went so far as to predict
that, were the United States to join, certain of the Arab countries now
remaining aloof might well decide to join.
One of the most vulnerable points of the Allied defense line lies to
the southeast of the end of the NATO line, between the Turkish
border and the Caspian Sea. It seems improbable that the NATO
nations, particularly those to the north, would agree to the extension
of the NATO commitment southeastward to include Iran. In any
event, one of the main purposes of the Baghdad Pact was to attempt
to fill this serious gap in the defense line between NATO and SEATO—
the "Northern Tier" as it is sometimes designated.
Were the present members of the Baghdad Pact the only countries
to be considered, it would seem to me logical that we should join the
pact and become officially a member of this purely defensive alliance
already in existence and operating under article 51 of the Charter of
the United Nations. This would seem all the more logical since, I
believe, our Government gave every encouragement and endorsement
to its creation.
However, I realize that other factors beyond the area of study
assigned to me enter in and I shall therefore not press the point in
this report.
But on one thing I do wish to be clearly on record, namely, the
dangerous situation developing in the Middle East precipitated by
the obvious decision of Soviet Russia to take advantage of recent
events in the Middle East to attempt to establish its own control over
an area which it has long coveted.
What is needed, in my opinion, and badly needed, to meet this
threat, is effective cooperation with those countries that desire it, by
some nation not actually of the area-a nation strong and capable of
giving disinterested advice, and, perhaps most important, of furnish-
ing the necessary military and financial support to maintain the
freedom of those countries from the domination of international
communism and Soviet Russian imperialism.
While I have seen at first hand the splendid work our military
missions in Turkey and Iran have accomplished in training and
equipping the Turkish and Iranian forces, the lack of definite knowl-
edge as to the nature and extent of the support upon which those
countries could count, if attacked, and how long they would be ex-
pected to "hold the fort" until such assistance, if forthcoming, could
arrive, was one of the most difficult questions I encountered.
Until that uncertainty can be cleared up by some unmistakable
declaration or action on the part of our Government that we intend to
assume, as I hope we do, an active role in the defense of this area, so
vital to the free world, this dangerous situation will continue. That,
at least, is my opinion following a visit to the area (Turkey and Iran)
from November 11 to December 5 last, when I had the opportunity-
at the request of the committee-to study the situation and to form
the impressions on which this report is based.
B. DEFENSE SUPPORT
One of the least understood categories of United States aid under the
Mutual Security Act and the one capable of creating the most con-
GREECE, TURKEY, AND IRAN
1181
fusion is "defense support". In fact, one wonders whether this was
not perhaps one motive in coining the phrase and establishing the
category.
The very vagueness of the classification enables it to cover a
multitude of things, some quite completely unconcerned with defense.
There is probably no single activity in the United States aid program,
in one or more of the countries visited, which does not directly or
indirectly receive assistance from defense support. In some countries,
defense support is almost entirely military; in others, almost entirely
nonmilitary. In some instances, the identical item is being shipped to
a country under defense support and under military assistance.
It is impossible to judge conclusively whether the magnitude of aid
programs are sound in all instances, when the terminology and assign-
ment of items are so vague.
It becomes impossible for defense support funds to be always ad-
ministered, distributed, and controlled with maximum efficiency when
both military and International Cooperation Administration missions
are by necessity involved.
My understanding is that defense support is supposed to assist
countries where the United States has military assistance programs-
to support military establishments which are larger than those coun-
tries could support without that aid.
This could well be the definition of military assistance, or, in many
cases, for economic aid also.
There seemed to be agreement on the part of the missions in the
field that a clearer distinction could be made, and that a better title
than "defense support" should be found. However, they urged that
any new category established or definitions laid down should not
result in such rigidity as to preclude a certain degree of flexibility in
the field as between military and nonmilitary items and allocations.
I agree that some flexibility in the field is desirable.
But nevertheless, I would recommend that the title "defense
support" be abolished and that the funds and items under that cate-
gory be reassigned on the basis of their primary purpose and use to
"military assistance" and "economic assistance" or some other rela-
tively clear-cut title.
Once this has been done, the road would seem clear for a recon-
sideration of the suggestion made by certain members of the Foreign
Relations Committee last year that military assistance be separated,
legislatively and administratively, from economic and technical
assistance.
III. COUNTRY ANALYSES
A. GREECE
1. United States interests in Greece
(a) Security interests—prevailing concepts
The strategic location of Greece in relation to Soviet Russia and its
satellites, especially Bulgaria, its tie-in with Turkey, forming a de-
fense tier to the North, its membership in and contributions to NATO,
and its strategic position in relation to Communist ambitions and ac-
tivities in the Middle East-all these are considered by United States
officials in Greece to be the most important factors behind United
States security interests in that country.
1182
GREECE, TURKEY, AND IRAN
More specifically, the defense of Greece and of the Greek islands is
important to the defense of Turkey and the Turkish Straits. Either
nation would be in jeopardy without the defenses of the other.
Greece's defense is important to the Mediterranean interests and the
military and naval forces of the United States and Great Britain.
Communist control of Greece would threaten the entire Middle
East.
Analysis of prevailing concepts.-These prevailing concepts of United
States security interests in Greece are essentially sound. There can
be no doubt that the defense of Greece, the maintenance of Greek in-
dependence, and its alinement with the free world are especially im-
portant in the light of the security interests described above.
However, one major problem exists which must be solved before
United States security interests in Greece can be fully realized.
The Cyprus issue has seriously impaired the unity and cooperation
which should exist between Greece and its North Atlantic Treaty
Organization allies, especially Great Britain and Turkey. Greek-
Turkish friction over Cyprus has, in fact, prevented the Balkan Pact—
in which these two are joined with Yugoslavia-from developing into
more than a piece of paper. From the viewpoint of free world unity
and United States security interests, the Cyprus conflict is serious and
harmful. Until some solution is found, United States security inter-
ests in Greece will continue to be on somewhat shaky grounds.
(b) Economic and commercial interests
United States private investment in Greece is small but has in-
creased since 1950. Among the firms now active in Greece are
Socony, Pan American, Trans World Airlines, American Export Lines,
Caltex and American Tobacco. Several firms, including Kennecott
Copper (in asbestos) are beginning mining operations.
By far the largest Greek export to the United States is tobacco.
Other exports include sponges, figs and olives. Principal imports
from the United States are vehicles, sheet iron, industrial machinery,
gasoline, grease, and electrical apparatus. In 1955 total Greek ex-
ports to the United States were valued at $24 million, while imports
from the United States were valued at $70 million.
In 1955 almost 2,000 tons of manganese ore were shipped from
Greece to the United States. Some chrome, lignite, bauxite, nickel,
asbestos, and lead are being mined in Greece, and could be further
developed.
(c) Other interests
Greeks living abroad, mainly in the United States, have over the
years been giving financial support to friends and relatives in Greece,
which at present amounts to about $50 million a year. This consti-
tutes an important source of foreign exchange for Greece.
Private American humanitarian activities in Greece are being
carried on by such groups as the National Catholic Welfare Council,
the World Council of Churches, the Society of Friends, and the
Catholic Relief Services. These groups assist in the distribution of
Public Law 480 surplus agricultural commodities (under title III).
American-endowed educational institutions include Athens,
Anatolia, and Pierce Colleges, the American School of Classical
Studies, and the American Farm School at Thessalonica (Salonika).
GREECE, TURKEY, AND IRAN
1183
Founded in 1925 by Greeks with private American assistance as a
joint American-Greek venture, Athens College today teaches over
1,000 boys, ages 9 to 19, the liberal arts, including both Greek history
and all the modern sciences. In the past, United States technical
assistance has helped Athens College to expand its curriculum, and
the exchange program has made it possible for Americans to teach at
the college.
The American Farm School, also privately supported by Americans,
teaches 170 Greek boys from all over Greece and Cyprus better
farming methods. The school has been so successful that the Greek
Government plans to build similar schools in other parts of Greece.
The influence that boys graduating from this American-directed
school have when they return to their villages is far reaching.
It would be indeed difficult to exaggerate the importance to Greece's
future and to American-Greek relations in general of the work being
accomplished at the American Farm School, at Athens College, and
at the other institutions mentioned above.
2. Basic situation in Greece
(a) Nature of economy and capacity for development
Greece's economy and capacity for development are strongly
influenced by two major factors. The first factor is the continual
procession of occupying powers, invasions, and civil wars which
Greece has suffered throughout its history. In recent history, the
Turk, the Bulgar, the Italian, the German, and the Communist have
all had their innings in Greece, some of these more than once. Most
of the free world was able after 1945 to buckle down to reconstruction
and development. But with the end of World War II and the
German occupation, Greece's troubles did not cease. From 1945 to
1950 Greece, first with British and then with American assistance,
was forced to turn its remaining energies to winning the war against
communism. The effect of this continual strife on Greece can be
seen in the lack of growth between 1938 and 1950 in the gross national
product.
Coupled with this continual turmoil is the second factor which
must be considered, namely, that Greece is basically a poor country.
Over half of its 8 million people are engaged in farming; yet only
about one-fourth of Greece is really arable. Although the country
has perhaps some potential in mining development, and although
production of wheat, rice, and cotton has increased substantially
over pre-World War II days, nevertheless Greece is not very rich in
natural resources or food products. These facts make it difficult for
Greece to become economically viable.
Although the present economy is relatively stable, Greece suffers
from a Government budget deficit and resulting inflation, and from
an unfavorable balance of trade. Greece also has prewar international
debts. Imports continue to increase; very high interest rates (as
much as 3 percent per month on loans) discourage investment, and
what investment there is tends to be channeled into the current
nonindustrial construction boom (mainly housing) which accounts for
60 percent of Greek private investment in fixed capital.
Perhaps the most important (and discouraging) factor in Greece's
economy is the basic, almost historic lack of confidence in the Greek
drachma. The Greek people have been "burned" so many times
1184
GREECE, TURKEY, AND IRAN
that they hesitate to bank their savings and instead put their money
in gold sovereigns and bury it. This lack of confidence is so strong
that at any serious crisis, including the Suez crisis, the Greeks begin
to withdraw their money from the banks.
Another factor inhibiting development which should not be over-
looked might be described as the lack of civic, individual respon-
sibility for the affairs of a community or in fact the operation of the
Government as a whole. This takes several forms. In the days of
occupation and foreign rule those who managed to avoid all or most
taxation were considered patriots, and it has been difficult for the
Greeks now to change their attitude toward paying taxes. Greece is
politically greatly overcentralized in Athens, and this, too, dis-
courages local, individual initiative and responsibility. Banking
procedures, although improving, remain quite archaic. There is a
very uneven distribution of wealth in the country, both individual
and geographic; it has been said that 500 families rule Greece today,
and most of these are in Athens. This concentration of wealth is in
contrast to average annual per capita income of $250.
Finally, Greece's educational system, with its emphasis on Greek
history and languages, is not well geared to immediate problems.
This overemphasis on the past makes even more difficult the problem
of eliminating the shortage of skilled technicians, so badly needed in
modern Greece.
To some extent the state of Greece's economy and the inhibiting
factors cited above are within the power of the Greek people and
Government to change. In 1954 the Government prepared a 5-year
plan, which was revised in April 1956 with assistance from the Organ-
ization for European Economic Cooperation. The Greeks hope under
this plan to increase the gross national product at the rate of 5 percent
a year. It is felt that this goal is somewhat overambitious. Aspirations
are one thing; realistic, vigorous planning is quite another.
The Greeks want to increase domestic industrial production of their
natural resources rather than export the raw materials and later import
them as consumer commodities. Some progress in this direction is
being made. Industry in cotton textiles, power, cement, and bauxite
(aluminum) is growing slowly. An oil refinery is under construction,
as are a nitrogen fertilizer plant, shipbuilding facilities, and a sugar
refinery. Tourism is an important source of income and could be
even more important. Some effort has been made to increase both
foreign and domestic private investment and to divert investments
from housing construction to industrial development. Greek capital
abroad is beginning to return to Greece, with men like Onassis setting
the example.
But there is a great need for developing improved methods of
attracting foreign investment. The Greeks tend to suspect potential
investors from abroad, and many, including American businessmen
who come to Greece to negotiate, grow tired of haggling, bargaining,
and waiting, and finally leave in disgust. With better advertising
methods and eventual subsiding of this distrust of foreign investors,
investment should increase.
But perhaps the greatest need of all, not only to encourage invest-
ment, but to overcome the many other factors which inhibit economic
development, is for a sustained period of peace and stability. Greece
as a nation remains somewhat numbed from its wars and occupations,
GREECE, TURKEY, AND IRAN
1185
and confidence in political rule, in the currency, and in all forms of
investment will, in the end, only come to the Greek people if stability
and peace in Greece and throughout this area—are permitted to
peace--in
develop.
(b) Political factors affecting development
Political stability in Greece depends today largely on the Cyprus
issue. In the February 1956 elections the National Radical Union,
led by the present Prime Minister, Constantine Karamanlis, won 165
of the 300 seats in the Parliament. The Karamanlis party received
less than a popular majority. In their attempt to win that election,
the opposition parties accepted leftwing support and probably would
do so again. Thus, if Karamanlis falls, the succeeding Government
would probably be a coalition with leftwing, pro-Communist repre-
sentation. The opposition steadily fans the flames of the Cyprus
question and thus forces the Government to divert its attention from
improving the economy and to expend its energies pressing their
Cyprus demands. At the same time, the political survival of the
present Government will depend on the progress it can make toward
meeting the aspirations of the Greek people for economic develop-
ment and improved standards of living.
The major opposition parties are the Liberal Democratic Union, led
by Sophocles Venizelos, a former Prime Minister, and the Liberal
Party under former Prime Minister Papandreou. The two major
leftwing parties, one of which is a substitute for the Communist
Party, now outlawed, have a combined total of 38 seats in the
Parliament.
Although pro-Communist strength throughout Greece is estimated
at about 15 percent, some localized areas-such as the tobacco
district of Kavalla-are estimated to have as high as 40 percent pro-
Communist electorates.
Freedom of the press, of speech, and generally of assembly, prevail
in Greece. The press certainly take full advantage of their rights,
and are virulent in their presentation of the Cyprus issue.
While most political parties in Greece favor United States assistance,
the opposition does on occasion use United States aid to criticize the
Karamanlis government-either for not getting enough, or for getting
so much and thus being "subservient." Although all generally favor
United States aid, there is considerable pressure to get away from any
United States tutelage and control with regard to the use of that aid.
This statement is in no sense intended to minimize the appreciation
and gratitude for United States aid that we heard expressed on all
sides from the highest officials down. Many of them went as far as to
say quite frankly that had it not been for American aid, Greece would
now be behind the Iron Curtain.
Soviet activities in Greece.-No formal aid program between the
Soviet Union and Greece exists, but a Soviet gift of wheat after the
Volos earthquake was well advertised. Certain private barter ar-
rangements have been made. Commerce with the Communist bloc
is relatively small. Recently a Greek trade mission was invited to
Moscow, but the Soviets canceled the invitation when the Greek
Minister, who was to lead the delegation, decided not to go himself.
In general the Greeks are anti-Communist and remember all too
vividly their civil war and the aid the Greek rebels received from
1186
GREECE, TURKEY, AND IRAN
Albania and Bulgaria. The Greek hatred for Bulgaria is almost
traditional, and with Bulgaria now Communist, hatred and distrust
are magnified.
(c) Strategic requirements for defense of Greece
With this traditional fear of Bulgaria in mind, and with vivid
memories of past invasions by the Bulgars, Germans, and Italians, the
Greeks feel that their main threat lies from the north through Bulgaria.
The Joint United States Military Advisory Group in Greece would
agree with this estimate. The value that the Aegean Sea might have
as a sea entrance for troops invading from the north is not lost on
either the Joint United States Military Advisory Group in Greece or
the Greek military officials. Thrace, unlike the mountainous area to
the west, would be very difficult to defend. At present the Greeks,
while realizing the defensive interdependence of Greece and Turkey,
especially in the area of Thrace, do not put much value in the Balkan
Pact.
On the whole, Greek strategic estimates are quite realistic, and, of
course, they have considerable experience behind them in reaching
those estimates.
The potential defensive contribution of the Balkan Pact is con-
siderable if only the Cyprus issue could be solved and if relations with
Yugoslavia improved. It is felt that Yugoslavia would be encouraged
to participate in the pact more wholeheartedly if it were to see closer
cooperation between Greece and Turkey. The recent visit to Yugo-
slavia of Greece's Foreign Minister is perhaps a hopeful sign for the
future.
Under her commitments to the North Atlantic Treaty Organization,
Greece, in event of war, would not be expected to fight beyond her
own boundaries. Although the Greeks understand the value of NATO
to them and are attempting to fulfill their NATO requirements, there
exists nevertheless some sentiment to cut the size of the Greek Army,
which has already been cut to something over 100,000 men in uniform.
The size of the Greek Army is probably well adjusted to Greece's
security needs; but a categorical statement to this effect is impossible
without further knowledge as to the amount and kind of exterior aid
that would be forthcoming in event of war, and without considering
whether the present size of Greece's military establishment (about 30
percent of the Greek budget) is or is not too heavy a burden on the
country's economy and thus not in the interests of national security.
United States officials in Greece are inclined to believe that Greece's
present military efforts are not too serious a burden on the economy.
The caliber of the Greek armed forces is considered good, especially
with regard to spirit and experience. But there is a shortage of trained
specialists in various technical fields. Certain types of military equip-
ment are also scarce. Relations between the Joint United States Mili-
tary Advisory Group in Greece and Greek military officials are very
close, and effort is being made to increase teamwork between the
Greek Army, Air Force, and Navy.
(d) Foreign assistance to Greece (other than United States)
Military aid to Greece from sources other than the United States is
limited mainly to jet planes supplied by Canada.
The United Nations is active in Greece with refugee, health, and
technical assistance operations. For 1956, United Nations technical

GREECE, TURKEY, AND IRAN
1187
assistance amounted to $165,842. Twenty-seven United Nations
experts are assisting in such projects as economic surveys, rural elec-
trification, vocational training, mineral resources, improvement of air
transport services, dairy production, and olive-fly control.
United Nations health services include aid to the Government's
tuberculosis control program and support to the training of rural
sanitation specialists.
3. Nature of United States aid programs
(a) Objectives
Military assistance to Greece is aimed at assisting the Greek mili-
tary forces to deter aggression, to provide internal security, to keep
up its NATO commitments, and generally help preserve Greece for
the free world. More specifically, the Joint United States Military
Advisory Group in Greece is attempting to protect earlier United States
military "investments" by reinforcing the Greek forces where they
are weak, and modernizing them where necessary.
Nonmilitary aid programs are aimed at helping Greece become
economically stable and prosperous, and hence politically stable and
pro-western.
(b) Magnitude
Other than military end items and parts and less than $800,000 in
technical assistance, United States aid to Greece in fiscal year 1957
will amount to $25 million in surplus agricultural commodities (under
sec. 402 of the Mutual Security Act), about $25 million in title I,
Public Law 480, surplus agricultural commodities, and $14 million in
title III, Public Law 480, surplus agricultural commodities, or a total
of $64 million.
All of the funds appropriated under section 402 are defense support,
and the local currency proceeds from the sale of these commodities go
to the Greek military budget. Of the title I, Public Law 480, funds,
about $17 million is for the Greek investment budget, and the remain-
der is for United States use. All of the title III commodities are for
direct relief distribution for school lunch programs and for the indi-
gent. Of the $64 million total, $27.5 is in loans.
It is estimated that about 90 percent of United States aid to Greece
today, in dollars appropriated or in local currency proceeds, is prima-
rily for military purposes.
In fiscal year 1957, about $10 million of the $25 million for defense
support is in loans, and all of the Public Law 480, title I, aid is in loans.
Recommendation has been made, in which I concur, that, in future
programs, defense support, to the extent that it continues to be for
military purposes, be in the form of grants. It does not seem wise to
require repayment for aid which is entirely for the military and is
therefore nonproductive in terms of the Greek economy.
(c) Aid activities
Nonmilitary.—Technical assistance to Greece is in such fields as
industry, agriculture, transportation, labor, audiovisual projects, and
land-water resources.
Agricultural production and marketing will continue to be important
areas for technical aid. In industry, the mission is attempting to
encourage the growth of small business and increase the efficiency of
textile production. In the labor field, the mission is attempting to
94413-57———————76
1188
GREECE, TURKEY, AND IRAN
improve the living standards of Greek labor and increase their pro-
ductivity through projects in labor, housing, manpower statistics,
trade-union organization, and the like.
That portion of surplus commodity aid which is allocated to the
Greek Government investment budget is largely for industrial develop-
ment, power development (accomplished with the assistance of
Electric Bond & Share Co., hired by the Greek Government), and
water-resources projects, such as the Aliakmon Dam near Salonika
which we visited. The project is being built with the assistance of
an American consulting engineer firm hired by the Greek Government.
There was evidence here that the Government's planning and
execution of this project left something to be desired.
There was also a feeling in this area of northern Greece that some
technical assistance projects, especially in farming methods, had been
closed down too quickly and that the lessons taught had thus not
taken hold firmly enough to last.
Military.-Modernization and replacement constitute large items
in the military aid program, in conjunction with NATO plans. These
plans for modernization and for correcting certain deficiencies in the
Greek forces depend to a large degree on Greek cooperation and
financial contribution. It has been pointed out earlier in this report
that pressure to reduce Greece's own defense expenditures (now
about $130 million annually) is fairly strong, and the temptation to
divert part of this sum to other ministries is equally strong. These
plans also call for the elimination of certain deficiencies in the peace-
time manning of the army, in air control and warning, and in the
effectiveness of Greek naval equipment.
Greece lacks defense-production resources and capabilities in most
items except in some ammunition which is produced in Greece under
offshore procurement. Thus the Greek military establishment must
rely on the United States for almost all end items and spare parts,
which partially explains the large percentage of United States aid
devoted to military purposes.
(d) Aid program personnel
The International Cooperation Administration mission totals 28
United States and 45 Greek employees.
Total military personnel and civilian employees assigned to the
Joint United States Military Advisory Group in Greece amount to
229 Americans and 168 Greeks. United States Information Agency
personnel in Greece total 11 Americans and 103 Greeks.
4. Effectiveness of aid programs and conclusions
(a) Analysis of objectives
There is a need for clarification and increased overall planning of
United States assistance objectives in Greece, to assure more fully
that individual mission objectives fit into overall objectives. At the
same time, it is felt that careful study should be given to assuring that
United States military and NATO objectives coincide. One United
States military-aid objective is to assist Greece in fulfilling its NATO
requirements. But more long-range planning is needed to assure that
NATO requirements in Greece are themselves realistic, both in terms
of the comparative defense efforts and contributions of other NATO
countries and in terms of United States future intentions to help Greece
fulfill those objectives.
GREECE, TURKEY, AND IRAN
1189
It should be pointed out again that whether United States military
objectives and NATO objectives are valid will depend on the kind,
size, and speed of exterior military assistance in event of war. Whether
these objectives can be achieved will also depend on future progress in
building the Balkan Pact into an effective defensive arrangement
and on continued Greek willingness to contribute to its own defense.
The achievement of these objectives will depend considerably on
political factors. A political settlement of the Cyprus question will
be necessary before the Balkan Pact can begin to play an effective
defense role. Greece's future willingness to contribute to the defense
of the area will depend largely on political stability within Greece and
on United States willingness to assist the Greek military and invest-
ment budgets.
United States nonmilitary-aid objectives in Greece, namely, to assist
Greece in achieving economic stability and development, have not
changed substantially from earlier objectives when nonmilitary aid
was considerably larger. It was pointed out earlier that with the ex-
ception of $17 million in local currency allocated to the Greek invest-
ment budget and less than $1 million in technical assistance, purely
nonmilitary aid to Greece is nonexistent. It must therefore be con-
cluded that the above United States nonmilitary objectives either are
somewhat ambitious or have been fairly well achieved. Without mini-
mizing the tremendous accomplishments that the Greeks have made
with United States assistance in reconstruction and in rebuilding and
expanding their economy, it nevertheless seems to me that much
remains to be done before United States objectives in this field could
be achieved at the present rate of nonmilitary aid.
Do military and nonmilitary aid objectives conflict?-The point was
made earlier in this report that some question exists whether the size
of Greece's military establishment and of the military spending re-
quired to support it-the maintenance of which are among United
States military aid objectives-is entirely in line with United States
nonmilitary efforts to assist Greece in building a stable and prosperous
economy. Greece is operating with a budget deficit which does not
help its efforts to control inflation. If Greece were not spending $130
million annually on military expenses, it would probably allocate part
of that figure to economic development to industrial expansion, water
development, reclamation, and agricultural production. The United
States mission felt, I think, that Greece's military expenses were not
a seriously negative factor in Greece's economy, so long as United
States assistance is available. But I am inclined to feel that this
particular question needs further study. For in the end, United
States military aid objectives for Greece and NATO force goals and
requirements will not be realized or will be self-defeating if, at the
same time, the Greek economy is weakened or its development deterred
as a result. One wonders to what extent these economic factors are
sufficiently considered at the time that force goals and military re-
quirements are established by NATO.
One also wonders whether the United States objective to demon-
strate that Greece's best hope for prosperity lies in its allegiance to
the West can be effectively furthered by a nonmilitary aid program
that is almost entirely in the form of United States surplus commodity
proceeds absorbed by the Greek Government's budget. Through
such a program, United States identity with United States aid is
1190
GREECE, TURKEY, AND IRAN
quickly lost and the popular impact of that aid becomes quite in-
tangible, if not invisible.
(b) Magnitude
Military aid to Greece is probably at about the size required if,
after careful review, the need for and wisdom of Greece's present level
of military spending is confirmed.
It is recommended that nonmilitary assistance to Greece, in farm
machinery and industrial equipment, be made available on at least a
partial loan basis. This recommendation is made on the assumption
that the need for Greece to expend about 30 percent of its total budget
for its own defense establishment continues.
It should be added parenthetically that, if it were decided to cut
off what nonmilitary aid now goes to Greece, there seems to be little
doubt that Greece would cut her military expenditures and use those
funds for economic development.
It is further recommended that there be an increase in technical
assistance to Greece, especially in the fields of agricultural production
and marketing, and perhaps in reclamation and irrigation.
Study should be given to the possibility of assisting the Greek
Government to set up agricultural schools similar to the American
Farm School at Salonica, which has been so successful.
There is a need for furnishing cheap agricultural credit to the Greek
farmer, and perhaps some of the proceeds from the sale of United
States commodities, agricultural or otherwise, could be used for this
purpose.
Every effort should be made to encourage further private invest-
ment in Greece-both foreign and domestic. It is possible that more
could be done in this regard if some technical assistance were available
to advise the Greek Government on steps it could take to make
investment possibilities more attractive and better advertised.
It is true that the United States does have an investment guaranty
program in Greece, covering both convertibility and expropriation,
and this should be helpful; but some further assistance might make
the program more successful.
As discussed earlier, I would recommend that defense support
should be in grants and not loans to the extent that defense support
continues to be for military purposes.
(c) Problems posed by surplus commodity program
I am well aware of Congress' logical desire to see surplus agricultural
commodities used to support United States assistance abroad, thus
bringing our own surpluses closer to manageable proportions. Never-
theless, in the case of Greece, where, with the exception of military
end items and parts and technical assistance, the entire aid program
is in surplus agricultural commodities, certain problems are created.
It has already been pointed out that it is quite difficult for this kind
of program to have much appeal to the Greek people. It is equally
difficult to demonstrate how assistance originally from the United
States has tangible benefits when the proceeds of commodity sales.
are absorbed by the Greek Government budget and are used by the
Government for development purposes. Through this system, the
relation of Greek development to United States aid becomes obscure
and the impact is diminished. It is hoped that the further assistance
recommended above in other commodities, such as farm machinery
GREECE, TURKEY, AND IRAN
1191
and an increase in technical assistance, will help in overcoming this
difficulty, will better demonstrate to the Greek people that the United
States is still lending much-needed aid and continues to be interested
in the welfare of Greece, and will thus be in the interests of United
States aid objectives.
Another problem posed by this commodity sales program is the
problem of assuring that counterpart proceeds going to the Greek
Government, especially that portion which is supporting the invest-
ment budget, are used with maximum effectiveness. Once the United
States Operations Mission releases counterpart to the Greek Govern-
ment, there is very little that can be done to assure that the funds
are used to full advantage. To be sure, the United States Operations
Mission reviews and approves projects submitted by the Greek Gov-
ernment to be financed by these releases. But this initial control
over these funds is not always sufficient to assure maximum efficiency
once projects are initiated. Earlier in this report the example of the
Aliakmon Dam was cited. Proceeds from the sale of United States
surplus agricultural commodities are involved in this project. The
project shows many weaknesses in planning, in execution, in super-
vision, and in the use of labor manpower. But there is little that
the United States Operations Mission can do about it.
It is also true that the Greeks are tending to be less willing to accept
United States tutelage in these matters. Thus it is questionable
whether the United States operations mission could, under these
circumstances, exercise more control without risking possible increased
resentment which might backfire on a number of United States objec-
tives in Greece.
In any case, I would strongly recommend that careful study be
given to this problem, with the hope that some better methods of
assuring maximum use of United States assistance may be found.
Finally, it should be pointed out that the International Cooperation
Administration's technique of discouraging Greek inflation by using
the release of counterpart funds to the Greek Government is not prov-
ing successful, is causing difficulties for the mission in Greece, and
should be discontinued.
B. TURKEY
1. United States interests in Turkey
(a) Security interests-Prevailing concepts
Turkey's strategic location, its unwavering opposition to com-
munism and to Russian imperialism, its strong determination to defend
itself, and its membership in NATO and the Baghdad and Balkan
Pacts, are all considered by our official representatives in Turkey to be
the most important factors behind United States security interests in
that country. Turkey is considered by our mission there to be a
staunch and willing ally of the United States, a bulwark against the
spread of communism, and a keystone in the Northern Tier defense
concept. Turkey's armed forces would be extremely useful to the
United States in the defense of the Middle East and the Mediterranean
area. Turkey's position on both sides of the straits is considered to
be an important security factor in the defense of United States and
European interests.
1192
GREECE, TURKEY, AND IRAN
Turkey is an important factor in the defense of all United States
and European allies. Turkey's link with Iran and Iraq on one side
and Greece on the other forms a vital chain in western defenses-a
chain somewhat weakened by recent disturbances over Suez on the
one hand and Cyprus on the other.
Analysis of prevailing concepts.-These prevailing concepts of
United States security interests in Turkey are, I believe, basically
sound. However, I feel that some qualification should be made of
Turkey's present ability to be considered a bulwark in the defense
of the free world against communism. The Turks, it is true, are uncom-
promising in their hatred and distrust of Soviet Russia, and in their
determination to defend themselves if necessary. But this attitude
and the size and reputation of Turkish military capabilities should not
cause us to lose sight of the fact that Turkey is in many respects an
underdeveloped country today. Its military capabilities are limited
by a shortage of technically trained personnel, by a lack of industriali-
zation and modern communications, and by certain other factors
characteristic of underdeveloped countries.
Also, I believe some qualification should be made concerning the
immediate value of Turkey's membership in the Baghdad and Balkan
Pacts and its role in NATO. Turkey's membership in the Baghdad
Pact certainly has political and psychological value at present. But
the immediate military value of this defense arrangement is relatively
small. The Baghdad Pact and the Northern Tier, as a chain of
defense stretching from Turkey to Pakistan, is at present more for-
midable from a military standpoint on a map of the area than it is
in reality.
However, there is no question that the Baghdad Pact can play—
and in the Suez crisis did play-an important role in keeping its mem-
bers together. Iraq's uneasiness during the height of the Suez crisis
was probably somewhat lessened by the moral support that nation
received from its fellow pact members, especially Turkey and Iran.
So far as the Balkan Pact is concerned this cannot be considered an
effective defensive force. The Cyprus conflict is an important ob-
stacle to efforts to improve and strengthen cooperation between
Turkey and Greece. And although the recent visit of Greece's For-
eign Minister to Yugoslavia gives reason for some hope, relations
between Yugoslavia, Greece, and Turkey are not yet what they
could be.
It is true that Turkey is an important NATO member and that its
contribution to NATO is substantial. Nevertheless, there is some
evidence that NATO's own estimate of Turkey's military capabilities
may be overly optimistic.
(b) Economic and commercial interests
United States private investment in Turkey at the present time
is not large. Probably the most active United States firms in Tur-
key are Socony, General Electric, Singer, Squibb, Minneapolis
Moline, and American Tobacco. Other businesses, including Pan-
American Airways and American Export Lines, have representation
in Turkey. A number of United States oil firms are actively explor-
ing in Turkey. The potential for United States investments in
Turkey is, I believe, quite sizable, and if the economic situation
clears up this potential should begin to be realized.

GREECE, TURKEY, AND IRAN
1193
Turkey's imports from and exports to the United States have
increased since 1946.
In 1955 Turkey's imports from the United States were worth 311
million Turkish lira and her exports to the United States were worth
136.2 million Turkish lira. (The official exchange rate today is 2.80
Turkish lira to the dollar.) Principal commodity groups on the ex-
port side in 1955 were tobacco and liquors, raw materials (chrome,
copper); food products (figs, raisins, hazelnuts, wheat); manufactured
articles; and chemical products. Principal commodity imports from
the United States in the same year were machines and transport ma-
terials, food products, combustible minerals, manufactured articles,
and chemical products.
(c) Other interests
United States educational, religious, and humanitarian interests in
Turkey include Roberts College and its affiliates, the board of mis-
sions of the Congregational Church, the Church World Service, the
American Hospital, and the Ford and Rockefeller Foundations.
The importance to the United States of the work of Roberts College
in Istanbul cannot be overestimated. The effect of the college's work
in educatio 1 and in fostering better relations between Turkey and the
United States is ever present and will, it is hoped, continue to increase
with the years.
2. Basic situation in Turkey
(a) Nature of economy and capacity for development
Turkey has a primarily agricultural economy on which about 80
percent of Turkey's 24 million people are dependent. Annual per
capita income is estimated at about $150.
Turkey is now in a very difficult economic situation. The country
suffers from a sizable disparity between internal and external prices.
It lacks foreign exchange, has a combined internal and external debt
valued at about $2 billion, and is seeing its credit with other nations
shrink. Basically, Turkey is suffering today from too much economic
development, too fast, with too little. One result of this overdevelop-
ment has been rising prices. Imports have had to be reduced some-
what because of the lack of foreign exchange, and this also adds to
the inflationary trend. The currency is seriously overvalued. Ex-
ports of some commodities, especially wheat, have not lived up to
Turkish expectations. As a result of these numerous difficulties,
private investment hesitates to enter Turkey.
Despite these serious immediate difficulties, there are some strong
features in Turkey's economy, especially for the long run. The
country is now virtually self-supporting in food, except for wheat, tea,
and coffee, and it is generally felt that Turkey has a considerable
potential in natural resources.
But for the present, Turkey is in difficult straits. It cannot be
said that these difficulties have brought about a very noticeable change
in attitude toward economic development. In the face of this critical
situation, Turkey continues to be unrealistic in its development
aspirations. The Government tends to take the attitude that the only
way out of their problems is to step up economic development even
more, increase domestic production, and thus reduce the Nation's
dependence on imports. The International Cooperation Administra-
1194
GREECE, TURKEY, AND IRAN
tion mission in Turkey is now attempting to hold down new large-
scale development projects and persuade the Turks to concentrate on
completing existing projects, and make them productive. In the
minds of many, the United States must from past days share some of
the blame for Turkey's overambitious economic development. In any
case, the present aid mission is now pursuing, I feel, the correct policy.
However, it should be made clear that Turkey's present economic
difficulties will be solved not by United States assistance, but by the
Turkish Government itself. There is little doubt that the Turkish
Government knows what steps should be taken in this regard, but
nevertheless fears domestic political reaction should they all be
undertaken.
Some policies have been instigated; for instance, the Government
has declared that there is to be no further inflationary financing for
the general budget and that state enterprises must meet operating
accounts. Some effort has been made toward establishing wholesale
and retail profit ceilings. But perhaps the most vital step needed has
not yet been taken, namely, devaluation of the lira. At one time.
Prime Minister Menderes had practically agreed to take this step.
but was not able to obtain cabinet and party support. Since then the
prospects for general devaluation before the May 1958 elections have
just about disappeared. However, a special rate is now being given
for some commodities, notably tourists; and perhaps this is the be-
ginning of "back-door" devaluation.
(b) Factors affecting development
In addition to Turkey's economic difficulties, other factors also are
inhibiting development. There is a great shortage of skilled man-
power. Turkey's educational system needs to be overhauled. Taxa-
tion is quite inadequate and poorly enforced. Heavy farm subsidies
are a burden on the Government. Progress in deemphasizing state
control of industry has been slow. Imports of raw materials and
equipment are needed but cannot be paid for. Foreign working
capital is greatly needed, and will continue to be, even after Turkey
sets its economic house in order.
Political and religious factors inhibiting development also exist.
The overcentralization of the Government contributes to the lack of
private political initiative in the provinces. To some extent, the
Moslem religion, especially among the more conservative farmer-
peasant groups, is an obstacle. Fatalism is difficult to overcome, even
in Turkey where deemphasis has taken place over the past 30 years.
(c) Political factors affecting development
The existing Government appears to be presently stable. The
Democrat Party holds about 455 out of the total of 541 seats in the
Grand National Assembly. The party's leader, Prime Minister
Menderes, is in full control, both of the Government and of his party.
The other two important parties in the Assembly are the Republican
Party, with 30 seats, and the recently created Freedom Party, with 31.
With such an overwhelming majority, it would seem that the Prime
Minister and his Government could afford to be more tolerant, so far
as freedom of the press and of assembly are concerned, and in general
with regard to the role of the two major opposing parties. However,
there has been in the past several years a marked tendency on the
GREECE, TURKEY, AND IRAN
1195
part of the Government increasingly to clamp down on the press and
on freedom of assembly, and to tie up the opposition and its leaders
with numerous restrictions. This tendency would seem particularly
unfortunate and inconsistent in view of the sharp criticism directed
by the Democrat Party now in power during the 1950 elections against
the Republican Party when it was in power, for the latter's tendency
in the same direction.
One is told that it is not in the Turkish temperament to tolerate
criticism and it seems to be a moot question whether this situation
would improve should either of the two major opposition parties as-
sume power for any substantial length of time. It should be stated
that, while criticism of the Government in the Turkish press is not
permitted, no attempt is made to impose censorship on foreign news-
paper correspondents, who are free to report to their home papers.
However, the Government does watch with some care any attempt
to reproduce such articles in the local press and has even cut pages
containing articles to which they objected out of foreign magazines
before they were permitted to be sold locally.
However, in the long run and over the years, it seems fairly clear
that even with its ups and downs-Turkey is making slow progress
toward eventual democracy through an enlightened public opinion
and increasing political awareness. Under the Turkish Constitution,
laws voted by the Grand National Assembly automatically become
the laws of the land and it is therefore possible for any government in
power with sufficient majority in the Assembly-to enact such legis-
Îation as it may consider necessary to carry out its program or plat-
form without the question of constitutionality arising.
It should be noted that the fact that the Democrat Party has such
a large majority in the Grand National Assembly does not mean that
the Prime Minister can always lcount on unquestioning and blind ad-
herence from all of his own group, as was evidenced over a year ago
when owing to charges leveed against certain members of his
cabinet-the Prime Minister was forced to make changes in the
cabinet in deference to the insistence of members of his own group in
the Assembly.
Despite the existing economic situation and political restrictions,
internal grievances are not especially articulate, except among the
intellectual minority in Istanbul and among some members of the
faculty of the University of Ankara. There is some criticism, which
is likely to grow, over rising prices. A good portion of the press is
anti-Government-to the extent that is permitted-primarily because
of the restrictions imposed upon them and the suspension of papers
which go too far. And, as has been pointed out, if economic reforms
are enforced and stepped up, there will undoubtedly be an increase
in criticism of the Government by those who are affected.
No existing grievances are apparently serious enough to cause any
revolutionary threats. The Communist Party, which is outlawed
and dealt with quite firmly, has made little progress in Russian-
hating Turkey.
In general, both the Government and the principal opposition
groups favor United States assistance to Turkey. To some extent
the Government has used foreign aid or the lack of it (with regard to
Turkey's request for a $300 million loan) as a whipping boy, partially
perhaps to direct attention from domestic troubles; but this should
1196
GREECE, TURKEY, AND IRAN
not be overemphasized. Some Turks are perhaps inclined to feel
that United States aid is more or less their due; and although most
of the officials interviewed from the Prime Minister down rendered
full credit to our assistance and indicated an understanding of its
importance to Turkey, it is felt that the size and purpose of our aid
program are not fully understood throughout the country.
In this connection the United States Information Agency in Turkey
is now putting increased emphasis on making better known United
States efforts to assist Turkey, and America's continued interest in
Turkey's development.
(d) Strategic requirements for defense of Turkey
Turkey's own estimate of the forces that would be brought into
action against them in wartime is probably slightly higher than the
NATO estimate. Traditionally, Turkey is a proarmy nation. They
are with reason extremely proud of their army, now consisting of over
400,000 men, and may perhaps be somewhat overconfident as to its
present capabilities. On the other hand, the Turks are quite realistic
in feeling the inadequacy of their present air defenses. They are
also somewhat concerned about their defenses in the north along the
Bulgarian border and apparently do not expect too much assistance
in that area from Greece. In southern Turkey the Turks now feel
that a new defensive border is upon them, as Syria bends under
Communist influence.
The caliber of the existing Turkish armed forces is limited primarily
by the lack of sufficient numbers of trained and trainable personnel,
especially in technical fields. Although communications are im-
proving in Turkey, their scarcity is still a problem in the eyes of
military officials.
It is difficult to estimate with precision the effectiveness of Turkey's
forces and defenses. But it is clear that Turkey's effectiveness in time
of war would depend considerably on two unknown factors, namely,
the kind, amount, and speed of available outside assistance and the
size of the Communist forces that would be directed at Turkey.
(e) Other factors of significance to United States aid programs
Is Turkey's defense effort inhibiting development?—In attempting to
estimate to what extent Turkey's defense effort is a burden on the
Turkish economy and thus an obstacle to economic stability and
development, one point should first be made clear. The Turks are
absolutely determined to be as strong militarily as possible. They
will make many sacrifices before they would substantially reduce their
defense effort. If all United States aid were cut off to Turkey, the
Turks would reduce their economic development before their military
development.
Turkey's own defense budget is about 23 percent of its total budget.
There can be little doubt that these large outlays for defense have
been a contributing factor to the nation's present economic instability.
To the extent that this instability is an obstacle to future economic
development, it follows that Turkey's defense effort has been an
inhibiting factor. On the other hand, the indirect effect-through
technical training, reducing illiteracy, building roads and airfields,
giving employment-that Turkey's defense efforts have had on the
general economy cannot be ignored.
GREECE, TURKEY, AND IRAN
1197
Foreign private investment (other than United States).-A substantial
amount of loans has been made available to Turkey from firms in the
United Kingdom, West Germany, France, Japan and others. But
other kinds of foreign private investment in Turkey are not large.
Some European countries have been in the country for a number of
years and are apparently willing to stay there despite present insta-
bility, and in some cases to extend credit even further. United States
businessmen with whom we talked in Istanbul seemed to feel that
Europe, more than the United States, was Turkey's natural market,
now and in the future.
Foreign assistance to Turkey other than mutual security.-In 1956
United Nations technical assistance to Turkey amounted to about
$600,000. Canada has given military assistance, primarily to the
Turkish Air Force. Turkey has also received loans primarily for
industrial development from the Export-Import Bank, the Inter-
national Bank for Reconstruction and Development, and the Inter-
national Monetary Fund. The latter was for the purchase of foreign
exchange.
Turkish-Communist trade and aid.-There are no substantial Com-
munist aid activities in Turkey today. Part of one old loan from
Soviet Russia for a textile factory is outstanding. However, there is
and has been traditionally commercial trade between Turkey and the
Communist nations which today amounts to about 25 percent of
Turkey's non-strategic trade. To some extent, the Iron Curtain
areas provide an outlet for trade not accepted in Western Europe.
There have been a number of small transactions involving credit
terms with the Communist Bloc, and Communist overtures have been
made in the form of long-term loan offers, but the Turks have not
indicated any serious interest in them.
There may be some long-range danger of the establishment of a
foreign trade pattern with the Bloc, but this would not happen will-
ingly. In fact, Turkey is attempting to encourage trade with Euro-
pean Payment Union countries by offering higher premiums.
3. Nature of United States aid programs
(a) Objectives
Objectives of United States military assistance to Turkey are to
assist Turkey in meeting its NATO commitments, provide internal
security, deter Soviet aggression, and help Turkey in the defense of
the Middle East. In the main, United States military aid consists
of end items, training, instruction in the use of equipment, construc-
tion, development of domestic military production, and assistance to
Turkey's military budget. At present the chief effort of the United
States military mission is to help Turkey's existing forces before any
expansion is undertaken.
Nonmilitary aid to Turkey, including most defense support, techni-
cal assistance, and surplus commodity aid, is aimed at helping Turkey
obtain a stable and expanding economy, and thus help the military
effort. Defense support is intended to help Turkey support a military
establishment above and beyond what Turkey could provide without
that assistance, and this aid has had the effect of making it possible
for Turkey to carry more of its own military program.
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GREECE, TURKEY, AND IRAN
(b) Magnitude
Nonmilitary aid to Turkey in fiscal year 1956 obligations totaled
about $111 million. This includes a little over $80 million in project
and nonproject defense support assistance, about $2 million in techni-
cal assistance, and about $29 million in Public Law 480 surplus agri-
cultural commodities. The defense support figure includes about
$8 million in section 402 agricultural commodities.
Nonmilitary assistance proposed for fiscal year 1957 amounts to
$80 million for defense support (including $25 million obligated in June
1956 but regarded as fiscal year 1957 defense support), about $3
million for technical assistance, and a Public Law 480 sales program
(the sales agreement for which was signed November 12, 1956) valued
at about $46 million. The aid mission envisages a gradual stepping
up of technical assistance to about 5 or 6 million dollars.
Military aid to Turkey is probably more than twice as large as
nonmilitary, and would be still larger if that portion of defense support
funds which are primarily in character were also included.
(c) Character and type of United States aid programs
Loans versus grants.-Of the $80 million proposed for fiscal year 1957
defense support, $25 million is in loans. Of the recent Public Law 480
sales agreement, half of the $46.3 million total will be in loans. Sev-
eral earlier Public Law 480 sales agreements were signed, but so far no
loan agreements have been made. A 1955 request for a $300 million
loan from the United States was turned down primarily on the grounds
that such a loan would only increase Turkey's indebtedness and en-
courage further expansion in its economy, which, it was felt, was over-
expanded already.
Military aid activities.-United States military aid to Turkey is
broken down into a number of different programs. In 1956 and in
prior years "direct forces support" was given to Turkey. This type
of aid was originally furnished by the International Cooperation
Administration and its predecessor, the Foreign Operations Ádminis-
tration, but has since been taken over by the Defense Department and
is presently called consumables and construction. Generally, items
in this category have included (in the fiscal year 1956 program) mili-
tary equipment of a nature not indigenous to Turkey and for which
foreign exchange is not available. Items supplied under this program
include electronic and communication items and spare parts, construc-
tion equipment, petroleum and its products, shop and utilities equip-
ment, medical supplies, materiel-handling equipment, X-ray machines,
automotive spare parts, paints, motion-picture equipment, furniture,
office equipment, and Corps of Engineers items.
There is a facilities assistance program in Turkey, with the objective
of developing local production of ammunition, and some other military
items. The Turks have contributed quite substantially to this pro-
gram. However, few if any of the projects under this program are yet
completed. When they are in production they will be state enter-
prises, and, in effect, will be NATO plant facilities.
The offshore procurement program in Turkey has diminished to
practically nothing. But with the completion of facilities assistance
projects, there should be possibilities for stepping up the export of
military items manufactured in Turkey to other NATO countries.
GREECE, TURKEY, AND IRAN
1199
There also exists in Turkey a substantial NATO infrastructure
program financed partially by United States contributions under the
Mutual Security Act. This program is providing assistance to Turkey
in the construction of airfield and air-defense facilities. Under this
program, NATO supplies only the barest operational facilities. We
were informed that at present Turkey is incapable of supplying spare
parts to support these facilities, and that United States assistance to
make these new bases effective will thus be needed.
United States military activities in Turkey other than the above
include training and advising the Turkish armed forces with the
objective of increasing their combat effectiveness. Considerable
progress has been made in reducing illiteracy among Turkish inductees,
approximately 70 percent of whom are illiterate at the time of their
induction, and in increasing the number of technically trained per-
sonnel, many of whom have received part of that training in the
United States and in Europe.
United States naval advisers in Turkey are attempting to develop
the effectiveness of the Turkish Navy to defend its own waters.
A United States Air Force Advisory Group is also active in Turkey,
but is working under a number of handicaps. As was mentioned
earlier, the Turks are apt to be somewhat proarmy. The United
States air mission also faces problems in attempting to help the
Turkish Air Force carry out somewhat ambitious objectives, a task
made more difficult by delays in delivery.
Nevertheless, I feel, on the basis of our talks and our visits to the
Air Force Training School at Izmir and the Turkish Air Force facilities
at Eskisehir that it is quite remarkable what has been accomplished
toward building and training an effective Turkish Air Force.
Nonmilitary aid activities.-Defense support to Turkey is categorized
either as "project" or "nonproject" assistance. Nonproject assist-
ance is in the form of section 402 surplus agricultural commodities or
of regular commodities such as petroleum products, tires, chemicals,
raw materials, machinery, spare parts, transformers, pumps, trucks,
railroad equipment, and X-ray films. The beneficiaries of these com-
modities include private industry, and Government-owned factories,
mines, railways, waterworks, electric power works, and hydraulic
works; Turkish agriculture is receiving machinery, fertilizer, pumps,
and spare parts.
Project assistance under defense support includes aid to copper and
coal-mining projects, hydroelectric projects, and a grain storage
project.
Under defense support is also included some triangular trade trans-
actions, by which proceeds of United States surplus agricultural
commodities in Italy and Austria are being used to procure raw
materials, dyes, and chemicals for Turkey.
Presently all of the lira generated from the sale of section 402
surplus agricultural commodities (amounting in fiscal year 1956 to
about $8 million) have been used to aid Turkey's military budget. In
addition, the loan portion of defense support is, in local currency
value, supporting the Turkish military budget.
Public Law 480 funds in Turkey may be used for both economic and
military purposes, in addition to a percentage for United States uses.
The loan portion of three Public Law 480 agreements, which will be
1200
GREECE, TURKEY, AND IRAN
used for economic development, is now apparently in frozen accounts.
It amounts to about $40 million (in value).
Technical assistance during fiscal year 1956 in Turkey consisted of
20 projects mainly in the fields of transportation, industry, agriculture,
and public administration. New projects proposed for fiscal year
1957 include aid to ground water development, power planning,
handicraft industries, employment services, basic education, and
police administration.
Since there has been some apparent confusion on the subject, it
perhaps should be added here, while discussing technical assistance,
that the United States Operations Mission in Turkey does not expect
any substantial increase in the near future in Turkey's exports of wheat,
cotton and cotton textiles, and other agricultural products, or of coal.
The reasons for this are Turkey's increasing consumption of these
products combined with a 3 percent annual growth in population, and
over-estimation by some experts of agricultural production trends.
United States contractors in Turkey.-A number of technical assist-
ance projects in Turkey are being carried out by United States firms
and universities employed out of funds supplied directly or indirectly
by the United States Government, through the International Coopera-
tion Administration.
Present university contracts of this nature exist with Spring Garden
Institute, and with New York, Georgetown, and Nebraska Univer-
sities.
Spring Garden Institute (of Philadelphia) is engaged in an auto-
motive maintenance training program. Institute personnel assisted
in setting up a model training school at Izmir, which we visited. The
Turkish Government has plans for similar schools in other areas. In
the Izmir school, the boys receive up to 4 years of practical training in
all phases of automotive maintenance. The training equipment,
which is quite modern, has been supplied primarily through the defense
support program. Most if not all the boys now being trained have
not yet done their military service and, therefore, their training at
Izmir (and eventually elsewhere) will be especially useful from a
military standpoint once they are inducted.
New York University is engaged in a public administration program
with the University of Ankara and the Ministry of Education. The
New York University group is concentrating its efforts on setting up
courses in public and private business management and in practical
Government administration. The group is assisting in establishing a
legal research institute and a business management training school.
The University of Nebraska is assisting Ankara University in its
agricultural education and the Ministry of Education in setting up
Attaturk University, a land-grant type college in eastern Turkey
which will be opened in September 1958.
Georgetown University is engaged in an English language teacher
training program at the University of Ankara. Turkish military
personnel have received English training through this project before
coming to the United States for technical military training.
Engineering_contractors now operating in Turkey_through_the
International Cooperation Administration are Charles T. Main, Inc.
(engaged in the Sariyar Dam hydroelectric power project); Paul
Weir Co. (assisting in the Zonguldak coal mines project), and Raymond
Concrete Pile Co. (assisting in a grain storage program project).
GREECE, TURKEY, AND IRAN
1201
Most of the funds that the International Cooperation Administration
has contributed to these projects in the form of equipment have
come from defense support.
Pan-American Airways is assisting the Turkish Airlines in improving
and expanding its operations. The Turkish Airlines was founded in
1932 as a Government monopoly, but this year private control of the
airline has been initiated.
Funds proposed for all fiscal year 1957 contract services total
$1,376,000.
United States aid personnel.-American personnel financed by
the International Cooperation Administration in Turkey number
about 220, including 132 American private contract personnel.
Military aid mission personnel, including United States civilians
attached to the military, presently number about 489 Americans and
225 Turkish civilians. United States Information Agency personnel
in Turkey number 14 Americans and 86 Turks.
(d) Other United States programs in Turkey
The United States now has an investment guaranty program,
covering convertibility, with Turkey. It is expected that this
program will be extended to cover expropriation in the near future.
Three United States firms now have guaranty contracts in force
valued at almost $3 million. It is my understanding that applica-
tions totaling an additional $55 million have been made, but have
not yet been approved by the International Cooperation Adminis-
tration. This, plus other factors, has apparently led some busi-
ness interests in Turkey to question how enthusiastic the Interna-
tional Cooperation Administration really is over promoting this
program at this time.
The United States also has in Turkey an informational media
guaranty program which is presently supporting two activities.
One is for commercial motion pictures and the other is for books and
other publications. Total applications approved for 1956 amounted
to $971,153.
It was felt in Turkey that this relatively new program has already
indicated its value in making available to Turkish students, teachers,
and to others American books and periodicals which were previously
not available.
4. Effectiveness of aid programs and conclusions
(a) Analysis of aid program objectives
There is no question, in a narrow sense, that existing United States
military aid objectives in Turkey are generally valid. It is certainly
in the interests of the United States to help Turkey to play an in-
creasingly effective role as a member of NATO and the Baghdad Pact
in the defense of the free world and particularly of its own borders.
As was pointed out earlier in this report, some question exists whether
present United States military assistance to Turkey is sufficient or
can be made sufficient to enable Turkey to fulfill these objectives.
There are too many unknown factors to enable one to judge, in any
final sense, whether these objectives are or are not too ambitious.
For example, it would be necessary to know the type of external
assistance that would be forthcoming in time of war; how much air
and naval support would be available to help Turkey; the type of war
1202
GREECE, TURKEY, AND IRAN
we are assisting Turkey to prepare for. Again, would advanced
weapons be used in Turkey's defense and would the existing Turkish
Air Force be called upon to carry out any mission other than just
ground support? Is it expected that in case of war the Turkish Army
would be relied upon to engage a major Soviet ground advance, or
that such an advance would be more likely to strike in northern Iran,
or through Bulgaria, or both?
In other words, to be able to judge whether present United States
military objectives and efforts in Turkey are in the best interests of
the United States, these and other important questions would, it
seems to me, have to be answered.
One stated objective of United States military aid is to help Turkey
in the defense of the Middle East. It is rather difficult fully to
understand what this really means. To what extent does this ob-
jective differ from the objective of deterring Soviet aggression? How
is this objective to be carried out with regard to Soviet penetration-
as opposed to aggression-of, for example, Syria and Egypt?
Turkey is the southern flank of NATO. Beyond Turkey is Iran.
As a member of both NATO and the Baghdad Pact, Turkey is supposed
to be a link between Europe and Asia. It is, in a sense, a United
States military aid objective to strengthen this link. But there was
little evidence available which would indicate that this "link" strategy
had developed very far. For instance, we could find that no plans
exist for NATO to provide assistance to Turkey if Turkey goes to the
defense of a Baghdad neighbor, such as Iran, but is not actually
attacked itself. Nor, in fact, could we ascertain to what extent
Turkey would be militarily prepared to give such assistance. In other
words, it would seem difficult, if not impossible, to bring this link
strategy into actuality until agreement is reached and more coordi-
nated action is taken by the United States, by NATO, and by the
Baghdad Pact countries themselves.
It has been implied earlier in this report that in some fields NATO
objectives for Turkey are perhaps overly optimistic. I believe that
that effort should constantly be made where United States military
aid is substantially involved-to aline United States aid objectives
with NATO objectives and vice versa.
Nonmilitary aid to Turkey is aimed at assisting Turkey to have a
more stable and expanding economy and thus indirectly help the
military effort. More specifically, the United States Operations
Mission in Turkey is now attempting to assist the Turks in completing
existing development projects before beginning new ones, on the
theory that in this way Turkey can stabilize its economy and then
go on to expand.
The extent to which nonmilitary aid is actually helping the military
effort should not be exaggerated. To be sure, road construction and
mining and electric-power development have military value, as do
literacy programs and automotive maintenance schools. But one
wonders whether the military value of nonmilitary aid is sufficient
to assign to it military objectives, where the connection is, after all, a
somewhat remote one. In any case, in Turkey, where there is such
firm determination to be strong militarily even at the sacrifice of
economic development, it would seem wise to base our non-military-aid
policies more on economic grounds and less on military grounds.
GREECE, TURKEY, AND IRAN
1203
One wonders, also, whether it is not possible that existing military
aid objectives in Turkey may, in a sense, run counter to existing non-
military-aid objectives. Will it be possible for Turkey to fulfill
present military objectives and at the same time achieve a stable
and expanding economy? At present, the answer is probably "yes";
mainly, I would think, because as long as the economic problem
remains overdevelopment and overexpansion, the military drain is
probably not too serious an obstacle to economic stability. But once
Turkey is again in a position (with United States aid) to move forward
with new capital development, then it may be that Turkey's military
effort, plus United States military aid, will be working against United
States purely economic objectives in Turkey.
Finally, it might also be added that since present United States
non-military-aid objectives in Turkey are aimed at encouraging
Turkey to complete existing projects and discouraging new capital
development, constant effort should be made, before new funds are
programed, to assure that these funds will not run counter to this
objective.
(b) Magnitude of aid programs
Nonmilitary. It is my judgment that plans to increase technical
assistance in Turkey in the coming few years are well justified, espe-
cially if greater emphasis is given to educational projects. However,
until such time as Turkey is able with present levels of United States
assistance to catch up on its overexpansion and take the steps it
should realize must be taken to straighten out its economy, it would,
I feel, not be in the United States interest-or, in fact, in Turkey's
own long-range interest to increase substantially other economic
aid to Turkey over present levels.
But it is probable that, as Turkey takes the steps necessary to set
its economic house in order, there will be a need for some additional
capital assistance.
Military. In the light of previous comments in this report about
the need for strengthening Turkish defenses in conjunction with Iran
and the Middle Eastern area as a whole, I feel that there probably
should not be any substantial decrease in military aid. However,
this recommendation is based on the assumption that military-aid
objectives in Turkey are valid, after consideration has been given to
the questions posed earlier in this report.
Loans versus grants. For the present, it would not seem advisable
to burden the Turkish economy with additional dollar debts and,
therefore, any substantial increase in loans over grants is not recom-
mended. It is further urged that consideration be given to rearrang-
ing the allocation of defense support funds so that the portion which
goes to the Turkish military budget should be in grants and not loans.
Especially in the light of Turkey's existing economic difficulties, loans
should not be allocated to generally unproductive-type activities.
(c) Administration and coordination
I gained the general impression, while in Turkey, that a number of
problems exist with regard to administrative control, coordination of
deliveries, and operation of United States aid programs, including
among them coordination between NATO Headquarters and the
United States military mission.
94413—57——————77
1204
GREECE, TURKEY, AND IRAN
There should, I feel, be a close study made by United States defense
officials and NATO officials to see in what ways better control,
programing, and operation can be instituted for Turkey with regard
to the annual review process, the NATO infrastructure program, and
United States NATO military objectives. In all three instances,
there seems to be need for improvement in programing and control.
It is also important to bring NATO force goals in Turkey more in line
with United States objectives.
It is also my feeling that more responsibility should be placed,
initially at least, in the hands of the United States military mission in
Turkey, with respect to programing military items into Turkey. To
a large degree, the kind of end items Turkey will receive (tanks
versus aircraft) is based on Washington programing, concerning which
the mission in the field is not always brought in to the extent that they
should be. There should also be considerable flexibility and constant
review of future items to be programed into Turkey as to amount
and kind, especially in relation to the actual ability, as judged by our
mission in Turkey, of the Turkish forces to use those items effectively.
I believe that it would also be in United States interests to get into
the hands of our military mission in Turkey the annual Joint Chiefs of
Staff guidance instructions at an earlier date than at present, so that
the field mission could have more time to prepare its program recom-
mendations.
With regard to the planning and administration of the aid program
in Turkey, it is felt that increased efforts should be made, at all levels,
to persuade the Turks that it is in their own interest to put their
economic house in order, and that the size and nature of the aid
program that may be approved will inevitably depend considerably
on whether these steps are taken.
International Cooperation Administration contracts.-It was the
general impression, in which I concur, that the International Coopera-
tion Administration contracts now operating in Turkey are of such a
nature that they could not be handled as effectively by International
Cooperation Administration personnel. A notable example of this is
the Pan-American contract with the International Cooperation
Administration to assist the Turkish airlines. However, when
Turkey's financial situation improves, I feel that consideration should
be given to having these contracts-especially those of a noneduca-
tional nature placed on a direct Turkish-United States contractor
basis.
C. IRAN
1. United States interests in Iran
(a) Security interests
Prevailing concepts. The concepts we found prevailing in Iran
with regard to security interests of the United States in that country
would appear to be along the following lines: The forward strategic
defense of the United States includes the NATO and the Baghdad
Pact "Northern Tier" concept. Of the NATO and Baghdad Pact
nations, Iran has the longest common border with the Soviet Union.
Iran serves as a link between NATO and SEATO, with its member-
ship in the Baghdad Pact along with its neighbor, Turkey-a NATO
member-and along with its neighbor to the east, Pakistan-a SEATO
member. The most probable avenue of approach into the Middle
GREECE, TURKEY, AND IRAN
1205
East for large Soviet ground forces lies through northwestern Iran
and the passes of the Zagros Mountains into the plains of Iraq. Thus,
the armed forces of Iran would undoubtedly meet and bear the initial
shock of a Soviet-launched ground offensive campaign to secure the
Middle East.
United States security interests in Iran involve directly the protec-
tion of NATO's right flank, as represented by Turkey. The successful
protection of NATO's right flank from a Soviet ground advance into
the Middle East would depend to a large degree on the effectiveness.
of Iranian resistance in delaying such a ground advance.
The defense of Iran is of paramount importance to United States
strategic objectives in the Middle East of maintaining free and inde-
pendent anti-Communist governments, limiting the expansion of
Communist-dominated areas, and insuring free-world access to stra-
tegic raw materials of the area.
It is also the estimate of United States officials in Iran that
the defense of Iran is of major importance to various allies of the
United States, particularly Turkey. The defense of northwestern
Iran is considered of paramount importance to Turkey, which might
otherwise be outflanked by any Soviet penetration of that area. A
successful attack through northwestern Iran would make possible an
attack on the underbelly of Turkey. If the Soviets were able to break
across northwestern Iran and establish a base of operations in the
plains of Iraq, they would be in a position to launch attacks against
Suez and eastern Mediterranean areas and against the western oil
operations in the Persian Gulf complex.
Iran in Soviet hands would place all of the anti-Communist or neutral
countries on both sides of Iran under the active control or domination
of the Soviet Union.
Analysis of prevailing concepts.-These concepts are, I believe,
generally valid. The extent to which, in all circumstances, these
concepts can be fully realized is another question. Although currently
accepted strategic concepts take into account the importance of pro-
tecting NATO's right flank, little if any actual coordination seems to
exist on this problem either between the Baghdad Pact and NATO as
such, or between Iran and Turkey. I was reminded in Paris of the
apparent reluctance on the part of northern European NATO members
to see NATO expanded or broadened toward the Middle East, even
to the extent of increasing NATO-Baghdad defense coordination.
Nevertheless, in attempting to judge the validity of the "northern
tier defense concept" and the concept of Iran as a link between
NATO and SEATO defenses, it is necessary to conclude that at
present both concepts are likely to remain theoretical until NATO
and the Baghdad Pact achieve a closer and stronger relationship
with regard to NATO's right flank.
The importance of Iran's 1,000-mile common border with Soviet
Russia, as a factor in United States strategic defense concepts or as
a factor in urging congressional approval of military aid for Iran,
has perhaps been somewhat overstressed, at least in the recent past.
The Soviet-Iranian border, between the Caspian Sea and Afghani-
stan, is, in actuality, probably indefensible, even if the entire Iranian
Army were stationed in that area. However, it is also true that this
same border area would not be a very practical or easy one for the
Soviet Russians to use as a path into Iran and to the Middle East,
1206
GREECE, TURKEY, AND IRAN
mainly because of the extended logistical supply line that would be
necessary. Thus, in a military sense, the strategic importance of
this part of the 1,000-mile border should not be overestimated.
However, the strategic importance of Iran's common border with
Soviet Russia west of the Caspian Sea to Turkey (Azerbaijan) can-
not be overestimated.
Both Iranian and United States officials seemed to recognize fully
that recent developments in Suez and Syria have increased the general
Communist threat to Iran as well as to the entire Middle East, and
that Soviet Russia is in the Middle East to stay, if it can. Sufficient
time had not elapsed for our officials to be able to say in what way,
or to what extent, these developments would or should cause change
in United States security and strategic concepts.
Finally, with regard to the validity of United States-held strategic
concepts for Iran, the Iranian officials with whom I talked, including
the Shah, indicated that free world security objectives in Iran would
not be fully attained until such time as the United States formally
joins the Baghdad Pact and backs up its membership with adequate
material support.
(b) Economic, commercial, and other interests
With the exception of the 14 American oil companies who hold a
40-percent share in the international oil consortium which was
organized to produce and market most of Iran's oil, private United
States investment in Iran is negligible.
There are several businesses such as Pan-American Airways which
operate in Iran, and a number of United States firms working_under
contract with the Iranian Government. Among the latter are Trans-
Ocean Airways, which operates the Iranian Airways; Drilling &
Exploration Company of Nevada, which is employed by Iran's own
oil company in its operation at the new Qum field; Morrison-Knudsen
International, which is assisting in preliminary construction work on
the Karaj Dam; and various management-engineering firms which
are advising certain ministries of the Government.
For the Iranian year 1334 (March 1955 to March 1956) Iran's im-
ports from the United States totaled $64.5 million, while exports to the
United States totaled $13 million over the same period.
During the year 1333 (March 1954 to March 1955) Iran's largest
imports from the United States were in trucks, tires, cars, auto parts,
and machinery, while exports to the United States were primarily,
excluding oil, in carpets, pistachios, wool, and soft wool. With the
exception of a small amount of chrome, the only strategic or critical
raw material recently flowing to the United States from Iran is oil.
Additional United States interests.-There are few significant Ameri-
can religious activities in Iran, other than the activities of the Presby-
terian Mission. Several American private humanitarian foundations
have been active in Iran. The Near East Foundation has been operat-
ing most successfully in Iran since 1946, and since 1951 has received
assistance-under contract from the International Cooperation Ad-
ministration. The foundation's activities and projects are primarily
in the fields of community and agrarian development, working in close
cooperation both with the United States Operations Mission and with
the Iranian Government. The Near East Foundation's work in Iran
has also been assisted financially by the Ford Foundation.
GREECE, TURKEY, AND IRAN
1207
The United States educational and leadership exchange programs
are active in Iran and are serving an extremely useful purpose in in-
creasing understanding and cooperation between the two countries.
Iran's awareness of the United States and its interest in our country
are comparatively recent developments. In the last century Britain,
France, Germany, and Russia exerted at various times strong influ-
ence on Iran. Although the United States is not considered "colonial-
ist" in ambition or intention, nevertheless, century-old suspicions, en-
couraged by Communist propaganda under the guise of nationalism,
have at times hampered the progress in Iranian-American relations.
As Iranian students and present or future leaders are given the
opportunity to visit and study in the United States, and as Americans
come to Iran in response to requests for help-especially in teaching
at the University of Teheran-progress will continue to be made in
mproving relations between the two countries, in offsetting old anti-
Western prejudices and in countering Communist propaganda.
I was fortunate to talk with a number of Iranian officials who had
been to the United States under the leadership program. The mayor
of Isfahan had been a leadership grantee and his attitude and ideas
were excellent testimony to the value of this program.
One difficulty encountered in sending Iranian students to the
United States is that many of them are reluctant to return to their
country. I am aware that both Governments are making efforts to
encourage these students to return to Iran. But difficulties encoun-
tered in the past lead one to believe that it might be advisable, in some
instances, to put more emphasis on increasing the ability of Iran to
teach some of these students in Iran with assistance, where necessary,
from American teachers temporarily residing there.
2. Basic situation in Iran
(a) Nature of economy and capacity for development
Iran is a sparsely populated country of 20 million people, 80 percent
of whom are dependent on agriculture and about 10 percent on
industry. Oil exports are by far the largest source of Iran's wealth.
Other than oil, the most important industries are textiles, sugar,
cement, and tobacco. Although the average annual per capita
income is about $100, there exists in Iran a small but wealthy group
whose income is primarily from land ownership. Much of Iran is
desert and wasteland. The country's population is about 80 percent
illiterate and 98 percent Moslem. Despite its vast oil reserves, and
the present income from its production, Iran is basically an under-
developed country.
Iran's aspirations for economic development are almost entirely
dependent on the use of oil revenues. In 1949, a large-scale 7-year
program of economic development was inaugurated to be financed
from oil revenues and administered by a Government Ministry, the
Plan Organization.
Political unrest, the economic and fiscal policies of the Mosadeq
Government, and financial stringency resulting from the cessation of
oil exports after nationalization, all combined to restrict the progress
of the first 7-year plan. Between 1949 and 1951 a number of develop-
ment projects were carried out but far short of the number planned.
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GREECE, TURKEY, AND IRAN
About a year ago, the second 7-year plan was approved. It calls
for the expenditure of the equivalent of $1 billion to be financed
primarily from oil revenues, for projects in agriculture, transportation,
water development, industry, health, and education. At present the
Plan Organization receives 60 percent of the total Iranian oil revenue.¹
In 1956, 60 percent will amount to about $86 million. By March
1958, the Plan Organization, under present legislation, will have its
annual share of Iran's oil revenue increased to 80 percent. Loans of
various types have also been made to Iran for its economic develop-
ment from Great Britain and from the International Monetary Fund
($17 million of which has already been drawn). The Export-Import
Bank has extended a line of credit of $53 million, $18 million of which
has been used, and at the time of our visit a line of credit of $75
million from the International Bank for Reconstruction and Develop-
ment was being negotiated. (Although the Plan Organization is not
receiving outright economic assistance from the International Coop-
eration Administration, it is receiving some United States technical
assistance.)
Whether economic development in Iran will succeed or not depends
primarily on the operation of the Plan Organization. I can only
conclude from our observations that we were sufficiently disturbed
over the lack of organization, planning, and accounting within the
Plan Organization to have some doubts about the ability of this vast
organization to carry out its program and to make the most effective
use of the very considerable funds available to it.
Besides these internal difficulties facing the Plan Organization,
political difficulties are also evident. The lack of progress over the
first 7 years coupled with failure to produce substantial tangible
results over the past year are causing increasing discontent in the
country. The people of Iran are determined to make economic
progress and they expect to see the revenue from the natural resources
of their land-oil-used effectively and speedily for that purpose. It
is no exaggeration to say that the maintenance of political stability
in Iran depends heavily upon an adequate degree of success by the
Plan Organization in implementing the economic development pro-
gram. There is widespread feeling in the country that long-term
development projects are receiving too much attention at the expense
of more immediate and less ambitious projects. Thus discontent
grows, especially in areas away from the capital where the develop-
ment program has made relatively little progress in meeting the
demands of the people for immediate and tangible benefits.
Fortunately, officials of the Plan Organization are beginning to
realize fully the problems they face, and hopeful steps are now being
taken. The Director is apparently now willing to employ foreigners
for positions within the organization to fill the need for qualified,
technically trained personnel not available in Iran. Plan Organi-
zation officials are increasingly willing to accept guidance and ad-
ministrative assistance from the United States Operations Mission.
One United States management consultant firm, George Fry Associ-
ates, is already assisting the Plan Organization in managing certain
subsidiary enterprises owned by the Government. The services of
another management consultant firm, the Governmental Affairs
1 The balance is broken down as follows: 10 percent for budgetary support and 30 percent for the operations
of the National Iranian Oil Co.
GREECE, TURKEY, AND IRAN
1209
Institute of Washington, has been requested by the Director and is
now recruiting a team to go to Iran for 2 years. Both firms are, or
will be, operating under International Cooperation Administration
contracts. Further consideration of the whole question of Interna-
tional Cooperation Administration contracts is taken up later in this
report.
(b) Factors inhibiting economic development
Besides the above obstacles to the economic development program,
other inhibiting factors exist. There is a serious shortage of skilled
labor and of entrepreneurial talent. Political uncertainties tend to
discourage long-term investment. There is a severe shortage of
private capital. Investment funds that are available tend to flee the
country and hesitate to return. Bank credit is limited and investment
rates exorbitant. The lack of any really effective taxation system is
perhaps the most important single inhibiting obstacle. More taxes
were collected in the past year than in the year before, but return of
this revenue in the form of tangible assistance to the country, espe-
cially to areas other than Teheran, is progressing slowly.
It is felt that some of these inhibiting factors can be eliminated by
Iran itself. One step toward creating a more favorable climate is the
recent passage of a more liberal foreign investment law.
An investment guarantee program with the United States, covering
both convertibility and expropriation, probably will be signed within
the next few months. There is evidence that some American business
interests are awaiting this agreement before they become active in
Several United States banks have indicated interest in coming
into Iran, but, as with most other foreign businesses, they do not feel
the climate is sufficiently attractive at present. Perhaps the most
important single condition for attracting foreign investments is
confidence in continuing political stability, both within Iran and in
the Middle Eastern area as a whole. Until the overall climate in the
area improves, there is not likely to be a substantial rise in foreign
investment in Iran.
(c) Political and cultural factors affecting Iran's development and
its capacity to use foreign aid effectively
The present Government of Iran appears to be unusually stable,
at least according to Iranian standards. Although there exist internal
grievances against the Government and criticism is heard, especially
with regard to lack of tangible progress by the Plan Organization, as
described above, nevertheless there is no organized, effective opposition
to the Government. The Shah is now playing an increasingly active
role in the operation of the country, a fact which is not altogether
appreciated by some, who feel that he should restrict his activities
more to reigning than to ruling. Again, the difficulty is the lack of
qualified Iranians able to take over more of the detailed operations
of the Government.
Also to be considered is the fact that in the event the Shah
should die in the relatively near future, serious difficulties might arise
over the succession, there being no direct heir at present.
Freedom of assembly and of the press are somewhat limited in
Iran. Considerable private, individual criticism is quite freely ex-
pressed. This freedom, however, is strictly limited to activities which
do not threaten the existing Government, and any subversive activities
1210
GREECE, TURKEY, AND IRAN
are firmly dealt with. The press is subject to banning, suspension,
and individual newsmen are occasionally arrested, but on the whole the
restrictive powers of the Government in this field are not carried to the
extreme. As is true in other countries in the area, the press cannot
be called entirely responsible.
Elections in Iran are in many instances controlled. The courts
are not really independent of other branches of the Government, and
the legal system of the country, like its tax system, needs a thorough
revamping.
However, the role that United States assistance and United States
officials in Iran can or should play in attempting to encourage the
growth of freer institutions is a difficult and very sensitive one.
With regard to court reform, the United States Operations Mission
in Iran has asked for one technician to work with the Iranian Ministry
of Justice. The extent to which such assistance should be given by the
United States is, it is felt, somewhat doubtful. Political reaction and
possible resentment could result from aid of this type being given on a
bilateral basis. It is suggested that assistance in court reform might
best be handled through the United Nations technical assistance pro-
gram rather than through our own aid program.
In the long run, it seems certainly to be in our interest that Iran
develop a freer and more responsible press. Again, this is a somewhat
touchy field in which to become involved. But it is felt that the United
States Information Agency in Iran can play a useful role in setting
standards and explaining to local officials and press leaders the desir-
ability of a freer and more responsible press. I believe that more
could be done in this direction.
Although the present Government appears stable, there exist
several potential revolutionary threats. The Communist (Tudeh)
Party is now outlawed, and a vigorous campaign by the Government
has made its survival as a semiorganized force extremely difficult.
Nevertheless, should the political climate change substantially and
instability increase, the Tudeh Party might again be able to gain a
considerable following. The same can be said for the Nationalist
Organization, now semiunderground and ineffective, of former Prime
Minister Mosadeq. There are considered to be other possible threats
to the Government, including the possibility of a Nasser-type move-
ment by some of the younger army officers. But for the time being
none of these groups is in a position to make serious trouble.
There is no question that United States assistance to Iran is largely
responsible for the country's present relatively stable political situa-
tion. This fact is quite fully realized by the great majority of Iran-
ians.
Admitting this, there exists in Iran, especially among the highest
officials, some feeling that Iran has not received all that it expected-
in fact all, as some say, that it was promised-in the way of military
aid, following its adherence to the Baghdad Pact. This criticism is
quite frankly expressed and is not lessened by the delay in delivery of
certain military items, and in moving ahead with military construc-
tion under funds appropriated some time ago.
(d) Strategic requirements for defense of Iran and present military
capacities
Iran's own estimate of the principal military threats to its security
seems to be quite realistic. Communist activities in neighboring
GREECE, TURKEY, AND IRAN
1211
Afghanistan are cause for concern. The question of the ability of
either the Iranian Government or of our missions to estimate clearly
the degree of Communist penetration of Afghanistan and Soviet mili-
tary strength in the area bordering on Iran should, it is felt, be given
careful study.
Aside from the United Nations, Iran's only international defense
arrangement is the Baghdad Pact. As presently constituted, the
defensive capabilities of Iran are of such a nature that substantial as-
sistance from the United States would be necessary to enable Iran to
carry out its limited military objective of providing some resistance to
any Soviet aggression.
It should be noted that Iran in 1921 made a treaty with Russia
which provided in part that if third countries attempted to use Iran
as a base for military operations against Soviet Russia, the latter shall
have the right to bring troops into Iran in order to take steps against
that third country.
The extent to which this treaty is today generally applicable to
situations other than the specific one for which it was negotiated is
not entirely clear. Originally, this treaty was to apply against parti-
sans of the former White Russian regime and their foreign supporters.
The size and caliber of Iran's own defense forces can only be realis-
tically considered in relation to the fact that Iran is an underdeveloped
nation. Its ability to provide itself with a modern fighting force
equipped with modern equipment and techniques is and will be for
some time very limited, no matter how conscientiously they strive,
no matter how much outside equipment and advice is forthcoming.
It should be added that this is not a situation peculiar to Iran and
that progress is being made in strengthening Iran's defense forces.
The question is thus one of Iran's ability to absorb substantially
increased military equipment in order to improve the effectiveness of
its forces. Some doubt exists as to whether Iran could absorb much
of an increase in this type of assistance over what is being given at
present.
3. Nature of aid programs
(a) Objectives
The military assistance program in Iran is expected to equip and
train the Iranian armed forces to enable them to maintain internal
security and provide some resistance to external aggression.
The United States military advisory mission to the Iranian gen-
darmerie (rural police) has been for some time assisting Iran in
strengthening its internal security.
The objectives of the nonmilitary aid programs are to assist Iran
in its economic and community development and thereby help to
satisfy the aspirations of the Iranian people for a better, more
prosperous life.
Behind both objectives-military and nonmilitary-lies the basic
objective of preserving Iran for the free world.
(b) Magnitude
Total International Cooperation Administration assistance to Iran
during fiscal years 1951 through 1956, including long-term loans, but
excluding Public Law 480 programs, amounted to $273.2 million, of
which $76.6 million was for technical assistance or technical coopera-
tion. Beginning with the replacement of the Mosadeq regime in
1212
GREECE, TURKEY, AND IRAN
August 1953, the United States provided financial aid to Iran to meet
the deficit in its operating budget, pending full resumption of oil
revenues. This amounted to $60 million in fiscal year 1954, $53
million in fiscal year 1955, and $35 million in fiscal year 1956.
Beginning in fiscal year 1956, the United States began to provide for
defense support of military construction. This included $17.5 million
in fiscal year 1956. The military construction program for which
the $17.5 million was appropriated had not, at the time of our visit,
received program approval from Washington.
For fiscal year 1957, $7 million is estimated for technical assistance.
Of the total International Cooperation Administration aid 1951-56,
$51.5 million remained in the pipeline on June 30, 1956, in accumu-
lated allotments. About $10 million of this remains unexpended for
technical assistance.
Altogether, almost twice as much military aid will go to Iran in
fiscal year 1957 as International Cooperation Administration aid.
Furthermore, the military aid column would be substantially increased
if that portion of International Cooperation Administration aid which
is actually military (defense support) were added to it.
Of the $65.5 million allotted in fiscal year 1956, $10 million was
made available (for budgetary support) as a long-term loan. Military
funds for Iran are all on a grant basis.
Administrative direction of the aid program in Iran seems to be
fully controlled by Washington even to the extent that in technical
assistance, each individual project must be approved by Washington.
The military mission in Iran and the United States Operations
Mission on policy matters are guided by and cleared through the
Ambassador and the country team, but neither mission operates
directly through the Ambassador in their contacts with their respective
Washington agencies.
Military personnel in Iran, including the gulf district, Corps of
Engineers, totals 444 Americans and 239 locals. United States Opera-
tions Mission personnel totals 273 Americans and 49 locals. United
States Information Agency personnel totals 32 Americans and 141
locals. Total Americans in the country team, including Embassy
personnel, numbers 876.
(c) Activities and projects of aid missions
The United States military activities in Iran are actually broken
down as follows: First, there is ARMISH, the military mission as-
signed in 1947 to the Iranian Ministry of War to advise on organiza-
tion plans, training and administration. Secondly, there is the Mili-
tary Assistance Advisory Group, which arrived in 1952 and whose
task is to program United States military aid to Iran, turn over that
aid to Iran, and insure its proper use. The two missions are com-
bined administratively and many functions of each are done by all
personnel regardless of where they are carried.
Thirdly, there is GENMISH, the United States military mission
with the Iranian gendarmerie, which has been in Iran since 1941.
Lastly, there is the gulf district, Corps of Engineers, recently arrived
to assist in the military construction program.
The military mission and the Military Assistance Advisory Group
have sections actively aiding and advising the Iranian Air Force and
Navy, both of which are very small. The military mission and the
GREECE, TURKEY, AND IRAN
1213
Military Assistance Advisory Group have training teams with each
Iranian Army Corps. We were able to see the progress that one of
these teams is making, at Lalli, where we observed a battalion in the
attack field exercise, conducted by elements of the V Corps, Imperial
Iranian Army, with the assistance of the United States team.
United States Operations Mission activities and projects in Iran
cover a wide assortment of fields and endeavors. One of the largest
United States technical-assistance programs in the world is operating
in Iran today, and to some extent this program is moving under the
momentum of previous years, when even greater funds were available.
Technical assistance in fiscal year 1951 amounted to $1.6 million. It
jumped to $23.1 million in 1952 and has been steadily reduced since
then to $8 million in fiscal year 1956; $7 million is proposed for fiscal
year 1957 and about $6 million for fiscal year 1958.
Technical assistance in Iran now includes projects in public adminis-
tration, agriculture, public health, industry and transportation, edu-
cation, audiovisual work, community development, and labor. The
largest programs are in agriculture, and industry and transportation.
A few comments on the nature of these projects might be helpful.
Iran faces many difficult problems in attempting to modernize its
administrative operations. These problems include: the shortage of
skilled administrators, corruption, absence of a career (civil service)
system and of a budget and accounting system, low pay, overcentrali-
zation, lack of statistics, and perhaps above all, the number of workers
on the Government payroll. The United States Operations Mission
public administration consultant program is making progress in such
areas as budgeting and cost accounting, reorganization of the tax
administration, and statistics. The United States Operations Mission
now has public administration consultants working in all ministries
except defense and foreign affairs, formulating management improve-
ment programs. The advisers work only with techniques and are not,
according to United States Operations Mission, involved in matters of
policy. However, the consultants do work closely with personnel of
the various ministries, and it would seem impossible for them not to
become involved in problems bordering on policy.
The United States Operations Mission's activities in the field of
agriculture are quite numerous, and progress here is easier to measure
than in public administration. United States technicians are advising
the Iranian Government in such areas as animal and crop production,
pest control, water drainage and irrigation, agricultural extension
work, forest improvement, development of cooperatives, demonstra-
tion of uses and maintenance of farm machinery, and livestock
vaccination.
In public health, technical-aid activities include health education,
immunization programs, a nursing program, the development of rural
health centers, aid in the elimination of opium production and use,
and the spraying of villages against epidemics. Great progress has
been made in reducing malaria in Iran. This program was initially
run entirely by Americans. Now the Iranian Ministry of Health is
taking over. A number of Iranian medical students have received
training abroad and in the United States with United States assistance.
The United States Operations Mission aid to Iranian industry in-
cludes projects in telecommunications, bureau of standards, low-cost
1214
GREECE, TURKEY, AND IRAN
housing, lumbering operations, food processing, bottlemaking, deep-
well construction, and industrial surveys. In the past the United
States Operations Mission has assisted in the improvement of railway
operations, and expects to step up its aid in highway maintenance.
The United States Operations Mission audiovisual aid has included
actual motion-picture production (in health, agriculture, education
and community development) and training in film production and
use. A second project is the construction of a 50-kilowatt transmitter
and the training of Iranians to run and maintain it. We were informed
that this transmitter is expected by day to reach areas of Iran con-
taining 65 to 70 percent of the population and give complete country
coverage at night.
Technical assistance in the labor field centers around labor-manage-
ment relations, labor training, labor standards, employment security,
and job placement. While in Teheran we were able to visit the local
employment office, where techniques suggested by the United States
Operations Mission are now in use.
Technical assistance is assisting the Ministry of Education in general
and vocational education, in a home economics program, and in
literacy training. Teacher-training programs are set up in all phases
of the education program, which is presently concentrating on curricu-
lum development, methods of and materials for learning.
With the aid of the United States Operations Mission, the Near East
Foundation is working with the Iranian Government in an extensive
community-development program. Among the projects under this
program is the work being accomplished in some 300 villages in the
Veramin Plains, near Teheran. A girls' school for training future
rural schoolteachers, an agricultural teacher training school, organi-
zation of rural cooperatives, low-cost housing, village cleanups, and
public health are among the activities in the Veramin Plains project.
A program of training multipurpose village workers in health, agri-
culture, education and village organization has been instigated. This
program, quite similar to the county-agent system in the United
States, is proving to be extremely effective.
The foundation is assisting the Iranian Government in setting up
rural cooperative and agricultural credit programs.
Under the new (June 1956) community development law, each
village in Iran is setting up a village council to organize and direct
village improvement projects. Under the law, 5 percent of the land-
lord's share of the crop will be collected by the council for its activ-
ities. We saw evidence that this village-council system was progress-
ing and that council funds were being used to finance, for example,
school construction and other needed projects.
United States Operations Mission responsibilities other than tech-
nical assistance include at present the planning, programing and use
of funds described under the title "defense support," which in fiscal
year 1956 amounted to $57.5 million and for which $45 million is pro-
posed for fiscal year 1957. Of the latter figure, $23 million will be a
Íoan and $22 million will be in economic-development grants, pri-
marily in quick-impact projects. Of fiscal year 1956 defense support,
$17.5 million is to be used for the generation of Iranian rials (counter-
part funds) to pay the local currency costs of military construction.
Additional funds for military construction amounting to $7.5 million
were appropriated for the fiscal year 1956 program under "direct
GREECE, TURKEY, AND IRAN
1215
forces support" to pay the dollar costs of this program. As yet no
program approval has been received from Washington for actual con-
struction. The proposed military-construction program for fiscal
year 1957-58 (combined), including the $17.5 million and $7.5 million
for fiscal year 1956, is expected to be about $50 million in value.
International Cooperation Administration contracts in Iran.-Many
of the technical-assistance projects previously described are being
carried out by United States contractors employed out of funds sup-
plied directly or indirectly by the United States Government.
Community development is being largely carried out by the Near
East Foundation.
George Fry Associates is assisting the Plan Organization.
The University of Southern California is working in public admin-
istration training at Teheran University.
Utah State Agricultural College is assisting Karaj Agricultural
College near Teheran.
Litchfield, Whiting, Panero & Severud-an architectural firm-has
been assisting both the United States Operations Mission and the
United States military mission in the construction of a number of ed-
ucational and housing facilities.
The University of Syracuse is responsible for the motion-picture
program briefly described earlier.
Stanford Research Institute is providing technical aid to the develop-
ment of food processing.
The Iran Foundation, a joint American-Iranian private organiza-
tion, is rendering assistance to the Shiraz Medical Center with United
States Operations Mission support.
The total amount proposed for fiscal year 1957 to cover Inter-
national Cooperation Administration contracts is $1,841,000.
George Fry Associates were first contracted by the International
Cooperation Administration in December 1954. Their contract ex-
pires on June 27, 1957. The cost is $224,000 each year. The United
States Operations Mission hopes to be able to extend the contract for
an additional year.
It is felt by the United States Operations Mission that the Fry
group is doing useful work which the International Cooperation
Administration is not equipped to do. Two Government-owned tex-
tile plants in northern Iran where the Fry firm has been active are
now beginning to show profits. The Fry group is now preparing a
report on ways of transferring these companies to private operation.
We were told that this group has spent more than half of their time
actually in the field. The Fry group has written a number of reports
on these and other subsidiary enterprises for which the Plan Organiza-
tion is responsible, and their recommendations are now being accepted
more than they were a year ago. The Fry group reports directly to
the United States Operations Mission director, and clears their reports,
written for the Plan Organization, with him. Further consideration
of this and other contracts in Iran will be taken up later in this country
analysis.
(d) Surplus commodity disposal program
The Iranian Government has shown considerable interest in
Public Law 480 during the past year, and an agreement was concluded
on February 20, 1956, which calls for the sales of wheat and fats

1216
GREECE, TURKEY, AND IRAN
valuing $12.1 million. Of the rial proceeds from the sale of these
commodities, $5.9 million (in rials) will be a grant to be used to pur-
chase items currently budgeted by the Ministry of War (and thus to
this extent amounts to budgetary aid), $2.5 million (in rials) is for
long-term development loans for purposes not yet determined, and the
balance is for United States uses in Iran. There is increasing indica-
tion that the Government of Iran may seek to purchase additional
wheat under Public Law 480 since there is a need for greater reserves,
In connection with surplus wheat, it should be reported that the
20,000 tons of wheat which were made available as a grant last July
after the flood disaster in southern Iran have been effectively distrib-
uted to aid victims of the disaster and that careful effort was made to
assure that the source of the wheat was recognized. The mayor of
Isfahan told us that the people in his area knew the wheat came from
the United States and were extremely grateful for it.
(e) United Nations programs in Iran
Including the children's program, United Nations aid to Iran in
1956 amounted to $1,949,238. By far the largest United Nations
program in Iran is its technical assistance program. A list of their
1956 activities would include: economic surveys and planning, in-
dustrial planning, agricultural development, public health, education,
and public administration. Considerable effort is apparently made
to coordinate United States Operations Missions and United Nations
activities and thus assure a minimum of overlapping and duplication.
It is, however, understandable that Iranians do not always distinguish
between United Nations and United States technical assistance when
both are doing work along similar lines.
4. Effectiveness of aid programs and conclusions
(a) Objectives of aid programs, analysis of their relevance, and
conclusions
The general overall objective of the United States aid policy in Iran
of preserving Iran for the free world is certainly sound and all our
missions in Iran seem well geared to this objective.
Military program.-The objective of the military program in Iran
is to equip and train the Iranian forces to enable them to maintain
internal security and provide some resistance to external aggression.
In order fully to analyze the validity of this objective, it would be
necessary to obtain answers to a number of related questions which
in a sense go far beyond the borders of Iran. A list of these questions
might well include the following:
1. What type and magnitude of outside aid, over a period of
years or all at once in the event of war, would be forthcoming to
Iran?
2. How long would Iran be expected to delay the advance of
an aggressor before outside military support would be forth-
coming?
3. Keeping in mind that some doubt exists as to Iran's ability
to absorb in the immediate future substantially increased levels
of military aid, how long will it take before Iranian forces attain
their maximum effectiveness?
4. What plans exist for coordinating the forces and strategies
of Iran with those of its friendly neighbors-Turkey, Iraq, and
Pakistan; to what extent are these plans merely on paper, and
GREECE, TURKEY, AND IRAN
1217
what will be necessary, from all sources, to put these plans into
effect?
5. And, above all perhaps, how important from a strictly
military viewpoint is it that Iran be able to provide "some
resistance"?
These, it would seem, are vital questions which must be answered
before it is possible intelligently to analyze the relevance and validity
of United States military aid objectives in Iran. What is needed,
and what we are not able to provide fully, are answers to these ques-
tions, and, in general, an analysis of where our military activities and
objectives in Iran fit into any broad picture of western defense plans
for this entire area.
Whether current military assistance and military objectives in Iran
are valid and relevant depends also, to an important extent, on our
political objectives in that country. There is no question-in my
own mind-that our military aid to Iran is justified on political as
well as military grounds. In fact, even if, theoretically speaking,
military aid to Iran could not be justified on military grounds, I
believe that it could be partially justified on political grounds alone.
Nonmilitary programs.-There is no question that our technical
and economic aid programs in Iran have been important and valuable
and that our assistance has accomplished a great deal. Without it
Iran would certainly be today in a serious position, politically and
economically, and might well even be under complete Communist
domination.
As has been described, the stated objectives of our nonmilitary
aid programs in Iran have political and military, as well as economic,
implications. A politically stable, economically healthy Iran in which
adequate progress is made toward meeting the aspirations of the
Iranian people for economic development will, it is felt, be an Iran
alined with the West, opposed to communism, internally secure,
and better able to defend itself against external threats.
The nonmilitary objective picture has, in the past, been further
colored by military and political considerations resulting from the
critical situation which developed in Iran under the Mosadeq regime.
As a result of that crisis, large emergency grants were made to Iran
which unavoidably changed, for a time, the character, size, and pur-
pose of our technical assistance program.
However, conditions are now more stable in Iran, and the non-
military programs are diminishing in size as Iranian oil revenues
increase. It would therefore seem appropriate that the objectives
of our nonmilitary aid programs in Iran be revised, placing greater
emphasis on the positive side of helping the people in their efforts to
achieve better living conditions by giving Iran technical advice and
by demonstrating better techniques and with less emphasis on the
essentially negative objective of preventing the spread of communism.
It is important, especially in underdeveloped countries, that we give
some basic meaning to our nonmilitary aid above and beyond the
"anti-Communist" objective, important though that undoubtedly is.
Other than technical assistance, United States nonmilitary aid to
Iran consists largely of defense support.
The objectives of defense support are not clear, and probably
would be impossible of definition under the present use of funds
authorized and appropriated under this title. For, under the name
1218
GREECE, TURKEY, AND IRAN
of "defense support," funds are being made available for military
construction, for budgetary support to the Iranian Ministry of
Finance, for economic impact projects, for loans and grants, for
construction of gendarmerie posts, and for machinery and equipment
needed in technical assistance projects and demonstrations. Defense
support in Iran apparently resembles a fund out of which any mission
can draw for almost any aid purpose.
(b) Magnitude of aid programs
Military.—As has been indicated, doubt exists as to Iran's ability
to absorb a substantial increase in military aid levels, unless the
United States is willing to send increased military personnel to
operate and maintain equipment, to step up training of Iranian
forces, and to provide further budgetary support.
The problem here is not so much one of magnitude but rather of
deliveries and program approvals. Long delays in the military
construction program have already been mentioned. There also
exists a delay in the delivery of planes which, unless corrected by
next summer, could prove serious. These delays have and will have,
an increasing degree, not only military but also political
repercussions.
United States assistance to the Iranian Gendarmerie has been very
successful, to the extent that internal security is now about fully
achieved. It is felt, therefore, that United States aid in this field
should in the near future be terminated with the exception of re-
placement parts and perhaps the continuance of a skeleton advisory
group.
The magnitude of military aid to Iran can only be analyzed and
judged fully after answers are obtained with regard to military aid
objectives in Iran (see above).
Nonmilitary. It is my judgment that a leveling off and slight
reduction of funds for technical assistance would be fully justified.
It is almost impossible to judge whether the level of aid under
defense support is the proper level, as long as the terminology and
assignment of funds under defense support is as loose as it is at the
present time.
With regard to further budgetary aid to the Iranian Government,
I believe that this aid should no longer be necessary unless, as a result
of the Suez crisis, substantial losses in oil revenue are incurred.
(c) Loans versus grants
Wherever possible, the nonmilitary program in Iran should be in
the form of loans, with the exception of technical assistance. If
the Iranian Government is willing to make loan agreements with the
International Bank of $75 million, with the International Monetary
Fund of $17 million, and with the Export-Import Bank of $53 million,
then it would seem logical to conclude that International Coopera-
tion Administration loans rather than grants should be acceptable,
especially if oil revenues accruing to the Iranian Government continue
to increase (as envisaged before the Suez Canal crisis developed).
However, in my judgment, our military aid to Iran should continue
to be in the form of grants.
Defense support, to the extent that it is not military aid, should be
on a loan basis.
GREECE, TURKEY, AND IRAN
1219
(d) United States Operations Mission activities and programs.
I am inclined to feel that the present technical assistance program
in Iran is spread too thinly over too many projects. As the size of
the program gradually diminishes, many of these activities will
necessarily be curtailed. (Projects operated formerly by United
States personnel are being turned over to various Iranian ministries
with the United States Operations Mission's role becoming essentially
an advisory one.) The United States Operations Mission is already
making efforts to narrow the number of projects in which it is involved,
and these efforts should be encouraged. I feel it is better to concen-
trate than to spread too thinly with a smattering of aid and advice in
nearly every governmental activity and agency.
Today, in Iran, "integration" is taking place; that is to say, United
States aid projects are being turned over to Iranian ministries, with
United States personnel playing only an advisory role. Certainly, in
the long run, integration should take place. But I am inclined to feel
that it should not be pressed too rapidly; that it is doubtful whether,
in many instances, the Iranian personnel are really ready to take over.
In some instances, we found that where integration had already
occurred, the Americans were by necessity still, in effect, directing
and not just advising. It would be my hope that the International
Cooperation Administration in Washington would give this suggestion
further study.
There is a tendency, I found, in our technical assistance programs
to put forward on the Iranians complex administrative and operational
systems which although perhaps ideally suited for our own Govern-
ment, may be too advanced for Iran at its present stage of develop-
ment. We must be careful not to saddle a relatively underdeveloped
country with systems and methods which may be beyond their capac-
ities or needs. What we saw, for example, of the United States
Operations Mission's labor activities led us to wonder whether the
labor-unemployment organization they had instituted would not
serve a more useful purpose in Washington than in Teheran.
(e) Administration and coordination
At several points in this report, delay in deliveries and program
approvals has been discussed. In both military and nonmilitary
programs, there is a pressing need for greater speed in Washington in
getting items delivered, programs and projects approved, the Interna-
tional Cooperation Administration contracts considered and approved
and funds allotted. An apparent lag in recruitment in Washington
also causes difficulty in the field.
We were informed that in some cases it takes up to 6 months before
the International Cooperation Administration contract agreements
are approved. In the meantime, projects in the field are delayed or
operated under strength.
In the case of military end-items, some time-lag between funds
authorized and deliveries to Iran is probably unavoidable. But there
seems little reason to permit unexpended technical assistance funds
to reach the $10 million figure.
The fiscal year 1957 program has not yet apparently been completely
approved by the International Cooperation Administration in Wash-
ington, and half of fiscal year 1957 is over. Large carryovers and a
growing pipeline are the result.
94413-57———78
1220
GREECE, TURKEY, AND IRAN
In addition, as has been pointed out, these delays are bound to have
political repercussions which are not in the interests of the United
States.
It has been noted that the size of the country team in Iran is about
876 persons. We gained the impression that a disproportionate
number of this total is concentrated in the Teheran area, especially
personnel attached to the United States Operations Mission and the
United States Information Agency. While recognizing the recruit-
ment difficulties involved, it is nevertheless felt that special effort
should be made to assign more technicians and information specialists
to the field. In Isfahan, the second largest city in Iran (along with
Tabriz) at the time of our visit there was no United States Information
Agency specialist. (To be sure, a replacement for the one who had
left was expected.) In Shiraz, the fifth largest city, there is no United
States Information Agency specialist either. There is much useful
work that can be done outside of Teheran-by the United States
Information Agency. And, in some instances, it is being done. But,
I repeat, more effort in this direction should be made.
One wonders, also, whether it would not be possible to have some
of the administrative work now performed in Teheran for the United
States Operations Mission done equally well in Washington. Finally,
a mission in Iran as large as the present one is susceptible of causing
certain resentment. Our Embassy seemed to be fully aware of this,
to the extent that they feel any substantial increase in personnel
would be politically inadvisable.
(f) The Plan Organization and United States nonmilitary aid
Earlier in this report, it was pointed out in some detail that Iranian
oil revenues accruing to the Plan Organization are very sizable and,
barring a failure to clear the Suez Canal in the near future, will
continue to increase for the next few years before they level off
somewhat. It has also been stated in this report that considerable
doubt exists over the ability of the Plan Organization to use effectively
all the funds at its disposal.
The United States Operations Mission feels-and I concur—that it
is vitally important for the Plan Organization to succeed.
past the Plan Organization has been reluctant to accept United States
advice in its operative and administrative problems, which are many.
Now, however, the Organization is more willing to accept this kind
of assistance. The United States Operations Mission is of the opin-
ion, therefore, that it is important for them to become more active in
advising the Plan Organization. It is primarily for this reason that
the Governmental Affairs Institute is sending, at the request of the
Plan Organization, a group to Iran under an International Cooperation
Administration contract agreement. Keeping in mind the funds
locally available to the Plan Organization, the United States Operations
Mission was asked why it was that this new group coming to Iran
and the Fry group already there could not be handled directly by the
Plan Organization without International Cooperation Administration
financing. We were informed that in the case of the Fry group, if
the contract were to expire tomorrow, the Plan Organization would
probably hire the group direct. The United States Operations Mission
felt, however, that this would not be advisable, since it would then be
GREECE, TURKEY, AND IRAN
1221
more difficult for the United States Operations Mission to play a role
in assisting the Plan Organization. Thus, if one accepts, as I am
inclined to, the United States Operations Mission belief that it is
important for them to have some working relationships with the Plan
Organization in order to help assure its success, then a good argument
can be made for the Fry and Governmental Affairs Institute contracts.
However, I would recommend that further study be given to the
possibility of financing, at least partially, future contracts of this type
through long-term loans.
?
SURVEY NO. 2
LEBANON, JORDAN, AND IRAQ
BY
HAMILTON FISH ARMSTRONG, EDITOR
FOREIGN AFFAIRS
FEBRUARY 1957
1223
CONTENTS
Page
1227
1229
1230
1232
1236
Letter of transmittal___
I. American motives in offering aid to underdeveloped countries..
II. The interplay of political and economic action__-
·
III. International Cooperation Administration operations in underdevel-
oped countries__
IV. General suggestions:
1. The relationship of economic and military assistance.
2. Correlation of International Cooperation Administration
activities with a centralized agency in the receiving govern-
ment____
3. Local advisory committees to the International Cooperation
Administration__
4. The American University of Beirut.-
5. Proposal for foreign education aid fund__.
6. Relationship of the International Cooperation Administration
and the United Nations technical assistance program____
7. Public relations:
(a) Nomenclature_
1
1237
1237
1237
1238
1240
1241
1241
1242
1243
1243
1244
1244
1247
1250
1
I
1
I
(b) Publicity.-
8. Relative size of aid to Israel and to the Arab world….
9. Exchange of persons-
10. Foreign aid and United States foreign commerce.
V. Country-by-country analyses and
1. Lebanon__
2. Jordan
3. Iraq----
1
VI. Summary of suggestions_-_-
suggestions..
1
1
1
1225
1254
LETTER OF TRANSMITTAL
To the Chairman and Members of the Special
Committee to Study the Foreign Aid Program:
JANUARY 14, 1957.
In accordance with your invitation as chairman of the executive
committee of the Special Committee to Study the Foreign Aid
Program, I spent the 3 weeks from November 23 through December
14, 1956, in an "on-the-spot" survey in Lebanon, Jordan, and Iraq.
I had the advantage of being accompanied by Mr. Charles G. Weaver,
staff assistant assigned to me by the special committee. He was of
great help throughout the trip and also in the preparation of my report.
In all three countries we were received cordially by the heads of
the International Cooperation Administration organizations and
given every facility to see their work and to understand it to the extent
possible in such a brief time. In each country we inspected the
principal projects undertaken with American economic and technical
help, such as experimental farms, nurses' training schools, highway
constructions, dams for flood control, village water-supply systems,
irrigation and land settlement undertakings, etc. We also profited
from conferences with Embassy staffs, including generous allotments
of time with Ambassador Gallman in Baghdad and Ambassador
Heath in Beirut.
Besides consulting American personnel, we had talks with high offi-
cials of local governments to the extent practicable, with former
officials, especially those who might be critical of the program either in
concept or application, with American businessmen (this in Beirut
only) and to some extent with private citizens.
Although we bore in mind the committee's detailed survey guide,
we also heeded the committee's injunction not to rely on what it called
"canned" materials covering points mentioned in the outline. Thus
we tried to elicit information and views that might be useful to the
committee by pursuing independent methods of inquiry. We are not
presenting the committee with statistical material available in Inter-
national Cooperation Administration reports on file in Washington
except incidentally or by way of comparison and reference.
It was not practicable in the time available, of course, to make an
appraisal of the work of the International Cooperation Administra-
tion from a technical point of view. Much of the report which I
have the honor to present herewith will therefore be found to deal
with the general political and psychological aspects of our foreign aid
program. If you feel that I should try to supplement it in any manner
please command me.
Yours sincerely,
HAMILTON FISH ARMSTRONG.
1227
LEBANON, JORDAN, AND IRAQ
I. AMERICAN MOTIVES IN OFFERING AID TO UNDERDEVELOPED
COUNTRIES
The visit to the Middle East just made at the request of the Senate
Special Committee to Study the Foreign Aid Program confirmed a
view already gained on former visits to that area and to South and
Southeast Asia, namely that the first step in appraising our foreign aid
program in underdeveloped countries is to settle on the proper terms
of reference. Before we can judge whether the program is successful
or unsuccessful, we must distinguish clearly in our minds what our
motives were and are in undertaking it.
Our economic operations abroad can never accomplish their full
purpose if we let ourselves think of them either as purely altruistic
in nature or as constituting a direct bribe to certain states to come
over onto "our side." The recipients simply do not and will not
believe the former, even to the extent that good will truly is one of
our motivations. The latter they incline all too readily to believe
(and resent) in any event, and if we lend the slightest color to the
suspicion they will harden their hearts against us and all our ways
even while accepting our help.
What we must make clear to ourselves, and hence to them, is that
we are in fact working in a middle ground between "do-goodism" for
its own sake and transactions for the benefit of ourselves alone. We
were able to do that with the Marshall plan, and it was a success. It
wound up its operations in Europe without recriminations on either
side.
Actually, selfish calculations have not been an importan factor
in winning American public support for our program of aid to under-
developed countries; and any tendency to think of it in terms of self-
interest would have been minimized still further if our Government
had not lumped that aid with the military aid and defense support
given to allied countries to help them maintain larger military
establishments than they could otherwise afford.
There is, however, a deeper source of suspicion than the fact that
the funds for our assistance to underdeveloped countries are combined
in the same appropriations bill with the funds for military assistance
to allies. If we allow ourselves to be influenced at all by the calcula-
tion that friendship based on favors from one side and gratitude from
the other is likely to pay us political or military dividends, we may
be sure that awareness of this will reach the recipients and turn them
instinctively against us. It is hard enough under ideal conditions to
like someone who does you a good turn; it is impossible to like someone
who does you a good turn just to advance his own selfish interests.
We should accept deep in our hearts, then, the principle which our
leaders have so often proclaimed, namely, that our loans, grants, and
credits to underdeveloped countries are neither charity nor bribes
but serve useful and legitimate purposes at both the giving end and
1229
1230
LEBANON, JORDAN, AND IRAQ
the receiving end. The benefits are to be mutual. The first object
is to help put the receiving countries on their own feet and enable
them to stand there successfully against whatever economic, political,
or military pressures might threaten their independence. The second
is to promote economic growth and raise standards of living little by
little in all the corners of the world. Both results will be for the good
of all, ourselves very decidedly included-but only as one among
the many.
The prospective benefits are: more likelihood that uncommitted
countries will be able to avoid being sucked into any aggressive bloc,
with an overall increase in international security; maintenance of a
free-economy system in backward sectors of the world which are
tempted to try Marxism as a way to catch up; a wider exchange of
goods and services; and a better balance between areas encumbered
with food surpluses and those where famine always threatens.
If these considerations are put strongly to the American people they
surely have enough feeling for the deep currents of history to recognize
that their share in the generalized benefits of our economic aid program
constitutes sufficient recompense for the dollars which their representa-
tives vote to support it. Once this conclusion has been reached
consciously we shall have taken a long stride toward solving the
ticklish problem of how to give money away without being disliked
for it.
II. THE INTERPLAY OF POLITICAL AND ECONOMIC ACTION
""
Britain and France, which formerly had leading roles in the Arab
world, are now disliked and mistrusted-a fact which leads everybody
one meets there to emphasize that the United States has a great
opportunity to "make the Middle East over," to "save it from chaos"
and to "save it from communism.' Yet, when one asks Arab states-
men just what the American policy should be to achieve these desirable
results they usually do not venture beyond saying that it should be
"strong, very strong," indicating their sense of urgency but giving no
clue to specific remedies.
It does seem clear, however, that for the time being, and probably
indefinitely, any joint action in the Middle East undertaken in
partnership with either Britain or France will not only be ineffective
but will dissipate the prestige and influence which the United States
enjoys at the moment. If, then, the United States is determined to
take political action to increase security in the area as a whole, or to
develop a plan for integrated aid to increase social stability and
national self-reliance as a means of limiting Communist infiltration,
it either must work out and apply a program of action by itself or it
must proceed through the United Nations, taking the initiative there
and offering to supply the funds to make the collective undertaking a
success.
It also seems clear that no program for rehabilitating the economy
and social order of the region can make headway while it is so sharply
divided by political rivalries and hates. One division is among the
Arab states themselves. Even more of an obstacle, of course, is the
animosity between the Arab states and Israel. Economic and finan-
cial assistance from outside will obviously have to play a part, and
can play an essential part, in ameliorating the situation in both
LEBANON, JORDAN, AND IRAQ
1231
respects. But we shall be most realistic if we look at such assistance
as an adjunct to positive political action rather than as a substitute
for it.
The initial effort of the United States should be directed, I think,
toward securing a modus vivendi between one or more of the Arab
states and Israel, in accordance with which frontiers might be stabilized
and a start made toward solving some part of the refugee problem; the
latter is the sharp cutting edge of the continuing animosity between
the two races and provides the Communists with a fruitful field for
propaganda. This initiative could be taken independently of, though
simultaneously with, the continuing effort to regulate the Suez Canal
problem. To have the best chance of success it would have to be
undertaken through the United Nations.
The logical spot to begin, if a new attack on the Israeli-Arab dispute
is to be made, seems to me to be Jordan. This is a weak country
with artificially drawn frontiers, a fragile economy and half a million
refugees. Syrian and Saudi Arabian troops are already stationed in
the country and the Iraqi troops which recently withdrew could return
at a moment's notice. If the country broke up, either through in-
ternal discord or under attack from acquisitive neighbors, Israel could
hardly resist seizing the west bank of the Jordan, which she openly
covets. This would start in motion a train of events that might well
involve the whole area, perhaps the whole world, in war. One serious
and immediate consequence would be that an enormous body of
Arabs, old refugees and new ones, would pour across the Jordan River
eastward into the desert.
This is not the place to suggest the political action which might be
taken either directly or through the United Nations to prevent these
developments (except to note that a guarantee against external
aggression would probably not apply). However, the economic and
financial steps which might be taken to support such action would
include financing of an irrigation scheme for the Jordan Valley (not
the Johnston plan, which has been rejected, but a similar plan with a
new name); financing of a return of some considerable number of the
Palestinian refugees from Jordan to areas in Israel not fully settled;
a 10-year United Nations loan to Israel, supported largely by a United
States contribution, to replace the direct aid now received from the
United States Government, this loan to be made on specified condi-
tions regarding frontiers and refugees; and a 10-year United Nations
loan to Jordan, to be supported largely by a United States contribu-
tion, to finance its economic development and provide for its internal
security, on condition that the remainder of the refugees in Jordan
become the charge of the Jordanian Government and merged into the
local social economy.
Any such program will obviously encounter enormous obstacles on
both sides. They may prove insurmountable. Nothing will be lost
by trying.
If the effort to regulate the Israeli-Arab question at one of its sorest
points were to succeed, the situation throughout the Middle East
would be so eased that the way would be opened for the elaboration
of a really integrated and cooperative scheme of regional development.
Participation might be limited to the Arab States which agree to live.
on acceptable terms with Israel. Ideally, however, it would include
the states of the region belonging to the Baghdad Pact; only one of
1232
LEBANON, JORDAN, AND IRAQ
them is Arab but all four are Moslem. In a still larger concept, the
area could be thought of as also including not only Egypt but the
neighboring Moslem countries of Africa. The aim thus would be to
benefit the whole Moslem world from the Sudan and Turkey to
Pakistan.
Among projects which might be considered under the larger regional
heading would be the plan, already thoroughly explored, for using the
waters of the Jordan; a plan to link the Mediterranean with the Persian
Gulf by a trucking highway, with connections to Ankara in the west
and to Teheran in the east; the plan for an oil pipeline from Mosul to
a port in Turkey; and a regional approach to the use of the Nile waters,
including provision for building the Aswan High Dam and also the
development of irrigation facilities in Ethiopia and the Sudan.
There is also a need in the Middle East for sufficient grain storage
facilities to meet the frequent emergency shortages in various parts
of the area. According to one proposal, 2 or more warehouses would
be established at central points, the grain in which would be available
for transfer to the place of need in the event of a crop failure due to
floods or drought. The recipient country would return the grain to
the common pool following the next normal crop. The United States
might be interested in contributing to the stock from its agricultural
surplus.
What is described as one of the great needs of the Middle East is a
mechanism for making credit available to small business men and
farmers. Nothing of the sort exists today in the area. A study
should be made of the feasibility of providing short-term credits and
the services of American banking experts to help set up industrial
and rural credit organizations in any Middle Eastern country, the
government of which is willing to participate on a 50-50 basis. This
would be looked upon as a pump-priming and training operation.
In addition, there are many projects which, although located all or
mainly within one country, would have the effect of advancing the
economy of the region as a whole, such as the development of the
Litani River in Lebanon (already quite far advanced in the planning
stage); construction of the proposed oil pipeline from Mosul to Basra;
and the improvement of rail connections from Afghanistan to Karachi
and the enlargement of port facilities there.
If a regional plan for the economic development of the Middle East
came into operation either wholly under United States direction or on
United States initiative through United Nations agencies, the aid now
being given by the United States to individual countries of the area
would be reduced. If, however, no such plan is adopted, United
States aid should continue as at present to be provided directly to
individual states under bilateral arrangements rather than through
any international agency.
III. INTERNATIONAL COOPERATION ADMINISTRATION OPERATIONS IN
UnderDEVELOPED COUNTRIES
We now turn to whether there may not be something wrong about
the present organization or administration or operation of the foreign
aid program. The intentions of the American people have been good,
a fact which, as indicated in section I, can be made more clear; more-
over, whatever else may be said about them, Americans are only
LEBANON, JORDAN, AND IRAQ
1233
occasionally called downright stingy. Why, then, has an enterprise
on which we have spent billions and which has led hundreds of Amer-
ican technicians to pull up their roots and camp out in far corners of
the world failed to achieve the full purposes for which it was intended?
There is no fundamental fault, according to my observation, in the
form of organization or the methods used by the International Coop-
eration Administration in the field, though obviously all such opera-
tions are susceptible of improvement and the quality of personnel
obtainable varies. As has been often said, careful preparation of
program and continuity in administering it are made difficult by a
lack of assured appropriations, overall and for individual countries,
from year to year. Sometimes the list of country projects seems too
diverse, with the result that shots are scattered and some fail to reach
the bull's eye. It is easier to recognize this in retrospect than in
advance; the important thing, for present purposes, is that it seems
to have been recognized in the countries visited, especially in the two
of them where new International Cooperation Administration directors
have recently taken charge and a thorough reappraisal of current and
prospective activities is underway.
A number of persons consulted (including both foreign officials and
members of the International Cooperation Administration, Embassy
and United States Information Service staffs) stated the view that,
without a lowering of International Cooperation Administration aims
or a changing of International Cooperation Administration standards,
each year's International Cooperation Administration program in
every country could include a project which would attract wide
popular attention and approval because it attacked some problem
at the grass roots (or city pavements) level and in a manner to remedy
it promptly and visibly. (By way of example, a slum clearance and
housing project has been suggested in Beirut, to be started with a
United States credit and to be planned and supervised by American
housing experts. Other projects in this category are mentioned in
more detail in the country-by-country survey in sec. V.)
I must report that in both Beirut and Baghdad I heard criticism
from local citizens to the effect that International Cooperation Ad-
ministration personnel were too numerous, and in Beirut it was said by
one critic that they lived too "luxuriously." I have no way of judging
the first of these criticisms as regards Beirut, except that a General
Accounting Office report submitted to Congress by the Comptroller
General of the United States on June 7, 1956, following an investiga-
tion in Lebanon, made no reference to surplus personnel; and in
Baghdad it was my distinct impression that the technical assistance
program was understaffed at present and that there was real need for
filling out the quota of experts. As to the criticism of alleged luxurious
living, it may be valid by local standards, but hardly by American
standards. The problem presented is a difficult one. Granted the
desirability that American officials shall live in a manner that does not
cut them off from persons unable to return hospitality on the same scale
on which it is offered, the fact remains that the salary scale of Inter-
national Cooperation Administration personnel, though normal for
United States Government officials, is above that of comparable local
government officials. Yet the low salaries of such officials is decried
throughout the Middle East as one of the obstacles to establishing
a proper civil service. For, either the low salaries may encourage
1234
LEBANON, JORDAN, AND IRAQ
dishonesty, or they make it necessary for officials to hold a second job
and devote only part time to Government duties.
The problem is familiar to other Government agencies recruiting
personnel for overseas. Its familiarity emphasizes the need for the
greatest care in selecting International Cooperation Administration
officials who will present an acceptable picture abroad of American
habits and life. A wide spread in the quality of personnel is notice-
able within International Cooperation Administration missions all
over the world. Legislation to establish a career service for overseas
officers administering the United States foreign aid program might be
considered.
The chief hampering factors on better performance of International
Cooperation Administration staffs in the field seem to be excessively
exacting requirements in the enabling legislation as regards accounting
and too narrowly drawn specifications as to expert qualifications and
functions. Often a technician is busy with paperwork for Washington
when he ought to be doing his job. Excessive legislative or adminis-
trative requirements also handicap the receiving governments, which
often lack officials competent to deal with minute legal complexities.
The complaint that the International Cooperation Administration is
too "bureaucratic" was also made by an official of the American
University of Beirut, which receives International Cooperation
Administration funds for scholarships; he said that the contract was
so complex that nobody could know without legal help, and requests
for interpretations from Washington, just what was and was not per-
mitted under it. Incidentally, it is complexities of this sort which
often lead local officials to imagine that there are hidden strings to our
aid or that it is grudging or meant to be carried out only in part.
Administrative procedures in Washington also seem on occasion
extraordinarily slow, as indicated by the fact that in Baghdad, where
a critical political situation obtains and where the International
Cooperation Administration should be functioning at full strength,
it lacks nearly 40 percent of the personnel called for in its table of
organization. Is there a bottleneck in the Washington headquarters
in processing applications or should it be making a more energetic
search for candidates for appointment? A point worth making in this
connection is that age is not the touchstone of performance. In one
post just visited, for instance, a retired businessman in his sixties is a
particularly imaginative and active member of the International
Cooperation Administration team.
Beyond and behind such handicaps, which Congress and the Inter-
national Cooperation Administration in Washington together can
presumably lessen, loom the difficulties inherent in the always uncom-
fortable relationship between donor and grantee. These can be
remedied only at the roots, not by legislative or administrative fiat
but by changes of attitude that gradually produce a better under-
standing by each side of the motives and feelings of the other.
It is in these general terms, I think, that the International Coopera-
tion Administration might well take stock of its procedure as a whole,
with particular attention to seeing whether its methods of operation
might not give more direct and steady evidence of the essential
motivation of the whole enterprise (mentioned in sec. I).
One result of such a review might be an attempt to give the receiving
countries a fuller sense of participation and responsibility than they
LEBANON, JORDAN, AND IRAQ
1235
sometimes have at present in the choice of plans and in emphasis on
pushing some rather than others. Some governments, it is true, lack
the experience and the technological staff to enable them to formulate
sound development schemes themselves or to choose from a proposed
list without guidance. Let it not be forgotten that in the East even
more than elsewhere words and manners are positive acts. Our co-
operation with underdeveloped countries will be most successful if in
negotiating assistance programs we give the advice and guidance
necessary without adopting a take-it-or-leave-it attitude. Moreover,
by bringing the receiving countries in at all stages we can prove to
them that the disappointments which they are bound to experience as
operations proceed result not from arbitrary decisions of ours, much
less from any ulterior motives on our part, but from difficulties inher-
ent in an attempt to telescope centuries of experience and progress
into a single generation and to reconcile totally different and often
antipathetic ways of life.
A second result of this reconsideration of program in the light of
its underlying motivation might be to place more emphasis on an at-
tempt to promote regional prosperity and intra-regional cooperation.
Specifically, an effort might be made to try to bring countries which
are partners in defense pacts with the West (those in which we do not
participate as well as those in which we do) into closer collaboration
with neighboring states which are not members of such pacts.
Whatever their military usefulness, the Southeast Asia Treaty Or-
ganization (SEATO) and the Baghdad Pact, unlike the North At-
lantic Treaty Organization (NATO), have resulted in dividing areas,
or in emphasizing existing divisions, rather than in uniting them.
Soviet propaganda has actively nurtured the idea that such pacts are
remnants of colonialism or new imperialistic devices intended to per-
petuate white dominion on the Asian Continent. The propaganda
has been most successful, of course, among states which refused to
join the pacts on the theory that participation in any collective de-
fense arrangement was more likely to involve them in somebody else's
war than to save them if they themselves were attacked. Having
had no experience with the risks of isolationism, they put their trust
in neutrality. They do not wish to become Communist; yet out of
rivalry with the states that are allied to the West they tend to drift
instinctively away from them and their Western partners and thus
in the direction of the Soviet Union. The present rivalry between
and Egypt is certainly due at least in part to this situation.
If possible, the rift within the Moslem community of states in the
Middle East (like that which divides members of SEATO from their
nonmember neighbors) should be healed or at least lessened. This
would be one of the justifications for an integrated plan for economic
assistance to the area as a whole. The second objective would, of
course, be to mitigate hostility between the Arabs and the Israelis by
reducing the economic causes of friction between them. Both re-
sults, if they could be obtained, would check Communist growth in
the area and diminish the risk of Soviet intervention there, politically
or militarily.
Iraq
A cooperative effort in the economic field need not arouse the
suspicions, antagonisms, and divisions which group action has bred
in the military field; indeed, it can be used to help dissipate them.
It should be consciously directed toward promoting understanding
94413-57———79
1236
LEBANON, JORDAN, AND IRAQ

between as many states as possible of the region and to strengthening
the region as a whole. Projects of value to the whole region should be
stressed, therefore, in addition to projects important for individual
states. A real effort should be made to plan the regional projects
in partnership with all the prospective beneficiaries. Admittedly, a
recent experiment of this sort was disappointing. A conference of the
Asian members of the Colombo Plan for the economic development of
Southeast Asia, held at Simla, India, in May 1955, was unable to agree
on how to allocate prospective American aid on a regional basis.
Some of the conditions which prevented agreement then have since
changed. Also, American observers (absent from the Simla Con-
ference) would be on hand to emphasize that in the present state of
American feeling individual nations stood to do better in a group
negotiation where a whole region would benefit than in separate bar-
gaining where special considerations might temporarily have created
American antagonism toward this or that country.
An effort to plan regional projects cooperatively will obviously
run into political difficulties. For that reason I believe that if our
initiative in the Middle East is to succeed it will have to proceed
simultaneously along both political and economic lines.
IV. GENERAL SUGGESTIONS
1. The relationship of economic and military assistance
The fact that our foreign aid for strictly military purposes is not
clearly separated from our defense support, development assistance,
and technical cooperation assistance, arouses suspicion abroad that the
motivation in both cases is the same, namely, to "buy" allies. Com-
munist propaganda harps with success on the theme that all American
economic help, even that offered to underdeveloped countries, is essen-
tially selfish and designed to tie the recipients to the imperialist
American chariot.
This handicap on our program of economic assistance seems to be
more the result of habit than of any legislative or administrative
necessity and it should be removed without delay. This could be
done by including the funds for military hardware for our allies in the
budget of the Department of Defense, to be administered by it, and
the funds to help the economy of our allies and to strengthen the
economic and social structure of underdeveloped countries in a sepa-
rate appropriation, to be administered by the International Coopera-
tion Administration.
This procedure would have three beneficial results: underdeveloped
countries would be disabused of the suspicion and fear that our aid
carries any military overtones or implies any sort of subservience; our
allies would understand better that the economic help which they may
receive from us in addition to strictly military help does not have a
military motivation and hence is not "selfish"; and our own public
would realize that our foreign economic help, including our aid to
backward countries, is not in fact so large as they may suppose is the
case when they view the combined appropriation for military hard-
ware and for economic assistance.
LEBANON, JORDAN, AND IRAQ
1237
2. Correlation of International Cooperation Administration activities
with a centralized agency in the receiving government
In the countries visited (and the same may well be true in others)
there seemed a lack of liaison and correlation of effort among the
government agencies with which the International Cooperation
Administration must deal. As a result there may be long delay in
reaching decisions and carrying through actions involving more than
one ministry or government organ. It often happens, too, that
conflicting proposals and requests reach the International Cooperation
Administration from different government officials.
To simplify the task of International Cooperation Administration
administrators and technical advisers who now spend unnecessary
time pushing desired actions through several government offices, the
director of each International Cooperation Administration mission
should be authorized to request urgently that the local government
appoint a coordinator of all economic assistance projects; and the
deputy International Cooperation Administration director should be
named coordinator to act on behalf of the American staff in clearing
and expediting actions which otherwise would require an approach
to several government departments.
When I mentioned this proposal to a former Prime Minister of
Iraq who had been criticizing the International Cooperation Adminis-
tration for "delays" in the past, he accepted it with alacrity and said
that the Iraqi official should be a super cabinet minister, "a man
able to pick up the phone and make other cabinet ministers jump.
Even if the result were not so gratifying as this, the effort should be
made to persuade each government which has not already done so to
appoint a high official to expedite projects requiring action in several
departments.
3. Local advisory committees to the International Cooperation Adminis-
tration
Together with the foregoing, consideration might be given to a pro-
posal made to me by Dr. Charles Malik, Foreign Minister of Lebanon.
He is conscious of the importance of giving governments and peoples
of countries receiving American economic aid a heightened sense of
participation in the program. To this end, he suggested that the di-
rector of the International Cooperation Administration mission should
invite 3 to 5 leading Lebanese citizens, entirely free from Government
control, to advise him regarding public relations, help arrange public
functions when projects are completed and, in general, both steer him
away from possible psychological pitfalls and enable him to get more
publicity for the International Cooperation Administration of a favor-
able nature. The same procedure might be adopted in other capitals.
4. The American University of Beirut
This old-established American educational institution has played,
and today plays more than ever, an important role in the Middle East.
Its students come from all parts of the region and among its graduates
are many who become prime ministers or hold other top cabinet posts
in their respective countries. Its influence in creating a knowledge of
American civilization and ideals of citizenship has been very great,
to say nothing of its more obvious contribution in educating young
men and women of the region in the social sciences, medicine, engineer-
1238
LEBANON, JORDAN, AND IRAQ
ing, and agriculture. Although the university is a private institution,
its prestige is closely associated with the national prestige of the
United States. Since it serves the whole Middle East its problems
logically come up for consideration in this general section rather than
under the heading of Lebanon alone.
American University at present has two great needs, one a replace-
ment for the late Dr. Stephen Penrose as president, the other more
adequate and continuous financial support. The two are closely re-
lated; the late president was forced to spend a large part of his energy
(and health) trying to keep the university solvent.
The first problem has been under discussion by the trustees of the
institution, so far fruitlessly, since Dr. Penrose's death 2 years ago.
Pressure should be exerted on the trustees to find a replacement with-
out further delay, since the present administration of the university,
though adequate in itself, cannot be vigorous and forward looking
since it is known to be of an interim nature.
The financial situation of the American University is said to be
serious. Without being able to go into the university's problems
closely, I gathered that they are of three sorts: (1) to get financing for
the individual schools (engineering, education, agriculture, medicine,
and public health) where expansion of plant to meet obvious needs has
not been paralleled by an increase in the overall income of the uni-
versity, which thus is unable to provide adequately for the overhead of
individual units; (2) to maintain and raise the standard of the school of
arts and sciences, the educational cradle of so many of the leading
personalities in the Middle East; and (3) to make sure of continuing
financing from year to year, so that development plans for the future
can be made with a sense of security that the present crisis will not be
repeated periodically.
At present, the International Cooperation Administration helps
the American University by means of a 3-year contract (now in its
third year of operation) to supply scholarships for 370 students in
public health and education. This gives important help to the two
schools concerned and also contributes indirectly to general overhead.
If no better and more comprehensive way can be found to help the
American University keep alive and, equally important, grow and
prosper, the present scholarships should be renewed and the number
largely increased. However, that will remain only a palliative, and
it is urged that consideration be given to providing a more stable and
reliable basis for the continuation and expansion of what is by all
odds the most influential and useful private American organization
in the region.
In talks with the acting president, Dr. Constantine Zurayk, and
the vice president in charge of public relations, Dr. Fuad Sarruf, I
referred to the difficulty which proposals to guarantee continuing grants
inevitably encounter in our Congress; and we speculated whether some
legitimate device might not be found to get around this difficulty. A
suggestion to this end is made below.
5. Proposal for Foreign Education Aid Fund
Speaking at Baylor University, Waco, Tex., on May 25, 1956,
President Eisenhower stated that "the whole free world would be
stronger if there existed adequate institutions of modern techniques
and sciences in areas of the world where the hunger for knowledge and
LEBANON, JORDAN, AND IRAQ
1239
the ability to use knowledge are unsatisfied because educational facili-
ties are often not equal to the need." And he suggested that American
universities, strongly supported by private foundations, should help
with the task of providing these facilities, "not in order to transplant
into new areas the attitudes, the forms, the procedures of America,"
but to "help each nation develop its own human and natural resources,
and also provide a great two-way avenue of communication."
It would seem within the framework of the President's thinking to
set up in the United States a Foreign Education Aid Fund as an
autonomous, nonprofit, nongovernmental organization under the direc-
tion of a board of trustees composed of leaders in education, business,
and the professions. American foundations would be asked to con-
tribute to it. In addition, it would be hoped that the United States
Government would allot from its appropriations for foreign aid a sum
of X million dollars yearly to this fund. No administration could
bind itself to match the first allotment each year thereafter, but it
might become habitual for Congress to enable it to do so. Or instead
of appropriating a fixed sum for the Foreign Education Aid Fund, the
Congress might earmark for it some small percentage of the total
appropriation for foreign economic and technical assistance.
The trustees of the projected Foreign Education Aid Fund would
make careful annual surveys of nonsectarian American educational
institutions abroad and would provide them with financial support in
accordance with its own financial resources and in proportion to the
needs and worth of the institutions in question. By making the alloca-
tion of funds to an autonomous and nonprofit organization the Govern-
ment would remove objections that might exist to the disbursement of
direct subsidies to private institutions. Although no fixed sum would
be promised to the fund or to the beneficiary institutions yearly, the
fund would be in a position to advise institutions ahead of time
regarding their prospects of receiving aid, and the institutions would
be able to lay plans more in advance for developing teaching, both
undergraduate and graduate, and for training and research. A
limitation should be imposed regarding the proportion of the sums.
thus allocated to the total resources of beneficiary institutions, to
insure that they would not lose their private character or become
unduly dependent on outside support.
(The American University of Beirut, the problems of which were
discussed above, would be expected to figure high on the list of
institutions requiring and deserving help from the proposed Foreign
Education Aid Fund. Its reputation as a recognized center of
intellectual and professional excellence would grow with its increasing
ability to perform services to the region which are beyond the capacity
of any one nation to provide today or within the foreseeable future.
Unless some such aid is forthcoming, the outlook that the American
University can increase or even maintain its present services is not
promising. As one friend of the American University-though not
connected with it said to me in Beirut: "The American University
has been a monument to the United States of America. It looks now
as though it were going to turn out to be a tombstone.")
1240
LEBANON, JORDAN, AND IRAQ
6. Relationship of the International Cooperation Administration and the
United Nations technical assistance program
In Jordan it was reported to me (not by an International Coopera-
tion Administration official) that the United Nations technical
assistance program in that country is not very productive and in
addition that it sometimes creates difficulties for the International
Cooperation Administration. It was suggested that because of the
special nature of the United Nations program it could operate most
usefully in countries able themselves to finance projects in addition to
those undertaken by the International Cooperation Administration,
or in the countries where there is no International Cooperation Ad-
ministration program.
The difficulty in Jordan was said to be that the United Nations
technical assistance program ordinarily does not have sufficient funds
to enable its field staff to carry on operations but only to draw plans
for projects. Since they will have no responsibility either for financing
a given project or for carrying it out, their tendency is to make plans
"in the abstract" and on an unrealistic scale. Since the local govern-
ment has no funds to undertake even relatively modest projects by
itself, it turns to the International Cooperation Administration; and
when the International Cooperation Administration refuses to adopt
the United Nations project, for any one of several reasons, the Govern-
ment is disappointed and friction develops.
There was no opportunity for me to verify whether this criticism
was well founded or whether it might apply in other countries. But
it would be advisable for the directors of the United States and the
United Nations technical assistance programs to consult as to whether
their work is anywhere in conflict, especially with a view to directing
United Nations activities into countries where they will be most
useful, either because no International Cooperation Administration
program exists there, or because the local government possesses
sufficient resources to finance projects developed by the United
Nations advisers. The United Nations authorities would doubtless
participate gladly in such a survey, since the United States con-
tributes about 50 percent of the funds of the United Nations technical
assistance program and must be concerned to see that its contribution
is spent to advantage and not in competition with its own activities
in the same field. (No implication is intended, incidentally, that the
United States should not continue to give the United Nations program
substantial support.)
In countries where both United States and United Nations opera-
tions exist there might be occasions for useful cooperation between
the two staffs. The possibility of encouraging this might also be dis-
cussed. For example, no public health officer is attached to the Inter-
national Cooperation Administration mission in Jordan; on the other
hand, the United Nations technical assistance program in that country
has public health technicians on its staff. The International Coopera-
tion Administration has money for operations; United Nations does
not. Might not local directors of the two programs be authorized to
cooperate for common purposes within certain financial limits?
LEBANON, JORDAN, AND IRAQ
1241
7. Public relations
(a) Nomenclature.-What's in a name? Habit, sentiment, momen-
tum. Any public relations counselor would tell us that by renaming
our foreign aid program so often we have wasted a valuable asset.
Point 4, the term first used to describe aid to underdeveloped countries,
lacked descriptive quality; yet it is still current, showing how strong
tradition is and suggesting that if we had held on to that term, or at
least to one acceptable substitute, our continuing efforts in support of
the economies of other countries would be better known today and
perhaps more widely appreciated.
To implement the Point 4 idea in underdeveloped countries we set
up the Technical Cooperation Administration. When the Marshall
plan was promulgated to extend economic aid to Europe the organi-
zation called the Economic Cooperation Administration was created.
Hardly had this name become widely known when the Mutual
Security Agency supplanted it. Then followed the agency called the
Foreign Operations Administration. The present organization is
called the International Cooperation Administration. The name of
the operating mission also varies from country to country.
Lebanon it is called the United States Operations Mission. In Jordan,
popular usage has made it Operations Mission Jordan. Reports from
India indicate that Technical Cooperation Mission is in use there.
Persons telephoning the United States Operations Mission in Beirut
will hear the answering voice identify the office as "Point 4," and
the same thing happens in other missions.
In
American industries spend millions of dollars to gain public accept-
ance of their brand names. All politics aside, Point 4 has become
the accepted brand name in many countries and its value should be
recognized. As for the parent organization, the International Cooper-
ation Administration, it is to be hoped that if further reorganizations
are undertaken, the present name will be retained regardless of its
intrinsic merits, in order not to waste the cumulative effect of the
vigorous efforts which ought to be undertaken to publicize the work.
(b) Publicity.-The first impression of a visitor like myself is that
too little is known about the work of the International Cooperation
Administration by the general public, including the limited number
of persons who read newspapers, and that it is not understood in de-
tail even in high government circles. This is true. But to get
credit for the United States is only one objective. In Iraq, for ex-
ample, and in lesser degree in Lebanon, one of the main public rela-
tions objectives is to see that the masses hear about achievements of
the program in order that they may think better of their Govern-
ment and support its pro-Western orientation. Similarly, it is desir-
able that the heads of government be kept aware of the program's
steady progress in order that they may properly value the support of
the United States and wish to continue in close cooperation with it.
So that the first of these aims may be accomplished effectively, I
suggest that wherever there is an International Cooperation Admin-
istration organization a member of the United States Information
Service staff should be especially assigned to familiarize himself with
its activities, especially in the field, so that he may be in a position
both to put emphasis on the underlying motives of the United States
as revealed in particular International Cooperation Administration
achievements and also to gain popular credit for the local govern-
1242
LEBANON, JORDAN, AND IRAQ
ment for its productive cooperation with the United States. This is
doubtless already the habit in many posts. If each United States
Information Service staff is not large enough to perform this function
it ought to be increased at once by one. I recommend that a study
be made of the United States Information Service strength in all
posts where the International Cooperation Administration operates.
The second part of the objective to insure that top Government
officials are kept abreast of the progress of the International Coopera-
tion Administration work—is more difficult to attain. Here, perhaps,
members of the regular diplomatic corps might give the International
Cooperation Administration valuable help. I found in one country
that a former prime minister did not know that one of the most im-
portant accomplishments of the International Cooperation Adminis-
tration during his term of office so much as existed; and in another a
high official newly come to office spoke to me of the International
Cooperation Administration program in such persistently vague terms
that I felt sure he needed detailed briefing about it. This is a situa-
tion which cannot be remedied by routing action, and though it may
seem minor, it is in fact worth some care and attention. Perhaps the
State Department might find it proper to urge Ambassadors and other
appropriate members of Embassy staffs to invite personal acquaint-
ances of theirs in the government to visit outstanding projects sponsored
or assisted by the International Cooperation Administration. The
effort to arrange suitable occasions for prime ministers, foreign min-
isters, and other officials to inspect the International Cooperation
Administration installations as Embassy guests would be more than
repaid in their increased understanding of what the American public,
working through the International Cooperation Administration, is
doing to advance the economic and social well-being of their countries.
8. Relative size of aid to Israel and to the Arab world
In the three Arab States visited one often encounters complaints
that the aid of the United States to Israel is much larger than its aid
to any one of them, or indeed than its aid to all three of them com-
bined. For the fiscal year 1956, the United States allocations of aid
to the three Arab States totaled $17,400,000 and the allocation to
Israel was $24 million. In addition, the Arabs do not differentiate
between United States Government aid to Israel and contributions
from the United Jewish Appeal and other Zionist organizations, since
the United States Government exempts the Zionist contributions from
Federal tax. (Contributions to United Nations Relief and Works
Administration for aid to the Arab refugees are not similarly exempt.)
Tax-free contributions from United States private sources to Israel in
1956 are estimated to have been $125 million. The Arabs emphasize
that the population of the three Arab countries is larger than that of
Israel and their economies are more "underdeveloped." There are
answers to these criticisms: United States aid is not extended on a
competitive basis, and, judging by ability to utilize assistance con-
structively, Israel might be considered more deserving of aid than are
the Arab States. It remains a political fact which must be noted
that the inequality between American help to Israel and to the Arab
nations is exploited in Communist propaganda in the area as well as
in the appeals of the Cairo and Damascus radios to nationalist and
anti-Western feeling.
LEBANON, JORDAN, AND IRAQ
1243
9. Exchange of persons
Considering the small scale of our exchange of persons programs,
the results are remarkable. Time after time in visiting projects I
found that the men on the job who had had even a brief experience in
the United States stood out as noticeably active and friendly.
Since 1950, something less than 200 students, research students,
teachers, and prominent persons in government and the professions
have been sent to the United States from Iraq, Jordan, and Lebanon
under the Fulbright program or the Department of State educational
exchange system. Under its participants program, begun in 1952, the
International Cooperation Administration provides grants for spe-
cialists to take technical training in the United States and at the
American University of Beirut. Čounting those included in the 1957
fiscal year, about 350 persons profited from such grants.
On their return home, persons who have been aided to visit the
United States for study or observation often become actively asso-
ciated with friends who have visited our country at their own expense
or have some special reason for being interested in it. In Iraq, for
example, there are some 1,100 nationals who have studied in American
institutions (on Federal grants or privately) or have visited the
United States; encouraged by the United States Information Service,
they have joined in a loose organization called Amgrad. American
University of Beirut graduates in Iraq have an active organization of
250 members, and the recently organized Association of Graduates and
Students of American Universities has 250 members.
Dollar for dollar, the money spent for these programs seems to me
to bring a larger return in educational and technical advancement in
the countries concerned, and a larger by-product of good will for the
United States, than any other activity of the United States abroad.
10. Foreign aid and United States foreign commerce
The question is sometimes asked whether expanded production in
underdeveloped countries will not ultimately endanger United States
foreign commerce. The answer is that these nations become more
valuable customers for American goods and services as they develop
sufficient purchasing power.
The American balance of trade with the three countries visited is
as a rule favorable.
For the first 10 months of 1956, United States exports to Jordan
were valued at $3,900,000, imports from Jordan at $80,000. The
exports to Jordan consisted of industrial machinery equipment as
well as special equipment needed for the development assistance
program. The Commerce Department reports that merchants in
Jordan have been stimulated to seek contracts in the United States to
take advantages of the new dollar sources. American automobiles,
refrigerators, etc. are liked in Jordan. During 1955, the United States
moved from third to second place (after the United Kingdom) as a
supplier to Jordan.
For the first 10 months of 1956, United States exports to Lebanon
were valued at $30,500,000, while imports from that country were
valued at $3,900,000. The United States was second only to Syria
as a supplier to Lebanon.
In 1955, the United States had a favorable balance of trade with
Iraq in spite of the enormous figure of $17,600,000 for petroleum in-
1244
LEBANON, JORDAN, AND IRAQ
cluded in the column of imports from that country. The figures were
United States exports to Iraq, $41,100,000; United States imports
from Iraq, $19,400,000. The 1956 figures, still incomplete, reflect
the unusual situation resulting from the Suez crisis. In the first 10
months of that year, United States exports to Iraq were $29,600,000
and United States imports from Iraq were $34,500,000; however, if
we separate out about $24 million of petroleum imports we see that
the balance in other categories is in favor of the United States. The
exports to Iraq in this period included $21,879,000 for agricultural
machinery, well-drilling equipment, trucks, turbines, and similar
items, much of it bought by the Iraqi Government for the Develop-
ment Board program.
V. COUNTRY-BY-COUNTRY ANALYSES AND SUGGESTIONS
The three Middle Eastern countries visited differ vastly in character,
and each provides different arguments for deserving American help.
I. LEBANON
Lebanon is a small country of only 4,000 square miles, with a pre-
dominantly Mediterranean landscape. The population of some
1,400,000 is divided about evenly between Moslems and Christians.
The economy is based largely on agriculture, but the country's chief
wealth comes from its role as middleman between the Arab hinterland
and the West. In normal times it is a prosperous entrepôt and a
resort for tourists. Another major source of income consists of mone-
tary remittances to persons in Lebanon from relatives living abroad.
For example, more than 400,000 people of Lebanese origin are now
resident in the United States.
Lebanon is a republic and its present President and Cabinet are
very favorable to the West. There are about 100,000 Palestinian
refugees in Lebanon; but they have not been admitted to citizenship
out of fear of destroying the razor-edged balance between Moslems
and Christians on which the Government structure (indeed, the peace
of the state) is based.
The Israeli invasion of Egypt, followed by the Anglo-French
intervention there, produced a political, economic, and to some extent
military crisis in Lebanese foreign relations. Lebanon has a small
common border with Israel, but on all her other land frontiers she is
hemmed in by Syria, which has been cooperating closely with Nasser
and coming more and more under Soviet influence. Lebanon is
dependent on Syria for commercial access to and from the Arab
countries to the east and also to and from the lands beyond-Iran,
Pakistan, and India. In addition, she buys wheat and other food-
stuffs from Syria. Thus Syria is in a position to "squeeze" her
economically, and she has done so with the aim of making her less
friendly to the West and more cooperative in her own pro-Soviet and
pro-Egyptian policies. By closing the Lebanese frontier from time to
time, and especially by limiting air traffic across Syria, the Syrian
Government has reduced Lebanese foreign trade drastically and has
practically eliminated the lucrative tourist visitors ordinarily coming
from Saudi Arabia, Kuwait, Iraq, Iran, and other countries.
Syria is also in a position to coerce Lebanon militarily; the Syrian
armed forces, now expanded to about 65,000 and strengthened with
LEBANON, JORDAN, AND IRAQ
1245
Soviet equipment, would evidently be more than a match for the 8,000
Lebanese forces. Various economic steps have also been taken by
Egypt in a seeming effort to support Syria against Lebanon.
So far the Syrian and Egyptian attitude seems to have strengthened
the determination of the present Lebanese Government to keep an
independent position and in any case not to sacrifice good relations
with the United States in order to appease the Syrian and Egyptian
leadership. I was informed on the best authority that during the
recent conference of heads of Moslem states held in Beirut, Syrian
President al-Kuwatly suggested informally to President Chamoun that
he would be glad to act as intermediary in arranging an arms deal by
which the Lebanese Army would be re-equipped throughout with
Soviet weapons similar to those being supplied to the Syrian Army,
and on a 10-year or even a 15-year credit. There seem also to have
been Syrian feelers to Lebanese personalities to join in a movement to
form an anti-Western pact under a Soviet guaranty. Lebanese leaders
assured me that under no conditions would the Government adopt
any such orientation. "We shall hold out as an independent state
at all costs," said one. "Naturally, United States aid is wanted in
all categories to enable us to do that successfully. But aid will not
be the decisive factor in confirming our decision to oppose any attack
or resist any subversion. We are going to do our best to remain free
in any case.
""
Others noted even more strongly that along with the external
menace to Lebanese independence there is a growing threat from
radical and anti-Western elements in the country, strengthened by
the Anglo-French attack on Egypt and supported, directly and in-
directly, by Communist funds and agents. They made a special
request in this connection for some new, immediate, and dramatic
effort by the International Cooperation Administration to help the
Government improve living standards, concretely by helping it with
credits and expert assistance to launch a program to provide housing
for laboring and other low-income groups.
We received prolonged briefings on the International Cooperation
Administration program in Lebanon from Mr. Stephen Dorsey, the
director, and his staff, as well as from Ambassador Heath and the
Foreign Service Staff, including Mr. John Nevins, director of United
States Information Service. Besides talking with President Chamoun
and Premier Sami Solh we also had conversations with Foreign
Minister Malik, several former ministers, newspaper editors, opposi-
tion members of parliament, Mr. Harry Labouisse, Director of the
United Nationas Relief and Works Agency, and American business-
men resident in Beirut. We made two field trips, one to the Turbal
Agricultural Experimental Station and the American University of
Beirut farm, the other to inspect the areas near Sidon damaged by
the earthquake of last March and the reconstruction undertaken in
part with American assistance.
The latest actual figures for United States aid to Lebanon are those
for the year ending June 30, 1956. A total of $2,266,000 was granted
for technical assistance, divided as follows: $887,000 for technicians,
$295,000 for capital supplies and equipment, $232,000 for training
Lebanese students at home and abroad, $615,000 for contract services
and $237,000 for other local costs.
In addition to the technical assistance grant, Lebanon received the
sum of $5,470,000 for development assistance. Of this, $2 million
1246
LEBANON, JORDAN, AND IRAQ
was granted after the earthquake of last March. This fund was used
to buy imported building materials and equipment needed to rebuild
some 11,000 homes. Three millions of the remainder is being used to
assist Lebanon in building its share of a major highway to Damascus.
and the final $470,000 is to help Lebanon lengthen the runways of the
Beirut International Airport. When completed, these runways will
be able to accommodate large jet airliners.
The purposes mentioned above for which United States funds are
being spent are useful in themselves. That part of the funds applied
in the form of technical assistance seems especially appropriate.
However, since Lebanon is not a destitute country our economic aid
there must be justified largely on political grounds: to strengthen the
social fabric of the state and thus aid the Lebanese Government in
maintaining a position of independence and in resisting extremist
demands, nationalist or Communist-inspired, to join an aggressive
anti-Western bloc.
In the light of the present economic and political situation in
Lebanon, and taking account of the disturbed Middle East situation
as a whole, including the scale of United States aid to Israel, continu-
ation of a program of technical aid there at present fairly modest levels
seems fully justified. Two new projects of a more substantial nature
might also be given friendly consideration. If approved, one would
presumably be undertaken out of funds for development assistance,
the other would require a credit and some additional technical as-
sistance.
One of these projects has long been favored by the recently ap-
pointed Premier, Sami Solh, as mentioned above, and will shortly be
proposed formally by him to the International Cooperation Adminis-
tration (by now he may already have done so). This would consist
of a slum-clearance and housing program for Beirut, Tripoli, and
Sidon. In all three cities workers live in miserable conditions and
tend to be radical and anti-Government, which at present means
enthusiastically pro-Nasser and anti-Western. According to prelimi-
nary plans, the United States share in the project would be twofold.
The United States would make a credit to the Lebanese Government
amounting to 50 percent of the cost; the Lebanese Government would
put up the other half, collect sales or rentals when the housing is
complete and repay the United States credit in 10 yearly installments
thereafter; alternatively, the United States contribution might be a
pump-priming grant, the Lebanese Government to use returns on the
investment as a revolving fund to build additional housing. Secondly,
the International Cooperation Administration would assign a first-rate
American housing expert, with suitable assistants, to prepare plans in
connection with local architects and to advise during construction.
The other project is in a more formative stage. Mention has
already been made in section II of the lack of credit facilities for small
business men and farmers throughout the Middle East. The need for
creating a suitable mechanism to meet this need is said to be especially
acute in Lebanon. A criticism often heard of International Coopera-
tion Administration activities in underdeveloped countries is that
they do not get down to the grass roots in a general enough form to be
felt, understood, and appreciated. The International Cooperation
Administration, the United States Information Service, and other
United States representatives in Beirut confirm that this is a real
LEBANON, JORDAN, AND IRAQ
1247
difficulty. A way of surmounting it, of proving that the United States
is sincerely concerned with the well-being and progress of the people
in the country who need help most (as one United States Information
Service official put it), would be to show the Lebanese Government
how to set up a credit institution to supply industrial and rural credit
to small borrowers, using local banks for the purpose under Govern-
ment supervision. I am told that there are precedents, in Berlin and
elsewhere, for our Government's supplying pump-priming capital to
temporary quasi-public institutions. The objective in this case
would be to demonstrate that the extension of credit to small bor-
rowers can be profitable, and to help the Lebanese Government get
Lebanese money into new channels which will increase buying capacity
and raise the general level of prosperity. I am far from being an ex-
pert in such matters, and may have represented the project inac-
curately in detail; but its general purposes seem fairly clear and are
attractive enough politically and psychologically to warrant that if
the International Cooperation Administration director in Beirut puts
forward such a proposal it should receive careful consideration in
Washington.
Reference was made in section IV to the American University of
Beirut as a factor in the progress of the Middle East as a whole. I
also emphasize here its particular importance in the life of Lebanon
and the part which it can play in helping the country (in President
Eisenhower's words) "to develop its own human and natural resources,
and also provide a great two-way avenue of communication."
2. JORDAN
Jordan is in most respects everything that Lebanon is not (and vice
versa). It is an inland state, completely surrounded by neighbors
which are either hostile or suspected of acquisitive designs at its
expense. Apart from the Jordan Valley, its approximately 35,000
square miles consist largely of desert and mountains. It is ruled by
a young king of the Hashemite family. Its population, estimated at
something like one and a half million, is mainly Moslem and in part
nomadic.
As mentioned in section II, some half million of Jordan's population
of about 1,300,000 (i. e., 1 out of every 3 persons) are Palestinian
refugees. They have full citizenship and play a dominant role in
national politics. Economically, Jordan is not viable without outside
help. Since its creation it has been dependent on an annual British
subvention of about $32 million to pay its army and keep the Govern-
ment functioning. Despite this, the present Cabinet which came to
power October 30, 1956, is strongly anti-Western and "the street"
even more so. The King and Cabinet still hesitate, nevertheless, to
cast in Jordan's lot finally with Soviet Russia by accepting a subven-
tion reportedly offered by Moscow via Syria. They are trying instead
to get a reliable promise of continuing financing from other Arab
States.
Because of the present tensions, no new International Cooperation
Administration program for fiscal year 1957 exists for Jordan as yet.
Funds are available, and will be allotted when the Mission Chief is
able to work out a satisfactory agreement with the recently elected
Government. At the time of my visit, all Point 4 technicians had
1248
LEBANON, JORDAN, AND IRAQ
been evacuated from the country following the Israeli attack on
Egypt, along with the wives of Embassy officials and the majority of
women personnel. International Cooperation Administration work
is nevertheless proceeding on road and certain smaller projects; and
the nurses' training school, the agricultural experimental station, and
other institutions enjoying our assistance are continuing in operation,
thanks to the ability of American-trained nationals to carry on.
The 1956 fiscal year grant for technical assistance was $2,557,000,
plus a development assistance grant totaling $4,987,000 in actual ex-
penditures. The technical assistance expenditures were $862,000
for technicians, $402,000 for capital supplies and equipment, $164,000
for training Jordanian students abroad, $153,000 for contract services,
and $976,000 for the cost of operating joint services. Under develop-
ment assistance, $900,000 was spent for capital supplies and equip-
ment, $20,000 for technicians, $6,000 for training, and $3,593,000 for
dinar purchases.
Our study of conditions in Jordan was not greatly hampered by
the fact that the staff of the International Cooperation Administra-
tion mission was so depleted. Mr. Harold Nelson, International Co-
operation Administration Director, and his deputy, Mr. Workinger,
supplied us with background and current information, and we in-
spected highway construction, improved village water facilities, the
training school for nurses, and the agricultural experimental station.
As in other countries, I had intended asking officials of the Jordan
Government their frank opinion about the past and current perform-
ance of International Cooperation Administration. However, in view
of the current tensions, the Ambassador advised that it would not be
expedient at that time for me to discuss the future of aid programs
with Jordanian Government officials.
In a dispatch from Amman printed in the New York Times of
August 26, 1956, Sam Pope Brewer quoted some adverse opinions of
American assistance operations in Jordan made to him by Hamad
Farhan, Under Secretary in the Ministry of Economy. Mr. Farhan
complained that United States funds were not being spent in Jordan
to the best effect, specifically that road costs were 4 times as much
per mile as they normally were in Jordan and that water had been
provided by a contractor at $3.50 per cubic meter, "as much as
petroleum. In reply to this criticism, the United States Information
Service in Jordan issued a statement on September 8 referring to
recent "inaccurate and misleading statements." It pointed out that
"normal equivalent" roads in Jordan are 7 meters wide, 5 meters
asphalted, while major Point 4 highways are 9 meters wide, 7 meters
asphalted; further that the Point 4 roads are being built to American
standards, which require aerial surveying, engineering, and_grading
of a type not used in "normal equivalent" Jordan roads. Even so,
said the statement, the cost is approximately only 9 percent higher
per mile for the modern wide highway. As to the allegation about
exorbitant water costs, the statement said that Point 4 pays a straight
rate of 70 cents per cubic meter for water loaded at source by Mission
tankers. On one occasion, a contractor was paid $3.36 per cubic
meter for water hauled a long distance over difficult terrain in a
special tank truck. The cost in this case included rental of the truck,
equipped with pump and hose, and services of driver. The statement
added that the cheapest wholesale price for low-grade oil in Jordan
is $37.29 per cubic meter.
LEBANON, JORDAN, AND IRAQ
1249
Among Mr. Farhan's suggestions for making International Coopera-
tion Administration policy more acceptable in Jordan, as reported by
Mr. Brewer, was that the Jordanian Government should submit lists
of desired projects; the United States Mission would decide which
ones should be carried out; and the appropriate Jordanian ministry
would handle the execution of agreed projects, under the supervision
of United States technicians. The United States officials would have
the right to halt the work if they found that it was deviating from
agreed specifications. Suggestions similar to these may be put for-
ward in connection with the proposal to establish a Jordan Develop-
ment Board. A centralized office for coordinating plans and opera-
tions on the Jordanian side is much needed.
Among former Jordanian officials with whom I talked were the
recent Premier, Samir Pasha Rifai, a former Minister of Economy,
a former Minister of Public Works, etc. They spoke of delays and
inefficiencies which they had noted in Point 4 at the start, but they
felt that it had picked up momentum and proved its worth under
Mr. Nelson in the past 2 years. Such criticism as they offered of
it at present was mainly for lack of imagination and flexibility, which
they attributed to bureaucratic controls from Washington. They
noted that since the opposition elements, which had been attacking
the International Cooperation Administration methods, had won the
recent elections and assumed office they had become silent on that
score. Concurring in the view that the International Cooperation
Administration has too little freedom to seize opportunities for
effective work as they present themselves, an American official not
connected with the International Cooperation Administration said:
There is so much emphasis on accounting, so much tech-
nical specialization and subdivision of program, that even
when the International Cooperation Administration gets
authorization to tackle a good project its approach is so
elaborate and slow that people lose interest in it before any
results begin to appear.
As was indicated in section II, I feel that if a new Middle East
conflict is to be avoided Jordan must remain an independent state,
at least unless and until it arranges to merge or federate by peaceful
means with Iraq and Syria, or both. Such a union might be desir-
able in itself, but for it to come about by violence would involve grave
risks. For the present, therefore, the United States should continue
a vigorous aid program in Jordan. Some of the projects undertaken
by the Jordanian Government with American help have already come
into operation, e. g., the nurses' training school and the tuberculosis
and surgical hospitals in Amman and the experimental agricultural
station in the Jordan Valley; others are nearing completion, e. g., the
35 miles of new highway from Amman to the Dead Sea. However,
considerable highway work already planned remains to be undertaken,
including the reconstruction of the highway between the Dead Sea
and Jerusalem. There also is an opportunity (and need) to intensify
the training program for Jordanian technical and other students in
the United States, which has produced excellent results in the past.
There are good arguments for introducing some degree of industrial-
ization into the country. Help with 2 projects in this field should be
considered-one to erect a small oil refinery, the other to build facili-
1250
LEBANON, JORDAN, AND IRAQ
ties for extracting potash from the mineral-rich waters of the Dead Sea.
The refinery would save Jordan considerable foreign exchange. At
present, oil now passes by pipe through Jordanian territory to the coast
of Lebanon, where it is refined and brought back to Jordan overland
by truck. The potash from the Dead Sea would have a market in
neighboring countries, thereby creating much-needed foreign exchange.
Both projects would be extremely popular in Jordan and would awaken
hope that continued national existence is possible, or at least encourage
both Government and people to wait for an opportunity to federate
with a neighbor peacefully and on fair terms.
Jordan should receive particular attention in any regional plan for
Middle East economic assistance. Whether or not that plan eventu-
ates, I recommend that, if political conditions in Jordan permit, the
United States enlarge its program there, both in technical assistance
and development assistance. This is justified by the backward
economy of the country and by its political frailty; for it is the aim
of our foreign aid program to strengthen the will and ability of weak
countries to maintain their independence.
3. IRAQ
Iraq (168,000 square miles) has only about 5 million inhabitants,
over four-fifths of them Arabs, the remainder mainly Kurds. The
rate of illiteracy is 97 percent. The country is ruled by a young
Hashemite king (first cousin of King Hussein of Jordan) with the
support of the Army and the tribes. Currently the armed forces
number something over 50,000. The present Prime Minister, Nuri
es-Said, is a strong figure but under attack from students and other
sections of the public (inflamed by the Cairo radio and by Communist
propaganda) because of his long connection with the British and his
support of the Baghdad Pact. There are only about 6,000 Palestinian
refugees in Iraq; they are not a charge to the United Nations Relief
and Works Agency and do not constitute a domestic political problem
as in Jordan and to some degree in Lebanon.
Iraq is 1 of the 2 richest Arab states. Unlike Saudi Arabia, however,
it allocates 70 percent of its oil royalties each year to a Development
Board to be used for flood control, irrigation, agricultural development,
land resettlement, rural community development, education, and other
long-range improvements. The country's permanent (but largely
potential) wealth is land; its expendable resources consist of oil.
The Iraqi Government's aim is to convert the expendable resources
into permanent values by creating conditions in which the land can
be put (and kept) under cultivation instead of remaining as at present
largely semi-desert or desert. As the director of our International
Cooperation Administration mission in Baghdad remarked, "Iraq
is ploughing in its oil today to raise wheat and barley tomorrow."
Military aid aside, United States aid to Iraq is solely in the form of
technical assistance. American experts act as advisers in the minis-
tries concerned with the development program as well as directly on
projects in the field. For this technical assistance the United States
is spending $2,300,000 in the current year, divided as follows:
$1,800,000 for technicians; $200,000 for training Iraqi students abroad;
$100,000 for commodities used for demonstration purposes; and
$200,000 for local costs of the International Cooperation Administra-
LEBANON, JORDAN, AND IRAQ
1251
tion mission. Actual expenditures for the 1956 fiscal year ended last
June, after a total grant of $2,300,000 had been allotted, totaled
$2,277,000. They were divided into these categories: $1,143,000 for
technicians; $161,000 for supplies; $207,000 for training costs; $591,-
000 for contract services; $42,000 for contributions to cooperative
services; and $133,000 for other local costs.
The $2,300,000 which the United States contributes in the current
year goes to help the Iraqi Government carry out a development pro-
gram which will cost it $238 million. The 70 percent of oil revenues
which the Iraqi Government devotes to the Development Board
amount to $229 million. In addition, the various Government
ministries contribute about $30 million for purposes which our tech-
nical experts help plan and carry out. On this basis, the United States
allocation of $2,100,000 for Iraq represents a contribution towards the
joint Iraqi-United States expenditure (to give it a term flattering to
ourselves) of slightly less than 1 percent.
The current revenue of the Development Board has been reduced
drastically since Syria cut the pipelines carrying Iraqi oil to the Medi-
terranean, but as yet the development program has not been curtailed
because the Board has an accumulated reserve to meet emergency
contingencies.
The United States expenditure for the technical assistance program
in Iraq is justified in view of the very large Iraqi expenditure for devel-
opment; further, as will be seen below, it seems justified also by the
results and should be maintained.
The chief need at present of the International Cooperation Admin-
istration mission in Iraq is to fill up the roster of American technicians
called for in its table of organization. At present the mission is only
60 to 65 percent staffed; of the 106 positions, 40 are unfilled. Steps
should be taken in Washington at once to determine why the necessary
experts are not being found and to remedy the lack as rapidly as possi-
ble. In the present political emergency in Iraq, American interest
and help should not be lagging.
One serious vacancy in Baghdad is in the post of American member
of the Iraqi Development Board. This appointment is made by the
Iraqi Government, not by the United States. Since the Iraqi Govern-
ment failed to reappoint Mr. Wesley Nelson some 8 or 9 months ago
at the termination of his 4 years of service the post has been vacant.
Both Iraqi and American interests suffer so long as this continues.
Iraq's position in the Middle East is largely determined by her
membership in the Baghdad Pact, which has brought her both en-
hanced security vis-a-vis Soviet Russia and criticism and distrust on
the part of her Arab neighbors. President Nasser has seized on Iraq's
partnership with Britain in the Pact to appeal to Arab nationalism
against his rival for Arab leadership, Premier Nuri es-Said. The four
Asian members of the Pact have not met in plenary session with Britain
since the Anglo-French attack on Egypt. However, their members
of the technical commissions of the Pact continue doing business with
the British members.
In addition to briefings from the country director of the Interna-
tional Cooperation Administration, Mr. Ben Brown, and his staff, and
from Ambassador Gallman and members of the Embassy political,
military, and economic staff, we were received by the Prime Minister,
the Foreign Minister, the Minister for Development, the Secretary-
94413-57-80
1252
LEBANON, JORDAN, AND IRAQ
General of the Baghdad Pact and other officials. I also talked with
a former Prime Minister who is somewhat critical of the International
Cooperation Administration program. We made trips to inspect rep-
resentative undertakings of the Development Board in which American
technicians have played an important part. Two of these, an agri-
culturalist and an expert on irrigation, accompanied us on a visit to
two large land reclamation and settlement projects; and an American
engineer accompanied us on a visit to the great barrage which has
been erected on the Euphrates River at Samarra, some 70 miles above
Baghdad, to control floods and eventually to contribute to the irri-
gation system as well as to create hydroelectric power. Both
undertakings are impressive.
In some respects the agricultural program is the more interesting of
these two categories of the Development Board's work, although the
great dams to curb the havoc played in the past by the Tigris and
Euphrates floods are more spectacular. (Needless to add, the dams
also play a fundamental role in the success of the reclamation and
resettlement schemes.) The two resettlement areas which we visited
lie south of Baghdad, in arid lands where generations of nomads have
moved with their camels and tents.
The Iraqi agricultural program aims eventually to convert 5
million acres of desert into arable land farmed by middle-class land-
owners. The settlement part of the program is closely akin to our
own homestead movement of the last century. Under the present
"Miri Sirf" law ("Miri Sirf" means public land), tracts are given by
lot on new development areas to certain categories of landless citizens.
The average tract is 31 acres, but the size can be varied depending on
the land's fertility. The settler must occupy and cultivate his allot-
ment for 10 years, after which he gets contingent title to it; after a
further 10 years he gets absolute title, including the right to dispose
of it by sale or otherwise. Our homestead law gave settlers title to
160 acres of land after they had lived on it for 5 years and had followed
certain established cultivation practices.
We saw evidence on the projects in Iraq (as we did also in the other
countries visited) of the good effects of the International Cooperation
Administration's emphasis on developing the nation's agricultural
potential. The American technical advisers begin by passing on the
general suitability of the proposed site, then they make a cadastral
survey, classify the lands, help lay out the scheme of irrigation, super-
vise its execution, assist in drawing plans for housing, and finally ad-
vise and help with establishing the necessary schools, clinics, and
other essential organs for satisfactory village life and advise as to rota-
tion of crops, marketing and other problems. To perpetuate the
beneficial results of this work so far as possible, the International
Cooperation Administration has adopted our own Extension Service
as a model and is training local county agents and home demonstra-
tion experts to serve as counselors to the farm families in their districts.
The first development which we inspected, Latafiya, is well ad-
vanced and the settlers have already begun to "take hold." The
moving spirit in the village at present is a Texan, Miss Bertha Strange.
After teaching home economics at the women's college in Baghdad,
she has been busy for the last 2 years organizing the school and its
free lunch, the dispensary, and other community necessities; despite

LEBANON, JORDAN, AND IRAQ
1253
the usual "frontier" handicaps, she has persevered and met with
remarkable success.
Water is delivered through canals to each allotment farmer at
Latafiya for 24 hours once every 12 days. Up to the present time
463 families have been settled here, which at the average of 7 to a
family means a total of something over 3,000 persons. On-the-spot
American guidance is coming to an end. The project manager and
his American-trained assistant are both Iraqi, and Miss Strange's
work will shortly be taken over by an Iraqi assistant trained by her
and now studying in the United States. So long as there are American
technical advisers in the ministries in Baghdad they will keep an eye
on Latafiya. The long-run question is whether Iraqi personnel will
keep up the community services to their present standard and, most
essential, maintain the canals to prevent silting and salinization.
The International Cooperation Administration personnel seem con-
fident that this will be the case. Certainly the start is promising.
The larger and newer development project at Mussayib, some
miles distant from Latafiya across the dusty brown plain, will come
into full-scale operation in from 2 to 3 years. At a minimum, about
3,000 families will be settled there (21,000 persons) on an irrigated
area of 150,000 acres (200 square miles). Some American estimates
put the eventual potential population as much as four times higher.
The area will be served by 25 miles of primary canals, 75 large second-
ary canals, plus lateral canals to individual farms or groups of farms,
adding up to a total of about 1,000 miles of water. As at Latafiya,
this water comes up from the Euphrates, which is some 20 feet higher
than the Tigris.
The crops at Mussayib and Latafiya will be chiefly wheat and barley,
most of which will at first be consumed locally and, for the foreseeable
future, within Iraq. The rise in the Iraqi standard of living will in-
crease the demand not only for foodstuffs but also for manufactures,
most of which will continue as at present to be imported. The aim
of the Iraqi Government is to raise the average diet eventually to
2,500 calories a day (in the United States, I am told, the average is
3,300 calories); but at present this is far beyond Iraqi capabilities.
The American experts plan gradually to diversify crops on the de-
velopment projects, first putting some land into alfalfa, cotton, and
sesame, eventually into clovers and grasses so that livestock may be
introduced.
The immense Wadi Tharthar barrage, dam, and regulator_at
Samarra have the purpose mainly of controlling the recurring Eu-
phrates floods which have frequently done such incalculable damage to
Baghdad and the country generally. During the flood season the
barrage will divert more than half the water discharge into a canal
63 meters long leading to the Tharthar Depression. The water stored
will be used to irrigate large areas now desert or semi-desert. The
foundations have also been laid for a power station capable of generat-
ing 112,000 kilowatts at low cost. Up and down the Tigris and
Euphrates, and on the tributaries of the Tigris, similar construction
jobs have been finished, are underway or are under study. All have
profited from the help of American engineers supplied through our
technical assistance program.
The giant development program upon which the Iraqi Government
has courageously embarked encounters many physical obstacles—
1254
LEBANON, JORDAN, AND IRAQ
floods and water shortages, salinization of land, primitive farm tech-
niques, inadequate roads and local transportation, etc. The Inter-
national Cooperation Administration is helping it to overcome them.
Other obstacles will be more difficult to overcome-inadequate
management of Government agencies, low initiative of workers due
to low wages and shortage of consumer goods, and corruption due
partly to the low pay of officials, partly to complacent traditions
inherited from Ottoman times. The International Cooperation
Administration is also trying to help the Iraqi Government deal with
these problems. Thus it is considering proposing that an American
expert in public administration be invited to survey the operation of
Government departments, with the thought that the Iraqi Govern-
ment might establish a training school for the civil service. The
chief benefit of such an undertaking might be to stimulate conscious-
ness that a serious problem exists in this field; the school itself would
remain at least partially ineffective until the salary incentive was
made sufficient to keep the graduates of the school in Government
service and to enable them to do their work conscientiously.
The consensus of the International Cooperation Administration
and other American officials in Baghdad is that, given a return of oil
revenues to their former high rate and given the continued willingness
of the Iraqi Government to allot a large percentage of them to the
Development Board, the inhibiting factors mentioned above can be
overcome, on one further condition: that Iraq shall continue receiving
expert advice and technical help from outside in overcoming the
people's cultural inertia and in training Iraqi personnel to take over
gradually the tasks of development and training. The International
Cooperation Administration director, Mr. Brown, described the aims
of his mission in four words: "Operate. Supervise. Advise. Train."
The ultimate objective is to enable the Iraqi Government to run the
Iraqi economy itself.
The question has been raised whether it would not be better if the
Iraqi Government would itself contract for American and other
foreign technical experts rather than for our Government to supply
them under a technical assistance program. The universal feeling
among Americans in Baghdad, both in and out of the International
Cooperation Administration, is that the United States Government
experts have more independence and influence than experts contracted
for directly by the Iraqi Government. My own limited observation
tends to support this view. Much of the value of the advice given
and of the pressure exerted by our experts is that it necessarily goes
against the grain of Iraqi habit and individual or group interest.
The United States aim of stimulating Iraq's economic development
with a view to strengthening its social stability, internal security and
national independence has so far been only partially realized. But
the effort toward that end has been well begun and it most emphat-
ically should continue.
VI. SUMMARY of SuggeSTIONS
As the preceding pages will have indicated, there is no single
magic formula to produce in reply to the question: How can the
International Cooperation Administration's guiding concepts and
operations be improved in order to make it more effective in fostering
LEBANON, JORDAN, AND IRAQ
1255
the social progress, stability, and independence of underdeveloped
countries-for the mutual benefit of those who receive and of ourselves
who give? A number of suggestions have been put forward, however,
some general, some specific. These I now venture to summarize:
1. Establish more clearly in our own minds the motives of our
aid program to underdeveloped countries.
2. Pursue a program for the Middle East simultaneously
along both economic and political lines.
3. Integrate economic and technical assistance to the Middle
East on a regional basis. A regional plan should aim consciously
to repair political and economic rifts in the region and promote
intra-regional cooperation, by bringing as many countries of the
region as possible into joint planning and by including projects
of value to the region as a whole in addition to projects mainly
useful to individual countries. Among the regional projects
for consideration:
(a) Jordan waters development scheme.
(b) Mediterranean-Persian Gulf truck highway.
(c) Oil pipeline, Mosul to Turkish port.
(d) Nile waters development scheme.
(e) Grain storage warehouses.
Credit mechanism for small business men and farmers.
Various projects within a single country but beneficial
to region as a whole.
4. International Cooperation Administration operations in the
field might be improved by:
(a) More careful preparation of local programs and more
continuity in operations, to be obtained by improved
assurance of continuing appropriations.
(b) Less diversity in country projects, more emphasis on
reaching grass roots.
(c) Emphasis in selecting personnel on adaptability to
service in backward lands.
(d) Less accounting red-tape, less narrowly drawn specifi-
cations as to function, in order to release experts from
paperwork and enable them to get on with the job.
(e) Better recruitment methods and more speedy process-
ing of personnel in Washington.
5. International Cooperation Administration procedures in
Washington might be related more closely to the essential moti-
vation of the foreign aid program by:
(a) Giving the receiving countries a fuller sense of partic-
ipation and responsibility.
(b) Emphasizing attempts to promote regional prosperity
and intra-regional cooperation.
6. Separate appropriations for military hardware from those
for defense support, development assistance, and technical
cooperation assistance.
7. Urge receiving governments to establish centralized agencies
to correlate assistance and development activities.
8. Authorize appointment of local advisory committees to the
International Cooperation Administration missions.
9. Assist the American University of Beirut in performing its
educational service to the Middle East as a whole.
1256
LEBANON, JORDAN, AND IRAQ
10. Establish a foreign education aid fund.
11. Review the relationship of the International Cooperation
Administration and the United Nations technical assistance
program.
12. Emphasize continuing name for our foreign aid program
in order to build up reputation and momentum.
13. Expand the United States Information Service cooperation
with the International Cooperation Administration.
14. Take note of the inequality emphasized by Arabs between
American aid to Israel and the Arab States.
15. Increase the exchange of students, teachers, etc., of the
area.
16. Lebanon:
(a) Continue program of technical assistance.
(b) Consider adding slum clearance and housing project
in Beirut, Tripoli and Sidon to development assistance
program.
(c) Consider helping Lebanese Government set up credit
institution for small borrowers, urban and rural.
17. Jordan:
(a) Continue technical assistance and development as-
sistance program to help Jordan maintain independence,
especially to avoid forcible partitionment involving risk of
general war.
(b) Consider two development assistance projects in in-
dustrial field: 1, plant to extract potash from Dead Sea; 2,
oil refinery.
18. Iraq:
(a) Continue technical assistance program through Ameri-
can experts directed and financed through the International
Cooperation Administration.
(6) Raise the International Cooperation Administration
mission to full strength.
In general, I believe that increased economic aid, even if properly
integrated on a regional basis, will not be enough by itself to stabilize
the social order in the Middle East in the foreseeable future. Eco-
nomic aid can be fully effective only if it is one part of a larger program,
political as well as economic, that aims both to resolve and to con-
struct to resolve the existing acute causes of insecurity and strife in
the region and to begin constructing the bases of security and coopera-
tion. This dual program can proceed only within a framework of
security against external aggression. But if we aim to do no more at
present than return the Middle East to the condition in which it was
before the recent war, with the promise to maintain it in that condition
against outside aggression, meanwhile slowly raising economic stand-
ards, we shall have failed to take up the challenge of an historic
moment. Time will not wait for the success of a policy which politi-
cally is essentially static and economically is slow.
SURVEY NO. 3
SOUTH AMERICA
(PERU, CHILE, ARGENTINA, URUGUAY, AND BRAZIL)
BY
FORMER AMBASSADOR DAVID K. E. BRUCE
MARCH 1957
1257
CONTENTS
Letter of Transmittal_
1
Introduction and Summary.
1
1
1
Page
1261
1263
I. United States interests...
1264
1
II. Basic situation in the countries visited_
1266
III. Nature of the aid programs and how they serve United States
interests___.
1269
IV. Effectiveness of the aid programs in the area__
1272
1259
LETTER OF TRANSMITTAL
WASHINGTON, D. C.,
January 15, 1957.
To the Chairman and Members of the Special
Committee to Study the Foreign Aid Program:
I enclose my report on the survey of the foreign aid program in
South America which I made at the request of your committee.
I should like to express my appreciation of the privilege of assisting
in your study, particularly in such an interesting and important area
as South America.
Please let me know if I can be of any further assistance.
Sincerely yours,
DAVID BRUCE.
1261
SOUTH AMERICA
(PERU, CHILE, ARGENTINA, URUGUAY, AND BRAZIL)
INTRODUCTION AND SUMMARY
The 22 nations of the Western Hemisphere form a new world,
interesting and stimulating in its variety, but possessing an under-
lying unity of political, economic, cultural, and security interests.
Each of these 22 has problems which it is attempting to resolve within
its own limitations. More significant than the problems, however,
is the fact that all of them are being rapidly developed, and their
peoples are animated by the desire to achieve an ever-increasing degree.
of prosperity.
The survey covered by this report was concerned only with the re-
publics of South America. Consequently, Canada and the Central
American Republics are outside its scope. But any survey of the
relations of the United States of America with the South American
Republics must be based on a recognition of the great importance of
the community of interests between all the nations of the Western
Hemisphere.
Time did not permit a detailed examination of the foreign aid pro-
grams on the vast continent of South America, nor even a visit to
each of the countries involved. Therefore, and because it is believed
that the committee, in requesting this survey, was concerned with the
broader aspects of the programs, rather than their detailed adminis-
tration, this report is necessarily of a rather general nature.
As will hereafter be noted, the United States foreign aid activities.
in South America-usually in the form of technical and military assist-
ance and loans through the Export-Import Bank-have been in opera-
tion for a good many years, and have withstood the test of time and
experience. They have, in fact, often served as models for imitation
elsewhere.
Although there is some feeling on the part of South Americans that
they have been neglected by the United States in the field of foreign
aid, it is believed that this sentiment is diminishing; at any rate, it
is not a valid reason for changing present policies.
Nevertheless, the South American Republics are becoming increas-
ingly important to the United States, in cultural, political, and military
respects, as well as economically, and their problems and affairs are
deserving of more time and attention on the part of our Government
and our citizens.
Primarily, we should depend upon private investment for our con-
tribution to the economic development of the continent, and in this
connection, the climate for increase in that investment is largely in
control of the South American Republics, which can do much to
improve it. Supplemental investment by the Export-Import Bank
should be closely coordinated with that of the International Bank for
Reconstruction and Development and the local currency loans from
1263
1264 PERU, CHILE, ARGENTINA, URUGUAY, AND BRAZIL
the proceeds of Public Law 480. Aid should not be extended, when
financially dubious, for political effect, or out of expectations of
gratitude, or merely to meet foreign competition.
As to military assistance, the training of South American nationals
in the United States should be expanded where practical. We should
press forward in our efforts to achieve standardization of weapons and
doctrine, and should consider the effect on this goal, and on other
aspects of our relations, of the complaints that we are furnishing
obsolete or obsolescent weapons. We should explore, with the other
Republics, the possibilities of amplifying the planning functions of the
Inter-American Defense Board, and more frequent and intimate dis-
cussions of military staffs at high levels. Efforts toward greater
particularization of the mission of each Republic in hemisphere defense
should be continued, possibly ultimately to result in some measure of
disarmament, and the minimization of competition in this field among
the Republics.
The exchange of persons programs should be expanded.
Area
The technical assistance programs are worthy of continued support.
The techniques of their administration in South America perhaps
teach lessons that would be valuable elsewhere. University contracts
can do much to bridge the gap in technological achievement.
development uses of technical assistance seem promising as a means
of increasing the impact of programs which are, by their nature,
relatively limited in size. Maximum freedom for programing and
administration at the local level should be allowed in order to permit
proper adjustment to local conditions.
The sale of United States agricultural surpluses for local currencies,
which has many benefits for this country and the purchasing country,
also could be potentially dangerous to normal patterns of trade, and
to the ability of participating countries to discharge other indebted-
ness. The volume of foreign currencies being generated by such
transactions may require re-examination of our other foreign aid
programs. Further study of the implications of these sales and the
use of their proceeds would seem in order.
I. UNITED STATES INTERESTS
The security interests of the United States in South America,
promulgated in 1823 by President Monroe, have scarcely been
questioned in recent times. On the contrary, the doctrine of mutual
security interests of the hemisphere ripened into the Treaty of Rio de
Janeiro of 1947, which recognizes that an attack upon one Western
Hemisphere republic is an attack upon all.
The Organization of American States, including every state in the
Western Hemisphere except Canada, has designated the Inter-
American Defense Board and the Advisory Defense Committee as
the agencies by which the principles of collective defense are put into
effect, including the preparation of military plans for the common
defense of the hemisphere.
South American states can and do help guard approaches to the
Panama Canal. In World War II some of them provided naval and
air bases and troops overseas. Stronger forces within the area, and
greater coordination of these forces with each other and with our own.
could relieve us of the necessity of stationing our own contingents in
PERU, CHILE, ARGENTINA, URUGUAY, AND BRAZIL 1265
South America, as we did in World War II, and otherwise contribute
greatly to the security of the hemisphere and of the free world.
The economic and commercial interests of the United States and
the South American Republics have grown to such a stage of inter-
dependence that they could not be disrupted without a dislocation of
trade almost fatal to those concerned.
The direct investment of private United States capital in Latin
America at the close of 1955 was over $6½ billion. In the 10 South
American Republics, direct private United States investment
amounted at that time to more than $4 billion and earned over $600
million in that year. These figures may be compared with United
States direct private investments in Canada at the same date of $6.4
billion, and the total in all foreign areas of $19 billion. Early estimates
indicate that investments in Latin America increased in 1956 by about
500 or 600 million dollars. In addition to private investment, the
outstanding loans of the Export-Import Bank in South America on
June 30, 1956 amounted to almost $700 million. On the same date,
outstanding International Bank loans (which are not, of course, United
States loans) were approximately $257 million.
Exports from the United States to the South American Republics
in 1955 (excluding "special category exports"-primarily military)
were $1.6 billion (compared to total United States exports other than
"special category" of $13.6 billion). This included: machinery, $470
million; automobiles and trucks, $236 million; chemicals and related
products, $167 million; iron and steel-mill products, $110 million;
vegetable food products, $96 million; and textile manufactures, $59
million. These shipments from the United States to the South
American nations constituted more than one third of their total
imports.
Imports from the South American Republics into the United States
in 1955 were valued at $2.2 billion (compared to total United States
imports of $11.4 billion). This included: coffee, $946 million; other
foods, $165 million; petroleum, $505 million; copper, $186 million; and
other metals, $162 million. These shipments from the South Ameri-
can nations to the United States amounted to more than one-third
of their total exports.
During the first 10 months of 1956, United States exports to and
imports from South America substantially exceeded the exports and
imports during the same period of 1955, by $257 million and $318
million, respectively, indicating very substantial increases for the full
year.
These investments and exports and imports are significant, in part
because of their mere size, but even more because of the respects in
which the trade complements the economies of the participating na-
tions. The copper, manganese, iron ore and other metals, the petro-
leum, and the other materials imported by the United States of
America from South America are vital to our civilian production and
also to our mobilization base and our security. The airplanes, auto-
mobiles, machinery and equipment, chemicals, and other products the
South American nations import from us are vital to their economies.
And the proceeds of their sales to us and of our sales to them are
vital to the concerns making the sales and to their countries' economies.
In the political sphere, at least the constitutional forms of govern-
ment are strikingly similar, and are based on common principles.
1266 PERU, CHILE, ARGENTINA, URUGUAY, AND BRAZIL
South American wars for independence largely followed the pattern
of our own and had similar philosophical bases.
All 21 of the American Republics (10 of South America, 10 of Cen-
tral America, and the United States) are members of the United
Nations, where they have consistently supported the free world posi-
tion, and where they constitute one of the largest groupings within
that organization.
Three languages-English, Spanish, and Portuguese-almost wholly
suffice for intercourse between the 365 millions of people, dispersed
over immense territories, stretching almost literally from pole to pole.
Cultural traditions of ancient and kindred origins animate their
intellectual and artistic lives, and where these have impinged on strong
indigenous cultures the latter have usually been gracefully incorpo-
rated.
Racially, both North and South America were settled by emigrants
from Europe, whose numbers were augmented by large and continuing
drafts of fresh immigrants from Europe and slaves from Africa.
The Asiatic admixture is small. While South America was settled
largely from Spain and Portugal, significant numbers came also from
other parts of Western Europe, and have had a pronounced influence
on the institutions of the continent.
While the cultural interests of South Americans, until recently,
were directed primarily toward Europe, they are now increasingly
being directed toward the United States.
Among the peoples of the United States and those of South America
there is a growing level of mutual understanding in educational,
social, and spiritual areas, upon which political, economic, and military
unity can be built.
Geography, nature, and history seem to have conspired to make
peoples of the Western Hemisphere capable of attaining a high degree
of political, economic, social, and military unity. But to reach that
happy objective, statesmanship of an enlightened, persistent, and
patient order will be necessary. In formulating our policies, it must
be constantly borne in mind that the continental complex of nations,
from Canada to Argentina and Chile, possesses enough common
characteristics to render such a combination, even if informal, or
merely implied, a truly formidable force in world affairs.
II. BASIC SITUATION IN THE COUNTRIES VISITED
It is in the economic area that differences of opinion and method
lead to a lack of harmony between United States policy, and, in one
degree or another, that of each of the 10 South American Republics.
It should be added that the same discordance affects the relationship
of each of them with another. These divergencies are inherent, even
instinctive, in the mentality of states as they are in human beings.
Each of our partners subscribes to and fervently believes in the
democratic philosophy that the state is the servant of man and not
his master. Consequently, the dignity of the individual leads him to
propound his personal thesis on all subjects, and each state, like our
own, speaks with many voices. When the subject to be resolved is
economic, where after concluding that an improvement of the stand-
ards of living, health, and happiness is indisputable, almost every
citizen has his own formula for bringing this about.
PERU, CHILE, ARGENTINA, Uruguay, AND BRAZIL 1267
The South American Republics are not "underdeveloped" nations
in the meaning attached to this word when it is applied to peoples
without long-established political and economic histories. They are
"growth" nations, possessed of human skills and natural resources,
promising, when fully utilized, to enable them, in the fullness of time,
to reach the highest plateau of well-being.
This growth potential is not just a matter of the future. The South
American nations are growing rapidly now. Their population rose
from about 103 million in 1947 to about 124 million in 1955, an increase
of almost 20 percent, compared with a 15 percent increase during the
same period in North and Central America. During the same period
electric power-installed capacity increased from 4.7 million kilowatts
to 7.7 million kilowatts, and electric power production increased from
14,791 million kilowatt hours to 30,080 million kilowatt hours. (It
may be noted that these rates of increase are very close to the rates
of increase of electric power capacity and production in the United
States from 1947 to 1955.) And the increase in United States direct
private investments in South America from just under $3 billion to
$4 billion from 1950 to 1955, over one third in 5 years, has resulted
in a great expansion of productive capacity.
Lack of investment capital has in the past been one factor in
retarding the efforts of South American Republics to match the
industrial and agricultural progress of some-although so few-other
countries. Transportation and communication facilities have been
woefully inadequate. Huge sources of energy have slept in the earth,
or poured their mighty streams unused into the oceans. Dependence
on single, or a few, export commodities has visited upon them the
uncertainties of feast and famine cycles. Loose management of fiscal
affairs has sometimes caused foreign investors to look with jaundiced
eyes upon their national balance sheets.
None of these impediments, or many others, is unfamiliar to us in
the United States, where in the course of our national life, we have
experienced the same vicissitudes, mitigated considerably by the fact
that our land area constituted a single indivisible market.
The growth of nationalism in many parts of the world has been one
of the interesting and complicating phenomena of the postwar period.
South America has, in a moderate degree, experienced the same desire
to create greater self-sufficiency, and to be less dependent upon the
export of staple commodities. Proud peoples, conscious of their long
and valued heritages, they have not asked for aid but trade, as well as
an opportunity to share in the advantages provided by advanced
industrial techniques in other countries. The former agricultural and
mineral extraction nature of their economies has undergone great
changes with the shift of rural population to industrialized centers.
The United States has undergone a similar transformation, but one
much older in date. We want our neighbors to be our trading part-
ners, not our dependents. We have need of their raw materials, but
we do not fear their becoming industrialized, for we believe increased
mutual benefits will flow from the development of their industries,
the creation of a larger middle class, the progressive advances of private
enterprise, and the other concomitants of economies as balanced as
may prove practicable.
We hope for stability in their political management as we hope for
it in our own. Familiar with the harmful effects of inflation at home,
94413—57—————81
1268 PERU, CHILE, ARGENTINA, URUGUAY, AND BRAZIL
we fear it abroad, and trust as friends to see in every friendly nation
the creation or maintenance of an investment climate favorable to
long-term confidence in the value of the various domestic currencies,
including our own. Our experience has demonstrated how unceasingly
political vigilance must be on guard against measures that would
debase the public credit.
In connection with foreign investment, it might be appropriate to
stress the need in the South American Republics for large sums of
money for the development of their transportation, communication,
and energy resources. Often these are in the complete control of
states, and subject to the political and financial handicaps that can
result from state ownership. Many of the tramway, railroad, tele-
phone, and electric power installations are not only in bad physical
condition but are inadequate to meet a constantly growing demand for
their use. It is difficult, and perhaps even at times impossible, for a
government to grant rate structures which are sufficiently attractive
to justify additional private investments in public utilities. The
easier way is to disregard demands, and condemn consumers to in-
efficient and grossly inadequate services, subsidized, in effect, by the
taxpayers. Huge sums of money have, over the years, been lost by
private or foreign corporate investors in such enterprises, and dis-
agreeable though the fact is, loans for their rehabilitation, improve-
ment, and expansion should not be made unless there is a better
assurance for the future of a fair return on such investments. As a
consequence, one witnesses the anomaly of booming construction work
on apartments, houses, and factories for consumer goods while the
fundamental services for a rounded economy are neglected. Splendid
cities without adequate water supplies, sanitary systems, electric, gas,
and communications facilities are pleasing to the eye but deceptive of
human hopes and aspirations.
Direct foreign military assault upon a South American Republic
does not at this time seem the principal danger to hemispheric
solidarity. What seems more likely, upon the basis of geography
and history, is that a weakening of democratic institutions, or their
failure to fulfill legitimate expectations of their people, might create
a climate favorable to infiltration, intrigue, and demagoguery, and
result in governments unfriendly to the United States.
While once widespread distrust of "Yankee Imperialism" or of the
alleged predatory ambitions of the "Colossus of the North" existed,
a consistent course of conduct as a good neighbor has caused us to be
regarded, generally, as sincere friends, although not invariably free
from misguided sentiments and policies.
Nevertheless, we are the target in South America, as elsewhere, for
propaganda based upon our high standard of living as it contrasts
with that of less fortunate peoples. The remarkable development of
communications, within recent years, has increased awareness on the
part of once isolated peoples of the material blessings of industrial
society. The passage of time can be counted on to exacerbate their
impatience to participate in these benefits, and, among some, envy
and even hatred of those who possess them. The United States is
the symbol of material prosperity in South America as it is in the rest
of the world.
Such desires, and the potential forces which they may engender,
may become intensified where wide disparities in living standards are
PERU, CHILE, ARGENTINA, URUGUAY, AND BRAZIL
1269
readily apparent and where the wants of some are fulfilled to the point
of luxurious satiation, while those of others are denied (consciously or
not) to the point of abject and dismal poverty.
The urgency of the need to meet these basic wants is not satisfied
by the contention that they have existed for centuries. For in times
past, peoples were much less aware of the existence, or the avail-
ability to them, of the material benefits of an industrial society.
Communism has identified itself among many as the movement which
is most effective in obtaining these advantages for the "masses."
And, as a current revolutionary force, it is not identified with the
status quo. It is often the magnet which attracts the disillusioned
and the discontented. This is not to say that communism is the
only political movement likely to take advantage of popular unrest
in the South American Republics. In the past, other demagogic
political parties have temporarily wielded power.
The pent-up and increasing demand for consumer goods, and the
control or satisfaction of those demands, are powerful factors in the
politics of South America today. As these demands are felt by
governments, their response all too often has been to resort to short-
term controls, subsidies, regulations, and other artifices. Often long-
term economic progress has been sacrificed for short-run political
advantage, just as it has in our own country.
But these and other factors inhibiting sound progress do not by
any means counteract the enormous, contagious faith that these
people have in their own destiny. They regard themselves, par-
ticularly in the larger countries, as possessing all the resources of
nature and of man necessary for fulfillment of their grandest visions.
III. NATURE OF THE AID PROGRAMS AND HOW THEY SERVE UNITED
STATES INTERESTS
The foreign economic policies of the United States, of which our
Mutual Security Program is a part, are inextricably linked with our
political and military dispositions. Our political connections with the
South American Republics are satisfactory, but must constantly be
improved by an unflagging effort to bind ourselves ever closer together
in mutual and enlightened self-interest.
Our political and military objectives are to preserve the security
and liberties of our people, by adopting and implementing policies
designed to achieve this end. The other peoples of the Americas have
identical aspirations. Each state, quite naturally, will seek the attain-
ment of its goals, in accordance with what it conceives to be its
domestic political possibilities. The harmonization of the means of
all to meet the agreed objective is the task of statesmanship confront-
ing all the American states.
Our foreign aid programs in South America must fit into this con-
text, and can be considered beneficial to us, as well as to the people
of South America, only as they do so.
The United States has mutual defense assistance agreements with
6 of the 10 South American Republics: Brazil, Chile, Colombia,
Ecuador, Peru, and Uruguay. The programs are designed to improve
the capabilities of these states to carry out the military and naval
missions which they have undertaken in the defense of the hemisphere,
as well as to maintain internal order. They are within the broad
framework of the Rio Pact of 1947.
1270
PERU, CHILE, ARGENTINA, URUGUAY, AND BRAZIL
In 1951 the Ministers of Foreign Affairs of the American states
directed the Inter-American Defense Board to plan for the general
defense of the hemisphere, and agreed to recommend to their govern-
ments that their armed forces development be oriented toward collec-
tive defense, rather than to individual national defense, and to co-
operate in the development of collective defense. Among other goals
is the standardization of organization and weapons.
For the fiscal year 1957, an appropriation of $25 million was re-
quested for military assistance programs involving the 6 participating
South American nations, out of a total of $35 million for all Latin
America. In the fiscal year 1956 the programs for the 6 nations
amounted to $8.4 million. The total for the fiscal years 1950-56,
inclusive, was $197.6 million (including excess equipment valued at
$90 million), an average of $28.2 million a year.
Military assistance takes the form of (1) direct grants of equipment
and other assistance, (2) opportunities for advantageous purchase of
United States weapons and equipment, and (3) training assistance
through missions in South America, and in armed services schools in
Panama and the United States.
Emergency economic or "development assistance" in South America
presently is confined to Bolivia. It began in 1953 and through fiscal
1957 will amount to approximately $75 million. The objective is
stated to be the creation of a stable, self-supporting Bolivian economy
and the avoidance of political chaos. It was instituted when, after
the close of the Korean war, revenues from the nationalized tin indus-
try, which supply over 60 percent of foreign exchange receipts, suffered
serious decline. The aid program consists mainly of surplus agricul-
tural commodities, other foodstuffs, agricultural equipment, supplies,
and transportation.
In all South American countries, except Argentina, the United
States carries on programs of technical cooperation.
The United States Government's program of technical assistance in
South America began in World War II, even before the promulgation
of Point 4. From 1950 through fiscal 1956, these programs have cost
the United States approximately $75 million. In 1957 the programs
are expected to cost approximately $17.7 million in South America.
Programs in South America take the form of technical cooperation
in the fields of agriculture, education, health and sanitation, industry
and mining, transportation and communications, labor, public admin-
istration, housing and community development. Their objectives
may be said to be to assist the participating states in the attainment
of balanced economic development, and thereby to contribute to their
long-run economic and political stability. There are, of course, many
ancillary results of benefit to the United States, in that they con-
tribute to international understanding, promote trade between the
United States and the nations involved, create a better climate for
profitable investment, and enhance sympathy for United States mo-
tives and policies in world affairs.
In addition to these programs, there are those incident to the
Agricultural Trade Development and Assistance Act, known as Public
Law 480, 83d Congress. Under this program, agreements have been
entered into with 7 South American nations under which they will
buy $289.3 million of surplus agricultural commodities, the payments
being made in their own currencies. Of the sales proceeds, the local
PERU, CHILE, ARGENTINA, URUGUAY, AND BRAZIL 1271
currency equivalent of $63.4 million will be set aside for various
United States uses, including the payment of United States expenses
and obligations, market development, military procurement, purchase
of strategic materials, and international educational exchanges. The
balance, the local currency equivalent of $225.9 million, will be made
available for loans to promote multilateral trade and economic de-
velopment. The program is a new one, and by October 31, 1956,
only $98.4 million equivalent had been deposited by the purchasing
countries, and only $36 million had finally been made available for
loans.
While perhaps technically not foreign aid, the loans of the Export-
Import Bank and the International Bank for Reconstruction and
Development have had an influence on the scope of our aid programs
in South America, and ought to be considered in that connection.
The International Bank for Reconstruction and Development, of
course, is not a domestic institution and cannot be treated as such.
Its outstanding loans in South America amounted to $257 million
on June 30, 1956. New loans totaling $40.5 million were approved in
the last 6 months of 1956.
These loans have been made for such purposes as highway con-
struction and improvement (Brazil, $3 million; Colombia, $33 million;
Peru, $5 million), electric power (Brazil, $166 million; Chile, $13.5
million; Colombia, $13 million; Uruguay, $38.5 million), railways
(Brazil, $25 million; Colombia, $40.9 million), agricultural develop-
ment (Chile, $2.5 million; Colombia, $10 million; Peru, $8 million),
irrigation (Peru, $18 million), port development (Peru, $2.5 million),
and various basic industrial projects (Chile, $20 million; Peru, $2.5
million).
The Export-Import Bank, a United States Government instru-
mentality, has particular relations with Latin America, and has had
a great share of its investment there.
The policy of our Government is to make loans to public and
private borrowers in South America on a more liberal basis than in
other areas, and to rely on such operations more than on other pro-
grams of economic aid. Former Assistant Secretary of State Holland
stated this policy on October 6, 1955, when he said:
In the summer of last year, responding to the increasing
Latin American interest, we announced the Bank's new and
liberalized credit policy toward that area. We have told the
other American Republics that the Bank will do its utmost
to satisfy every application for a sound economic develop-
ment loan for which funds are not available from private
sources on reasonable terms or from the International Bank.
This offer is extended to private and official borrowers alike.
It means that the level of operations of the Export-Import
Bank will be largely determined by borrowers in the other
American Republics. It is they who will control the num-
ber and quality of loan applications which the Bank receives.
The uncommitted funds now on hand in the Bank and avail-
able for loans substantially exceed the aggregate of applica-
tions which have been submitted.
The principal amount of Export-Import Bank loans in South Amer-
ica outstanding on June 30, 1956 amounted to $699,844,000 (not in-
cluding $298 million of moneys not advanced at that time on approved
1272
PERU, CHILE, ARGENTINA, URUGUAY, AND BRAZIL
loans to South American nations) out of a total of loans then out-
standing of $2,648,266,000. While these loans include some financial
transactions (such as a loan of $125 million made in 1950 to a con-
sortium of Argentine banks to provide dollar exchange, now reduced
to about $72 million, and a loan of $300 million made in 1953 to the
Bank of Brazil to liquidate past due dollar accounts, now reduced to
about $224 million), and some basic development such as highway
construction, many of the loans are for industrial development (e. g.,
Argentina, construction of steel mill, $60 million; Bolivia, petroleum
development, $8%½ million; Brazil, steel-mill equipment, $105 million,
various power projects, $46 million, production of manganese, $70
million; Chile, steel-mill equipment, $61½ million; Peru, zinc refining,
$14 million, copper mine, $100 million; Uruguay, steel mill, $22
million).
The Export-Import Bank approved a total of $285.8 million of new
credits in South America during the second half of 1956.
IV. EFFECTIVENESS OF THE AID PROGRAMS IN THE AREA
Circumstances until comparatively recently caused the attention
of United States citizens to focus, not exclusively but very largely,
upon our own domestic economic potentialities. For generations we
had been a debtor country, requesting large loans and participations
from European capitalists for the more rapid development of our re-
sources, and often indignant when some of them proved sceptical of our
abilities, or our political direction and stability. Having become a
creditor state, seemingly almost self-contained, the revolution in our
political orientation, expressed by a global participation in foreign
affairs, outran our foreign economic policy, which, of course, is more
subject to local pressures and persuasions. The aftermath of the
Second World War found us confronting a situation, especially in
Europe, where without massive financial stimulation on our part the
whole fabric of western civilization threatened to be rent beyond
repair. It was inevitable that our South American friends should
feel that the outpourings from our cornucopia were much more liberal
elsewhere than to them, though they had been tried and true allies
throughout, and long before, the war. Some failed to realize that the
resources of the United States were not inexhaustible, and if stretched
to the point of inducing a large recession in our own country would
engender dire consequences elsewhere. Others failed to realize that
the preservation of European civilization was just as important to
South America as to the United States. Moreover, the South
American Republics had improved their own positions in export
markets, and their balance of payments, to such an extent as to be
able to satisfy some of the pent-up demand of their people for the
consumer goods of which they had been partially deprived.
The startling and successful rehabilitation of the Western European
economy, made possible by the efforts of their own people, assisted by
a proportionately small amount of our external aid, has now made it
evident that we should devote more time and attention to the require-
ments of our southern neighbors.
In the last analysis, foreign aid, no matter how extended, will always
play a minor role as compared with the wise use of domestic resources
in improving an economy. It is more useful as a catalyst than as a
mere financial operation.
PERU, CHILE, ARGENTINA, URUGUAY, AND BRAZIL
1273
There is little merit in sponsoring a financially dubious program for
foreign aid for its supposed political effect in the borrowing country.
The attempted sustenance in this manner of an existing regime would
seldom be productive and then only temporarily of the desired
result, and could well be construed as a crass interference in domestic
concerns. Nor is it believed that aid should be extended merely in an
effort to meet foreign, and especially Soviet, competition. If a South
American Republic can borrow or receive assistance on better terms
from a country other than the United States, the price in the market
place should affect the decision. Communism certainly thrives on
poverty and ignorance, but these can only be improved by long-range
efforts meanwhile a favor conferred to derive a fleeting advantage
will have little lasting influence.
Expectations of gratitude should be completely excluded when
determining upon a foreign aid program. Such expectations neither
dignify the lender nor are self-respecting in the borrower, nor is there
any foundation in human experience for thinking they will be fulfilled.
Moreover, loans should not be contracted by any country that might
prove beyond its capacity to service or ultimately to extinguish. This
is as important as making them only for constructive purposes, but the
number and intrinsic merits of such purposes outrun, as is the case with
us, funds that can be used for their realization, unless one is willing
deliberately to mortgage the future beyond probable redemption.
In our future economic policy toward the South American Republics
it would seem reasonable to try to apply some of the criteria we find
desirable—although we do not always follow them-in our own
governmental operation. For example, loans should not be made to
finance inflation or subsidize expenditures. Debts should not be con-
tracted for short-term projects that will not add to the permanent
public wealth. Credits should not be extended for programs partially
or imperfectly planned. Credits for political purposes should be used
sparingly if at all.
There are regrettable, though occasional, evidences of misunder-
standing on the part of South Americans of the charter powers and
methods of operation of the International Bank. Because of the large
United States capital invested in it, the location of its central offices
in Washington, and the occupancy by United States citizens of high
administrative posts, there is a slight tendency to criticize the Bank's
insistence upon loans being made on a basis divorced from political
and foreign policy considerations affecting the United States relation-
ship with the applicant country. We most emphatically believe that
there is no merit to such criticism, and that the high esteem in which
the Bank is almost universally held would be diminished by a serious
departure from its established rules. The preservation of the credit
of this international organization for impartial and constructive deal-
ing, which has enabled it to supplement its capital assets by large
loans from hard currency countries, would be instantly undermined if
its independence were threatened by a looser construction of its obliga-
tions to all its owners, irrespective of the size of their holdings. It
should also be remarked that the representatives of this Bank who were
interviewed by us seem to perform a valuable function in keeping
informed on the spot of the progress made in the utilization of loans,
and in affording technical assistance of many varieties, as well as
keeping abreast of fluctuating financial and economic conditions in
the countries where they are resident.
1274
PERU, CHILE, ARGENTINA, URUGUAY, AND BRAZIL
The Export-Import Bank is in a different position. It is financed
through our Government by the taxpayers of the United States, and
the proceeds of its loans are used to pay for the exportation of Ameri-
can goods. Consequently, it is able to make credits available under
terms not acceptable to the International Bank. It has used these
powers, as far as our observation goes, to good effect and with con-
siderable restraint. Nonetheless, it should always be borne in mind
that South American governments and people regard it as an agency
of our Government and an arm of our foreign policy. Therefore,
pressure from those sources, as well as from our domestic exporters,
to have it follow a very liberal line in extending credits is concentrated,
vocal and impressive. This constitutes no especial danger as long
as its affairs are sagely conducted. It would seem that the closest
relationship between its officers and those of the International Bank
must be maintained, in order to avoid possible overfinancing. It is
assumed that such coordination exists in Washington. The question
of whether its charter might be altered to permit it latitude in the
financing of triangular and multilateral trade is beyond the of
this survey.
scope
The United States military officers serving in missions, in military
assistance advisory groups, or as Embassy attachés seem to have atti-
tudes of helpfulness and friendliness toward their foreign colleagues
which are useful and constructive, and, in return, the cordiality ex-
pressed for them augurs well for a cohesive continuance of plans for
hemispheric defense. The despatch of representatives of foreign
armed services to the United States and to Panama for training and
indoctrination appears to have been most beneficial, and, where pos-
sible, should be expanded. Moreover, the high grades obtained by
many of these officers, under competitive circumstances with our own,
is striking. It is important to press steadily forward with standardiza-
tion both of doctrine and weapons. However, there undoubtedly
exists a feeling amongst the South American military that we have
made available to them obsolescent and sometimes obsolete weapons
of a now outmoded World War II type. This represents a complaint
very real to them and should not be lightly discounted.
Moreover, the general statement of the mission to be accomplished
in the event of an outbreak of hostilities would seem at some point to
require more particularization. In certain countries, the armed forces
constitute the dominant element in the maintenance of internal order,
free elections, and democratic institutions. But they do not con-
template being confined during wartime to a support role. Perhaps
an amplification of the planning functions of the Inter-American
Defense Board might engage all of us more adequately in a mutual
approach and understanding of how each would best contribute to the
joint effort. The diversity of terrain, the wide separation of terri-
tories, and many other considerations, would appear to make imprac-
ticable any such command structure as exists in the North Atlantic
Treaty Organization, but a better spirit of cooperation might be
achieved by more intimate and frequent discussions at high staff levels.
One obstacle to standardization is the tendency of some of our
neighbors, when unsuccessful in obtaining military materiel from us, to
purchase it elsewhere. This should not be over-reprobated, since
reasons of national and personal prestige, sometimes unconnected with
military efficiency, may be responsible for such actions, even though,
as they frequently do, they impose additional budgetary strains on an
PERU, CHILE, ARGENTINA, URUGUAY, AND BRAZIL 1275
already overburdened treasury. Here again, more detailed advance
and cooperative planning might be useful. Nor should the possibility
be excluded of giving consideration to some measure of disarmament
between the Republics, relying on good faith and mutual guaranties
already existing to make any competition in armaments unnecessary,
and to use national military resources in connection with a master
plan for common defense against outside aggression.
While not directly within the cognizance of this report, a comment
on the program for the exchange of persons seems appropriate. It is
of tremendous significance. South American countries that formerly
sent students, professors, and tourists, who could afford it, to drink at
the sources of European culture have now reoriented their vision, in
great degree, toward the United States. Large numbers of South
Americans now turn to North America for education and pleasure.
Any increase in this movement should be fostered by us, for such
unofficial diplomats are of value to both our societies. It is desirable
that an expanding torrent of North Americans should seek out and
explore the treasures, intellectual and material, of our southern allies.
Nor should our support of such interchanges be conservative.
Already, Spanish and Portuguese are preferred subjects of study
amongst us; similarly, English is rapidly becoming, if it is not already,
the second language in South America. I would recommend in-
creased United States appropriations in this field.
The United States technical cooperation (assistance) activities.
should be a source of pride to their managers, both United States
citizens and foreigners. Here one sees an actual demonstration of
how imported techniques can be adapted to local conditions. The
intelligence and devotion of the United States personnel with whom
we were brought into contact were noteworthy. In health, educa-
tion, and agriculture their achievements justify past support, and
promise an even greater measure of success for the future. As each
project becomes ready for entire absorption by the host government,
our technicians move into other fields. Our financial contributions.
are progressively less important proportionately as enthusiasm for
such cooperative ventures augments domestic appropriations.
One of the most interesting features of the technical cooperation
activities is the work done on contract by United States university
professors. Through assignment by their institutions, with their
seniority and retirement rights protected, they can add immeasurably
to bringing about a better coordination of our teaching techniques
with those prevailing in South American colleges and universities.
The latter have clung to a traditional form of higher education, with
principal emphasis on education in the humanities. For many rea-
sons, the result has been an output of graduates, comparatively few
in number as compared with those in our institutions of higher learn-
ing, who, though skilled in scholarship, perhaps have too little to con-
tribute to the technological demands of modern industrial civiliza-
tions. No criticism should be made of the desirability of classical
curricula, but it is true that in existing competitive society the pro-
duction of large numbers of specialized technicians is essential to
those nations that desire the material benefits of our most developed
contemporary economies.
One of the difficulties inherent in the technical cooperation program
is that of reaching the mass of people, within the limited resources
1276 PERU, CHILE, ARGENTINA, URUGUAY, AND BRAZIL
and personnel to which the program, by its nature, must be restricted.
In South America, this problem is being approached, among other
ways, in projects which combine several forms of technical assistance
in fields of agriculture, transportation, health and sanitation, and
education-into one area. These area development programs seek
to serve as a demonstration to the entire country of the benefits of
technical cooperation, and thereby to increase the impact which the
program might otherwise lack, if more widely diffused. This idea
seems worthy of consideration elsewhere, depending, of course, on its
adaptability to local conditions.
It is difficult to generalize about the technical cooperation program.
There are many variations in its scope and emphasis, even in South
America. While this may create difficulties in administration from
Washington, it does not mean that the programs are lacking in direc-
tion, or are not well-attuned to United States objectives. On the
contrary, the programs in the various countries must be adapted to
local conditions, to many differing factors, political and economic, to
the personnel involved, local and American, if they are to be successful.
While this is a great difficulty, it also would seem to be a great
advantage in this type of program over others. By their very nature,
technical cooperation programs, if they are to operate at all, are likely
to identify the interests of the participating country with those of the
United States. The programs must originate within the local country,
and, of course, involve its participation on an intimate and continuing
basis.
Viewed in this light, it is quite obvious that good administration in
the field is the first criterion, and assuming this to exist, with proper
coordination between the mission and the embassy, maximum latitude
as to program planning and administration ought to be allowed to
the mission.
This concept also affects the question of the magnitude of the pro-
grams, assuming our objective to be the most rapid possible economic
development of the participating countries, commensurate with our
own ability to pay our contribution, and to furnish the necessary
technical and administrative personnel. The magnitude should be
gradually augmented, not so much on the basis of directives from
Washington, as on the basis of the willingness and ability of the
country involved to absorb increases, and the development by the
United States mission of plans by which such increased funds might
be used to achieve maximum results.
Public Law 480, the Agricultural Trade and Development Act,
concerned with the disposition of surplus United States agricultural
commodities, is a double-edged weapon of assistance. Under wise
administration, it can do much to alleviate the unfortunate effects of
food shortages in other countries. If used in dumping operations, it
can destroy existing and normal patterns of trade beyond repair, and
discourage multilateral exchanges of goods. Its terms, allowing for
repayment in foreign currencies, and the use meanwhile of a large
percentage of counterpart funds in the purchasing countries, obviously
confers an advantage on the United States in competition with other
agricultural exporters who cannot afford such extraordinary credits.
Also, we must be careful not to push our sales in certain countries to
a point where, added to their other external indebtedness, their
balance of payments is affected unduly, and the value of other loans
to them, of a sounder banking character, is imperiled.
PERU, CHILE, ARGENTINA, URUGUAY, AND BRAZIL 1277
As to the use of the currencies arising under the act in the country
participating, these are set forth in the act in very broad and general
terms. The magnitude of the sales in several South American coun-
tries, and the availability of the currencies for development use within
the country, may well have great significance for our other programs
within those countries. It is too early to determine what that sig-
nificance may be. But our desire to rid ourselves of surplus agricul-
tural commodities should not obscure the foreign policy and economic
development significance of that program. Further study of these
implications would seem desirable, including investigation of the
possible merits of dealing with these foreign currencies on a regional
rather than a national basis.
}
SURVEY NO. 4
WESTERN EUROPE II
(PORTUGAL, SPAIN, FRANCE, ITALY, AND THE
UNITED KINGDOM)
BY
FORMER AMBASSADOR JEFFERSON CAFFERY
MARCH 1957
1279
CONTENTS
Page
A. Impact on Italy of Suez..
Letter of transmittal
Recommendations
I. North Atlantic Treaty Organization--
II. United States aid and related activities in France:
A. General comments.
B. End-item aid program_
C. Other military programs_
D. Labor exchange program_
E. Residual aspects of budget-support aid programs.
F. Agricultural sales programs__
G. Summary and comments regarding the future___
H. Supplementary information__.
III. United States aid and Italy:
B. Security interests of the United States-
1283
1285
1
I
I
"
·
I
1
1287
1288
1291
1
I
I
1294
1
1
I
J
1
1298
1299
1301
1302
1304
1310
1312
C. Economic and commercial interests of the United States__
D. The nature of the economy of Italy and capacity for develop-
1312
ment
1313
E. Political factors affecting Italy's capacity for development
and ability to use aid programs effectively...
1314
F. Strategic requirements for defense of Italy, alliances and
international arrangements for defense, and present mili-
tary capacity-
1315
G. Objectives of the United States aid program.
H. Type and magnitude of operating aid programs-
1316
1316
I. Administrative direction, coordination, and operation of aid
programs___
1320
J. Relevance of objectives of aid programs to situation in Italy
and interests of the United States_
1323
O. Economic assistance to Italy since World War II………
K. Relevance of type and magnitude of aid programs to basic
situation in Italy and to the interests of the United States. 1324
L. Effectiveness of administrative control, coordination, and
operation of aid programs as related to the basic situation
in Italy and the interests of the United States____
N. Recommended changes in aid programs..
IV. United States aid and the United Kingdom:
1
1325
M. Related United States activities which assist or hinder the
aid programs in serving the national interests..
1326
1327
1327
A. United States interests in the United Kingdom_
B. Status of aid programs in the United Kingdom.
C. Basic situation in the United Kingdom__.
1328
រ
1
1329
1330
D. United States assistance to the United Kingdom since April 3,
1948_
E. Allocation of 90 to 95 percent sterling counterpart funds..
F. Allocation of sterling proceeds from the sale of United States
surplus agricultural commodities___.
1332
1333
1333
G. United States mutual security support to British defense
budget__
1334
H.JUnited Kingdom sterling liabilities_--
1334
1281
1282
CONTENTS
V. Portugal and United States aid:
Page
A. Security interests of the United States__
1334
B. Economic and commercial interests_
1335
C. Other interests of the United States in Portugal_
1335
D. Nature of economy of Portugal and capacity for develop-
ment...
1336
E. Political factors affecting Portugal's capacity for develop-
ment and ability to use aid programs effectively..
F. Strategic defense requirements, alliances, international
arrangements for defense, and present military capacities. 1337
G. Special or unique factors in the situation in Portugal of
significance to the operation of the aid program_
1337
1338
H. Type and magnitude of aid programs in Portugal
I. Administrative direction, coordination, and operation of aid
programs in Portugal__.
1338
1339
J. Relevance of objectives of aid programs to situation in
Portugal and to the interests of the United States___
1341
K. Relevance of type and magnitude of aid programs to basic
situation in Portugal and to the interests of the United
States___
L. Effectiveness of administrative control.
M. Related activities___.
N. Recommended changes, if any, in aid programs__
VI. Spain and United States aid
A. Security interests of the United States.
B. Economic and commercial interests of the United States.
C. Other interests of the United States in Spain__.
·
1
1
D. Nature of economy in Spain and capacity for development.
E. Special economic factors of significance to the United States
aid program_--
F. Objectives of the United States aid program in Spain___.
G. Magnitude and type of operating aid programs..
1341
1341
1342
1342
1342
1342
1342
1347
1348
1350
1350
1350
H. Administrative direction, coordination, and operation of aid
programs in Spain..
1353
I. Relevance of objectives of aid programs to situation in Spain
and interests of the United States.
1356
J. Relevance of type and magnitude of aid programs to situation
in Spain and interests of the United States..
1356
K. Effectiveness of administrative control, coordination, and op-
eration of aid programs as related to basic situation in Spain
and interests of the United States_
1357
L. Related United States activities which assist or hinder the
aid programs in serving the national interests_
1358
M. Recommended changes in aid programs.
1358
LETTER OF TRANSMITTAL
ROME, ITALY, January 10, 1957.
To the Chairman and Members of the Special
Committee To Study the Foreign Aid Program:
The Russians are definitely dedicated to taking over the world and
to that end they change their tactics to suit their own convenience,
not ours. We must not be misled by them. It would be tragic for us
to indulge in too much wishful thinking regarding Russian domestic
difficulties. Difficulties exist, but there is no evidence that Russian
military might has been weakened in any appreciable way.
The basic essential deterrent to the destruction of the United States
by the Russians or to their domination of the world is an adequate
supply of nuclear bombs and the capacity to deliver them. In addi-
tion, it is vitally important to maintain sufficient Allied (including
United States) forces in Europe. These requirements involve the
maintenance of close ties with the European NATO countries and
Spain.
We must bear in mind that we could not sit quietly by and see the
destruction or occupation of Western Europe by the Soviets. Were
the North Atlantic Treaty Organization not present, and, above all,
were we not present in that Organization, the Russians could easily
take over Western Europe. Were Western Europe taken over by the
Russians, far-reaching and very adverse consequences in every field
would be in store for us. We would be forced into isolation whether
we liked it or not and under the most disadvantageous circumstances.
When European prosperity suffers, ours is eventually affected, too;
and that is one reason why we cannot be indifferent to the consequences
on the economy of Western Europe of the recent most ill-advised
Suez adventure.
And this is equally true when we face the unfounded criticisms in
the United Kingdom and France of our attitude during the recent
United Nations meetings at New York, following upon the disastrous
Suez adventure.
This is even true in the face of the fact that American aid is often
simply taken for granted.
Also were the nations in Western Europe to collapse economically,
NATO would collapse, too, and we would be left on our isolationist.
own.
In my opinion, the aid programs in general have been efficiently
administered, although it would be easy enough to pick flaws here and
there, but on the whole, it has been a case of value received. Without
such aid, there exists the real possibility that the Iron Curtain would
now be on the shores of the Atlantic.
94413-57-82
1283
1284
LETTER OF TRANSMITTAL
I submit reports on-
1. France
2. Italy
3. Portugal
4. Post-Suez United Kingdom
5. North Atlantic Treaty Organization
6. Spain.
Sincerely yours,
JEFFERSON CAFFERY.
RECOMMENDATIONS
1. North Atlantic Treaty Organization
The coordinated defense effort must remain the heart of NATO
but to sustain that defense effort it is essential to develop more political
consultation and achieve more agreement among member countries.
I recommend that we should continue to give NATO our full and
effective support.
In my opinion, it is essential also to maintain NATO's maximum
retaliatory strength to increase deterrents to aggressions, having in
mind that a nuclear war might be very short indeed.
2. Military assistance
The military end-item program should be continued in the area of
Western Europe. It should include at this time new weapons (except
nuclear warheads), replacements and maintenance. In general, it
should not involve any new aid for support of the military budget.
3. Economic and technical assistance
I do not recommend any major additional aid of this type. The
adverse repercussions of the Suez crisis, however, may compel a re-
examination of this matter, if the difficulties continue much beyond
the middle of 1957. An exception to this general recommendation is
the interest payment due on the Anglo-American financial agreement,
which I believe should be waived.
With the exception of assistance to Spain, nonmilitary aid is a
negligible part of the mutual security program for Western Europe.
It includes such useful but inexpensive undertakings as labor exchange
programs. These should be continued with careful supervision from
the Embassies.
4. Offshore procurement program
Efforts should be made to close out this program. In this process,
however, exceptional circumstances should be taken into consideration.
These include (1) a clearly established military justification; (2) cases
of genuine economy; (3) unusual political problems; and (4) the
preservation of certain military manufacturing skills abroad which
may be of great potential advantage to NATO and the United States.
5. Agricultural surplus sales programs (Public Law 480 and Section
402 of the Mutual Security Act of 1954, as amended)
These programs have been of considerable use and should be con-
tinued.
6. Administration
Steps should be taken promptly to integrate the United States
Operations Mission into the economic section of the Embassy proper,
in those countries where they are still separated.
1285
WESTERN EUROPE II
(PORTUGAL, SPAIN, FRANCE, ITALY, AND THE UNITED KINGDOM)
I. NORTH ATLANTIC TREATY ORGANIZATION
The coordinated defense effort must remain the heart of the North
Atlantic Treaty Organization (NATO), but to sustain that defense
effort, it is essential to develop more political consultation and achieve
more agreement among member countries. In other words, peoples
and parliaments must come to have a sense of real participation in
major political decisions affecting the alliance as a whole, if they are
to be persuaded to continue to shoulder heavy defense burdens. That
does not mean, however, that the United States should be deprived of
the right of independent action in areas outside of NATO's sphere,
such as Latin America, for instance, and Formosa. However, al-
though the political, economic, and cultural aspects of NATO are of
much importance, they are of minor importance in relation to the
importance of maintaining NATO's military strength. That mili-
tary strength is the principal bulwark of the free world.
If NATO were to fall apart (in my considered judgment, there is no
likelihood of that), the world this side of the Iron Curtain, and par-
ticularly Western Europe, would be severely shaken, and we in the
United States might be thrown on our isolational own in a truly
frightening way, with a shrinking economy and the loss of our sense
of security.
I recommend that we should continue to give NATO our full and ef-
fective support.
In my opinion, it is essential also to maintain NATO's maximum
retaliatory strength to increase deterrents to aggressions, having in
mind that a nuclear war might be very short indeed.
The figures given in the following table showing total defense
expenditures of the NATO countries, 1949-1956, are based on the
NATO definition of defense expenditures and represent payments
actually made or to be made in the course of the calendar year. There
may be considerable divergency between these figures and those given
in national budgets because the national classification of expenditures
for budgetary purposes never coincides exactly with the NATO defi-
nition and because certain countries under their national budgetary
procedures, which differ from country to country, include large sums
which will, in reality, be used to cover expenditures spread over a
number of years.
The figures relating to the United States and Canada include ex-
penditures on special military support, on direct forces support, and
on the purchase of military items to be delivered in the form of "end-
item" aid. The value of such items delivered to European NATO
countries has not been included in the defense expenditures of these
countries.
1287
1288 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
TOTAL DEFENSE EXPENDITURES OF NATO COUNTRIES, 1949-56

Actual
Country
Currency unit
(millions)
Fore-
cast

1956
1949
1950 1951 1952 1953 1954 1955
Belgium..
Canada
Belgian francs... 7, 653
8, 256
13, 387
19, 96519, 815 19, 925
17, 067
Canadian dollar.
372
495
1,220
1,875
1,970
1, 771
1,815
19, 306
1,892
Denmark..
France..
Danish kroner..
360
359
475
676
889
885
920
French francs….
479
559
881
1,253
1,387
1, 171
1, 102
970
1,368
Germany (Federal Re-
Deutschmarks….
6, 195
6, 709
7,383
7, 150
public).¹
Greece
Drachmas.
1,630
1, 971
2,615
2,655
2, 767
3, 428
2,767 | 3, 428 | 3,688
4,050
Italy
Luxembourg.
Netherlands.
Norway.
Lire...
301
353
457
521
480
543
551
560
Luxembourger
112
170
264
436
488
566
614
482
francs.
Guilders.
680
901
1,060
1,253
1,330 1, 583 | 1, 699
1,800
Norwegian
370 357
572
831
1,067❘ 1, 141 953
1, 004
kroner
Portugal.
Turkey
Escudos
1, 419
1,516
1, 553
1, 691
1,975
2,100 | 2,224
2,351
Liras
556
599
652
725
864 946
1, 058
1, 249
United Kingdom.
Pound sterling..
779
849
1, 149
1, 561
1,684❘ 1, 570
1, 569
1, 551
United States.
United States
13, 580
14, 559
33, 398
47, 852
49, 621 42, 936
40, 482
41, 551
dollars.
Area:
Total Europe.
.do..
4, 771
5, 380
7,541
10, 143
12, 423
11, 848
11, 827
12, 663
Total North Amer-
..do..
13, 952 15, 054
34, 618
49, 727
51, 591
44, 707
42, 297
43, 443
ica.
Total NATO..
.do…………
18,723 |20, 434
42, 159
59, 870
64, 014
56, 555
54, 124
56, 106
1 Before it acceded to the North Atlantic Treaty Organization (May 1955) the Federal Republic contrib-
uted to the defense budgets of certain NATO countries by the payment of occupation costs; moreover, it
bore certain other costs which also fall within the NATO definition of defense expenditures. The totals
given in the columns for 1953 and 1954 represent the expenditures made under these various heads for the
fiscal years 1953-54 and 1954–55 (Apr. 1 to Mar. 31), the figures for the calendar years in question not being
available. The figures for the years prior to the fiscal year 1953-54 have not yet been communicated to the
nternational staff,
II. UNITED STATES AID AND RELATED ACTIVITIES IN FRANCE
A. GENERAL COMMENTS
Since the inauguration of the interim aid program at the end of
1947, the United States Government has allocated more than $9 billion
to France in the form of grant assistance of various kinds-economic
aid and technical assistance, financial aid in support of the French
military budget (including expenditures for the Indochina war), and
end-item deliveries for the French NATO forces and the forces in
Indochina.
The United States has also concluded agreements with France under
the facilities assistance and mutual weapons development programs
and has placed about $1,250 million of offshore procurement (OSP)
contracts in France.¹ These programs, while providing dollars and
developing the French military production base, are not, properly
speaking, aid.
Finally, France has participated in the United States programs for
the sale of surplus agricultural commodities against foreign currencies
under the Agricultural Trade Development and Assistance Act of 1954
(Public Law 480) and section 402 of the Mutual Security Act of 1954,
as amended. While not aid in the strict sense of the term, these opera-
tions have to date given support to the French external payments
position in an amount of approximately $80 million.
1 Not including $395 million in "budget-support OSP" contracts, which were placed in
the fiscal years 1952 and 1953 pursuant to intergovernmental agreements for the purpose
of providing financial support to the French military budget. To the extent that OSP
equipment manufactured in France is delivered to the French forces under the mutual
defense assistance program, it is, of course, included in the above figures on aid to France.
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1289
The following numbered paragraphs of this opening section deal
with certain topics common to all of the various programs. Following
this general presentation, each of the programs is treated in detail in
a section of its own. A concluding section sets forth some thoughts on
future United States aid programs in France and comments on the
economic problems which France will be facing in the period ahead as
a result of the current international tension and especially the closing
of the Suez Canal and the pipelines.
1. Security interests of the United States in France
Broadly speaking, the overall security interest of the United States
in France can be spelled out in four letters: NATO. As a key member
of the North Atlantic Treaty Organization, which in turn is a corner-
stone of the mutual defense efforts of the United States, France is one
of our major allies in the defense of the principles and policies of the
free world. Geographically, politically, and psychologically, France
occupies a key position, and the United States lines of communications
to our troops in Germany run through France. Moreover, while
France's position in North Africa is severely shaken, it continues to
be important, and France still controls very extensive territories west
and south of the Sahara.
2. Economic and commercial interests of the United States in France
France ranks fourth among European countries as an American
export market, and last year took approximately $350 million of
American products. There is a potential market for a larger volume
of American products, which should grow in the future if rejuvenation
of France's population and industry continues the progress recorded
since 1946. The full development of that market, however, has been
limited by France's persistent dollar shortage, reinforced by the wide-
spread protectionist sentiments of French industry and agriculture
and the propensity of the French authorities toward governmental
control of foreign trade. The consequent restrictions applied to dollar
imports have affected their composition as well as their total, because
curbs have been placed especially on items that France is able to
produce locally or obtain from other currency areas. Thus, for ex-
ample, American fruit exports have been limited and the once-thriving
market here for American typewriters has practically vanished. On
the other hand, there has been a corresponding increase in imports of
American machinery and equipment required for the modernization
and expansion of French industry and of American coal to fill ex-
panded needs for power and coke.
The French Government's emphasis on industrial development and
the opportunities afforded by the domestic market have led a number
of American firms to establish factories here, or to enter into licen-
sing arrangements with local manufacturers as, for example, in the
fields of office equipment, pharmaceuticals, appliances, refrigerators,
and farm tractors. The value of American direct private investments
of all types in France, the second highest among European countries,
is estimated to have increased from $217 million in 1950 to $378 mil-
lion in 1955. Investments in the petroleum industry account for an
important part of this total.
1290 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
3. Nature of the French economy and capacity for development
France today is undergoing an industrial modernization process in
an attempt to overcome the gap left by a long period of investment
stagnation and economic marking-time between the two world wars.
Great strides forward have been accomplished, and some industries-
coal, steel, and automobiles, for example-compare favorably with
their foreign counterparts. In certain other industries, however,
production and management concepts are still backward. Moreover,
the retail and distribution systems have only partially adjusted to the
idea of a mass market, and agriculture continues to absorb a very high
proportion of available manpower. Much of industry is centralized
in and around Paris or the northern regions while large parts of the
country remain rural and underdeveloped. Finally, France's ad-
justment to modernization is complicated by rigidities in the political,
legal, fiscal, and social structure.
After an initial period of uncertainty following World War II,
the French Government, cognizant of the distance to be traveled,
undertook a comprehensive program for modernizing basic industries,
stimulating an increased level of industrial investment, relocating in-
dustry, and increasing the productivity of French labor. Progress
might have been even greater had it not been for the enormous drain
of the Indochina War and now the campaign in Algeria.
The relative internal financial stability of the past 3 years has
helped to accelerate the tempo of France's economic development and
production. In 1954 and 1955, the gross national production in real
terms expanded at the rate of about 6 percent per year, and with the
exception of agriculture, where 1956 production was adversely af-
fected by last winter's cold wave, available indexes suggest that eco-
nomic activity in France is continuing to expand at a favorable rate
in the current year. Moreover, French industry has been increasing
its productivity at a satisfactory rate. While this phenomenon is
difficult to measure statistically, the indications are that the improve-
ment has been somewhere between 4 and 6 percent per year over the
past 21½ years. We must bear in mind the considerable efforts made
by the United States Government over a period of years to stimulate
French interests in the productivity concept and to strengthen the
French productivity program.
The future prospects for French economic development seem fair if
financial stability can be maintained and if the necessary social and
fiscal reforms can progressively be carried out. France's economic
future will also be shaped by the evolution of its relations with Over-
seas France and the economic and financial contribution France is
called upon to make for the development of associated and dependent
areas. One event which would provide the stimulus of increased
competition and thus improve prospects for evolutionary change
would be French participation in an effective common market.
4. Political factors in France which affect its capacity for develop-
ment and its ability to use United States aid programs effectively
The ability of the French Government to exert leadership and to
carry out sustained and consistent programs is affected by the existing
political structure of France, which involves the dependence of any
government on coalition support in a national assembly.
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1291
5. Defense of the NATO area
The strategic requirements for the defense of France are an integral
part of the overall strategic plan for the defense of the NATO area.
NATO plans call for a defense of Western Europe by means of a pro-
tective shield capable of taking quick retaliatory action against an
aggressor. This shield consists primarily of the ground forces avail-
able to NATO, principally in Germany, and of the tactical air forces,
principally based in France, Germany, and the United Kingdom.
Maximum employment of modern weapons is essential to the success
of NATO's defensive shield, since the opposing forces of the Soviet
bloc have a heavy superiority in conventional ground forces.
Through its membership in the NATO alliance, France participates
in defense of the NATO area. France's contribution consists pri-
marily in the assignment of its military forces to NATO. Under a
series of international arrangements, France also contributes to
NATO by providing land and certain facilities to the forces of other
NATO nationals participating in the common defense. These ar-
rangements cover such matters as the provision of land for airbases in
France under the infrastructure program and the provision of land
and of facilities for a line of communications across France supplying
United States forces in Germany.
B. END-ITEM AID PROGRAM
1. Objectives of the end-item aid program in France
The objectives of the end-item aid program in France are as follows:
(a) To maintain France in an adequate military posture as one
of the major allies of the United States in defense of the free world.
(b) To insure continued effective membership of France in the
North Atlantic Treaty Organization and to assist in developing the
French military contribution to that organization.
(c) To encourage French self-sufficiency in military requirements.
2. Special or unique factors in the situation in France of significance
to the operation of the end-item aid program
France, as member of the North Atlantic Treaty Organization, is
a close partner of the United States in the attainment of NATO objec-
tives. Furthermore, until the German contribution has made its effect
fully felt upon the military posture of western Europe, we would
like to rely upon France to provide the bulk of the ground forces for
the defense of that area.
Unfortunately, at the present time, a large part of France's NATO
ground forces has been committed to the restoration of order in
Algeria.
3. Administrative direction, coordination, and operation of the end-
item aid program
The end-item aid program is administered by the Military Assist-
ance Advisory Group (MAAG) acting under the general direction of
the Ambassador. The MAAG is charged with the responsibility for
programing the requirements of France for assistance; establishing
that France has the capacity to absorb and utilize effectively the equip-
ment being programed; providing the necessary training in the assem-
bly, use, maintenance, and repair of the equipment delivered or sched-
uled for delivery; and ascertaining that the equipment is used to the
1292 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
best advantage and that it is not diverted to purposes other than those
for which it was intended.
Political, economic, and other nonmilitary considerations relevant
to the size, content, and execution of the end-item aid program are
coordinated with the purely military aspects thereof through the
mechanism of the country team. The Ambassador is the chairman of
this group and its membership includes the Chief of the Military
Assistance Advisory Group and representatives of the political and
economic elements of the Embassy. The special assistant to the Am-
bassador for the mutual defense assistance program serves as the
executive secretary of the country team and provides liaison services
between the MAAG and the other elements of the group.
The MAAG coordinates mutual defense assistance program military
policy, the planning and formulation of military aspects of that pro-
gram and all matters relating to it, and major program deviations
with the commander in chief, Europe (United States CINCEUR)
and, through United States CINCEUR, with the defense repre-
sentative to the North Atlantic and Mediterranean areas (DefRep-
NAMA) by means of reports, correspondence, and conferences.
4. Effectiveness of administrative control, coordination, and opera-
tion of the end-item aid program as related to the basic situation
in France and the interests of the United States
In general, the administrative control, coordination and operations
of the end-item aid program are considered to be effective. The
creation, for example, of a military assistance advisory group has
proved to be sound. This group of competent staff and technical-
maintenance personnel has been able to establish close working rela-
tionships with their counterparts in the French services on questions
of requirements, assets and deficiencies. Prior to the receipt of equip-
ment and supporting spare parts, training programs have been drawn
up in cooperation with the French for the purpose of providing
qualified personnel, including technicians, to receive, store, distribute,
operate and maintain the equipment. The coordination with the
Embassy, mission to NATO, and European Regional Organizations
(USRO), Headquarters, United States European Command, and the
Defense Department has generally been smooth. The concept of the
country team, which permits a confrontation of the political, economic
and military aspects of the program, has also proved to be sound.
5. Related activities of the United States in France which assist or
hinder the end-item aid program in serving the national interests
A number of United States Government activities in France assist
the end-item aid program in serving the national interests. By con-
tributing to Franco-American understanding and good relations, the
United States Information Service program provides worthwhile.
support for United States-sponsored aid programs. The establish-
ment in France of a line of communications, with the attendant dollar
receipts for the French economy from military service expenditures,
and the indigenous employment opportunities created through the
presence of sizable United States military establishments in France
and through United States participation in the NATO infrastructure
program in France have helped to further the overall objectives of the
military aid programs.
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1293
In addition, the knowledge on the part of the French public that
American forces are stationed on French territory on a long-term
basis has contributed greatly to morale and confidence. The estab-
lishment of Headquarters, United States European Command, in
close proximity to Supreme Headquarters, Allied Powers, Europe
(SHAPE), has given additional evidence to the French people that
the presence of American troops on the Continent is not temporary.
Policy statements in support of French national objectives by United
States governmental officials have also contributed to the feeling of
friendship and confidence on the part of the French for the United
States.
6. Recommended changes, if any, in objectives of the end-item aid
program in France
The objectives of the end-item aid program delineated in paragraph
1 above continue to be valid. The policy of the United States should
continue to be to strengthen France, to deter and, if necessary, to resist
Soviet aggression, and to develop and maintain Allied mutuality of
interest and purpose in the face of Soviet threat.
7. Recommended changes in administration, direction, coordination
and operation of the end-item aid program in France
As long as an end-item aid program is continued in France, it is
imperative to maintain the arrangements which have been developed
whereby the relevant political, economic and other nonmilitary con-
siderations can be brought to bear on the shape, content and execution
of that program.
At the same time, as the program is focused more and more upon
selected requirements for modern weapons, it is recommended that
steps be taken to simplify drastically the procedures under which the
MAAG (Military Assistance Advisory Group) operates, in order to
eliminate the necessity to perform detailed screening, evaluating,
requisitioning and end-use checking on thousands of items, as required
under the present directives.
The first step in altering our sights would be for the Department
of Defense to eliminate, through change in regulation or requested
change in law, if necessary, the existing cumbersome and costly pro-
cedures for the disposal of mutual defense assistance program equip-
ment declared excess by France and the disposal of salvage or scrap
from such equipment. A recent review of an extensive French Army
list of allegedly excess property demonstrates that it is safe to assume
that 90 percent of the French Army equipment declared to be excess
under Joint Chiefs of Staff criteria would not be required or desired
by any other NATO country.
Second, eliminate extensive work on end-use checking of delivered
items. Innumerable instances can be cited where military assistance
advisory group personnel are still required to submit end-use reports
on equipment delivered 5 years ago.
Third, discontinue or drastically simplify the multiple programing
and reprograming for any 1 given year.
1294 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
C. OTHER MILITARY PROGRAMS
In addition to the end-item military grant aid program, there are
two relatively small programs in which the United States and France
jointly participate in mutually agreed projects of interest to both
Governments, namely:
(1) The facilities assistance program (FAP) and
(2) The mutual weapons development program (MWDP).
There is also (3) the offshore procurement program (OSP) in France.
Normal offshore procurement (as distinguished from budget-support
OSP) is carried out both for United States end-item programs and
for United States forces. To the extent that OSP production is
destined for French NATO forces, it is included in the total end-item
aid program for France. The end-item program does not reflect,
however, OSP production in France for other Mutual Defense Assist-
ance Program recipients and for United States forces.
1. Objectives, types and magnitude of programs
(a) Facilities assistance program (FAP)
The objective is to increase the military production capacity of
France in categories urgently needed for NATO defense.
(b) Mutual weapons development program (MWDP)
The broad objective of the MWDP is to increase the defensive
capabilities of our allies through accelerating the research and de-
velopment of advanced types of weapons and military equipment.
The program is expected also to develop items especially suited to
the needs of our allies and more economical to operate and maintain
than corresponding items furnished by the United States. To ac-
complish this objective, the United States provides financial and
technical assistance. It is stressed that the program is truly a mutual
one in that the participating governments contribute to the research or
development on an agreed basis with the United States. Experience
has shown that the United States contribution averages about 50 per-
cent of the total costs taken from the point when the United States
joins in the development of the project. If the entire costs of the
projects are considered, including those incurred by the other country
prior to support of the project by the United States, the United States
contribution is of the order of 35 percent.
(c) Offshore procurement program (OSP)
The chief objectives of the OSP program, as stated in the memoran-
dum of understanding agreed to by a United States-French exchange
of notes on June 12, 1953, were as follows:
(1) To provide the United States forces needed materials, serv-
ices, supplies, and equipment;
(2) To increase the ability of the NATO countries to equip and
maintain their own forces; and
(3) To provide as rapidly as possible equipment to meet the
NATO and other requirements.
It was emphasized that the OSP program was intended as a support
for and supplement to and not as a substitute for the military produc-
tion programs of the recipient countries. It was understood that any
economic benefits, such as dollar earnings and increased economic
activity, were byproducts of the primary objectives.
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1295
As of September 30, 1956, the dollar value of all OSP contracts
placed in France during the fiscal years 1952 to 1957, inclusive, was
$1,649.3 million (41.9 percent of the total for all NATO countries).
This was made up of mutual defense assistance program funds (i. e.,
for United States end-item aid programs) in the amount of $1,086.5
million 2 and service funds (i. e., for United States forces) in the
amount of $562.8 million. The MDAP (Mutual Defense Assistance
Program) funds were divided as follows:
Army--
Navy
Air Force___
Millions of
dollars
701.5
174. 1
210.9
The principal categories of MDAP/OSP under contract were as
follows:
Ammunition and components__
Ships and components..
Aircraft and components---
Combat and support vehicles.
Percentage of
total
49. 4
15.3
13.2
8.0
5.8
5.1
2.2
1.0
Artillery and weapons--
Electronics and communications equipment_
Facilities assistance program..
Miscellaneous
Of the total obligated, $976.6 million or about 90 percent had been
expended as of September 30.
Total OSP contracts for the United States Armed Forces placed in
France through September 30, 1956, were distributed as follows:
Millions of
dollars
Army.
Navy
Air Force___
Joint Construction Agency.
Armed Service Petroleum Procurement Agency-
2. Special factors in the French situation
(a) Facilities assistance program (FAP)
162.8
13. 6
136.2
247.4
2.8
The large, well-developed French ammunition industry provides
possibilities for United States-French cooperation in the development
of facilities for the supply of propellants and explosives of types
which would be critical in time of war. French facilities and know-
how in other fields, notably ammunition and components, repair and
overhaul of military equipment, and fabrication of advanced weapons,
have stimulated consideration of the extension of the program to these
fields. Also, in the field of repair and overhaul of military equipment,
the possibility of the development of French facilities to meet the re-
quirements of neighboring NATO countries is being explored. The
geographical location of France, the importance of the French mili-
tary contribution to NATO, and the existence of usable French facili-
ties are factors bearing on the desirability of assisting in developing
such facilities in France. Under the facilities assistance program,
the French contribution has consisted mainly of land, buildings, power
and access facilities, and installation of machinery. The United States
• Including FAP contracts and $395 million in "budget-support” OSP.
1296 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
contribution has been mainly special tools and machines, and technical
assistance.
(b) Mutual weapons development program (MWDP)
The French armed forces have under way promising research and
development projects involving advanced weapons, aircraft, elec-
tronics and communications equipment, etc. By technical and finan-
cial assistance, the United States is able to accelerate this research,
to influence its direction into NATO and fields of maximum interest
to the United States, and to participate in the results. This program
is considered to be of significant value to the United States.
(c) Offshore procurement program (OSP)
OSP contracts for ordnance, ships, and aircraft were placed to a
considerable extent in France for some or all of the following reasons:
(1) To take advantage of existing production facilities, especially in
the ammunition field; (2) to develop new production facilities for
NATO defense; (3) to obtain military items more rapidly and more
cheaply than was possible from United States production; and (4) to
assist in the recovery of the French economy. With French Govern-
ment moral support and financial assistance, French industry accepted
and fulfilled a great volume of OSP orders. With the decline in de-
mand for conventional materiel under grant aid programs, the new
offshore procurement program in France is limited to purchases for
the United States Armed Forces on a competitive basis, and to pro-
curement under the mutual defense assistance program of small
amounts of ammunition to satisfy military requirements and to main-
tain important production lines. As offshore procurement program
orders decline and cease, the facilities created or maintained by the
program must find other military orders, transfer to civilian produc-
tion, or close. Since French Government orders are clearly not suf-
ficient to keep them in production, especially in the ammunition field,
the best prospect for maintaining them lies in the upcoming German
military procurement program.
3. Administrative direction, coordination, and operation of programs
The programs are carried out under the general policy direction of
the Ambassador. Coordination of political, economic, and military
factors is effected through the country team, which includes the Am-
bassador as chairman, the Minister for Economic Affairs, the Chief
of the Military Assistance Advisory Group, and the financial adviser,
and through the agency of the special assistant for the mutual defense
assistance program, who provides liaison with the Department of
Defense representative to the North Atlantic and Mediterranean areas,
which oversees the programs on a regional basis, with the United
States armed services procurement offices, and on the diplomatic level
with the French Government. The operation of each program will be
considered separately.
(a) Facilities assistance program (FAP)
The French Government is invited by the Embassy at the request
of the defense representative to the North Atlantic and Mediterranean
areas (DefRepNAMA) to submit projects for consideration under the
program of the applicable fiscal year, in accordance with stated
criteria, by priority, with estimates of the United States and French
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1297
contributions required. The French proposals are transmitted with
Military Assistance Advisory Group comments to DefRepNAMA,
which incorporates them, with appropriate modifications or deletions,
into a recommended European regional program for transmission to
the Defense Department. The latter approves, rejects, or modifies
projects on the basis of field surveys and in accordance with overall
NATO priorities. Approved projects are the subject of specific tech-
nical arrangements negotiated with the French on the technical level.
(b) Mutual weapons development program (MWDP)
This program is administered in the North Atlantic and Mediter-
ranean areas by the Director of the Mutual Weapons Development
Team, Lieutenant General Larkin, under the general policy guidance
of the defense representative to the North Atlantic and Mediterranean
areas. Individual project agreements are negotiated in France by the
Director, Mutual Weapons Development Team, as a representative
of the Secretary of Defense, and appropriate officials of the French
Ministry of Defense. The program guidance and approval comes
from the Office of the Secretary of Defense, with responsibility there-
fore shared by the Assistant Secretary of Defense (Research and De-
velopment) and Assistant Secretary of Defense (International Secu-
rity Affairs).
(c) Offshore procurement program (OSP)
OSP contracts are negotiated and administered by the Army, Navy,
or Air Force procurement office, as the case may be. The Embassy
and the Department of Defense representative to the North Atlantic
and Mediterranean areas (DefRepNAMA) have responsibilities in
connection with settlement of the various OSP programs, e. g., nego-
tiations with the French to determine that no profits were realized by
the French Government, or for the necessary adjustment if a net
profit should exist. The Embassy is involved, and may need to consult
DefRepNAMA, whenever questions are raised by the French Govern-
ment with respect to the administration of the program under the
memorandum of understanding or otherwise. The Embassy assisted
DefRepNAMA to negotiate with the French the mutual ammunition.
procurement program for the fiscal year 1956 involving the matching
principle referred to above.
4. Recommendations
(a) Facilities assistance program (FAP)
It will, in all probability, be advisable to continue this program on
the existing scale. The program gives France access to more advanced
United States technology in the fields involved. The exchange of
technical information and opinions and the contact of United States
and French technicians benefit both countries.
(b) Mutual weapons defense program (MWDP)
This program has been of benefit to France, in that it has consider-
ably accelerated and increased French military research and develop-
ment; to the North Atlantic Treaty Organization, in that successful
French products must be made available to NATÓ countries; and to
the United States, in that developed items, some superior to similar
United States products, are made available to United States Forces.
Moreover, items developed under the program will be produced in
1298 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
France or another European country, thus relieving the United States
to some degree of the burden of providing United States equipment
and spare parts to its NATO allies. It is recommended that the pro-
gram be continued.
(c) Offshore procurement program (OSP)
In the future, this program should be considered only in exceptional
circumstances such as (a) clearly established military justification,
or (b) where there are genuine cases of economy, or (c) where there
are special political problems. If it should be continued in other
European countries, such as the United Kingdom or Italy, such a
special political problem would be raised that it would be necessary
to continue a comparable OSP program in France.
D. LABOR EXCHANGE PROGRAM
1. Objectives of the aid program in France
Through the labor technical exchange program, the United States
is seeking to help strengthen the free labor unions in France at the
expense of the Communist-dominated unions. An additional objec-
tive of the program is to encourage constructive collective bargaining
relationships between French labor and management. The attain-
ment of this objective, it is felt, not only will contribute to the political
security of France but also will increase French economic viability.
2. Special or unique factors in the situation in France of significance
to the operation of the aid program
It is the continued threat of the Communist-dominated labor feder-
ation, the Confédération Générale de Travail (CGT), which justified
the continuance of the labor exchange program in France. Although
the power of the CGT has been considerably reduced during recent
years, it is still a potential threat to the security of France and thereby
to the security of its allies as well.
3. Administrative direction, coordination, and operation of the aid
program
The French labor exchange program is carried out under the gen-
eral direction of the Minister for Economic Affairs, as the representa-
tive of the Ambassador, by the labor technical assistance officer and
the Chief of the Office of Technical Exchange and Productivity. In
the development of the labor exchange program, close liaison is main-
tained by these latter two offices with the labor attaché in the Embassy.
The program is, broadly speaking, the single remaining part of the
former technical assistance and productivity program in France,
which covered such fields as industry, agriculture, and education, as
well as labor.
The labor technical exchange program is carried on in cooperation
with and through the French Commissariat Général de la Productivité
and the French Ministry of Labor.
4. Effectiveness of administrative control, coordination, and operation
of the aid program as related to the basic situation in France and
the interests of the United States
This program is being carried out with exceedingly little friction
between our Government and the French Government. The formula-
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1299
tion and execution of the program requires the accord of both Govern-
ments before it becomes operative.
5. Related activities of the United States in France which assist or
hinder the aid program in serving the national interests
None.
6. Recommended changes, if any, in the objectives and in the type
and magnitude of the aid program
As already indicated, the nature of the labor and Communist
problems in France is such as to make the continuation of a labor
exchange program for several years desirable. We should anticipate
a program in the fiscal year 1959 of approximately the same nature
and size as in recent years. This would include short and long-term
missions to the United States, as well as local currency projects
directed to assisting the free union programs in key sectors of the
economy.
7. Recommended changes in administration, direction, coordination,
and operation of the aid program
None.
E. RESIDUAL ASPECTS OF BUDGET-SUPPORT AID PROGRAMS
1. Objectives, types, and magnitude, and relevance to the situation
in France and to the interests of the United States
In the fiscal years 1952 through 1955, the United States carried out a
series of large-scale aid programs in support of the French military
budget, designed to enable France to undertake a larger defense effort
than would have been possible on the basis of its own resources alone,
and, in particular, designed to help defray the mounting costs of the
military effort in Indochina. The total amount of aid allocations made
available through these programs was $1,977 million. Most of the
activities under this heading have now been completed, and those
which are still uncompleted are in their final phase. Following is a
summary of the current status of the budget-support aid programs
that are still active:
(a) Fiscal year 1953 Lisbon offshore procurement program ³
About $2.5 million remains to be paid to the French Government
under this program, which totaled $217.5 million. It is expected that
this item will be liquidated by the end of the year.
(b) Fiscal year 1954 Indochina aid program
Under the agreements governing this program, the total amount to
be paid is to be determined in relation to the total expenditures made
by the French to carry out the military effort in Indochina during
1954. Certain technical points affecting the calculation of this total
amount remain to be settled between us and the French.
So called because the Franco-American aid agreement signed at Lisbon in February
1952 first established the technique of using the offshore procurement program to support
the French military budget. This was done by contracting with the French Government
to purchase certain items of equipment for which the French had provided financing in
their military budget and then delivering those items to the French forces under the
end-item aid program.
94413-57- -83
1300 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
(c) Fiscal year 1954 North Atlantic Treaty Organization
weapons program
The purpose of this program, totaling $85 million, was to finance
the cost of certain arms, ammunition and semiautomatic weapons
required by the French forces placed under the command of the North
Atlantic Treaty Organization.
(d) Fiscal year 1955 Indochina aid program
The purpose of this $100 million program was to help the French
defray some of the costs of maintaining their Expeditionary Corps
in Indochina during the immediate post-armistice period and thereby
to help stabilize the security situation in the area at that time. As of
November 15, $14.2 million remained to be paid to the French under
this program. Activity on this account was slowed down for a while
because of the high price of American cotton and the consequent
reluctance of French cotton importers to utilize that portion of the
financing for this program ($40 million) which was made available.
in the form of agricultural surplus allocations, under the provisions
of section 402 of the Mutual Security Act of 1954, as amended. This
situation has now been remedied by the change in American policy
regarding the price of cotton for export, and it is expected that the
program will be completed in the relatively near future.
2. Administrative direction and operation of budget-support aid pro-
grams in France
Effective last July 1, the United States Operations Mission to
France, which until that time had been responsible for the adminis-
tration of the International Cooperation Administration budget-sup-
port aid programs for France, was discontinued as a separate entity,
and the American Ambassador to France assumed responsibility for
the residual International Cooperation Administration activities in
that country. The Ambassador has instructed the Embassy's Minister
for Economic Affairs, acting under the Ambassador's general direc-
tion, to assume operating responsibility for the supervision of these
residual activities. A small staff of International Cooperation Ad-
ministration employees is attached to the Embassy's Economic Divi-
sion to carry on the work relating to the termination of the various
budget-support aid programs described in this section. This staff
is engaged in examination of the documentation submitted by the
French authorities in justification for reimbursements due them under
the various programs in question, in making the arrangements for
payments and in controlling the utilization of the aid.
3. Recommended changes
4
As stated above, the policy of large-scale aid allocations in support
of the French military budget came to an end in fiscal year 1955. * No
such allocations were made out of fiscal year 1956 or 1957 appropria-
tions, and no programs of this type are contemplated in the fiscal
year 1958 foreign aid budget. Current activities under this heading
are concerned solely with bringing to a close programs previously
entered into. It is important from the standpoint of good relations
• With the exception of the fiscal year 1953 Lisbon offshore procurement program,
which like other offshore procurement programs, is administered by the procurement
services of the Defense Department, general policy guidance being provided by the country
team.
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1301
with France for the United States to carry out fully all of the com-
mitments made to the French Government on this score. Therefore,
we should continue along the lines sketched out above until this objec-
tive has been accomplished. Reductions have been and should con-
tinue to be made in the staff which has been handling these activities.
F. AGRICULTURAL SALES PROGRAMS
1. Objectives of the programs
The sale of agricultural products to France for French francs under
title I of Public Law 480 and the triangular transactions under sec-
tion 402 of the Mutual Security Act of 1954, as amended, are not for-
eign aid programs. Such sales are primarily for the benefit of the
United States, although they also involve obvious advantages to
France. Under section 402, the United States can sell agricultural
products to France with the franc sales proceeds being used to procure
goods needed in connection with United States aid programs to third
countries, notably Vietnam and also Cambodia. Under title I of
Public Law 480 the United States can sell above-normal quantities.
of agricultural products and accept payments in French francs for
agreed uses. The principal United States objective in France under
both section 402 and Public Law 480 is to increase the market for
United States agricultural products.
2. Types and magnitudes of the programs
Under section 402 of the Mutual Security Act of 1954, as amended,
the amounts allotted have been $48.2 million for the fiscal year 1955
and $30 million for the fiscal year 1956. The principal commodities
supplied to France have been cotton, wheat, corn, rice, vegetable oils,
and butter. Certain difficulties arose regarding utilization of part of
the amount allocated to France for purchases of cotton, because
French spinners could buy cotton at much lower prices from other
countries in 1956. However, with the change in United States price
policy on exported cotton, these difficulties have been resolved.
The only Public Law 480 agreement with France in 1955 was a
small one for $650,000 for above-normal purchases of tobacco by the
French tobacco monopoly. The franc sales proceeds were used as
follows: 10 percent for United States Government expenditures in
France, and the remaining 90 percent for programs to develop the
market for United States agricultural products, especially cotton and
tobacco.
A second Public Law 480 agreement was signed on November 8,
1956, for $1.4 million of tobacco and provides that the franc sales
proceeds are to be used as follows: $140,000 for United States Gov-
ernment expenditures in France, $660,000 to finance the purchase of
goods for other friendly countries, and $600,000 for programs to
develop the market for United States agricultural products, primarily
tobacco.
3. Administrative direction, coordination, and operation of the pro-
grams
Like the International Cooperation Administration budget-support
aid programs, section 402 programs in France are carried out under
the general direction of the Ambassador, who has instructed the Em-
bassy's Minister for Economic Affairs to assume operating responsi-
1302 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
bility. The International Cooperation Administration controller
attached to the Embassy and his staff perform the accounting in con-
nection with these programs and control the utilization of the funds.
Public Law 480 agreements are negotiated by Embassy officials in-
cluding the agricultural attaché, and the operations under the program
are handled by the agricultural attaché with the cooperation of the
Economic Division of the Embassy.
4. Relevance of the objectives of the programs to the situation in
France and to the interests of the United States
These programs permitting France to pay in French francs for
needed imports are advantageous both to the United States, by in-
creasing our agricultural exports, and to France, by reducing the
United States activities there.
5. Relevance of the type and magnitude of the programs to the basic
situation in France and to the interests of the United States
The sales under section 402 in fiscal year 1956 were of a magnitude
to contribute appreciably to United States exports and reduce the
drain on France's dollar reserves. On the other hand, the Public
Law 480 sales of tobacco in 1955 and in 1956 are of a very small size.
However, they do provide French franc resources to carry out market
development programs desired by the United States Department of
Agriculture.
6. Other comments
Apparently no particular problems have been encountered in the
administrative control, coordination, and operation of the agricul-
tural sales programs. These programs contribute to our general pol-
icy objectives vis-a-vis France and do not conflict with the other
United States activities there.
G. SUMMARY AND COMMENTS REGARDING THE FUTURE
1. Prior to the invasion of Egypt
Despite the shock caused by the Israeli-Franco-British action in
Egypt, United States interests require determined efforts to obtain
the early restoration of the fullest possible cooperation with France.
While it is unlikely that future shocks will be as dramatic as the action
in the Near East, many other complications and irritations in our re-
lations with France can be anticipated.
These problems combine to accentuate the decreased potency of
France in world affairs and therefore, aside from the difficulty of the
problems themselves, this condition makes agreement on substantive
issues more difficult to achieve. Accordingly, it is essential that the
United States, in dealing with France, recognize the long-range run
of our interests.
Prior to the invasion of Egypt, the main military problem vis-a-vis
France was to obtain a solution in Algeria which would allow the
French to restore their forces to the NATO area.
We should continue to program substantial military aid for France
in the fiscal years 1957 and 1958 for modern weapons plus certain
limited amounts of spares for equipment not produced in France.
In order to achieve the above objectives, I recommend continuance
of the military aid program under a system of simplified program-
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1303
ing and a reduction of required inspections of the use of end items.
I also recommend the continuance of a labor technical exchange pro-
gram aimed at strengthening the two anti-Communist trade unions
which are engaged in a struggle with the Communist-controlled Con-
fédération Générale de Travail (CGT).
2. After the invasion of Egypt
All of these issues have been tremendously complicated by the in-
vasion of Egypt. It appears possible, however, that at least the
military forces currently being utilized in the Near East will be re-
assembled in metropolitan France within a reasonable period of time,
and therefore the military situation may, in the near future, be re-
established in a form not too different from that prior to the Egyptian
adventure.
The politico-economic position is, however, tremendously compli-
cated. The high degree of French dependence for crude oil (roughly
85 percent) upon the Suez and the IPC (Iraq Petroleum Company)
pipeline (from Iraq through Syria) will cause serious complications.
Inasmuch as France has, in relation to other European countries,
a low dependence upon petroleum as a source of energy, and reserves
of petroleum products on hand are relatively large, she is in a favor-
able position to withstand a short period in which the canal and the
pipeline from Iraq cannot be used.
Over a longer period, however, real difficulties will emerge. Assum-
ing that France can buy oil in the Western Hemisphere and can
obtain the services of a sufficient amount of shipping, her foreign ex-
change resources would allow her to absorb the dollar costs for a con-
siderable period of time. To indicate the magnitude of this dollar
exchange problem alone, it is estimated that if this condition con-
tinued to exist during the first 6 months of 1957 the direct additional
dollar drain could amount to $100 million to meet even a reduced
level of requirements. As her current gold and dollar reserves amount
to $1.3 billion, this could be absorbed-if this were the only substantial
drain.
The politico-economic effects, however, go much deeper. Even be-
fore the petroleum crisis, the balance of payments was already run-
ning a heavy deficit under the pressures of inflation, the costs of the
Algerian campaign, and the cold spell of last winter. France, in
common with many other European countries, faces a serious infla-
tionary danger under conditions of full employment. Use of shipping
around the Cape and obtaining petroleum from the Western Hemis-
phere will increase costs considerably. Presumably such increase
could, and probably would, be absorbed by the Government budget in
the form of increased expenditures for price subsidies. This, in turn,
however, would contribute to the budgetary deficit, which, in itself,
is a major inflationary factor in France.
Even assuming utilization of dollar reserves to pay the dollar cost
and budgetary funds to subsidize the increased cost, there is no doubt
but that actual imports and available supplies would be reduced. In
France's overextended economy, which is characterized by a shortage
of energy, this condition, together with other economic pressures,
could result in major inflationary developments early in 1957.
Today it is impossible with any assurance even to state the assump-
tions on which the French economy will have to operate in 1957. It
1304 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
can, however, be definitely stated that if the canal and the pipeline
remain closed until the middle of 1957, the French economy will be
faced with economic and financial problems which France alone is
unlikely adequately to resolve.
The effect of serious inflationary developments in France upon the
local political scene and France's international position, to say noth-
ing of its contribution to the North Atlantic Treaty Organization,
appear too obvious to require comment.
H. SUPPLEMENTARY INFORMATION
1. Does the United States have military bases and forces in the coun-
try? If so, under what conditions? How are the rights to such
bases and the right to station forces significant in the defense of
the United States?
The United States has a large network of Army and Air Force bases.
in France. The United States Army line of communications across
France includes depots for ordnance, engineer, signal corps, quarter-
master and medical supplies. There is also a POL (petroleum, oil,
and lubricants) pipeline extending from the west coast to Eastern
France. The United States Air Force has a series of tactical air-
bases in eastern France on which are stationed wings of the United
States 12th Air Force. In addition, the Air Force's Air Materiel
Command has a series of depots and maintenance installations
throughout France which provide the major support for United States
air forces in Europe. Finally, the United States Navy makes use of
Villefranche-sur-mer as the home port of the flagship of the 6th Fleet,
although Villefranche is not a naval base.
The presence of United States forces in connection with all these
bases and installations is covered by the North Atlantic Treaty Or-
ganization (NATO) Status of Forces Treaty of 1951.
United States Army and Air Force bases and installations in France
are essential to United States participation in the defense of the NATO
area. The line of communications provides the bulk of the supplies
used by United States ground forces assigned to NATO in Germany.
The nearly completed pipeline will provide petroleum products for
United States Army and Air Force units in Europe, as well as for
forces of the other NATO countries. The United States tactical air-
bases in France used by the United States 12th Air Force are essential
to the United States Air Force's role in NATO defense. Finally,
the Air Force supply bases in France provide the bulk of the support
for United States Air Forces in Europe.
It is apparent that United States bases in France are a vital part
of our contribution to the defense of the NATO area and, by thus
providing a major deterrent to Soviet aggression, are essential to the
security of the United States.
2. What types and quantities of the strategic and critical raw materials
available in the country flow to the United States?
Even assuming a broad definition of the term, the amount of stra-
tegic and critical raw materials furnished to the United States by all
areas under French jurisdiction is relatively slight.
The amount coming from Metropolitan France itself is negligible.
The only product possibly worthy of mention is potash; in 1955,
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1305
France supplied about 75,000 tons of that commodity to the United
States, or 25 percent of American imports.
As for overseas France, the principal item appears to be graphite
from Madagascar. In 1955, Madagascar shipped 14.3 million pounds
of crystalline flake graphite to the United States, or approximately
93 percent of our imports of graphite in that particular form. (This
compares with 81 million pounds of amorphous graphite imported
by the United States from other sources in that year.) In 1955, Mada-
gascar also supplied the United States with about 800,000 pounds of
mica in the form of thin films. This was about 8 percent of our im-
ports of mica in this form, the principal form in which the United
States imports mica. In 1955, in addition, the United States took 57
million pounds of cork from Algeria, about 20 percent of our imports;
and from the same territory, about 3 million pounds of antimony,
about 7 percent of our imports of that commodity.
3. Is investment or trade with the country of particular significance to
nations with extensive trade with the United States? In other
words, does the country fit into a major triangular trading pattern
in which the United States is involved?
France's major investment effort, by far, has been directed to North
Africa and her other African territories. This area also constitutes,
after Western Europe, France's major trading partner, accounting
for one-fourth of France's import-export volume in 1955. This area,
however, does not at present figure prominently in United States trade
or investments. (In 1955, the total United States investment there
was $41 million; and trade with the area accounted for less than 0.7
percent of United States foreign trade.) France's trade with Western
Europe accounts for upwards of 40 percent of her external commerce
(1955 figures), her principal partners being Germany, the Benelux
countries and Great Britain, in that order. Such French private.
foreign investments as have been made in recent years have been
mainly, aside from those in Africa, in Western Europe. In the West-
ern Hemisphere, apart from the United States, France's most im-
portant trade relations are with Canada, Brazil, and Argentina.
Trade with these countries accounted for under 312 percent of the
1955 French total. France also normally imports substantial quan-
tities of wool from Australia, oil from the Middle East, and rubber
and other raw materials from Southeast Asia.
4. Are there any substantial United States religious or private hu-
manitarian activities in the country? Are there significant edu-
cational, cultural, scientific, labor, or similar interests of benefit
to the United States or the prospects of their development?
There are few fairly important activities of a religious nature or
inspiration; e. g., the National Catholic Welfare Board, which operates
sporadically, and the American Jewish Committee, which maintains an
office, publishes a magazine and runs a technical school. None of these,
however, has any significant effect on French public opinion as such
beyond the narrow field it has staked out for itself.
The American foundations have been largely inactive in France in
recent years, although the Rockefeller Foundation still maintains an
office and recruits scientific (mostly medical) people for study in the
United States. No organizations in this category have any significant
effect on French public opinion. However, in the labor field, the AFL-
1306 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
CIO continues to have a representative for Europe stationed in Paris.
His activities in France are directed toward assisting in the strength-
ening of the free unions in their fight against the Communist-domi-
nated Confédération Générale de Travail (CGT).
The specifically charitable operations, of which there is a consider-
able number, appear to have remarkably little effect on French atti-
tudes toward the United States.
5. Is there evidence of serious internal grievances with regard to the
existing government? If so, from what do they arise?
There are numerous internal grievances in France with regard to
the existing government, but they are not collective and are not at the
present time of such a serious nature as to threaten the overthrow of
the existing system of government. Over and beyond widespread com-
plaints over lack of housing, budgetary imbalance, method of tax
collection, rising prices without adequate reflection in government
cost of living indices, recall of troops for service in Algeria, etc., the
principal complaint against the present parliamentary system is its
instability. One of the election promises of the present government
which to date has not been fulfilled was constitutional reform and
reform of the electoral system. Such success as the Poujade movement
has had may largely be attributed to general disillusionment with the
existing parliamentary system.
6. What is the strength of the internal Communist or other revolu-
tionary threats?
The strength of the Communist threat in France has fluctuated
considerably during the year. In the January 2 assembly elections,
the party polled some 512 million votes, half a million more than in
the last election in 1951, but roughly the same percentage of the total
vote. It elected 144 deputies (some 50 more than it had), though this
was due largely to technicalities in the electoral law. During the first
half of the year, the party built up its strength from the low to which
it had sunk during the period of the cold war. It recruited about 46,000
new members, placing its total strength at approximately 350,000 or
375,000 (as against a 1948 high of 800,000). This increase, and the
resultant influence in the party's influence among the working class,
stemmed largely from the respectability it and the Soviet Union ac-
quired as a result of "the Geneva spirit" and from its own playing
down of its more revolutionary demands in its campaign for a popular
front. In the interests of furthering this campaign, it energetically
supported the Mollet government as a government of the left.
This trend has now been sharply reversed, however. The exigencies
of Soviet foreign policy having required the party virulently to defend
Nasser's nationalization of the Suez Canal, the party found itself
again in the political isolation from which it had slowly emerged over
the past 2 years. While during the first half of the year the possibility
that other political parties would agree to cooperate with the Commu-
nists was rather remote, the possibility at least existed, and was report-
edly considered seriously by at least some members of the SFIO
(Socialist Party). The isolation into which the Communists were
thrown after the Suez affair broke removed any such possibility.
Soviet intervention in Hungary completed the process of isolation of
the PCF (Parti Communist Francais) and created a wave of anti-
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1307
Communist sentiment throughout the country. Communist head-
quarters in various cities were stormed and sacked, Communists were.
voted out of leading offices in municipal governments (including
Paris), and so forth. Furthermore, the Hungarian events caused
deep disturbances within the PCF and among peripheral groups.
Numerous intellectual fellow-travelers (including Sartre) have pub-
licly broken with the party, and some party members (such as J. F.
Rolland, who was expelled for his actions) have also publicly opposed
the party's stand on Hungary. This dissension has been shown mostly
by Communist intellectuals, and these intellectuals have been known
to flip back and forth in the past. At the present time, however,
there is no doubt that the party has been somewhat weakened.
More serious, perhaps, have been the repercussions of the Hungarian
events in the trade union movement. The Confédération Générale de
Travail (CGT) has been unable, because of the general public revul-
sion against the Soviet Union, to take an official stand on Hungary,
and at the moment, at least, it is virtually useless to the party for any
form of political (as opposed to strictly economic) action.
In summary, unless economic difficulties stemming from the Suez
crisis efface the memory of Hungary, the threat to France posed by the
Communist Party has been considerably weakened. While the party
is still dangerous, could recoup its losses eventually, and is potentially
dangerous even now as an instrument of sabotage, it is extremely un-
likely that it could come to power in the foreseeable future, and its
capacity for disrupting French political and economic life has been
reduced.
7. What is the attitude of the Government and the principal opposition
groups toward foreign aid? Toward private foreign investment?
(a) With the exception of the Communists and a certain portion of
the extreme right, both the government and the principal opposition
groups in France regard a certain amount of specific foreign assist-
ance and aid as indispensable if France is properly to discharge her
responsibilities in the Western World and in the Atlantic Alliance.
The Communists for their own purposes are opposed to foreign aid.
Certain extreme right groups for intensely nationalistic reasons desire
France to play a large role in the world without realistic consideration
of where she will find the means to play this role.
(b) The French Governments of recent years have been, in princi-
ple, favorably disposed to foreign investments made in convertible
currencies (e. g., dollars), so long as they are deemed beneficial to the
French economy; and admitted investments are accorded nondiscrimi-
natory treatment. Investments are permitted according to a case-by-
case governmental authorization procedure. But the Government does
not publish any set of definite criteria by which individual applications
for investment are approved or disapproved; and it has not actively
sought to attract foreign investments. Statistics on the value of total
American investments for the years 1950 to 1955 would appear to indi-
cate, nevertheless, that American investments have tended to increase
in Metropolitan France substantially in proportion with the average
increase in other leading countries of Western Europe.
1308 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
United States private direct investments in certain European countries

Sweden.
Germany
United Kingdom.
Netherlands.
France ¹
Belgium..
Italy...
1950 value
1955 value
Percent in-
crease (ap-
proximate)
Million
Million
$58
$95
204
330
847
1, 420
217
378
84
159
65
133
105
63
154
145
២៖វវឌឌ
75
1 The figure for French Africa is $31 million in 1950, and $45 million in 1955, an increase of $14 million.
Source: U. S. Department of Commerce figures.
The principal opposition party in recent years has been the Com-
munist; and it, of course, is hostile to private foreign investments on
doctrinal grounds. Some elements on the extreme right also tend
to view foreign investments unfavorably, for nationalistic reasons,
insofar as investment carries with it majority control of the enterprise
in which the investment is made. The latter attitude has tended to
characterize French policy with respect to foreign investment in
overseas France.
8. What are the country's international regional or bilateral defense
arrangements? Is the potential defensive contribution of such
arrangements accurately taken into account in determining the
national security needs of the country?
The international defense arrangements of which France is a mem-
ber are the North Atlantic Treaty Organization and the Southeast
Asia Treaty Organization. France is also a member of the Western
European Union which was developed out of the Brussels Treaty
Organization. Bilateral defense arrangements include the Mutual
Defense Assistance Pact with the United States.
The potential defensive contribution of these arrangements is fully
taken into account in determining France's national security needs.
NATO is by far the most important in this respect, and through the
North Atlantic Treaty Organization annual review process an ex-
haustive examination is made of France's own defense contribution in
its relation to that of the overall NATO defense effort. This process
is reinforced by studies made by the NATO military authorities.
While the interests and responsibilities of France in the Far East
have decreased in recent years, France is a full and participating
member of the Southeast Asia Treaty Organization. Her contribu-
tion, though limited from a military point of view, is important in
terms of its psychological alinement with the efforts of the free nations
of southeast Asia to cooperate in the defense of the free world.
The Western European Union does not have a defense force of its
own, since all of its members are also members of NATO. The bi-
lateral defense arrangements with the United States are coordinated
under the mutual defense assistance program.
9. Are there important aid programs of private organizations in
operation in the country? How extensive are they in terms of
loans and grants and size of mission?
There are approximately 15 or 16 branches of American voluntary
relief agencies in France. These are the only known private organi-
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1309
zations operating aid programs in this country. (Loans by American
banks are not considered aid for the purpose of this statement.)
Their aid is entirely grant aid. Their annual budgets vary to a wide
degree; for example, the AJD (American Joint Distribution) annual
budget amounts to over $1 million while the Quakers' budget is only
$50,000. They also vary considerably in size; the larger ones employ
a staff of 10 to 12 and the smaller 2 to 3 persons. With respect to their
imports of food and clothing, the following figures are given :

Pounds
Value
Program 1956:
Agricultural surpluses.
Clothing.
Miscellaneous.
Total...
1 Not available.
7, 150,000
682, 800
320,000
$2,038, 000
680,000
(1)
8, 152, 800
2,718, 000
In addition, in 1956 the agencies made a special distribution of 2,000
tons of surplus agricultural products to needy Frenchmen who had
suffered from the heavy cold spell last winter.
10. What is the size of the various aid missions and what is their
composition (broken down in terms of administrative, profes-
sional, technical, and clerical personnel)? What proportion of
the personnel of the aid missions and the Embassy are engaged
in administering and maintaining the aid mission (housekeep-
ing functions)?
The Military Assistance Advisory Group (MAAG) has a current
authorized strength of 150, distributed by category as follows:
Administrative
Professional and technical___.
Clerical (American)
100
2820
On June 30, 1956, when International Cooperation Administration
(ICA) activities were transferred to the Embassy, the following
staff reductions took place:
United States nationals, from 16 to 11.
French nationals, from 20 to 10.
Since then, these figures have been further reduced as follows:
United States nationals, from 11 to 10.
French nationals from 10 to 7.
The total International Cooperation Administration staff assigned
to the Embassy at present is thus 17 persons. This staff carried on
the work relating to the termination of the various budget-support
aid programs. It is engaged in the examination of the documentation
submitted by the French authorities in justification for reimburse-
ments due them under these programs, in making the arrangements
for payments and in controlling the utilization of the aid.
11. What American, foreign, or local contractors are employed out
of funds supplied directly or indirectly by the United States
Government in connection with the aid programs? What super-
vision and control, if any, is exercised over their operations by
the official United States aid missions and the Ambassador?
The Offshore Procurement Program in France, whether the pro-
curement is for the Mutual Defense Assistance Program or for the
1310 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
pect of (a) any early change in expenditures in Algeria, which amount
to the equivalent of nearly $1 billion per year; (b) a substantial re-
duction in the amount of public funds going into industrial invest-
ment; (c) substantial reduction of aid to the associate and dependent
territories currently amounting to the equivalent of $500 per year;
(d) elimination of price subsidies and special tax relief, since this
would send the price index through the point which would set in
motion the escalator wage law; (e) the current Government correcting
the overvalued franc or generally tightening credit.
Aside from the possibility that France might join a common market
and the encouraging evidence of increases of productivity in certain
areas, there seems at this time little prospect of France taking the
vigorous steps needed to achieve a more competitive economy.
III. UNITED STATES AID AND ITALY
A. IMPACT ON ITALY OF SUEZ
The closing of the Suez Canal to traffic has already had noticeable
repercussions in particular sectors of the Italian economy. If the
canal remains blocked for a moderate period-up to 6 months-the
aggregate economic consequences for Italy can be expected to be con-
siderable, but not crippling. The Suez crisis finds Italy in a relatively
strong position to weather a temporary dislocation of this nature.
Italy's convertible gold and foreign exchange reserves are substantial
(about $1.2 billion). Only a moderate proportion of her international
trade is normally coursed through the Suez Canal, and she has a sizable
merchant marine.
The principal effects on the Italian economy will be those resulting
from diminished crude oil shipments and from price rises of petroleum
and other raw materials caused by higher freight costs and scarcities.
The shortage of petroleum products is mainly one of fuel and diesel
oil. While the extent of the general fuel shortage (fuel oil, gas, coal)
is not yet entirely clear, it is hoped that the effect on industrial produc-
tion will not be great.
Longer voyages, the rise in freight rates, and increased coal and oil
prices will raise the total import bill, particularly Italy's dollar costs.
There will also be losses of foreign income from items such as the
export of refined petroleum products and services to ships. While
these balance-of-payments costs and losses will be somewhat compen-
sated by the decreased volume of oil imports and by increased shipping
income, the overall balance-of-payments cost to Italy in a period of
6 months can be estimated at up to $60 million in all currencies, in-
cluding a net dollar cost of perhaps $70 million. This may not mean
a decline in Italy's present reserves, but probably an end to the present
growth trend of these reserves.
Price increases in commodities such as fuels, rubber goods, and
wool have already occurred. This will mean further pressure on
the general price level. But if hoarding can be avoided, as has
generally been the case up to now, and if the Government takes ap-
propriate measures, the normal tendency of Italian prices to rise 3 to
5 percent annually may not be seriously accelerated.
These conclusions hold if the Middle Eastern political situation
becomes stabilized and canal traffic is quickly resumed. A further
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1311
United States Armed Forces, makes use exclusively, of course, of
French contractors. The contracts involved are negotiated and pro-
duction and delivery thereunder are supervised by the responsible
procurement office or other agency of the United States armed serv-
ices. The Embassy exercises no supervision or control over the opera-
tions of the contractors.
12. In the planning and administration of the aid programs, is suffi-
cient effort made to encourage the maximum effort on the part
of the local government in planning, carrying out, and financing
its own security and development programs?
France is one of our major allies in the North Atlantic Treaty
Organization and as such participates fully in NATO planning for
the defense of Western Europe. France has committed certain mili-
tary forces to NATO, and each year, through the process of the NATO
annual review, all aspects of the French defense effort-including the
political, financial, and technical elements-are critically examined by
the appropriate NATO bodies. United States representatives partici-
pate in all of these deliberations, to express United States views re-
garding the size and content of the French defense effort, as well
as to suggest any changes which might seem desirable.
In addition to these international mechanisms for insuring a maxi-
mum effort on the part of the French Government in planning, carry-
ing out, and financing its security program, the country team, through
constant observation and analysis of the French defense effort and
through frequent contacts with responsible French officials, both civil-
ian and military, endeavors to confirm that the French defense con-
tribution is the highest one consistent with French technical and
financial possibilities. It should be particularly noted that in the aid-
programing process, the Military Assistance Advisory Group is re-
quired to take full account of French military equipment assets and
French production and that the amounts programed represent net
equipment deficiencies on the basis of United States (Joint Chiefs of
Staff) criteria. With respect to the size of the French financial con-
tribution to defense, it should be noted that French defense expendi-
tures in 1956 are estimated to represent 9.2 percent of the gross na-
tional product, a figure which puts France in the forefront of the
NATO countries in this respect, being exceeded only by the United
States with 11.3 percent and matched only by the United Kingdom,
also with 9.2 percent.
Since no United States aid is given France for its development pro-
grams, this part of the question is not pertinent for France. How-
ever, it may be of interest that France appropriates in the neighbor-
hood of 2.5 to 3 billion dollars each year for investments in Metropoli-
tan France and the French overseas territories.
13. France's balance-of-payments problem
Except for 1949 and 1955, and aside from United States aid, France
has had a persistent balance-of-payments problem ever since the war
and unfortunately has as yet made little headway toward finding a
long-term solution.
Present political forces in France are such as effectively to block
the Finance Ministry from adequate corrective action, as the French
Government seems unable to change the policies that are the basic cause
of its overextended position. For example, there is little or no pros-
1312 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
requirement is that Britain and France will be able to avoid drastic
import cuts. Italy, itself, is not a weak link in the economic chain
of Western Europe facing the Suez crisis, but if serious economic
repercussions for the United Kingdom and France are not avoided,
Italy will hardly be able to avoid drastic consequences.
In such a contingency, we in the United States will be compelled
to take a new look at the economic and military aspects of the Italian
situation.
B. SECURITY INTERESTS OF THE UNITED STATES
If Western Europe and North Africa were to fall under enemy
domination, the Western Hemisphere would be isolated. It is un-
likely that remaining outlying segments of the free world, such as
Australia and South Africa or even South America, ultimately could
be defended economically or militarily against the overwhelming pre-
ponderance of military, industrial and raw material potential which
would thus come under unified hostile direction. The control of the
Mediterranean is crucial to the defense of Western Europe and North
Africa, because in its control in war lies the only hope of supporting
Italy, Greece and Turkey, maintaining the availability of essential
Middle East oil and other supplies, and preventing enveloping attack
against both Europe and Africa. Italy and Sicily together virtually
bisect the Mediterranean. Without their possession by friendly
forces, the eastern Mediterranean area cannot be supported and de-
fense of the remainder of the Mediterranean would be very greatly
handicapped.
The security of the United States requires the defense of Western
Europe and North Africa and control of the Mediterranean, through
the control of Italy by friendly forces, is essential.
The United States possesses military bases and forces in Italy under
North Atlantic Treaty Organization defense plans and under diplo-
matic arrangements between the United States and Italy. At this
time, a United States Army unit with an atomic capability (Southern
European Task Force) is stationed in northeastern Italy, together
with a rotational United States Air Force fighter bomber squadron
and early warning squadron. The privileges and immunities of the
forces and their members are covered by the NATO Status of Forces
Agreement. The stationing of United States forces in Italy is an
important contribution to the defense of Italy, made more vulnerable
in this sector by the evacuation of Austria, and therefore ultimately
is important to the security of the United States.
As indicated above, the defense of Italy is of particular importance
to the defense of Greece, Turkey, Libya and other friendly powers
in the eastern Mediterranean. It is also important as a means of
blocking attack by the Soviet Union upon Metropolitan France,
French North Africa, Spain, Tunisia and Morocco.
C. ECONOMIC AND COMMERCIAL INTERESTS OF THE UNITED STATES
The economic interests of the United States in Italy fall into two
broad objectives. The first concerns the traditional activities of
trade, commerce, and investment carried on by American citizens and
firms. The second objective arises from political considerations and
has been actively pursued mainly in the postwar period. It concerns
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1313
the establishment and growth of a viable Italian economy capable
of progressively increasing the standard of living of the Italian peo-
ple and providing a firm basis for the further development—and,
when necessary, the defense of free political institutions in Italy.
In Italy, as elsewhere, the United States Government seeks to gain
and preserve freedom and nondiscriminatory treatment for American
trade and commercial interests. The stake of American investors in
the Italian economy and of American traders in the Italian market
is considerable.
In value of United States direct dollar investment, Italy ranks
fourth among European countries. The current value of United
States investments in Italy probably exceeds $160 million. Of this
investment, about $80 million is in the petroleum industry and some
$50 million in manufacturing. These figures do not reflect the im-
portance of Italy as an outlet for United States motion pictures
(approximately $5 million annually) and for patents and other serv-
American commercial interests include the manufacture, im-
portation and distribution of chemicals and pharmaceuticals,
electronic and precision instruments, heavy mechanical equipment,
etc. Trade between Italy and the United States amounted to about
$660 million in 1955, of which over $400 million consisted of Italian
imports from the United States.
The strengthening of the Italian economy as a basis for supporting
the development of Italy's democracy and her military power within
the North Atlantic Treaty Organization alliance has been sought
through various United States economic programs in Italy. In the
immediate postwar years (1945-50), these programs were principally
in the form of large-scale grant aid for the reconstruction of Italy's
war-torn economy. Later (1951-54), United States economic grant
assistance was geared more directly to the support of Italy's military
establishment and to economic development beyond the prewar level.
These objectives are still being pursued, but the emphasis is now on
loans, technical assistance, and the encouragement of private invest-
ment rather than large grants.
D. THE NATURE OF THE ECONOMY OF ITALY AND CAPACITY FOR
DEVELOPMENT
Italy emerged from the war damaged, disorganized, and bankrupt.
Because unification and industrialization had come so late, it had
for years been one of the weaker of the western nations, particularly
from the economic point of view. This weakness had been fostered
by protectionism and the autarchic policies of Mussolini. The re-
sult was large-scale unemployment; a general pattern of uneconomic
investment in heavy industries; high costs, margins, and prices, and
low domestic and foreign demand. The burden of taxes and red tape
on production and sales contributed to this situation.
With United States help, the Government has attempted a radical
reversal of some aspects of this situation, particularly through liberal
trade and financial policies, plus a more rational investment policy
and tax and land reforms. This is a long-term problem but a good
beginning has been made.
Since the war, the United States has spent over $3.5 billion in Italy
for reconstruction of the economy and its defense forces and to help
create a satisfactory climate for the development of private enterprise.
1314 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
This effort has achieved considerable success in that the gross national
product (GNP) is about 50 percent higher and industrial production
is about double both prewar and 1948. The Italian armed forces are
stronger than they have ever been. Investment is proceeding at a
high rate and the GNP is growing about 5 percent per year. The
standard of living for most Italians is significantly higher than pre-
war. The currency is stable, and many economic restrictions have
been dropped.
However, Italy, which is no larger than California despite its popu-
lation of 48 million, remains a poor country. Gross national income
totals about $22 billion, or about $450 per person. Some 2 million
persons are unemployed (10 percent of the labor force), and an-
other 2 million persons have only partial employment. Over one-fifth
of the $4.5 billion Government budget goes for defense and a substan-
tial part for investment expenditures. Taxes, mainly indirect, take
some 20 percent of the GNP. Italian industry is highly dependent on
imported fuels and materials, and must find increased export outlets if
it is to support a higher standard of living in Italy. A major start has
been made on laying the basis for healthy economic development in
Italy, but further action is needed in improving productivity, cutting
costs, and distributing incomes to make possible expanded markets
abroad and at home as well as increased employment opportunities.
Southern Italy, including Sicily and Sardinia, presents basically
more difficult economic problems, characterized by the poverty and in-
adequate exploitation of resources, a surplus of unskilled labor, and
a rigid and archaic social system. Following American leadership,
the Italian Government has for the first time launched a basic attack
on this problem. This program, organized under the cassa per il
mezzogiorno (fund for the south), is a 12-year plan for annual ex-
penditures of $175 million, concentrated on land reclamation, irriga-
tion and reform, water supply and road improvement. A bill is now
pending in Parliament to extend and expand this program.
As supplements to this program, the Italian Government is mak-
ing available substantial loan funds for industrial investment with
the participation and support of United States aid, particularly from
local currency sources.
E. POLITICAL FACTORS AFFECTING ITALY'S CAPACITY FOR DEVELOPMENT AND
ABILITY TO USE AID PROGRAMS EFFECTIVELY
Italy's foreign policy has since 1947 been based on Atlantic and
western solidarity. This choice was made when Prime Minister de
Gasperi threw the Italian Communist Party and its faithful ally, the
Italian Socialist Party, out of the Government in that year, and this
policy has been reaffirmed subsequently on many different occasions,
particularly in 1948 and 1953.
Italy's execution of its pro-Atlantic, pro-West foreign policy has
often been made difficult and complicated by the presence of the larg-
est and most active Communist Party on this side of the Iron Curtain.
The PCI (Partito Communista Italiano) and its ally, the PSI (Par-
tito Socialista Italiano) still account for about 35 percent of the com-
position of the present Chamber. Until the recent Hungarian events,
both parties consistently and continuously supported the Soviet Union
in all its actions and attacked Italy's participation in the North At
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1315
lantic Treaty Organization and its friendship with the United States.
Although the PSI has criticized Soviet action in Hungary, its attitude
toward NATO and the United States remains closely linked with that
of the PCI.
At the present time, the Center Parties, constituting the Govern-
ment coalition (the Christian Democratic Party, the Social Demo-
cratic Party, the Liberal Party, and the Republican Party) have a
very small majority in the Parliament on both foreign policy and
internal policy. Although both the extreme left and the extreme
right (the National Monarchist Party and the neo-Fascist Social
Movement) oppose it on internal policy, the extreme right does main-
tain a "benevolent" attitude toward foreign policy, thereby increasing
the democratic Center's margin of safety on foreign policy matters.
Since the 20th Congress of the Soviet Communist Party and, in
particular, since the Hungarian uprising, there have been a series of
developments on the extreme left which may have important effects
on the future of Italian democracy and its efforts to hasten the eco-
nomic and social development of the country. There has been a
widening divergence between the PCI and the PSI over a variety of
policy matters and considerable discussion on the possibility of the
reunification of the Socialist Parties (PSI and the Social Democratic
Party). So far little progress has been made in Socialist reunifica-
tion, since the position of the PSI on relations with the PCI and on
foreign policy do not demonstrate sufficient change from previous po-
sitions to be acceptable to the Social Democrats who insist on a com-
plete break between the PSI and PCI and an acceptance by the PSI
of present Italian foreign policy.
Since the last political elections in 1953, Italy has, on the whole,
demonstrated stability with regard to the fulfillment of its foreign
policy objectives. While some progress has also been made by the
successive governments in carrying forward a social and economic
development policy since 1953, the compromise nature of the Center
formula involving Social Democratic and Liberal forces, as well as
Christian Democrats, has necessarily handicapped these governments
in their efforts to implement their social and economic policies to the
degree that is necessary for the overcoming of social and economic
problems of Italy.
On the other hand, it is probably equally true that United States
economic and military aid contribute an essential element in the main-
tenance of even short-term stability on the basis of the present demo-
cratic coalition.
F. STRATEGIC REQUIREMENTS FOR DEFENSE OF ITALY, ALLIANCES AND INTER-
NATIONAL ARRANGEMENTS FOR DEFENSE,
FOR DEFENSE, AND PRESENT
PRESENT MILITARY
CAPACITY
In the minds of the Italian Government, the principal military
threat to Italy is the threat to the security of all Western Europe and
the Mediterranean area posed by the existing military forces of the So-
viet Union and by the Soviet Government's avowed purpose to promote
the domination of the world by communism under its leadership. The
Italians view the expansion of Soviet influence in the Middle East
as a direct threat to their economic and military security because of
the possibility that the Suez Canal and the Arabic portions of the
94413-57—————84
1316 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
Mediterranean littoral may come under hostile control. These esti-
mates are regarded as realistic. The Italian Government, as is well-
known, is somewhat apprehensive about Yugoslavia. United States
policy and attitudes toward Yugoslavia differ somewhat from that of
the Italian, and Italian sensitivity toward the threat from its neighbor
is naturally greater than ours.
Italy is a member of the North Atlantic Treaty Organization and
the Western European Union and therefore shares the military and
political commitments required by those organizations. It also bene-
fits from the political and military safeguards contained in articles
3 and 5 of the NATO Treaty.
Under NATO military plans, the Italian armed forces have specific
roles and missions for the defense of Italy and the southern European
NATO area. These plans contemplate the defense of the southern
European and Mediterranean area by allied forces as well as Italian.
The caliber and size of Italian forces under NATO plans have thus
been effectively adjusted to both the defense of Italy and the area as
a result of coordinated joint military planning within NATO. Such
planning has been concurred in by the military authorities of the
United States.
G. OBJECTIVES OF THE UNITED STATES AID PROGRAM
Objectives of the United States aid programs in Italy have been and
continue to be the following: (1) encouragement of Italian internal
political and economic stability through a sustained rise in the stand-
ard of living of the Italian people; (2) strengthening of Italian
defense capabilities; (3) promotion of economic growth of the Italian
economy with a view to a reduction in economic and social discontent;
(4) encouragement of Italian support for European economic
integration.
The mutual defense assistance program is intended to furnish mili-
tary assistance to Italy in order to make possible the effective parti-
cipation of Italy in NATO defense. More specifically, the mutual de-
fense assistance program is designed to provide the Italian armed
forces with the equipment and training, over and above that which can
be afforded by Italy, to develop Italian forces up to the quality and
magnitude required by NATO defense plans.
The offshore procurement program in Italy is intended to provide a
source of supply for current requirements on behalf of recipient
countries of mutual defense assistance, to provide a strategically
located production base capable of expansion in war, and to a limited
degree to provide economic support for Italy. An additional ob-
jective of the offshore procurement program has been to encourage
the development and strengthening of the free labor movement in
Italy by the tactical placement of orders with firms which have co-
operated in this effort.
H. TYPE AND MAGNITUDE OF OPERATING AID PROGRAMS
1. United States economic aid programs
Although direct United States assistance to Italy has diminished
considerably in the past 2 years and grant economic aid has been term-
inated, the residual aid programs, in the form of loans and technical
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1317
assistance, are still of considerable magnitude and constitute a major
continuing operation on the part of the United States agencies con-
cerned. The largest amounts of new money being made available come
from lire proceeds of the sale of surplus agricultural commodities in
Italy under Public Law 480.
The following are the principal existing economic aid programs:
(a) Public Law 480
(1) Title I.-To date three agreements totaling $119 million have
been concluded, of which about $81 million will be loaned to the
Italians for economic development in the south and other uses. Title
I now represents a very important form of economic assistance to
Italy.
(2) Title II.-The child-feeding program, affecting about 1,800,000
children throughout Italy, is now entering its second year with a
United States contribution of $13.5 million worth of surplus agri-
cultural commodities in this fiscal year. (United States contribu-
tion in fiscal year 1956 amounted to $18 million. It is a successful
program, and public information benefits have been definitely on the
plus side.
Surplus commodities under the winter emergency relief program
valued at $17.5 million are now coming into Italy to replace the dis-
tribution to needy people from Italian stocks last winter and spring.
These commodities are in addition to $2 million worth of corn brought
in to help relieve last winter's feed shortage in certain localities.
(3) Title III.—During fiscal year 1956 United States voluntary
agencies have distributed approximately $40 million worth of United
States surplus agricultural commodities, of which about 90 percent has
been handled by the National Catholic Welfare Council, through the
Pontifical Relief Agency. It is believed that this program, affecting
a significant number of the poorer families of Italy, represents an
effective challenge to the Communist charge that no action is being
taken to relieve the poor and distressed in Italy.
(4) Triangular trade.-In fiscal year 1956, up to $5 million of sur-
plus agricultural commodities were allocated under section 402 of the
Mutual Security Act of 1954, as amended. The lire proceeds of these
sales will finance the purchases in Italy of commodities for third
countries receiving aid from the United States. This program is in
addition to the $10 million equivalent of Public Law 480 (d) (fiscal
year 1955 and fiscal year 1957 agreements), which will finance exports
to Israel and other countries.
(b) Counterpart loan funds
(1) USASUD.-The USASUD (Southern Industrial Develop-
ment Revolving Loan Fund Activities) is a revolving industrial loan
fund established by United States counterpart contribution of about
$18 million from fiscal year 1954 aid, which is administered by Italian
credit institutes. The purpose of the loans is to broaden the base of
industry in southern Italy, Sicily, and Sardinia. Most of the initial
funds have now been loaned out and it is expected that the available.
funds will be augmented by the addition of $14 million from fiscal year
1955 Public Law 480, title I loan funds. $18.6 million of the proceeds
from the fiscal year 1957 agreement will go to this use.
(2) Trieste Loan Fund.-The Trieste Loan Fund is a revolving fund
with assets of about $47 million of repayments of counterpart lire
1318 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
originating from American grants to Trieste during the American
military government period. Most of the funds are loaned out, but
there should be about $4 or $5 million per year available for reloaning
in the Trieste-Gorizia area over which the Embassy United States
Operations Mission has screening powers.
(3) IMI-ERP Loan Funds.-There are currently residuals of about
$6 million from an original $300 million program of industrial loans.
This program should phase out in the next few months.

(c) Productivity loans and grants
(1) National Productivity Committee (CNP).-For the past 4
years, the cost of the National Productivity Committee, amounting to
about $1.75 million a year, has been covered by Italian-owned counter-
part funds generated by past United States aid programs. The Italian
Government intends to assume at least a part of this cost in the near
future, after appropriate legislation now pending has been passed. At
the present time, the agency has under contract nine Americans to
assist in the promotion of productivity in demonstration areas.
(2) Productivity Loan Funds.-This is a $10.6 million revolving
fund recently activated under the supervision of the Italian National
Productivity Committee (CNP), designed to improve productivity in
small industry.
(3) Labor productivity.—This is a 2-year program which started on
September 1, 1956, involving the expenditure of over $400,000 of
"productivity" lire to assist the labor union UIL to train 63 productiv-
ity union specialists. Training in the United States is provided for
part of the people at an additional cost of $122,000.
(4) Housing productivity.—This program, as amended, was author-
ized in the amount of $4 million by Italian legislation passed in 1954.
It is expected that these funds will be expended within the next year
for constructing low-cost housing in 4 or 5 cities in Italy.
(d) Other loans
(1) Export-Import Bank.-During 1955 and thus far in 1956, the
Export-Import Bank has extended credits to Italy amounting to $30
million, in addition to $12.7 million in credits for the purchase by
LAI (Linee Aeree Italiane) and ALITALIA (Aerolinee Italiane
Internazionali) of American aircraft and spare parts. Of the $30
million, $16 million have been earmarked for machinery and equip-
ment for FIAT expansion programs and more than $3 million for
small- and medium-sized firms. All Export-Import Bank loans to
date have been channeled through the Instituto Mobiliare Italiano.
(2) International Bank for Reconstruction and Development
(IBRD).—In 1955, the IBRD extended a $70 million loan to the
Cassa per il Mezzogiorno. The Cassa will spend the equivalent of
$20 million to meet part of the cost of constructing irrigation works
on the Catania Plain in Sicily and will relend $50 million for industry
and power: of this $50 million, $20 million will go to private com-
panies to establish new private enterprises in Sicily and on the south-
ern mainland; while $30 million will be used for seven mainland
power stations and a transmission line. As of June 30, 1956, about
$21 million of the IBRD loan had been disbursed. Italy has signed
another loan for $75 million with the IBRD, this again to be divided
between irrigation, electrification, and new private industries.
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1319
2. Advice and assistance to Italian Government economic development
programs
United States Government representatives in Italy follow the
development programs formulated by the Italian Government, even
when direct United States financial assistance is not involved. Con-
tacts are maintained with the Foreign Office, the Ministries of the
Budget, Treasury, and Finance, and the agencies for the development
of southern Italy.
(1) Atomic energy. The Embassy encourages Italian activities in
connection with peaceful uses of atomic energy. Italy is participat-
ing to the fullest in the training courses being approved at various
United Sates Atomic Energy Commission installations under the
provisions of the President's peaceful uses of atomic energy program.
Thus far, all costs in connection with Italian participation in those
courses have been borne by the Italian Government. Italy's current
bilateral agreement (AE) with the United Sates is now being re-
negotiated to permit an expansion of United States assistance.
(2) Civil Aeronautics mission.-Winding up a technical project
which has been functioning for several years in the area of aviation
safety and traffic controls (at the total cost of $600,000 to the United
States), there are now 2 American specialists from the Civil Aeronau-
tics Administration working in Italy, all expenses being paid by the
Italian Government.
(3) Negotiations and representations. In addition to the activities
summarized above, there is a broad area of politico-economic opera-
tions which involves the entire United States economic organization in
Italy in varying degrees according to circumstances; for example,
negotiation of economic and financial aspects of bilateral agreements
including those regulating United States military expenditures in
Italy; observance of the Friendship, Commerce, and Navigation
Treaty; representations under bilateral tax agreements; and the
investment guaranty program.
3. The mutual defense assistance program
This involves the delivery of military end item equipment of Italian
forces and assistance to Italy in the training of its forces both in the
use of United States equipment and in modern military techniques.
The extensive assistance thus far provided to the Italian forces takes
the form of grant aid.
4. The offshore procurement program
This takes the form of placing contracts with Italian firms for am-
munition, aircraft, naval vessels, electronics, and vehicles of United
States design or type. Supplies and equipment thus procured have
been in large part supplied to the Italian forces under the mutual
defense assistance program, but significant quantities have been deliv-
ered to other recipient countries. Approximately $520 million of
offshore procurement contracts were let in Italy during the period
1952-55.
The fiscal year 1956 offshore procurement program, which is the
current offshore procurement program in Italy, amounts to slightly
over $10 million of orders for ammunition. The latter is matched by
Italian Government contracts with the identical firms for an equiva-
lent amount for the purpose of maintaining valuable production lines
created by the offshore procurement program.

1
1320 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
Between them, the mutual defense assistance and offshore procure-
ment programs account for approximately one-half of present United
States aid to Italy.
I. ADMINISTRATIVE DIRECTION, COORDINATION, AND OPERATION OF
AID PROGRAMS
The Embassy economic section and the United States Operations
Mission, under the policy guidance of the Ambassador, direct, co-
ordinate, and operate present aid programs in Italy. The appropriate
Washington agencies also furnish instructions and policy guidance.
Under Executive Order 10575 of November 6, 1954, all components
of the Rome Embassy, the economic counselor, and the United States
Operations Mission director and their staffs, as well as the agricul-
tural, commercial and treasury attachés, operate solely through the
Ambassador in their policy contacts with their respective agencies in
Washington. Coordination in Rome is achieved by staff meetings and
cooperation between all members of the economic staff of the Embassy
and the United States Operations Mission.
The United States Operations Mission is now relatively small and
phasing out. Its work is integrated with the Embassy economic
section.
The mutual defense assistance program is administered by the De-
partment of Defense with political guidance and assistance from the
Department of State. The Department of Defense must review all
projected programs submitted by the field and, in turn, present these
for Bureau of the Budget approval with Department of State con-
currence and support. The same is true of the offshore procurement
program. Within Italy, the mutual defense assistance program is
administered by the Military Assistance Advisory Group under the
direction of its higher headquarters, the United States European
Command in Paris, with political guidance and assistance as required
by the Embassy which must approve and concur with projected
programs.
The offshore procurement program in Italy is administered by rep-
resentatives of the Ordnance Procurement Center for the Army; Air
Materiel Command for the Air Force; and Bureau of Ships for the
Navy, stationed in Rome. The overall character and size of the pro-
gram is determined by the defense representative to the North Atlantic
and Mediterranean areas, a branch of the Department of Defense in
Paris. The competitions for contracts and the final contracting are
governed by the procurement headquarters of the three services as
mentioned above.
Although both the Military Assistance Advisory Group (MAAG)
and offshore procurement program (OSP) offices have direct com-
munications with their higher headquarters, the coordination between
the Embassy, the MAAG, and the OSP offices on all lines of policy
and operations is extremely close.
Contact between the Ambassador and the Embassy, on the one hand,
and the MAAG and offshore procurement offices on the other, is main-
tained by the office of the special assistant to the Ambassador for the
mutual defense assistance program. This office, composed of 3 For-
eign Service officers, is in close touch at all times with the operations
of the 2 military aid programs, and, in effect, assists actively in the
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1321
planning and implementation of the programs, providing political
guidance as necessary and undertaking numerous negotiations with the
Italian Government concerning them. The Ambassador is kept cur-
rently informed regarding these activities as a result of staff meetings
held three times a week, personal interviews, and semimonthly meet-
ings with the senior officers of the MAAG and OSP during which all
problems of current interest are discussed.
The Military Assistance Advisary Group (MAAG) is composed of
48 officers and 39 enlisted men, together with numerous Department
of the Army civilians and local employees. By function there are 13
administrative personnel, 75 professional, 44 technical representatives,
and 19 clerical, including local employees. The offshore procure-
ment offices contain 16 officers, together with numerous Department of
the Army civilians and local employees. This group breaks down into
8 administrative, 46 professional and technical, and 26 clerical. The
housekeeping functions of the MAAG and offshore procurement offices
are, in large part, taken care of by the Embassy, which provides admin-
istrative support for the two organizations.
Since 1952, a great many Italian firms in the ammunition, explosives,
ship-building, electronics, aircraft, and motor vehicle industry have
received contracts under the offshore procurement program. These
firms are listed below. (See p. 36.) Other firms have benefited
from United States aid funds by virtue of subcontracts. Contracts
made with Italian firms under the offshore procurement program are
carefully screened for political acceptability by the Embassy country
team, composed of representatives of the offshore procurement offices,
the Embassy economic counselor, the special assistant for the mutual
defense assistance program, the labor attaché, and the treasury at-
taché. The motive for such screening has been to encourage the devel-
opment of free trade unions in Italy and to assure the placing of con-
tracts with politically reliable firms which have taken active measures
to cooperate in the discouragement of communism in their organized
labor elements. This effort has borne gratifying results. The offshore
procurement offices are responsible for the close administration of
contracts, quality control, technical advice and end-item inspection
while the office of the treasury attaché is responsible for the imple-
mentation of tax relief and reimbursement arrangements with the
Italian Government regarding the offshore procurement program.
American firms having contracts in Italy in connection with the
mutual defense assistance program are Republic Aviation Interna-
tional, which is supervising the production by certain Italian firms of
spare parts for F-84 aircraft; North American Aviation, which is
assisting the FIAT Co. in the assembly of F-86K aircraft; and West-
inghouse Electric, which is assisting Italian firms in the construction
of microwave stations. These contracts are with the United States
Air Force and are administered by the Air Materiel Command.
As explained above, the mutual defense assistance program in Italy
is determined by the overall goals of the Italian forces under North
Atlantic Treaty Organization defense plans and is geared to providing
that equipment and training for the Italian force buildup which it has
been determined cannot be afforded by the Italian Government. At
the NATO planning level, the Italian and the United States Govern-
ments both approve the force goals decided upon for Italy. At the
bilateral level, the Military Assistance Advisory Group works in close
1322 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
contact with the three Italian military services to determine and
program the needs of those services and the rate of buildup of the
Italian forces. The resources of the Embassy and the Military Assist-
ance Advisory Group are both called upon to judge the ability of
the Italian Government to support a defense program of the magni-
tude involved and to discuss with the Italian Government its defense
budget problems.
The surplus agricultural disposal program is related to the military
aid programs only in the sense that recent offshore procurement con-
tracts and agreements with the Italian Government provide for op-
tional payment by the United States in Italian currency as it may be
developed in the form of counterpart funds under the surplus agri-
cultural disposal program.
Following is the list of Italian firms referred to in an above para-
graph:

Polverifici Stacchini-Roma
FIAT-Turino
Officina Meccanica Pistoiesi-Pistoia
Bombrini Parodi-Delfino-Roma
SIME (Societa Italiana Munizioni Esplosive)—Roma
Nuovo Pignone-Firenze
Fratelli Marzoli-Brescia
Boschi Cinelli-Pertecipazioni-Firenze
SIGME (Societa Italiani Generale Munizioni Esplosive)-Roma
Finmeccanica-Roma (Societa Financiaria Meccanica)
Officina Viberti-Turino
AERFER (Officina di Poniegliano per Costruzioni Aeronautiche
e Ferroviarie)-Naples
Microlambda, Societa per Studi ed Applicazioni di Electrica—
Roma
Trafilerie e Corderie Italiano-Milano
Compagnia Generale Italjet-Roma
Societa Italiana Lavorare Marittimi-Roma
Breda Meccanica Bresciana-Brescia
Breda Meccanica Romana-Roma
Nazionale Cogne-Aosta.
Breda Fucine-Milano
Breda Siderurgica Sesto San Giovane
Breda Fonderia Forgia e Macchine Industriali-Sesto San Gio-
vane
Nuove Reggiane-Reggio
Stablimenti Meccanica Possuoli-Napoli
Ansaldo Meccanico-Genova
SATA (Impiati di purazione Acqua)-Roma
SIMMEA (Societa Industrie Metal Meccanniche Elettriche
Agricole)-Roma
Officina Galileo-Firenze
Cantieri Navali-Taranto
CRDA (Cantieri Riuniti dell'Adriatico)-Trieste
FIAR (Fabrica Italiana Apparecchi Radio)-Milano
Societa Metalurgica-Firenze
Costruzione Meccaniche (Societa Romana)-Rome
SIMMEL Industrie Meccaniche-Castelfranco
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1323
Arturo Junghans-Venezia
Fabrica Nazionali d'Armi, Brescia
Boschi Cinelli Pasquali-Firenze
Renato Sorlini-Brescia
Moncenisio-Turino
Breda Electromeccanica-Milano
Autovox-Roma
Filotecnica-Salmoiraghi-Milano
Breda Ferroviaria-Milano
Piaggio-Genova
Contraves Italiana-Roma
SIAI–Marehetti (Societa per Azioni)-Milano
Officina Meccanica-Brescia
Cantiere Aeronautici Bergomaschi-P. S. Pietro
Fratelli Borletti-Milano
J. RELEVANCE OF OBJECTIVES OF AID PROGRAMS TO SITUATION IN ITALY AND
INTERESTS OF THE UNITED STATES
The relevance of these aid objectives to the Italian situation and to
the interests of the United States is based on the following factors:
(1) Italy is emerging from a status of financial dependence on the
United States to one of relative independence, although still in need
of guidance and cooperation. Both because of psychological factors
and reduced amounts of United States support, the remaining pro-
grams must be more carefully conceived and implemented to insure
continued progress by Italy as a member of the free world family of
nations; (2) Italy has achieved a considerable degree of governmental
stability considering her multiparty system and the existence of a
large Socialist-Communist opposition. However, governmental sta-
bility still depends on the cooperation of the four coalition parties
and governmental crises continue to be a threat to economic and social
progress; (3) Italian economic development and progress in Euro-
pean economic integration should lead to a strengthening of Italian
and European defense capabilities, a rise in Italian and European
trade and payments with the United States and the rest of the world,
an improvement in the economic and political well-being of the
nations of Europe, all effects which are of interest to a growing, free,
and prosperous United States.
On the assumption that the defense of Western Europe, the Mediter-
ranean, and North Africa against Soviet Russia is essential to the
security of the United States, the objective of the mutual defense
assistance and offshore procurement programs to build up the Italian
forces and defense potential within the framework of NATO plans
is well adjusted to the United States security interests. This effort has
been made in accordance with the undertakings of mutual assistance
contained in the North Atlantic Treaty and the objectives of United
States mutual assistance legislation.
The Italian Government is a democratic allied Government friendly
to the United States and actively participating in NATO defense meas-
ures. The principal point of its foreign policy is the support of NATO
and western defense. The ability of the Italian Government to resist
Communist threats from within and without has been greatly strength-
ened by the mutual defense assistance program, with which it has
1324 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
cooperated fully. Since its beginning, the program has helped de-
velop a modern Italian army, an air force, and a navy, which are
adapted to the role of Italy in the defense of the southern European
sector of NATO under the NATO chain of command. During this
time, the reorganization and streamlining of Italian forces has taken
place with United States advice and assistance. A very close rela-
tionship between the United States and Italian military services has
been developed.
K. RELEVANCE OF TYPE AND MAGNITUDE OF AID PROGRAMS TO BASIC SITUA-
TION IN ITALY AND TO THE INTERESTS OF THE UNITED STATES
Despite massive United States assistance in the postwar period and
the progress made in rehabilitating its economic life and building up
its military strength, Italy remains a poor country, faced with the long-
term problems of constructing a viable economy on rather shaky foun-
dations. Right now, there seems to be no prospect of additional eco-
nomic aid from the United States in the pattern of the past, other than
loans and Public Law 480 sales, but it will continue to be an American
interest to encourage the Italians in every way possible to carry out
greatly needed economic reforms, including the establishment of a
rational investment policy, notably in the petroleum area, the extension
of liberal trade and financial policies beyond their present limits, and
the development of an economic program to attack Italy's basic
problem of chronic unemployment.
It is considered to be in the interests of the United States to continue
to support the NATO force buildup, including the development of
Italian forces in accordance with NATO defense planning. The level
of NATO forces, their roles and missions, is under constant review by
NATO military authorities and is subject to the approval of the United
States military authorities. This review takes into account the politi-
cal and military estimates of the threat of Soviet aggression, as well
as the introduction of new weapons and techniques in modern warfare.
In the light of these factors, it is considered that a continuation of
the mutual defense assistance program in Italy is adjusted to the secur-
ity interests of the United States. The magnitude of the present and
future mutual defense assistance programs is determined not only by
military requirements, but by the financial and economic ability of
Italy to support its defense effort. While the Embassy and the Mili-
tary Assistance Advisory Group have been unremitting in their efforts
to persuade the Italian Government to increase its defense budget to a
point at which Italy would be self-sufficient in its military efforts, little
possibility seems to exist under present political and economic cir-
cumstances that Italy can afford to maintain its forces at levels called
for by NATO plans without continued outside assistance. It must be
remembered also that the standard of living in Italy is one of the lowest
in Europe. The Italian defense budget has continued to increase and
now amounts to approximately 23 percent of the total Government
revenue. Defense expenditures amount to approximately 5 percent of
the gross national product, which is expected gradually to increase,
although the gap between financial requirements for defense and
actual financial capability will not be closed for some time. Future
mutual defense assistance programs should take into account the
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1325
necessity for modernization of Italian forces in the light of developing
techniques and new weapons.
It is considered that the present division of United States aid as
between military and economic objectives is well founded from the
point of view of United States interests, and that military aid can-
not be substantially reduced without affecting the strategic situation
and defense capabilities in the Southern European sector described
elsewhere. In view of the Italian financial situation outlined above,
it is considered that military end-item assistance should be continued
on a grant basis.
L. EFFECTIVENESS OF ADMINISTRATIVE CONTROL, COORDINATION, AND OPER-
ATION OF AID PROGRAMS AS RELATED TO THE BASIC SITUATION IN ITALY
AND THE INTERESTS OF THE UNITED STATES
So far as the American units in Italy are concerned, administrative
control and coordination of American aid programs seem, in general,
quite satisfactory. The Ambassador has been following all aid mat-
ters quite closely and exercises coordinating authority without hesita-
tion. I am told that this authority has never been challenged by a
representative of any agency in Rome. The Ambassador has kept in
touch with major developments through periodic staff meetings and
through personal contact with the representatives of the agency di-
rectly charged with administering assistance. In the military aid
field, the special assistant for MDAP affairs has acted as a personal
representative and has maintained close liaison between the Embassy
proper and the Military Assistance Advisory Group. In the field of
economic aid, the Embassy's economic counselor has performed the
same liaison functions with the International Cooperation Admin-
istration mission, of which he is also deputy chief, and, in addition,
is himself directly concerned with the administration of many of the
remaining aid programs.
It appears to me that coordination of economic aid programs would
be easier if all of these programs were directly administered by the
Embassy's economic section and if the present partially separate
International Cooperation Administration mission were abolished.
The operation of the various aid programs, both military and
economic, seems with a few minor exceptions, effective. An excellent
working relationship has been developed between the American staff
and the Italian authorities concerned. There is appreciation on the
part of the Italians of the benefits they receive. There can be no
doubt that American aid since World War II has been a vital and
successful factor in the recovery of Italy and its preservation as a
pro-Western, democratic nation. At the present time, the aid pro-
grams are much smaller than was true a few years ago, but in pro-
portion to their size they are equally effective in promoting United
States objectives. The few exceptions are in small-scale, fringe pro-
grams such as support of the Italian National Productivity Commit-
tee and the productivity housing projects. Even these are undoubt-
edly of some benefit and they involve relatively small amounts of
money and will be terminated within the next year or two without
allocation of any additional, uncommitted funds.
1326 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
M. RELATED UNITED STATES ACTIVITIES WHICH ASSIST OR HINDER THE
AID PROGRAMS IN SERVING THE NATIONAL INTERESTS
Virtually all sections of the United States establishment in Italy
contribute to some degree to the support of the aid programs. The
political, economic, and administrative sections of the Embassy
all work with appropriate agencies of the Italian Government in
negotiating agreements and generally facilitating the operations.
Particular mention should be made, however, of the United States
Information Service, which seizes every opportunity to publicize
United States aid programs and insure that their benefits and charac-
ter are understood by the Italian people. The United States Informa-
tion Service unit works as an integral part of the Embassy and main-
tains contact with those agencies and units administering aid
programs. There are no United States activities in Italy which
hinder the aid programs in serving our national interests.
In addition to economic and military aid (including grants, loans,
and technical assistance), there are two other major United States.
programs in the economic field which help to achieve American ob-
jectives in Italy. These programs are the following:
1. Encouragement of a better foreign investment "climate" in Italy
United States Government agencies have continuously urged the
Italian Government to take all possible action to attract private for-
eign investment to Italy. The technical skills and capital inflow
which accompany foreign investment are particularly important for
Italy's rapid economic development and the related need of covering
her substantial balance-of-payments deficits on current account. This
encouragement by the United States has helped substantially to im-
prove the "climate" for American and other foreign investment in
Italy. The recently approved Italian foreign investment law gives
liberal treatment to foreign investors in transferring earnings and
repatriating capital. The major remaining deficiency in the field of
foreign investment is the absence of petroleum legislation which would
attract foreign capital into the petroleum exploration field in Italy.
Such a law is, however, pending in the Italian Parliament and United
States agencies are urging that this law be passed in as liberal a form as
possible. (Since this report was prepared, the Italian Parliament
has passed an unsatisfactory petroleum exploration and production
law.)
2. Industrial investment guaranties
Italy is one of the countries with which the United States has agreed
to institute an investment guaranty program. Under this program,
a number of United States investors in Italy have been insured against
(a) inability to convert foreign currency receipts into dollars, and
(b) loss through expropriation or confiscation. To be eligible for
the insurance, investiments must be new, but they may be in the form
of equities, loans, licensing agreements, etc. Such investments must
be approved by the International Cooperation Administration (ICA)
as furthering the purposes of mutual security legislation and must also
have the approval of the Italian Government.
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1327
N. RECOMMENDED CHANGES IN AID PROGRAMS
1. Objectives of aid programs in Italy
I do not recommend any change in the objectives of United States
aid programs in Italy.
2. Type and magnitude of aid programs in Italy
I believe that certain minor, fringe programs, especially in the pro-
ductivity field, should be phased out when present commitments are
fulfilled and committed funds have been expended. I do not recom-
mend any other significant change in the type and magnitude of aid
programs.
3. Administrative direction, coordination, and operation of aid pro-
grams in Italy
Administration and implementation of the various programs under
Public Law 480 could be improved if there were more effective and
expeditious coordination in the United States. Conflicts between the
agencies at times have caused delays in the negotiation and implemen-
tation of Public Law 480 agreements in Italy.
O. ECONOMIC ASSISTANCE TO ITALY SINCE WORLD WAR II
1
[Millions of dollars]

Grants
Loans
Procurement
1. From the United States:
(a) Grants and loans:
Pre Marshall plan...
1.258
359
Army civilian supplies..
.413
Treasury civilian supplies (FEA)
.135
UNRRA (United States share)
.417
Post-UNRRA (AUSA).
.117
Surplus property..
144
Export-Import Bank.
150
Maritime Administration..
65
Interim aid……….
.176
ECA-MSA-MDAP allotments.
1. 516
96
April 1948-June 1949…….
.601
67
Fiscal year 1949–50.-
398
6
Fiscal year 1950–51
.244
Fiscal year 1951–52…….
.136
23
Fiscal year 1952–53.-
Fiscal year 1953-54.
Fiscal year 1954-55-
Export-Import Bank.
.102
2.20
.015
42
Fiscal year 1954–55.
Fiscal year 1955–56-
20
22
Public Law 480, title I ³.
Fiscal year 1954–55..
82
30
Fiscal year 1955–56.-
Fiscal year 1956–57--
Public Law 480, title II.
6
46
.038
Public Law 480, title III.
.028
2.840
579
See footnotes at end of table, p. 1328.
1328 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
0. ECONOMIC ASSISTANCE TO ITALY SINCE WORLD WAR II¹-continued
[Millions of dollars]

Grants
Loans
Procurement
1. From the United States-Continued
(b) Procurement:
OPS contracts..
Fiscal year 1951-52.
Fiscal year 1952–53…….
Fiscal year 1953-54.
Fiscal year 1954-55-
Fiscal year 1955–56.
Triangular trade.
Coal program (fiscal year 1954-55)
Public Law 480, title I (fiscal year 1954–55)
Sec. 402 (fiscal year 1955–56)….
(c) Military aid: In excess of.
531
148
238
75
60
10
13
5
CO LO LO
5
3
Total.
2. International Bank.
Fiscal year 1951–52.
Fiscal year 1953-54..
Fiscal year 1954-55.
Fiscal year 1956-57
Total..
1 Figures are allocations and contracts rather than disbursements.
1,000
3.840
579
544
165
10
10
70
75
3.840
744
544
? This excludes $18.5 million under sec. 550, the lire proceeds of which are earmarked for payments on OSP
contracts ($18,2 million) and are included in fiscal year 1955 OSP figures.
• Excludes that part of lira proceeds of commodities shipped to Italy under title I, Public Law 480, which
are destined for U. S. Government uses.
IV. UNITED STATES AID AND THE UNITED KINGDOM
A. UNITED STATES INTERESTS IN THE UNITED KINGDOM
1. Security interest
It is hardly necessary to elaborate upon the strategic significance of
the United Kingdom as a military base and as a source of military
strength. Its geographical location makes it central to the defense
of Western Europe. Approximately 80,000 United States military
personnel and dependents are stationed in more than 20 bases on this
island. The United Kingdom has over 700,000 men and women in
uniform. It has a 2-year compulsory service. Its army, navy, and
air force are prepared to fight and to fight effectively.
The United Kingdom is the largest source of production of military
equipment in the free world outside of the United States. It is spend-
ing approximately $42 billion a year, or about 9 percent of its gross
national product, for defense. In the important category of produc-
tion of major equipment, the United Kingdom contribution is equal
to that of all the other European members of NATO put together.
The United Kingdom has considerable military atomic capability.
These defense resources are reliably available to the West in any
East-West conflict and the British people in the final analysis can be
counted upon to retain a firm attachment to the West despite knowl-
edge that they are a prime target for nuclear attack because of their
views and because of the atomic capability of the United Kingdom
and United States forces located in Britain.
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1329
2. Economic and commercial
Next to Canada, the United Kingdom is the United States' most
important commercial and economic partner. Last year we exported
over $900 million worth of goods to the United Kingdom and im-
ported over $600 million worth of goods from it. The United King-
dom is the largest foreign market for quite a number of American
products, particularly in the agricultural field.
United States nationals have close to $2 billion invested in the
United Kingdom.
The United Kingdom is the center of the sterling area. Approxi-
mately one-half of the world's trade is conducted in sterling. The
stability of sterling and the economic viability of the sterling area
are of the utmost importance to the United States.
The United Kingdom has been and still is, perhaps, the most im-
portant ally of the United States in endeavoring to develop and bring
about a liberal multilateral trading system in the free world.
3. Other interests—religious, cultural, etc.
The religious, cultural, legal and other intellectual and sentimental
associations between the United States and the United Kingdom are
so obvious as to need no elaboration.
The United Kingdom has perhaps the most highly developed and
influential free labor movement in the world outside the United
States.
B. STATUS OF AID PROGRAMS IN THE UNITED KINGDOM
1. United States assistance under the Marshall plan began in April
1948 and ended in December 1950 by agreement of both Governments
because of the progress of Britain's economic recovery. During that
time Britain received a total of $2.7 billion for the financing of its
imports of essential industrial and agricultural commodities. In those
years, the United States also extended technical assistance to the
United Kingdom and economic and technical assistance to the British
overseas territories. These latter programs were continued under the
mutual security program.
2. Since the start of the Korean war, the United States had pro-
gramed $1 billion of financial aid in support of an expanded United
Kingdom defense budget and $1.1 billion of military hardware for
the British forces. With minor exceptions, new aid for the United
Kingdom was discontinued in the spring of 1955 on the grounds that
the United Kingdom was financially able to maintain its defense pro-
gram without United States support. There still remains a consider-
able amount of military hardware to be delivered and there is a small
amount of financial aid for the defense program in the pipeline. Al-
most all of the sterling counterpart from financial aid has been de-
voted to paying for United Kingdom production of major equipment
for the armed forces.
3. In the last 2 years of financial aid, $175 million took the form
of financing the export of United States surplus agricultural com-
modities to the United Kingdom, with the resulting sterling used for
defense production. The United States has also sold the United King-
dom $27 million worth of surplus tobacco. The sterling proceeds are
being used to build houses for the families of United States service-
men stationed in Britain.
1330 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
The view of the British Government and of the United States
officials in London is that this aid has been invaluable in Britain's post-
war recovery. Without this aid, it would have been quite impossible
for the British to maintain the level of defense which they have sus-
tained during this period.
C. BASIC SITUATION IN THE UNITED KINGDOM
The basic problem of the United Kingdom is that it is an island
the size of Oregon with a population of 51 million people which has
to import all its raw materials except coal, and over half its food.
As its level of production and standard of living increases, the de-
mand for imports, and consequently the necessity for exports to pay
for them, increases correspondingly.
There has been a steady increase in the standard of living in the
United Kingdom since the war. Internal controls have been almost
completely abolished. Domestic consumption and wages have, how-
ever, tended to increase more rapidly than productivity and exports.
The result has been strong inflationary tendencies at home, and bal-
ance-of-payments difficulties abroad.
Fairly drastic deflationary measures have been taken to correct
this situation. These have begun to show results. Nevertheless, even
prior to the Suez crisis, there has been an increasing and very wide-
spread feeling in the United Kingdom that it is no longer possible to
maintain a high standard of living at home, to be a source of capital
($400 million last year) for the development of resources for its de-
pendent territories and for the Commonwealth, and to maintain its
military strength and activity at home and abroad on its present level.
In attempting to carry out all of these tasks, the United Kingdom has
lived off its substance and has not sufficiently modernized its econ-
omy. One expression of this is the relatively low rate of British capi-
tal investment as compared with Germany and the United States.
The Anglo-French venture and the events following it have put
the balance of payments under an immediate and very great strain.
This is partly the result of real factors and is partly due to specula-
tive pressures on sterling. The need to spend additional dollars on
Western Hemisphere petroleum is by far the most important of the
real factors. While it is very difficult to make any precise estimates of
this dollar cost, it appears at the moment that it will be in the neigh-
borhood of 50 to 60 million dollars per month for the next several
months. The indirect costs are very difficult to measure, but there
will certainly be interruptions to production, and higher costs result-
ing from more expensive fuel and higher freight rates. All of this
comes at a time when a central export problem has been the extra long
delivery dates quoted by many British industries.
Apart from these expected oil costs and production troubles re-
sulting from Middle East events, there was a heavy run on sterling
by speculators in November. This was the principal reason for the
fall of $279 million in the gold and dollar reserves during November,
to under $2 billion. In a major effort to restore confidence in sterling,
the British have taken a number of steps to increase their reserves.
They have drawn $561.5 million from the International Monetary
Fund and have an additional $738.5 million on a standby arrangement.
They are negotiating with the Export-Import Bank for a large loan
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1331
to finance essential imports, particularly petroleum. They have asked
the United States for a waiver of interest on postwar loans amounting
to $81.6 million. The administration has promised to recommend that
the Congress act favorably on this request. In the event of favorable
United States action, the British will also get a $22.2 million interest
waiver on Canadian loans. All of these measures, and perhaps others
to come, are intended to stop the drain on sterling and to enable
Britain to overcome its short-run economic problem.
The postwar economic difficulties and the current economic crisis
have resulted in a steadily increasing conviction that the time has come
when the United Kingdom must cut down on its defense effort, par-
ticularly since it is obvious that the maintenance of even the present
physical level of defense must inevitably involve sharply increased
costs. The most recent expression of this conviction is Chancellor
MacMillan's statement at the North Atlantic Treaty Organization
ministerial meeting on December 13.
The British are concerned not only with the direct costs of their
present defense effort (30 percent of the national budget); for exam-
ple, payment of troops, cost of equipment and its maintenance, and
the large foreign exchange burden of maintaining troops in Germany
(almost $200 million per year) and elsewhere. They are also gravely
concerned with the indirect costs; for example, the disruption of eco-
nomic life caused by 2-year conscription and by the large number of
men necessary for the services, the cost in exports arising from the
preemption of productive facilities (15 percent of total metal goods
production) and trained manpower for development (two-thirds of a
research and development effort costing about $900 million per year),
and production of military equipment.
Faced with the need for new weapons before it is possible to dis-
pense with conventional weapons, and by the rising costs of building
and maintaining both types of equipment, the British feel that a
fairly drastic reprograming and readjustment of their defense effort
is absolutely essential.
The costs of the Suez enterprise, both overall and in terms of dollar
exchange, sharply accentuate this problem.
The British would genuinely prefer to avoid further economic aid.
They believe that their basic trading position is reasonably sound.
They feel that the measures they are taking to curb inflation will work.
They are pressing on with plans and programs to increase productiv-
ity. They are planning to enter a free trade area with Europe, with
the consequent increase of competition for British industry which
they feel should make it more competitive in the rest of the world
also. They are encouraged by the increase of trade with the dollar
area. They firmly intend to solve their current balance-of-payments
problems without resorting to reimposition of controls on imports
from the dollar area. But they do feel that they must give primary
emphasis to the improvement of their basic economic position, which
is indispensable to their survival. The burden of the defense effort
as it now stands seems to them more than they can continue to support.
This situation obviously calls for careful attention on the part of
the United States and closer cooperation between the United States
and the United Kingdom in the field of new weapons and research and
development than has taken place in the past. A step in the right
94413-57-85
1332 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
direction has already been taken in Secretary Wilson's proposals at
the December meeting of the North Atlantic Council.
Whether Britain's economic position will force cuts in her defense
effort to an extent which would make it in the United States military
interest to provide further military assistance cannot yet be deter-
mined. This is, however, a possibility which cannot be wholly ex-
cluded in our forward thinking. For it is clearly in the United States
interest that the United Kingdom should continue and succeed in her
effort to become and remain economically strong as a major free world
partner of the United States over the long term and also that the re-
sources of capable military manpower and of geography which the
United Kingdom provides should be deployed in the most effective
possible manner in the common defense.
D. UNITED STATES ASSISTANCE TO THE UNITED KINGDOM SINCE APR. 3, 1948
From Apr. 3, 1948, to the present
[Obligation basis, United States fiscal years]
1. Economic recovery program 1948-51_-
2. Mutual defense assistance:
(a) Defense support:
1952
1953__
1954
(b) Direct forces support (special aircraft):
1954
1955
(c) Military assistance:
(1) End items and training, 1950-56 (programed)
(2) Machine tool program, 1951.
(3) Additional RAF program:
1953
1954
(4) Special projects, 1954–56:
Facilities assistance_.
Mutual weapons development.
Million
1
¹ $2, 714
2 $350
409
8 115
874
85
235
120
$850
112
$37
104
21
29
50
$27
3. Agricultural Trade Development and Assistance Act (Public Law
480), tobacco/military housing, 1955–56__
1 Includes loans of $337 million, on which interest payments through June 30, 1955,
have been $34 million. Also includes conditional aid allotments of $351 million.
2 Includes loans of $48 million, on which interest payments begin Dec. 31, 1956.
8 Dollars used to finance sales of United States surplus agricultural commodities, with
the resulting sterling used to provide assistance to the United Kingdom. An additional
$19 million of agricultural sales have been made to the United Kingdom; $5 million of
the resulting sterling is being used to provide assistance to the United Kingdom over-
seas territories in Africa and $14 million will be used by the United States to pay for
military items going to other countries under Mutual Defense Assistance offshore procure-
ment contracts.
4 Excludes United States allocation of $103 million of Hunter aircraft to Royal Air Force
as a part of the Hunter-F86E Sabre exchange.
NOTE.-As of June 30, 1956, the total of mutual defense assistance offshore procure-
ment contracts placed in the United Kingdom was $684 million. The United Kingdom
will receive dollar payment for all deliveries under these contracts, but only a part of
the equipment will be allocated as assistance to United Kingdom forces. Included in
the figure of $684 million are the $37 million and $104 million shown under item 2 (c) (3)
above, and $103 million mentioned in footnote 4. In addition to offshore procurement
contracts placed under the mutual defense assistance program, the United States Armed
Forces placed contracts within the United Kingdom during the period fiscal year 1951-56
for $236 million of items and services for United States use.
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1333
E. ALLOCATION OF 90 TO 95 PERCENT STERLING COUNTERPART FUNDS
(Status as of Oct. 31, 1956)
[Million dollar equivalent]
Total counterpart deposited (cumulative through Oct. 31, 1956)
Less amount transferred to United States Government (5 to 10 percent
counterpart) ---
Total 90 to 95 percent counterpart funds--
Use of 90 to 95 percent counterpart funds:
1. Generated by European recovery program aid (fiscal year 1948-
51 funds):
(a) Short-term debt retirement.
(b) Technical assistance_.
(c) Relief packages---
Total European recovery program--
2. Generated by mutual security aid (fiscal year 1951-54 funds).
(a) Defense production___
(c) Overseas development¹
(b) Productivity (sec. 115 (K))
Total mutual security program.
Total counterpart used.
2,575. 6
148.9
2, 426. 7
1, 706. 7
1.1
1.9
1, 709. 7
699.4
9.6
7.4
716. 4
2, 426.1
· 6
Balance unexpended Oct. 31, 1956.
1 In addition to the sterling funds programed for assistance to the British overseas
territories, the United States has obligated $1.6 million for technical cooperation to the
United Kingdom African overseas territories.
F. ALLOCATION OF STERLING PROCEEDS FROM THE SALE OF UNITED STATES
SURPLUS AGRICULTURAL COMMODITIES UNDER SECTIONS 550 AND 402
(Status as of Oct. 31, 1956)
[Million dollar equivalent]
1. Total sterling proceeds deposited (cumulative through October
31, 1956), 95.9.

Allocated
Expended Unexpended
Use of sterling proceeds:
(a) United Kingdom defense production..
57.2
55.3
1.6
(b) United Kingdom special aircraft-
20.0
18.6
1.4
(c) United Kingdom overseas territories program ¹.
(d) United States use for payments on third country off-
shore procurement contracts..
5.0
.8
4.2
13.7
13.7
Total..
95.9
74.7
20.9
1 In addition to the sterling funds programed for assistance to the British overseas territories, the United
States has obligated $1.6 million for technical cooperation to the United Kingdom African overseas territories.
2. Sterling proceeds expected to be deposited when agricultural
sales are completed:
Programed use of unexpended sterling proceeds:
(a) United Kingdom defense production_
(b) United Kingdom special aircraft_.
(c) United Kingdom bomb component program_
3.7
15.0
25.2
43.9
1334 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
G. UNITED STATES MUTUAL SECURITY SUPPORT TO BRITISH DEFENSE
BUDGET
[By periods when sterling equivalent of aid actually entered United Kingdom budget]
[Million dollar equivalent]
British fiscal years

1952-53
1953-54
1954-55
1955-56
1956-57 1
United States financed proportion of United King-
dom defense expenditure (percent) -
Total defense expenditure (NATO definition).
United States support to defense budget under
mutual security program.
Self-financed United Kingdom defense contribution.
Self-financed as dollars of total United Kingdom
defense expenditure (percent).
4,846
4, 765
4, 724
4, 543
4,784
288
405
180
63
140
4,558
4,360
4, 544
4, 480
4, 644
94.0
91.5
96.2
98.6
97.1
6.0
8.5
3.8
1.4
2.9
1 United Kingdom estimate made in September 1956.
H. UNITED KINGDOM STERLING LIABILITIES
[£ million]

Dec. 31,
1945
Dec. 31,
1949
June 30,
1951
June 30,
1956 1
To nonsterling area countries:
Dollar area…….
34
31
Other Western Hemisphere.
*163
80
Organization for European Economic Cooperation..
412
439
Other nonsterling countries.
* 623
514
518
នគ
73
38
55
25
422
222
364
Total, nonsterling countries.
1, 232
1,064
1, 068
649
To sterling area countries:
United Kingdom colonies..
454
582
908
1,301
Other sterling area countries.
$ 2,008
1,771
2, 195
1,600
Total, sterling area countries.
2,462
2,353
3, 103
2, 901
Total, sterling liabilities to all countries.
3, 694
3, 417
4, 171
3, 550
Nonterritorial organizations…….
576
568
472
Total..
3, 694
3,993
4,739
4,022
1 Redefined as "Overseas sterling holdings." Excludes overseas loans to the United Kingdom Government
expressed in sterling or other sterling area currencies.
* Of which Egypt, £1,260 million.
Sources: Cmd 8976, United Kingdom balance of payments 1946-53. Cmd 3871, United Kingdom balance
of payments 1946-56.
V. PORTUGAL AND UNITED STATES AID
A. SECURITY INTERESTS OF THE UNITED STATES
To insure a continued and effective Portuguese participation in
efforts to achieve greater economic, political, and military integration
and coordination in the North Atlantic area and specifically to obtain
a continuing Portuguese military contribution to the common de-
fense of the North Atlantic area, and the Iberian Peninsula, supported
to the maximum feasible degree by Portuguese resources.
To assist and encourage Portugal in the modernization and equip-
ment of the Portuguese Armed Forces to the extent that they can
effectively contribute toward fulfilling their assigned North Atlantic
obligations.
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1335
To promote Portugal's support of United States foreign policy
objectives in the United Nations, North Atlantic Treaty Organization,
and other international organizations.
B. ECONOMIC AND COMMERCIAL INTERESTS
United States private investment in Portugal is estimated to be
between 11 and 11½ million dollars. Investments are diversified
within production and distribution activities.
The quantity of foreign trade between the United States and
Portugal is reflected by the following table:
Volume of Portugal-United States trade
Portugal's imports
1955
1954.
1953.
1952..
1951.
Portugal's exports
Portugal's
balance-of-

Year
payments,
Dollars
Percent of
total imports
Dollars
Percent of
total exports
dollars
38, 564, 890
9.62
29, 363, 425
10.28
-9, 201, 465
29, 344, 245
8.31
26, 343, 310
10.31
-3,000, 935
32, 725, 560
9.83
36, 249, 045
16. 48
+3, 523, 485
47,844, 335
13.69
34, 638, 905
14.53
-13, 205, 430
50, 192, 590
15. 14
35,557, 550
13. 44
-14, 635, 040
Portugal's leading exports to the United States
[In thousands of dollars]

Commodity
Cork, processed and unprocessed__
Minerals.
Canned fish..
Embroideries_
Wool...
Wines and brandies.
Carob bean flour..
Figs and fig paste.
Olives..
1953
1954
1955
10, 990
9, 603
12, 336
5, 131
4,046
3, 487
11, 774
5, 157
3,996
2,772
2,800
3, 124
1,521
1,176
990
507
309
402
87
157
331
130
89
202
50
154
139
Portugal's leading imports from the United States
[In thousands of dollars]

Commodity
1953
1954
1955
Commodity
1953
1954 1955
Aircraft.
5,778
Spare parts..
921
789 905
Wheat.
8, 754
5,922
3, 111
Iron and steel (hammered
Leaf tobacco_----.
2, 968
2,895
3,078
or laminated)
693
103
697
Tinplate...
2,964
2,876❘ 3,014
Medicinals..
445
579
658
Industrial machinery-
2,716
Chemical products.
241
359
652
Cotton..
2, 134
Tractors
780
829
605
Automobiles.
1,023
Calculating instruments.
514
449
534
Coal..
Lubricants.
133
1,256
1,251
Newsprint..
8
129
528
Refrigerators.
266
376
504
2,018❘ 2,658
1, 221 1, 287
540
1,250❘ 1,088
Portugal does not fit into any major triangular trading pattern in
which the United States is involved.
C. OTHER INTERESTS OF THE UNITED STATES IN PORTUGAL
To promote trade between Portugal and the United States.
To encourage the expansion of the Portuguese economy, thus en-
larging the base for a better support of the Portuguese defense pro-
1338 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
tions lie in the geographic location of the country and the granting
of base facilities. Nevertheless, the will of the Portuguese Govern-
ment to resist enemy attack is highly developed and there is every
reason to believe that the Portuguese people as a whole, despite their
basically peace-loving nature, are behind their leaders. Portugal has
increased its defense appropriations somewhat and it is believed that
with its present budget it will be possible to meet the requirements
arising from the North Atlantic Treaty Organization-approved in-
crease in Portugal' planned forces.
G. SPECIAL OR UNIQUE FACTORS IN THE SITUATION IN PORTUGAL OF
SIGNIFICANCE TO THE OPERATION OF THE AID PROGRAM
Portugal was neutral in the last war so there is no war damage.
Foreign private investment in Portugal is not of significant propor-
tions and there are no United Nations or other aid programs.
H. TYPE AND MAGNITUDE OF AID PROGRAMS IN PORTUGAL
The United States, through a United States Operations Mission
(USOM) has extended economic aid to Portugal amounting to $51.1
million for 1950 to November 1956. The bulk of the expenditures were
made in fiscal year 1951 and 1952; $15.1 million was in the form of
grants and $36 million in loans which are repayable over a 20-year
period. The economic aid was used mainly in the buildup of hydro-
electric facilities and power distribution lines. Part was used for
agricultural improvement such as irrigation projects and chemical
fertilizer production. Some assistance was also given to the establish-
ment of a paper industry, and for mineral and transportation surveys
in the territories. Technical assistance projects have contributed to a
strengthening of the agricultural and industrial sector of the economy.
In addition to mutual security economic aid, Portugal received an
Export-Import Bank loan of $20.2 million in 1952.
Plans are now being made for the complete liquidation of the United
States Operations Mission in Portugal and absorption of its remaining
functions by the Embassy and by the United States mission to the
North Atlantic Treaty Organization and European Regional Organi-
zation in Paris. Included among the remaining functions are: con-
tinued reprograming and release of counterpart funds, which may
amount to as much as 220 million escudos, for projects which include
the establishment of a United States-type M-1 propellants plant and
expansion of Portuguese chemical fertilizer facilities; utilization of
the United States share of Public Law 480 funds and studies in con-
nection with projects to be financed by loans to the Portuguese Govern-
ment under Public Law 480 deals; preparation of International Co-
operation Administration reporting requirements such as analyses
of Portugal's economic position as a North Atlantic Treaty Organiza-
tion member, national income accounting and balance-of-payments
reviews, etc.; participating in exchange of persons programs sponsored
under the Organization for European Economic Cooperation and the
European Productivity Agency.
1. ÈCA/MSA/FOA/ICA dollar and nondollar aid allotted to Por-
tugal during fiscal years 1949-50 through fiscal year 1954–55.
2. Local currency projects.
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1339
3. Technical assistance projects.
4. Agricultural demonstration projects.
United States economic aid to Portugal, under the technical assist-
ance program, is now limited to the financial support of European
Productivity Agency projects in which Portugal is participating.
Recent projects in which Portugal is participating are as follows:
1. Scientists' research project.—Three participants currently study-
ing in the United States and at least three others to depart to the
United States shortly. Duration: 2 years.
2. Training and education of distribution and marketing consult-
ants. One participant. Duration: 3 months.
3. Use of atomic energy and its byproducts in the production,
marketing and distribution of agricultural products.-Four partici-
pants. Duration: 3 months.
4. International Farm Youth Exchange.-One participant. Dura-
tion: 1 year.
5. International School of Nuclear Science and Engineering.-Two
participants. Duration: 10 months.
Military aid to Portugal
Military aid to Portugal is based upon the force bases which are
approved by the United States Joint Chiefs of Staff. The aid pro-
grams which are developed by the Military Assistance Advisory
Group contain recommendations for the materiel from United States
sources and training necessary to assist Portugal in raising and main-
taining the approved force bases. In developing these programs,
assets available to the Portuguese are considered, and no program
requirement is submitted for items which the Portuguese have on
hand, can produce or procure from their own resources, or are fur-
nished by other North Atlantic Treaty Organization countries.
The recommended programs are reviewed by the country team and
then forwarded to the commander in chief, European Command, for
further review and submission to the Department of Defense.
I. ADMINISTRATIVE DIRECTION, COORDINATION AND OPERATION OF AID
PROGRAMS IN PORTUGAL
All aid programs are controlled from Washington with the mission
in Portugal acting as agent for their respective departments or
agencies. The Ambassador, as head of the country team, coordi-
nates both the planning and operation of the programs. The pro-
grams that are submitted to Washington are country-team products
that have been reviewed by all pertinent elements of the Embassy
and bear the Ambassador's personal approval.
Coordination of operations in such a small mission is not difficult.
The Ambassador presides over a weekly staff meeting that includes
all United States elements in the country and the deputy chief of
mission is in daily touch with both the Military Assistance Advisory
Group and International Cooperation Administration missions.

1340 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
The Military Assistance Advisory Group (MAAG) is authorized
56 United States personnel as follows:

Officers.
Enlisted men.
Civilians.
Total..
Army
Navy
Air Force
Total
10
6
10
7
6
10
งง
7
0
24
12
20
2318
26
23
7
56
Of the total of 56, the 7 Department of the Army civilians are cleri-
cal personnel, and 1 officer and 4 enlisted men are primarily engaged
in internal administrative functions.
There are nine local employees engaged in both program and admin-
istrative activities. Six contractual local employees are employed in
such activities as cleaning, gardening, and building maintenance.
Of the Embassy administrative staff of 10 Americans, 12 Marine
security guards, and 51 local employees, 18 local employees are directly
engaged in administrative support to the Military Assistance Advisory
Group, and approximately 10 man-years of American security guards
and local staff are engaged in support activities. Support activities
rendered by the administrative staff of the Embassy are security, per-
sonnel, communications, transportation, property, procurement and
supply, and budget and fiscal.
The staff of the office of the International Cooperation Administra-
tion (ICA) representative consists of 1 American officer, 1 American
stenographer, and 4 local employees. Current plans call for a complete
phase-out of this staff early in 1957.
Of the Embassy administrative staff of 10 Americans and 12 Marine
security guards and 51 local employees, approximately 2 man-years of
American, security guard, and focal positions are devoted to adminis-
trative support of the International Cooperation Administration.
Eight American civilians are currently assigned as contract tech-
nicians in the fields of electronics and aircraft maintenance. These
technicians are under direct supervision and control of the Military
Assistance Advisory Group.
Private contracts under aid program (United States contractors under
Portuguese contracts financed from United States funds)
E. J. Longyear Co. ($800,000)
6
Geological survey in Angola and Mozambique. Original contract
dated June 1, 1952, and extended by amendment No. 7 for completion
of report to June 30, 1955.
Aero Service Corp. ($326,000)
Aerial photography of certain areas in Angola and Mozambique
for use by E. J. Longyear in geological survey. Original contract
dated July 1, 1952, and extended by amendment No. 5 for completion
to April 30, 1956.
Thompson Construction Corp. and Knappen Tippets Abbott
Engineering Co.
Contract No. 1, $15,000.-To review proposals which have been re-
ceived by the Government of Portugal in response to their request
• Shown under technical assistance projects from July 1950 through July 1956.
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1341
for bids on construction of harbor facilities at Beira. Original con-
tract dated March 24, 1950.
Contract No. 2, $39,600.-To check the designs and shop drawings
of contractor's designs and to furnish periodic general inspection and
supervision of the execution of the work which the contractor does in
connection with construction of the harbor facilities of the port of
Beira.
Knappen-Tippetts-Abbott-McCarthy-Douro River Valley
survey ($209,355)
Original contract dated November 1, 1951, and extended by amend-
ment No. 3 for completion to June 30, 1955.
World Mining Consultants ($114,221)
Exploration and development of underground water supplies in
certain areas in the Portuguese Territory of Angola, original contract
dated December 27, 1954, and extended by amendment No. 3 to Novem-
ber 1, 1956.
Hydrotechnic Corp. ($165,000)
To conduct investigation, survey, and report on an irrigation and
hydroelectric program for Cuanza, Lucala, and Bengo River Basins
in Angola. Original contract dated January 13, 1954, and extended
by amendment No. 3 to November 30, 1955.
Title I, Public Law 480, program
A sale of roughly 100,000 tons of surplus wheat was made to Por-
tugal in May 1956 under the title I, Public Law 480, program. Of the
total proceeds, $7.1 million, resulting from this sale, $3.4 million have
been loaned to Portugal to construct badly needed storage facilities
for grain, potatoes, and bananas. The loan is repayable in dollars.
at 312 percent interest over a period of 40 years. The balance of the
proceeds will be utilized by the United State Government to finance
various projects, including an educational-cultural exchange program.
J. RELEVANCE OF OBJECTIVES OF AID PROGRAMS TO SITUATION IN PORTUGAL
AND TO THE INTERESTS OF THE UNITED STATES
In the light of the realities of the situation in Portugal, the present
objectives of the aid program seem to be well adjusted to both the
security and commercial interests of the United States.
K. RELEVANCE OF TYPE AND MAGNITUDE OF AID PROGRAMS TO THE BASIC
SITUATION IN PORTUGAL AND TO THE INTERESTS OF THE UNITED STATES
In planning the mutual defense assistance program, it has been
necessary to keep in mind the limits of Portuguese ability to support
a military establishment as well as the importance of a sound and
expanding economy. The division of military and economic assistance
has been made on this basis as has the proportion of loans to grants.
L. EFFECTIVENESS OF ADMINISTRATIVE CONTROL
As has been pointed out above, the aid mission in Portugal is small.
The International Cooperation Administration is phasing out and
1342 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
turning residual functions over to the economic section of the Em-
bassy. The Military Assistance Advisory Group is scheduled to be
reduced from 56 Americans to 41 as of July 1, 1957. This phase-out is
in line with the policy of encouraging the Portuguese to plan, carry
out, and finance as much as possible of their own security and develop-
ment plans. Thus the total United States effort in Portugal is rela-
tively small and all elements of its operation are considered part of
the Embassy "family".

M. RELATED ACTIVITIES
•
All phases of the United State mission in Portugal are designed to
assist and complement each other. In this connection, the United
States Information Service plays a major role in furthering Por-
tuguese public understanding and appreciation of the aid programs.
The work of the political and economic sections of the Embassy is
likewise geared to facilitate and assist the programs in their spheres.
There are no United States activities that hinder the program.
N. RECOMMENDED CHANGES, IF ANY, IN AID PROGRAMS
No changes are recommended at this time. The situation must, of
course, be kept under constant review in the light of changing world
conditions and United States interests.
VI. SPAIN AND UNITED STATES AID
A. SECURITY INTERESTS OF THE UNITED STATES
Spain today is an important link in our mutual defense system.
Spain's political stability and her present defense arrangements with
the United States provide assurance for continued United States Air
Force and Navy operations in Western Europe and the Mediterranean
area. Consequently, the adequate defense of Spain assures the ade-
quate defense and protection of our vital base complex in Spain.
The United States has air and naval bases, as well as facilities for
storage of petroleum and ammunition, under construction in Spain.
The agreement of September 1953 provides for the right to construct
and freely operate these bases and facilities. This freedom to operate
from these bases is of importance to United States security interests.
In view of United States Air Force support of allied military oper-
ations in Western Europe, the defense of Spain contributes to the
overall defense of major allies of the United States.
B. ECONOMIC AND COMMERCIAL INTERESTS OF THE UNITED STATES
The renewed American interest in Spain resulting from the military
and economic agreements of 1953 has not been followed by a wide-
spread attraction of United States capital. The fact is that the invest-
ment climate has not been such that capital investment can be attracted
in large amounts. The principal reasons for this are the limitations.
on the proportion allowable to foreign investors in a Spanish indus-
trial corporation, and the inability to repatriate capital and to remit
profits in a normal manner. Faced with these conditions, American

PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1343
risk capital is more readily attracted to other areas of the world.
The Spanish law for the promotion and protection of national indus-
tries of November 25, 1939, specified that at least three-quarters of
the capital of industries established shall be owned by Spanish citi-
zens. No more than 25 percent, either in money or in capital installa-
tions, may be foreign-owned. This limitation on participation has
discouraged many serious foreign investors, and correspondingly
restricted the money available for development of many industrial
enterprises here. I am told that the Ambassador and other officers
of the Embassy have emphasized on every appropriate occasion the
self-defeating nature of such limitations, and have pointed out that
Spain is foregoing an opportunity to build its industrial structure
in a way very similar to the industrial growth of the United States,
which was based largely on foreign investment until it became a
creditor nation. During this past year, there have been increasing
instances in which the Council of Ministers has authorized exemptions
to these percentages to permit foreign participation in certain indus-
tries up to 49 percent. These are encouraging indications of a gradual
but, it is hoped, fundamental change in thinking on this subject.
Another hopeful sign, which may indicate that Spain's basic philos-
ophy on the subject of foreign investment is changing, is the reception
which certain United States petroleum enterprises have been given
during 1956, and their attempts to make satisfactory agreements with
the Spanish Government to permit them to enter Spain in order to
explore and later develop such petroleum reserves as may be discovered
here. As can be readily understood, a sense of urgency has been felt in
this matter as a result of developments in the Middle East, for Spain
is normally entirely dependent upon crude oil shipped from the Per-
sian Gulf area. If and when the petroleum law is promulgated, it is
hoped that several international petroleum companies will enter Spain
to search for petroleum and that this may well be the key to changing
the Spanish Government's attitude toward foreign investment.
One other major shortcoming to increased investment of private
United States capital in Spain results from the serious shortage of
foreign exchange which has been a chronic complaint with which
Spain has had to contend. The practical result is that foreign in-
vestors are almost never able to repatriate their profits, which accrue
in Spain as "blocked peseta accounts," not accessible except for ex-
penditure in Spain.
In article II (1) (f) of the Economic Aid Agreement of September
26, 1953, Spain undertook to establish a payments arrangement for
the progressive conversion of such balances. However, the realities
of her continuing economic plight have prevented any effective ad-
vance on this problem. No ready solution to this condition is seen,
as the basic problem will continue until Spain can achieve an effective
balance in the terms of trade, which of course, is a function of in-
creased productivity. It is presumed that there would be somewhat
over a billion pesetas owing to United States nationals in various
forms, or perhaps as much as 25 to 30 million dollars at current rates
of exchange.
Article III of the 1953 Economic Aid Agreement also established
an investment guaranty program for Spain. There have, however,
been very few United States applicants for participation in this pro-

1344 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
gram, and it has not yet become a factor of much significance in United
States investment in Spain.
A relatively small proportion of American investment here is in
industrial firms producing capital goods. Among these are firms such
as Westinghouse Air Brake Co. and Westinghouse Electric Interna-
tional, International General Electric Co., Singer Sewing Machine
Co., Radio Corporation of America, National Cash Register Co., Inter-
national Telephone & Telegraph Corp., Colgate-Palmolive Interna-
tional, Armstrong Cork Co., American Cyanamid Co., Worthington
Pump, and Babcock & Wilcox.
The majority of United States firms active here are sales organiza-
tions or provide services rather than produce goods. In the communi-
cations field, there are the news agencies, such as the Associated Press
of America, the United Press Associations, and periodicals, such as the
Time-Life International and the Reader's Digest Association. The
circulation of United States periodicals in Spain is not great, primarily
because relatively few Spaniards are able to read English, but also
because of the duty levied on imported publications. Earlier this
year, the ratio for payments in currency of duties fixed in gold pesetas
was doubled, to compensate for the progressive depreciation in the
value of the peseta, which was particularly burdensome on periodicals,
as their duties are assessed by weight, not ad valorem. An information
media guaranty program agreement has recently been put into effect
by Spain and the United States, and this may facilitate circulation
of American publications and the like in Spain.
In the travel field, there are the American Export Lines, United
States Lines, Lykes Brothers Co., American Express Co., Hilton Ho-
tels, Pan American World Airways, and Trans World Airlines. The
notable increases in tourist and commercial travel to Spain in the
last 2 or 3 years have resulted in a considerable increase in business
for all travel facilities and agencies in Spain, including these United
States companies.
In the motion picture field, there are a number of companies, such
as Columbia Pictures International Corp., Loew's International Corp.,
Paramount International Films, RKO Radio Pictures, Inc., Twenti-
eth Century Fox Films, Inc., Universal Films, Inc., and Warner
Brothers Pictures, International. During the past 2 years, they have
produced a number of motion pictures in Spain, taking advantage of
the scenic features of the country, and the lower costs for many re-
quired services. However, the basic agreement between the Motion
Picture Association of America and Spanish interests has expired and
until acceptable terms for renewal can be agreed upon, American film
distribution activities in Spain are considerably handicapped.
In the finance and insurance field, there are such firms as Dun &
Bradstreet, Inc., the Great American Insurance Co., Insurance Com-
pany of North America, New Hampshire Fire Insurance Co., and
the American International Underwriters of Spain.
Returning for a moment to the field of petroleum mentioned above,
there are two American companies which have invested in the Span-
ish industry. One, the California Texas Oil Co., Ltd. (CALTEX),

PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1345
which holds a 24-percent interest in the REPESA refinery, is the
only crude oil refinery on the Spanish mainland. This investment,
however, is limited to the supplying of 75 percent of the crude oil
requirements of that refinery for such time as it may take to repay
its investment in the refinery. Although the figures are not available,
it is assumed that it will take from 10 to 12 years for this investment
to be repaid. The General American Oil Co., on a 50-percent basis
with Instituto Nacional de Industria (INI), represents the only Amer-
ican interest thus far to search for petroleum reserves in Spain. Un-
fortunately, no commercial success has been realized, but the scale of
effort has likewise been extremely limited. Apparently the American
concern is feeling discouraged.
In considering the question of "normal" trade between Spain and
the United States, it must be kept in mind that there are two basic
influences on the pattern of trade which are in constant operation:
(a) the stringent licensing controls on imports and exports by the
Spanish Ministry of Commerce, forced on the economy by the chronic
shortage of foreign exchange, not only dollars but almost all other
currencies as well; and (b) the substantial dollar grants under the
United States economic aid program, which affect the situation. All
imports, for example, are classed in six major categories, each with a
different exchange rate for the peseta, and each with a different pro-
portion of foreign exchange to be furnished by the Government's
exchange control agency, as a measure to encourage trade in certain
goods, and to discourage it in others.
The total value of United States-Spanish trade during the past 5
years is summarized in the following table:

Year
United States exports to
Spain
United States imports from
Spain
Dollars 1
Pesetas 2
Dollars 1
Pesetas 2
1955___
1954..
1953.
1952.---
1951.
153, 526, 000
98,685,000
70, 238, 000
57, 422, 000
111,042, 000
345, 571, 417
220,038, 336
264, 937, 524
192, 214, 659
58,534,000
64, 802, 000
63, 313, 000
62, 630,000
59, 958,000
143, 565, 064
152,728, 600
114, 574, 314
199, 108, 916
1 Dollar figures from Statistical Abstract of the United States, 1956, p. 916.
• Peseta figures from the issues of Estadistica del Comercio Exterior de Espana; values in gold pesetas
3.061 per dollar.
Statistics from both United States and Spanish official sources are
shown in the table for comparison, as there are certain differences in
the bases of valuation between the two. The Spanish statistics show
the cost, insurance, and freight customs valuation of the United
States exports to Spain, and the free-on-board valuation of the United
States imports from Spain.
Spain's basic problem in world trade can be illustrated readily by
comparing the commodities which she exports with those which she
imports. Following are listings of Spain's principal imports, com-
1346 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
paring those from all countries with those from the United States,
for 1954: 7
Spain's imports from all countries, in | Spain's imports from the United States,
order of value
in order of value
Electric motors, dynamos---
Bituminous coal___.
Metal, woodworking machin-
ery--
Passenger automobiles
Other electric equipment_
Agricultural machinery.
Trucks and vans---
Phosphate rock
Thousands
Thousands
$16, 392
13, 928
Wheat___
Raw cotton.
$38, 463
27,809
Aircraft____
5, 615
13, 574 Lubricants
4, 213
13, 199 | Bituminous coal
3, 413
12, 287 Raw tobacco……….
3,068
11, 441
11, 431
Electric motors, dynamos__
Construction, mining equip-
2,476
10, 894
ment__
1,769
10, 768 Cigarettes--.
1,502
1, 473
Railway equipment-
Iron and steel bars__
10, 646 Agricultural machinery
Following are listings of Spain's principal exports, comparing
those to all countries with those to the United States, for 1954.8
Exports to all countries in order of | Exports to the United States, in order
Oranges---
Diesel oil____
Wines
Iron ore---
Olive oil____.
Bananas
Iron pyrites_---
Olives--
value
Filberts and chestnuts...
Mercury
of value
Thousands
$71, 782
32, 001
21, 388
Thousands
Olives___
Wolframite and other
$12, 049
tungsten ore___
8, 920
17, 285
Olive oil..
5, 850
16, 855
Mercury
3, 819
15,900 Cork_---
2, 436
13, 809
1, 999
1,922
1, 014
892
Lead___
13, 524 Paprika…-
12, 239 Fluorspar_-
8, 381 Wines.
Almonds
801
Spain's principal exports to the United States are either nonbasic
food items, which are most vulnerable to discontinuance in time of
economic stress, or unprocessed ores and raw materials. Furthermore,
the one outstanding export commodity, citrus products, is not one
which is or could be made competitive in the United States market.
On the other hand, the merchandise which Spain must import, in-
cluding her imports from the United States, are basic agricultural
items, prime fuels and agricultural and industrial machinery of
indispensable importance to her economy.
Normal trade is, at the present time, somewhat limited due to the
shortage of dollar exchange available for other than articles of prime
necessity to the welfare of the Spanish populace. It should be borne
in mind that Spain's natural trading partners are the Western Euro-
pean and Mediterranean countries.
The strategic and critical materials available in Spain and supplied
to the United States in quantity have been mercury, wolfram ore (for
tungsten), and more recently, lead pigs and scrap. The following
table shows the quantities and values of these materials exported to the
United States during the past 3 years.
9
"Data from Department of Commerce World Trade Information Service report, pt. 3,
No. 56-24, Foreign Trade of Spain, 1953-55.
8 Data from Department of Commerce World Trade Information Service report, pt. 3,
No. 55-24, Foreign Trade of Spain, 1953–55.
• Sources: Department of Commerce World Trade Information Service report, pt. 3,
No. 56-24: Foreign Trade of Spain, and Estadistica del Comercio Exterior de Espana, 1955,
vol. 1, pp. 16, 159, 163.
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1347

1955
1954
1953
Material
Metric tons Amount Metric tons Amount Metric tons
Amount
Wolfram ore..
Mercury.
Lead
830
270
11, 556
$2,928,000
1,948, 000
3,247,000
2,426❘ $8,920, 000
835
7,449
3,819, 000
1,999, 000
2,653❘ $10, 215, 000
861
None
3, 961, 000
None
Wolfram shipments have been tapering off rapidly during the past
year or so, but mercury exports are on the increase, both for strategic
stockpiling and normal industrial use.
C. OTHER INTERESTS OF THE UNITED STATES IN SPAIN
From a military point of view, the United States is interested in
commercial capabilities in Spain to the extent that local procure-
ment of fruits and vegetables can be made possible. Procurement of
services, such as rail transportation and telecommunications, also is
significant.
Perhaps the principal other United States commercial interest in
Spain is in business arrangements by which a firm in the United
States licenses a Spanish firm to manufacture its products or use its
patents, upon payment of a royalty on the sale of the products. As
the royalty ratio generally does not exceed 5 percent, the Spanish For-
eign Exchange Institute has given more favorable consideration to
dollar royalty remittances to United States licensors than to profits
of straight investments in Spanish business enterprises. At the pres-
ent time, it is understood that royalty remittances are virtually cur-
rent. There are no basic statutes establishing royalty procedures in
Spain, and licensing applications are dealt with by administrative
decision on a case-by-case basis. Spain adheres to the International
Convention for the Protection of Industrial Property, and United
States patents and trademarks are protected in Spain in accordance
with its terms.
And, of course, a great many United States firms have sales agents
or representatives in Spain who operate on a commission basis for any
merchandise which they may be able to sell, and for which they may be
able to obtain import licenses.
The only major Spanish transactions with third countries in which
the United States has played a part have been within the economic
aid programs, in the utilization of local currency counterpart balances
of the United States Government. However, there have been no
significant transactions of a purely commercial character.
Instances have been reported in which Spanish produce is imported
by the United States from other countries in "switch" transactions
which may operate to deprive Spain of the dollar payments. Thus,
Spanish hides sold to a firm in Italy for lire may be reexported to the
United States by the Italian purchaser for dollars-the dollar credit
accruing to Italy and not to Spain.
Spain has negotiated bilateral trade and payments agreements with
practically all the countries with whom she has any considerable trade,
and nearly all imports licensed are in fulfillment of trading obliga-
tions under such agreements.

94413-57-86
1348 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
D. NATURE OF ECONOMY OF SPAIN AND CAPACITY FOR DEVELOPMENT
1. Structure of the Spanish economy
The Spanish economy may be termed "semideveloped." There is
an extremely low standard of living. Per capita gross national
product is only about $265 and food consumption is about 2,500 calories
per day. There is substantial concealed unemployment and under-
employment, most acute in the agricultural sector, where an excessive
portion of the working population (49 percent) contributes approxi-
mately one-third of the gross national product. Expanding agricul-
tural productivity is of key importance because of increasing internal
demands for food and because exports and imports of agricultural
commodities are critical items in Spain's foreign trade. To absorb
the excess agricultural population a more than proportionate growth
is required in industry. Specific problems of Spanish agriculture are
extreme sensitivity to weather conditions, the monocultural pattern
of many areas and the absence of effective demand which could break
the monocultural pattern, for example, shifting from marginal pro-
duction of wheat to cattle.
Spanish industry can be characterized as insufficiently integrated
and with relatively small, inefficient, and antiquated units. It is ham-
pered by electric power shortages, lack of industrial_raw materials
and modern machinery and by serious gaps in basic industries. Elec-
tric power consumption is one of the lowest in Europe and recurring
restrictions on its use have an obvious effect on the costs of industrial
production. Steel production is slightly over 1 million tons per year,
a small total for a country which possesses a substantial part of the raw
materials necessary for steel production. Though Spanish coal pro-
duction has been rising, it is still necessary to import important quan-
tities of coal and coke. Nevertheless, the resource base for further
industrialization exists. A major handicap is complete dependence
on imports for petroleum. There is some evidence that petroleum
deposits may exist but insufficient exploitation effort has been made
to date.
The rail and highway transportation systems are unable to give full
support to economic development. The added cost factor introduced
by the transportation system seriously affects the ability of the country
to compete internationally and to broaden internal markets.
Spanish foreign trade and a lack of foreign exchange reserves is the
economy's greatest single weak point. The level of exports is low and
is insufficiently diversified, with citrus fruit alone accounting for 20
to 25 percent of export earnings. There has been little or no effective
attempt at export promotion. Exports of manufactured goods have
been hampered by rising price levels, unreal multiple exchange rates
and high cost production due to industrial and transportation weak-
nesses. Tourism is the biggest single foreign exchange earner.
Import composition is altered from time to time by extremely heavy
imports of grain or other agricultural commodities such as edible oils,
when weather conditions do not permit normal production. There is
a substantial pent-up demand for almost all types of imports.
2. Capacity for economic development
(a) Agriculture
An increase by 1960 of approximately 400,000 hectares or 25 percent
over the amount presently under irrigation would considerably ease
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1349
sensitivity to weather conditions and would enable the increase of
agricultural exports to countries in the Organization of European
Economic Cooperation. Although a certain amount of foreign ex-
change would be required for carrying out such a program, the major
need is for local resources. Complementary measures to increase agri-
cultural productivity, which are currently being carried out under the
defense support programs, are (1) land consolidation and resettle-
ment, (2) reforestation, and (3) a strong technical exchange program
in extension services, soil conservation services, pest control, livestock
improvement, irrigation and reclamation and marketing facilities.
(b) Electric power
During calendar year 1955, the production of electric power
amounted to 12.2 billion kilowatt-hours. Production in 1956 is at a
rate approximately 15 percent higher. To achieve the rate of gross
national product growth required, it is estimated that by 1962 the
demand for electric power will amount to 24.5 billion kilowatt-hours
per year. This increase would require an additional 4 million kilo-
watts of installed capacity, with practically all of the equipment
required for this increased capacity to be imported.
(c) Steel industry
The Spanish steel industry has failed to keep pace with limited
industrial development in other sectors. It has been necessary to
impose severe restrictions on use of iron and steel with a consequent
unfavorable effect on the economy.
(d) Transportation and communications
The rail transport system is a serious handicap to general develop-
ment. War damage and lack of maintenance and construction over a
period of years have left Spain with an antiquated system.
(e) Coal mining
Spain will need to produce approximately 162 million metric tons
per year by 1962 if a reasonable rate of growth is to be obtained.
Bituminous coal production by 1955 amounted to 10.4 million metric
tons compared with an estimated internal demand of 12.1 million
metric tons.
(f) Mining, other than coal
A 15 percent increase in levels of production of Spain's nonferrous
mineral resources can reasonably be expected with minimum outlays
of foreign exchange.
(g) Cement
In order to supply minimum demands for cement, production would
have to increase by 1962 to approximately 6 million tons compared
with the present production of 3.4 million tons.
(h) Chemical industry
Production of nitrogenous fertilizer is the single most important
problem facing the Spanish chemical industry. Present production
amounts to about 300,000 metric tons but agricultural programs now
in progress indicate that by 1962 requirements will be about 1 million
metric tons per year.
1350 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
E. SPECIAL ECONOMIC FACTORS OF SIGNIFICANCE TO THE UNITED STATES
AID PROGRAM
Unusual problems inhibiting development include extreme sensi-
tivity of the Spanish economy to weather conditions, and the long
period of isolation of the economy caused by the Spanish Civil War,
World War II, and the subsequent condemnation of the Franco Gov-
ernment by the United Nations.
The sensitivity of the Spanish economy to adverse weather condi-
tions is a result of its dependence on the export of oranges and other
special agricultural products and because it is unable to produce
enough basic foodstuffs to feed its own population unless optimum
weather conditions prevail.
The isolation of Spain has prevented the introduction of new tech-
niques in the social sciences as well as in purely technical fields. The
technical exchange program, the United States base program, and
the increasing flow of tourist traffic are helping to lessen the problem
but it is still significant.
There is no significant amount of foreign private investment in
Spain. The Spanish fear exploitation by foreigners and there is also
a feeling that if investment in a particular industry is worthwhile,
it should be held in Spanish hands. These motives are particularly
noticeable with respect to mineral resources. Despite Spain's present
inability to make sufficient outlays for a comprehensive program of
prospecting and drilling for oil, it has been reluctant to grant entry
to major foreign oil companies which are prepared to make the neces-
sary capital outlays.
There is no aid program of the United Nations or other friendly
countries in Spain.
There are no activities carried out by Soviet countries. Spain is
rigorously anti-Communist and does not have diplomatic relations
with the Soviet Union.
Under the terms of the United States-Spanish Defense Agreement
of 1953, the United States Government has agreed to support Spanish
defense efforts by providing military end-item assistance to the Span-
ish, during a period of several years, which will contribute to the
effective air defense of Spain and which will improve the equipment
of its military and naval forces.
F. OBJECTIVES OF THE UNITED STATES AID PROGRAM IN SPAIN
Economic aid objectives are to support United States military pro-
grams and to provide economic assistance to key areas in the economy
which will contribute toward this end.
G. MAGNITUDE AND TYPE OF OPERATING AID PROGRAMS
Consolidated fiscal years 1954 through 1957 provide for $350 million
in military end-item equipment, related spare parts and tools and
certain training to the Spanish armed forces.
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1351
United States nonmilitary aid to Spain consists of the defense sup-
port program and the program of United States agricultural sales
and grants under Public Law 480.
1. Defense support
Total assistance authorized thus far for fiscal years 1954 through
1957 amounts to $280 million. Cumulative arrivals through October
31, 1956, were reported at about $151 million, or about 54 percent of
total defense support authorized. (For distribution of aid by fiscal
years and by type see tables I and II, which follow.) Of total defense
support assistance authorized through fiscal year 1947, $260 million
is provided on a grant basis and $20 million as a loan.
The defense support program for the most part has been directed
into the following categories: agriculture, power, transportation,
capital equipment for key industries (steel, mining, and cement), in-
dustrial raw materials (chiefly raw cotton) and essential agricultural
commodities. A more detailed breakdown of defense support as-
sistance to Spain by economic sector appears in table III.
Counterpart of defense support assistance is utilized by agreement
with the Spanish Government for the following general purposes:
(1) 30 percent for defense-related economic development, such as rail
and road transportation and communications; (2) 60 percent for base
construction; and (3) 10 percent to defray United States peseta ob-
ligations in Spain (see table IV for local currency availabilities).
2. Public Law 480, title I sales
Sales of United States agricultural surplus commodities to Spain.
for pesetas under title I of Public Law 480 have served United States
objectives in Spain mainly by filling gaps in the domestic supply of
essential foodstuffs and cotton. These commodities consist primarily
of edible vegetable oils, cotton, frozen meat, corn, and tobacco.
Total Public Law 480 sales for Spanish use approved through
November 30, 1956, amount to $171.8 million. Of this total, arrivals
into Spain through November 30, 1956, amount to approximately $85
million.
Of total proceeds from sales of United States agricultural com-
modities to Spain, which amount to $171.8 million in pesetas plus $7
million in triangular sales under Public Law 480, the equivalent of
$110 million in pesetas is being loaned to Spain for a period of 40
years for economic development and $68.7 million in pesetas are being
utilized for United States purposes in Spain.
3. Public Law 480, title III grants
Spain has been granted a total of $36 million in agricultural food-
stuffs under title III of Public Law 480 for distribution through vol-
untary relief agencies. These commodities consist mainly of pow-
dered milk, cheese, beans, and butter.
1352 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
TABLE I.—United States aid programs approved for Spain by fiscal year
[In millions of dollars]
Fiscal year 1954: Defense support, total for fiscal year….
Fiscal year 1955:
Defense support---
Public Law 480, sales.
Public Law 480, grants.
Total for fiscal year---
Fiscal year 1956:
Defense support
Public Law 480, sales-
Public Law 480, grants-
Total for fiscal year-
Fiscal year 1957:
Defense support
$85.0
¹ $85.0
47.7
8.6
$141. 3
$60.0
64.8
Public Law 480, sales----
Total for fiscal year.
Grand total__
27.4
152.2
$50.0
59.3
109.3
487.8
1 Includes $55 million in United States agricultural sales to Spain under Public Law
778, sec. 109.
* Program agreed upon thus far for fiscal year 1957.
TABLE II.—Programs for United States aid to Spain by type of assistance
Defense support:
Fiscal year 1954…….
Fiscal year 1955………….
Fiscal year 1956.
Fiscal year 1957……….
Total..
Public Law 480 (title I sales):
Fiscal year 1955_
Fiscal year 1956…….
Fiscal year 1957.
Total..
Public Law 480 (title III grants):
Fiscal year 1955..
Fiscal year 1956…….
Total...
Grand total..
[In millions of dollars]

Total
Of which
technical
exchange
$85.0
$0.4
1 85.0
.6
60.0
2.0
50.0
1.5
280.0
4. 5
47.7
64.8
* 59.3
171.8
8.6
27.4
36.0
487.8
¹ Includes $55 million United States agricultural surplus sales to Spain under Public Law 778, sec. 109,
$20 million of the peseta sales proceeds being made available to Spain in the form of a 40-year loan.
* Program agreed upon thus far in fiscal year.
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1353
TABLE III.—Breakdown by sector of United States defense support assistance
authorized for Spain
Sector
[In millions of dollars]


1954
1955
Fiscal year Fiscal year Fiscal year Fiscal year
1957
1956
Total
through
1956
Agriculture (machinery, seeds, livestock,
etc.).-
4.8
2.1
2.8
9.7
Irrigation and reclamation.
3.7
2.6
2.0
8.3
Hydraulic works.
2.0
.8
1.0
3.8
Electric power-
12.5
6.0
8.2
26.7
Transportation:
Railways..
Highways.---
Civil aviation…….
Coal-mining industry.
Steel industry.
Cement industry.
11.0
5.0
9.0
25.0
3.0
3.0
.7
1.0
.8
2.5
2.0
2.0
8.0
8.0
2.0
1.4
3.4
Munitions industry.
2. 4
2.5
4.9
Other industry.
1.0
1.3
2.3
Raw materials:
Cotton..
14.8
1 49.0
20.5
84.3
Other
16.7
9.4
4.5
30.6
Agricultural commodities (excluding cot-
ton)..
16.0
6.5
12.5
Technical exchange..
.4
.6
2.0
3.0
Total..
85.0
85.0
60.0
50.0
2 280.0
1 Sold to Spain under Public Law 778, sec. 109; $20 million of the peseta proceeds being made available to
Spain in the form of a 40-year loan.
2 Total authorized through fiscal year 1957; column adds to $230 million which is total authorized through
fiscal year 1956, since fiscal year 1957 and distribution by sector has not yet been firmly established.
TABLE IV.—Aid-generated local currency distribution

Forms of aid
Total aid
generating
counterpart
or sales
proceeds 1
Dollar aid
(millions of
dollars)
(1)
(2)
For Spanish
economic
development
(in millions
of pesetas)
(3)
For United
States
use
(4)
Fiscal year 1954:
Defense support----
Wheat sale for pesetas..
Fiscal year 1955:
Defense support…---
Sec. 402 sales_
Public Law 480.
85.0
2,959
888.0
2,071.0
20.0
850
850.0
30.0
1,034
310.0
724.0
2 55.0
2, 142
1,714.0
428.0
8 31.0
1,207
603.5
603.5
Public Law 480.
16. 7
650
390.0
260.0
Fiscal year 1956:
Defense support..
60.0
2,039
612.0
1,427.0
Public Law 480..
64.8
2, 524
1, 514. 0
1,010.0
Triangular
arrangements (Switzerland,
Austria).
47.0
273
164.0
109.0
Fiscal year 1957:
Defense support.
50.0
1,698
509.0
Public Law 480.
$ 59.3
2,310
1,617.0
1, 189. C
693.0
1 In the case of defense support, figures in this column do not correspond to peseta equivalent of dollar aid
shown in column (2), because total aid figures represent aid authorized rather than actual aid allotted and
because of waiver of counterpart of technical exchange.
2 $20 million 40-year loan to Spain; $24 million grant in pesetas to Spain and $11 million for United States
use.
3 50 percent 40-year loan to Spain; 50 percent for United States use.
4 60 percent 40-year loan to Spain; 40 percent for United States use.
• Magnitude of program for fiscal year 1957 through Nov. 30, 1956; 70 percent 40-year loan to Spain; 30 per-
cent for United States use.
H. ADMINISTRATIVE DIRECTION, COORDINATION AND OPERATION OF AID
PROGRAMS IN SPAIN
1. Military
Close control of the military assistance program is exercised by
executive agencies in Washington.
1354 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
The Ambassador exercises broad supervision, with emphasis on
political implications. The Military Assistance Advisory Group has
direct channels to the military departments on technical matters, but
the Ambassador is kept informed.
There is prompt and frequent exchange of documents, weekly coun-
try team meetings, and frank discussion and exchange of opinions.
The Military Assistance Advisory Group (MAAG) is comprised of
105 military and civilian personnel; 1 officer and 10 enlisted men are
administrative personnel, 15 graded civilians are clerical personnel,
and the remainder are professional and technical personnel. The
breakdown of military and civilian personnel is as follows:

Army
Navy
Air Force....
Total..
Service
Officers
Enlisted
Department
of Defense,
civilians
Total
19
13
11
11
19
REE
0
0
15
17
49
39
117
105
22512
1 Air Force as executive agency provides Department of Defense civilians for all sections of the Military
Assistance Advisory Group.
In addition, there are 5 Air Force officers and 12 airmen assigned to 7
Spanish airbases as part of the United States Air Force training
mission.
American, foreign, and local contractors are called upon from time
to time to provide military items or services under the military assist-
ance offshore procurement and facilities assistance programs. These
items and services are provided under contracts closely supervised on
the spot by representatives of United States military agencies physi-
cally located in Spain.
Within available mutual defense assistance program (MDAP)
funds for any given year, certain units of the three services are selected
to receive military defense assistance program equipment. The Span-
ish submit to the Military Assistance Advisory Group deficiency lists
for this equipment, which are screened and forwarded to the Depart-
ment of Defense for approval. The ministers of the Spanish armed
services also on occasions forward directly to the chief, Military As-
sistance Advisory Group, unusual or additive requirements. In all
cases, the Ambassador is kept informed and all programs forwarded
to Washington are coordinated in the country team.
The United States defense representative to the North Atlantic and
Mediterranean area, in Paris, is continuously informed and coordi-
nates the mutual defense assistance program in Spain, utilizing the
staff of the commander in chief, European Command, where all other
Europe programs are well known and monitored.

2. Economic
Economic aid programs are controlled by Washington departments
and agencies in a manner similar to that in other countries where aid
programs operate.
The Ambassador exercises ultimate control over United States eco-
nomic aid planning, since the country team concept pervades all
United States activities. Important policy matters are always dis-
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1355
cussed by the economic mission director with the Ambassador and
receive the Ambassador's concurrence prior to initiation or implemen-
tation. Obviously, however, there are a wide variety of technical
matters on which the economic mission director communicates directly
with the International Cooperation Administration in Washington.
Techniques of coordination of the economic aid program with other
programs include participation of the United States Operations Mis-
sion (USOM) Director, Deputy Director, and occasionally USOM
division chiefs in a weekly country team meeting, the participation
of USOM staff officials in weekly embassy political section meetings,
and other interagency staff meetings. Techniques for coordination,
however, only supplement the continuous interchange of ideas and
information which takes place on all levels between all agencies.
The economic mission is completely integrated. Housekeeping is
performed by the Embassy at a fixed charge to International Co-
operation Administration (ICA) budgets where this housekeeping is
for ICA personnel.
International Cooperation Administration officers_.
9 administrative includes 1 vacancy.
3 Public Law 480 positions-includes 3 vacancies.
7 program-includes 2 vacancies.
State Department officers in United States Operations Mission_..
7-includes 2 vacancies.
International Cooperation Administration secretaries__

5 administrative.
3 program-includes 1 vacancy.
State Department secretaries in United States Operations Mission_-_-
Local employees assigned to United States Operations Mission_-_-.
15 administrative.
4 Public Law 480 positions-includes 1 vacancy.
9 program.
3 embassy.
Complement assigned to United States Operations Mission (Americans):
International Cooperation Administration:
Administrative__
Program_.
Embassy--
Totals:
International Cooperation Administration officers__
State officers_.
Secretaries__
Locals____
19
7
8
4
31
NAH A-AN.
17
10
11
19
7
12
31
Under the technical exchange program individual consultants have
been employed directly under contracts between themselves and the
Spanish Government financed from economic aid funds. On the
whole, supervision of these contractors is provided by the appropriate
Spanish agency for whom they work and by whom they are directly
employed. In all cases, however, the economic aid mission does main-
tain liaison both with the individuals and with the appropriate Span-
ish organization to insure that programs and projects are carried out
by these individuals in a manner consistent with United States ob-
jectives. I am told that no program or policy problems have arisen
and the only problems have been ones of a housekeeping or adminis-
trative nature.
Relations with the local government in planning and carrying out
aid programs are friendly.
There are no other friendly government, United Nations, or private
organization programs operating in the country, and the need for
1356 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
?
coordination of the economic aid program with organizations other
than those of the United States Government does not exist.
Surplus agricultural disposal programs play a significant part in
helping solve overall United States economic objectives in Spain.
Sales under title I, Public Law 480, have been a major weapon in the
fight against inflation. Coordination of the Public Law 480 program
with the economic aid program is readily achieved since the agricul-
tural attaché works in the closest contact with the United States Op-
erations Mission (USOM) Director and for organization purposes
within the country team concept is considered part of the USOM.
The major United States activity in the country which relates to the
operation of the economic aid program is the United States base con-
struction program. This is coordinated as are all United States pro-
grams through the methods described above.
I. RELEVANCE OF OBJECTIVES OF AID PROGRAMS TO SITUATION IN SPAIN AND
INTERESTS OF THE UNITED STATES
The objectives of the aid program are designed to enhance the de-
fense capability of Spain. These objectives are realistic and are ad-
justed to the security interest of the United States.
The economic aid program has adequately served the interests of
the United States up until the present time. Defense support projects
contributed to economic growth and short-run inflationary pressures
were more or less contained with timely sales of agricultural com-
modities until title I, Public Law 480. In addition, a genuine broad
public appreciation for United States efforts was obtained through
a program of food donations under title III of Public Law 480.
J. RELEVANCE OF TYPE AND MAGNITUDE OF AID PROGRAMS TO SITUATION IN
SPAIN AND INTERESTS OF THE UNITED STATES
The present level of the mutual defense assistance program in
Spain is in conformity with the United States-Spanish Defense
Agreement and furthers security interests of the United States.
To date, the amount of military assistance to Spain has been gen-
erally adequate to meet stated United States objectives.
Inflationary pressures on the Spanish economy have been seriously
augmented during the past year, first, by the serious losses of foreign
exchange occasioned by the frost damage of last February and, sec-
ond, by two substantial general wage increases in April and November.
Spain is in the grip of a sharp inflation. Though the severity and
extent of this inflation might have been somewhat reduced by wiser
measures on the part of the Spanish Government, it is probably true
that an inflation could not have been avoided, especially after the
damage to Spain's major export crop in February 1956 when severe
freezes cut orange production in half.
The existence of this inflation is prejudicial to United States se-
curity interests in a number of ways. Obviously, inflation increases
the cost of United States programs in Spain, whether in a narrow
sense with respect to procurement of labor and materials for the base
construction or in a broader sense in weighing the amount of money
required to keep the Spanish economy on an even keel.
PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM 1357
K. EFFECTIVENESS OF ADMINISTRATIVE CONTROL, COORDINATION, AND OPER-
ATION OF AID PROGRAMS AS RELATED TO BASIC SITUATION IN SPAIN AND
INTERESTS OF THE UNITED STATES
1. Military
The present division of responsibilities between Washington agen-
cies and the military assistance advisory group (MAAG) in Spain
seems to have resulted in an effective program.
From the viewpoint of MAAG, the present system is adequate.
Careful selection of qualified personnel for assignment to the MAAG
in Spain has permitted a minimum number of personnel to supervise
the mutual defense assistance program (MDAP) in Spain effectively.
The planning and administration of the aid program is based
largely on American guidance. Continuous efforts are made to in-
duce the Spanish armed forces to improve their support of MDAP-
furnished equipment.
The military construction program which presently utilizes private
contractors, paid directly or indirectly out of public funds of the
United States appears to be of a kind and magnitude which makes for
effective use of such funds in the total interests of the United States.
Extensive supervision is regularly applied. From the standpoint of
the facilities assistance and offshore procurement programs military
contracting supervisors maintain sufficient control so that all funds
are used effectively.
Supporting programs (facilities assistance offshore procurement
and mutual weapons development projects) are screened on a regional
basis by defense representative to the North Atlantic and Mediter-
ranean area in Paris.
2. Economic
Present divisions of responsibility between the International Co-
operation Administration in Washington and the United States
Operations Mission (USOM) are satisfactory. No major change
appears to be required.
The division of responsibilities and coordination is satisfactory.
The USOM Director also serves functionally as the Counselor of
Embassy for Economic Affairs, and hence is responsible to the Am-
bassador for all economic matters. The integration of the labor
attaché, the commercial attaché and the agricultural attaché in the
functional work of the economic mission has created an organization
which seems to work closely and harmoniously. Coordination between
economic aid and military programs is achieved through the Ambassa-
dor's weekly country team meetings, by direct contact between the
Director of the Economic Mission and the Chief of the Joint United
States military advisory group (JUSMAG) and by frequent consulta-
tion and conference at the staff level between the military assistance
advisory group, JUSMAG, and the United States Operations Mission.
There are no other aid programs of friendly governments, the
United Nations, or private organizations operating in Spain.
Present use of agricultural surplus disposal programs (Public Law
480, title I and title III) has been of help in combating inflation and
hence helping to achieve our objectives in Spain. Title III grants have
been especially successful in developing favorable public opinion
toward the United States.
1358 PORTUGAL, SPAIN, FRANCE, ITALY, AND UNITED KINGDOM
L. RELATED UNITED STATES ACTIVITIES WHICH ASSIST OR HINDER THE AID
PROGRAMS IN SERVING THE NATIONAL INTERESTS
All official activities related to the mutual defense assistance pro-
gram in Spain are monitored by the assigned United States Missions
and duly coordinated.
M. RECOMMENDED CHANGES IN AID PROGRAMS
1. Recommended changes, if any, in objectives of aid programs in
Spain.
No changes in the objectives of the mutual defense assistance pro-
gram in Spain are recommended at this time.
2. Recommended changes, if any, in type and magnitude of aid pro-
grams in Spain
The Military Assistance Advisory Group in Spain has no responsi-
bilities in determinations bearing on the ratio of military versus eco-
nomic aid. It is primarily concerned with the achievement of United
States military objectives to the extent practicable within available
funds.
The Spanish economy is presently in an extremely difficult situa-
tion. Due to the high level of investment and Government deficit
financing, considerable buoyancy in prices has been a consistent phe-
nomenon in the last 2 years. More extreme inflationary effects might
have been avoided, however, had not there been a severe loss of foreign
exchange due to freezes of the orange crop and other export fruits in
February 1956, and the imposition by the Government of 2 general
wage increases, 1 in the spring of approximately 16 percent and the
second on November 1 of 40-50 percent. A substantial rise in prices is
now taking place.
In addition, Spain rapidly is losing dollar reserves. A decline of
$50 million has taken place since January 1, 1956. Part of this de-
cline was caused by the use of dollars to make purchases in Europe
which ordinarily would have been covered by proceeds from orange
exports. Another part has been caused by purchases of agricultural
commodities in the United States as a precedent to participation in the
title I, Public Law 480, sales program of this year.
I recommend an additional grant of economic aid to Spain in this
fiscal year.
SURVEY NO. 5
KOREA, JAPAN, TAIWAN (FORMOSA),
AND THE PHILIPPINES
BY
DR. JOHN A. HANNAH
PRESIDENT, MICHIGAN STATE UNIVERSITY
MARCH 1957
1359
CONTENTS
Letter of transmittal..
I. Summary.
A. Method of procedure-
B. General assumptions..
1
C. General findings and recommendations.
II. Japan...
A. United States security interests.
B. Economic characteristics-
C. United States aid program..
D. Conclusions and recommendations
III. Korea.
A. United States security interests-
B. Political characteristics.
C. Economic characteristics_
D. United States aid programs-
E. Effectiveness of the aid programs.
F. Conclusions and recommendations..
IV. Taiwan (Formosa)__
A. United States security interests-
B. United States economic interests.
C. Objectives of Free China…………
D. Economic characteristics___
E. United States aid programs.
F. Effectiveness of the aid programs..
G. Conclusions and recommendations_
V. The Philippines---
A. United States military interests.
B. United States economic interests.
C. Political characteristics...
D. Economic characteristics__.
E. United States aid programs.
1
F. Public health and community development-
G. Effectiveness of the aid programs-
H. Conclusions and recommendations-
1
·
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1361
LETTER OF TRANSMITTAL
MICHIGAN STATE UNIVERSITY,
East Lansing, Mich., February 1, 1957.
To the Chairman and Members of the Special
Committee to Study the Foreign Aid Program:
Attached is the report of my study of foreign aid operations in
Japan, Korea, Taiwan, and the Philippines.
If the committee decides to call me to present this report or to
answer questions about it, it will be helpful if you will give me as
much notice as possible so that I can arrange my schedule here.
This was a very interesting experience, and I hope that my conclu-
sions and recommendations may be of interest and value to the
committee.
Sincerely,
94413-57-87
JOHN A. HANNAH,
President.
1363
KOREA, JAPAN, TAIWAN (FORMOSA), AND THE
PHILIPPINES
I. SUMMARY
On the survey undertaken of foreign aid programs in the Far East,
I was accompanied by Dr. Howard S. Piquet, senior specialist in
international economics of the Legislative Reference Service of the
Library of Congress, and Dr. Emory W. Morris, president of the
Kellogg Foundation.
The countries surveyed were Japan, Korea, Taiwan, and the
Philippines. The relative importance of these countries in the for-
eign aid program is indicated by the fact that they are currently re-
ceiving over $1.3 billion annually or more than one-quarter of the
monetary foreign aid being granted by the United States. In addition,
some time was spent in Okinawa, Hong Kong, Pakistan, and Cam-
bodia and a more extended period in South Vietnam.
Approximately 1 week was spent in each country covered in this
report. Such a time limitation ordinarily would present opportunity
for little more than a cursory examination of the situation. However,
arrangements were made so that it was possible to meet and talk with
large numbers of government and military leaders, both nationals of
the countries and Americans stationed in those countries. These
conversations were reinforced with a large amount of factual and
statistical material upon which the survey team could draw. In
addition, numerous informal conversations were held with nonofficial
Americans and nationals in the countries visited.
One day was spent in Honolulu with Admiral Stump, the comman-
der in chief of United States Pacific forces, and his staff, and 1 day in
Tokyo with General Lemnitzer, commander of our Far East forces,
and his staff. It was felt that an overall view of the military situa-
tion and implications in this part of the world was essential for an
adequate appraisal of our foreign aid program.

A. METHOD OF PROCEDURE
The procedure in each country was about as follows: Formal brief-
ings by American military and Government personnel were arranged,
reviewing the military, economic, and political conditions in that
country. Members of the survey team then met with selected Govern-
ment leaders, who were encouraged to speak plainly in voicing their
opinions concerning the value of our several foreign aid programs, the
efficiency with which they were being administered, and the unmet
needs of the recipient countries.
These official opinions were supplemented with information gained
in private conversations with American businessmen, newspaper corre-
1365
1366
KOREA, JAPAN, TAIWAN (FORMOSA), ETC.
spondents, missionaries, and private citizens of the countries visited.
Visits were made to industrial and agricultural projects, power devel-
opments, shipyards, mining projects, schools, hospitals and health
projects, and to military installations.
These experiences, though less extensive than desirable, were suffi-
ciently broad to enable the team to arrive at certain conclusions.
Those conclusions are presented here with the realization that a longer
inquiry and more intensive study might cause their modification.
However, I am of the opinion that these conclusions are basically
sound and valid.
B. GENERAL ASSUMPTIONS
The team undertook its mission with certain general assumptions
in mind.
The first general assumption was that the United States has only
one real enemy in the world-international communism-and that
aid is extended to foreign countries in support of a national policy,
first, to halt the spread of communism, and second to bolster the in-
ternal strength of countries which stand with us as bulwarks against
this menace to democratic ideals and world peace.
It is probable that international communism has three objectives
in its drive for world domination. The first, a preponderance of
manpower, has been achieved through the conquest of mainland China.
The second-access to relatively unlimited raw materials-could be
achieved through the conquest of southeast Asia. The third-control
of an overwhelming industrial production potential-could be achieved
within a relatively short time only by the conquest of Japan and its
highly developed industrial complex and vast reservoir of skilled man-
power.
These objectives have been sought through both military and less
extreme measures. But it is plain that a realistic appraisal of Ameri-
can foreign aid in the Far East must be made against this background.
Although it is conceivable that we would be granting modest amounts
of technical assistance in this area even if it did not have the military
and strategic importance that it does, we would not be giving aid in
the amounts we are now giving. It is essential to the survival of
our country that the arc of defense in the Pacific hold firm.
To stress the necessity of viewing foreign aid in a military context
does not mean, however, that economic, political, and psychological
considerations are not of prime importance. They, too, must be taken
into full account and treated with all of the intelligence and ingenuity
at our command as a means of combating Communist infiltration and
influence.
The second general assumption was that the United States is com-
mitted to a long-range program of assistance in the Far East, and that
the basic question was not whether aid should be continued, but
whether it was accomplishing what was intended, and how its adminis-
tration might be improved.
Such an assumption is inescapable, in view of the vital strategic
importance both militarily and politically-of Japan, Korea, Taiwan,
and the Philippines.
What happens in this area of the world will affect profoundly the
future of the United States. The Republic of the Philippines is a
nation of our own creation, and hence is our "showcase" in the Pacific.
KOREA, JAPAN, TAIWAN (FORMOSA), ETC.
1367
Both Korea and Taiwan are on the firing line in what is, to speak
realistically, a state of suspended war. It is essential to remember
that what is done in and by these countries is largely the responsibility
of the United States. Japan is unique among the countries of the
Orient. She is far advanced industrially, so much so that she has
properly been called "the Britain of Asia." Because of this fact,
and because of her strategic location, it is essential that Japan remain
in the family of free nations.
The third general assumption is that our objective is to help other
nations to help themselves and that we seek to give the peoples of the
Far East, through their governments, that hope, that prospect of
improving their lot in life, which is in the final analysis one of the
strongest defenses against Communist enticement. It would not
be enough to defend them with our own troops and planes and ships,
to feed them with our own food, to support them with our own money.
In fact, that course could defeat the overall objective. They are
proud people with a great capacity for work, with ability to do things
for themselves if they are given a decent chance. It is believed that
those who have known Communist terror through personal experience
will not fail us and the free world if we provide them with the oppor-
tunity to work out their own safety and salvation. That, in essence,
is all they should ask; that, in total, is all we should give.
C. GENERAL FINDINGS AND RECOMMENDATIONS
The findings and recommendations below apply generally, except
where specifically noted, to the four countries: Japan, Korea, Taiwan,
and the Philippines. Observations applying to certain countries only,
and recommendations arising from them, will be found farther on
in the report.
1. The implementation and administration of the foreign aid
program of the United States in the Far East merit approval, in
general, and special commendation in many instances. It would be
naive to expect, or to report, that the program has been uniformly
successful, that no mistakes have been made, and that we should
simply go on doing more of the same things. But only an unfriendly
critic can doubt that, when viewed altogether, the foreign aid projects
are giving the American people a reasonable return on the money
being invested in them.
It is recommended that the programs of military assistance, defense
support, economic aid, and technical cooperation be continued, subject
to constant review and periodic intensive scrutiny. In their concept
and general outline, they represent a powerful force working for the
benefit of both the American people and the people of the Far East.
However, the program in its various aspects must be kept flexible
and readily adaptable to changing conditions.
2. It was observed that traditional American impatience and
perhaps a greater sense of urgency on our part have sometimes
operated to hold cooperation by the foreign governments to a level
below that which is desirable. It should be obvious that a high
degree of local participation in the analysis of problems, in the making
of plans, and in the execution of programs is an essential to good
feeling among allies and friends. Cooperation, not coercion, is the
tack which must be taken if enduring relationships are to be estab-
1368
KOREA, JAPAN, TAIWAN (FORMOSA), ETC.
lished. Consultation with local leaders and honest consideration of
their recommendations and aspirations should be encouraged to a far
greater degree as the program continues.
3. One of the greatest handicaps to the program and the personnel
concerned is the tremendous lag in time between appropriations by the
Congress for foreign aid and the allocation of funds to the areas
concerned. We were in the 5th and 6th months of the current
fiscal year at the time this survey was made, and in not 1 of the 4
countries had those responsible for either the military or economic
programs been informed what funds were available within the fiscal
year for financing work for which they are responsible.
Such a record is inexcusable and intolerable, and must be improved
substantially if the program is to gain momentum.
Red tape, paper work, or whatever the cause, the result is that
neither the American personnel involved nor the officials of the foreign
governments concerned can plan wisely, budget frugally, or perform
efficiently.
A related weakness in the current system is the provision in the law
that not more than 20 percent of an annual appropriation can be spent
within the last 2 months of the fiscal year. When allocations are not
made until 6 months or more of the fiscal year have elapsed, the result
is that there is a great flurry of spending in the 4 months or less remain-
ing before the deadline. Obviously, this creates many opportunities
for waste based on decisions made too hastily, not because of inatten-
tion or inefficiency on the part of those in the field, but because of un-
reasonable and unrealistic restrictions upon their freedom to act in
an orderly manner.
It is urgently recommended that Congress seek means of expediting
the allocation of appropriated funds to the field in the interest of more
efficient operation in view of the legal requirement which, coupled
with these unjustifiable delays, has the effect of forcing personnel in
the field to commit 80 percent of their allocated funds within one-third
of the fiscal year.
4. Related to the situation described above is that created by the
reluctance of administrators in Washington to grant a reasonable
degree of autonomy to administrators overseas. It is ridiculous to
require that capable and experienced personnel in the field submit the
details of each specific project to Washington for approval. Few, if
any, persons thousands of miles away can exercise judgment superior
to those of competent personnel immediately on the scene. The time-
waste factor alone argues for granting greater autonomy, within speci-
fied limits, to those responsible for operations in the field.
It is recommended that Congress insist on eliminating to the great-
est extent consistent with the national interest that portion of the proc-
ess of studying and judging specific projects now being performed by
departments in Washington, and on the granting of a greater degree of
autonomy for those on the operational level.
5. To accomplish the desirable objective set forth in (4) above, it
would be necessary to effect some changes in current personnel poli-
cies, both military and civilian, so as to engender greater confidence
in the ability of operations personnel to make independent decisions.
It should be the basic policy to assign persons to specific missions
abroad, not on the basis of seniority, rotation, or personal preference,
but on the basis of competence to perform the task at hand. Compe-
KOREA, JAPAN, TAIWAN (FORMOSA), ETC.
1369
tence, in this sense, should include not only professional ability and
experience, but a thorough knowledge of the foreign country's history,
culture, political system and economic structure, and where possible,
familiarity with the native language as well.
It was observed that in some places personnel were not fully quali-
fied by this definition, and that in others there appeared to be too
many persons on the staff. A desirable objective would be fewer
persons of greater competence, and the agencies involved in the foreign
aid program should be strongly encouraged to review and revise their
personnel policies to that end.
A particularly weak spot in current personnel practices is the system
of rotation which takes a man out of Korea, for example, after 18
months of service there. This is tenure of insufficient length to permit
the individual to perform with maximum effectiveness. He is of less
than full usefulness for the first few months because of his unfamiliarity
with local conditions, and is of diminishing usefulness during the last
few months as he looks forward to a transfer to some other station.
This is not good administration. It works against continuity of
thought and action. It encourages one type of individual to hesitate
to take initiative because he probably will not be on the scene to
receive credit for any success. For individuals of another type, it
serves as a sort of curious security against being on hand to be blamed
if things go wrong.
There is every inclination to be sympathetic with those who are
assigned to serve at so-called hardship posts. But we are engaged in
an undeclared war for national survival, and the national interest
must be put ahead of individual comfort and convenience. Some of
our dedicated people are ready and willing to spend longer periods in
such posts but are prevented from doing so by fixed and arbitrary
overall policies.
6. It was observed that some undesirable friction and lost motion
result from the intermingling of funds for military assistance and
defense support with those intended to support economic aid and
technical assistance. While there is a high degree of cooperation
between military and civilian personnel, it is only natural for each
group to seek the ultimate in support for the programs for which it is
responsible, and to begrudge funds going to the other's program at
what it fears may be at the expense of its own work. It is strongly
recommended that necessary legislative and administrative measures
be taken to keep funds allocated for military and for civilian programs
definitely separated.
7. The employment by United States agencies of private firms to
consult on specific industrial and economic problems was noted with
approval in Taiwan. The results obtained deserve commendation
and suggest that consideration be given to a more general employment
of this method of procuring technical advice and guidance.
8. Incisive studies of the development of economic institutions and
potentials of Korea, Taiwan, and the Philippines need to be made.
Although many factual reports are available, most of them lack
cultural and historical depth. In numerous instances the success of
programs is being judged in terms of the attainment of project dead-
lines, with little regard for inconsistencies between our own activities
and the recipient country's history and aspirations.
}
In some cases, even important factual data are not available. For
example, much remains to be learned regarding the potential mineral
1370
KOREA, JAPAN, TAIWAN (FORMOSA), ETC.
resources of Korea. The geological survey which has been initiated
needs to be pushed vigorously.
It is recommended that the development of other comprehensive
economic analyses, preferably by nongovernmental personnel, be
undertaken without further delay.
9. Careful observation and searching questions put to American
military commanders produced ample evidence that the United States
is well advised in its policy of assisting in building up strong military
forces in the Philippines, Taiwan, and Korea. Our commanders were
unanimous in the opinion that, given proper training and suitable
equipment, nationals of these countries make excellent soldiers, sailors,
and airmen.
This policy is consonant with our overall policy of strengthening
the defensive power of these allies, and should be continued to the
point of making them as self-reliant, militarily, as possible.
There is one advantage that is not readily apparent. In countries
of relatively low educational opportunity, the training received by
these men during their military service makes them not only better
citizens but more useful and productive members of the labor force
when they return to civilian life. It is far less expensive to train and
equip these nations to defend themselves than it would be to train
and equip an equivalent number of Americans to provide for their
defense. However, it should be emphasized that we should not permit
any fallacious theories of economy to lead us to skimp on the quality
of the training provided for foreign nationals or on the quality or
quantity of equipment made available to them.
10. Operations under Public Law 480, under which surplus agri-
cultural products are sold to these countries, are open to criticism.
Some of our actions are subject to the interpretation abroad that we
are more interested in getting rid of the surpluses than we are in im-
proving the health or the economy of the people. In at least one case,
we may be creating a taste for a product commonly used in the
United States but seldom in Asia, one which the country concerned
would have great difficulty in providing for its people if the current
supply were to dry up. The effects of Public Law 480 on our overall
program and our relationships with foreign peoples should be reex-
amined by Congress.
11. It is strongly recommended that increasing emphasis be placed
on efforts to induce these countries to revise their attitudes toward
education and the breadth of educational opportunity for their people.
Traditionally, education in the Orient has been for a small elite;
knowledge has been worshiped for its own sake, not for what it can
do, when widespread, to benefit the people as a whole. America
offers the world's foremost example of how the right kind of education
for the great majority of a nation's people can produce almost magical
effects in the form of a more stable political and social system and
tremendous economic benefits best expressed in terms of a rising
standard of living.
This is a point on which the Far East is not as yet fully convinced,
even though some progress is being made. We should do what we
can to persuade our friends in that part of the world that one of their
best hopes for the future lies in making education more readily avail-
able to all of their people, and that they would be well advised to
apply the lever of widespread knowledge to lift the tremendous social
and economic burdens they currently bear.
KOREA, JAPAN, TAIWAN (FORMOSA), ETC.
1371
12. There is considerable sentiment among American official per-
sonnel in the Far East for a plan under which those selected for tech-
nical training would be sent to a third country, not to the United
States, for their specialized educations. This plan has the advantage
of reducing travel time and expense, and the merit of having Asians
teach Asians, and Asians learn from Asians. But it has a serious
weakness in that not all of the countries to which these people would be
sent at American expense have the philosophy that education should
be used to serve the needs of people, rather than the esoteric interests
of the intellectual elite. Too, this procedure would deny the oppor-
tunity to acquire sufficient competence in the use of English to enable
the trainees to keep apace of technical advances through reading the
literature in English of their fields of interest, and through corre-
spondence with Americans sharing the same interests.
In this same connection, no enthusiam was engendered by the
proposal that American foreign aid dollars might better be spent to
employ technicians of other nations as advisers because they can be
hired more cheaply than Americans. It would seem that if American
prestige and security are at stake, then Americans should exert the
dominant influence in all programs of technical assistance being paid
for with American dollars.
13. A special word of commendation is due American colleges and
universities for their cooperation in the technical assistance programs.
They are reservoirs of professional and technical knowledge of the
kinds most urgently required, and it is to their great credit that they
have recognized and accepted their responsibilities to make this
knowledge available in the national interest.
It is strongly recommended (that participation of our colleges and
universities in these programs be continued, and that Washington
administrative rulings and procedures which are hindering their work
and thereby dampening their enthusiasm and usefulness be simplified
and modified speedily.
14. It was observed with disappointment that we are not highly
successful in explaining to foreign nationals our reasons for under-
taking our foreign aid programs, and what we hope will derive as
benefits for the Far East as well as for the United States and the ad-
vantages to be gained by full cooperation.
The opposite side of the coin is that the people of our own country
have a relatively poor understanding of the people with whom we
are allied, of what they have already done to help stem the flow of
communism, and of what their capabilities are in the world struggle
for peace and freedom. The prevailing public opinion in America
on some points seems to be at variance with the facts as they were
found on this survey. This is an area of activity to which the Con-
gress might well devote its attention in the interest of promoting mutual
good will and understanding among our own people and those who
stand with us on the side of human justice, dignity, and freedom.
II. JAPAN
Industrially speaking, Japan is so much more highly developed than
other countries in the Far East that she occupies a unique position
relative to United States policy in that area.
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""
That there should be some anti-American feeling in Japan is inevit-
able. It is impossible in any country that has been occupied by a
foreign power to avoid looking upon that power as "the conqueror.
This feeling will prevail, in greater or less degree, as long as large
numbers of American military personnel remain in the country.
More significant than anti-Americanism is the large reservoir of
good will which we enjoy among the Japanese, due to the fact that
when we occupied their country we did not pillage and plunder.
Instead, we gave them food when they needed it and helped them
develop their economy.
The more thoughtful Japanese are aware that the military assistance
which we are giving Japan is contributing substantially to the present
prosperity of the country. At least 100,000 Japanese are given direct
employment by our military expenditures and this financial contribu-
tion to the Japanese economy is substantial.
A. UNITED STATES SECURITY INTERESTS
Specifically, it is essential to the United States (1) that Japan be
militarily secure, (2) that the Japanese economy be strong, (3) that
the Japanese Government remain stable, and (4) that Japan be able
to defend herself against internal subversion.
Some Americans are critical of Japan because she is spending less
than the equivalent of 2 percent of her gross national product for
military purposes. They urge that she change her constitution,
which at the present time forbids rearmament, in order to enable her
to create large and strong military forces.
There is no question about the potential military capacity of Japan.
She is the one country in the Far East that has sufficient economic
capacity to develop substantial military strength. It is important to
note, however, that while military strength for purposes of self-defense
as part of an overall defense plan is highly desirable, the creation of a
powerful aggressive military machine would be another matter.
B. ECONOMIC CHARACTERISTICS
At the present time Japan is prosperous. Per capita consumption
of food and clothing is higher than it was before the war, exports have
increased phenomenally, and her balance of payments position is
favorable. This prosperity is due: (1) to Japan's own efforts in
balancing her budget and in controlling inflation; (2) to the high degree
of industrial activity in the United States and Western Europe; (3) to
the fact that Japan spends only a small proportion of her national
budget for military purposes; and (4) to record rice crops. It is not
explained by abundance of resources, for she is poor in natural re-
sources and there is little land that can be used for agricultural purposes
that is not already being farmed intensively. The ratio of population
to land is high and is increasing.
Fundamentally, the economy of Japan is in a precarious position.
Her principal resource is the skill and ingenuity of her people. She is
particularly sensitive to economic conditions in other countries upon
KOREA, JAPAN, TAIWAN (FORMOSA), ETC.
1373
whom she is dependent for raw materials and markets. She is, indeed,
the "Great Britain of the Orient."
One of Japan's most fundamental economic needs is greater trade
opportunity. If she is to survive with anything like a tolerable
standard of living, she must export. Southeast Asia, her "natural
market," does not have the purchasing power to buy the goods which
she must sell. The only other possibilities are to trade with the West
or with Red China and Soviet Russia. Thus far, she has cooperated
with the West in refraining from expanding her trade with the Com-
munist bloc.
The Japanese are critical of the United States and Western European
countries because, while they are persuading her not to trade with
Red China, some of them are themselves trading via the back door.
The fact that even if there were no trade controls, Japan's trade with
Red China would not be large, does not dispel the feeling that she is
in a sort of economic straitjacket as far as foreign trade is concerned.
Imports from the United States into Japan are larger than Japan's
exports to the United States. In 1955, the former amounted to
$643 million and the latter to $432 million, a difference of $211 million.
The Japanese are not impressed by our pronouncements in general
terms in favor of a liberal foreign trade policy. They are more im-
pressed by the antipathy prevailing in the United States and European
countries against Japanese exports.
C. UNITED STATES AID PROGRAM
The approximately $3 million that we are presently spending on
economic assistance in Japan is being spent for the most part on the
productivity program, which was initiated late in 1954. Under it
Japanese leaders are brought to the United States for the purpose of
studying American production techniques. In return we have sent
a number of industrial specialists to Japan. Over 30 such produc-
tivity teams have participated thus far. It was surprising to be told
repeatedly by Japanese industrialists that their ability to compete
in world markets requires greater reliance upon American produc-
tivity and management techniques.
For the most part, the Japanese are enthusiastic over the pro-
ductivity program. They have contributed substantially to it,
covering about 10 percent of its cost last year. They plan to con-
tribute a considerably larger share this year.
One of the valuable byproducts of the program is that it enables the
Japanese to become better acquainted with the United States and
makes friends for us in Japan. Its critics are the Communists who
try their best to identify it as colonialism.
There is ample justification for continuing this economic aid.
D. CONCLUSIONS AND RECOMMENDATIONS
One does not have to remain in Japan for any great length of time
before hearing criticism of the United States because of the so-called
Okinawa problem. Okinawa is of vital importance to the United
States militarily and all problems concerning it, whether military or
civilian, need to be solved before they fester and become major issues.
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Emotionally, the Japanese still regard Okinawa as a part of Japan.
Our critics make much of the fact that it is still under military, as
opposed to civilian, control. The presence of our military forces in
Okinawa unavoidably subjects us to enemy propaganda to the effect
that we are one of the few colonial powers left in Asia.
Because of the military importance of the area, 2 days were spent in
Okinawa examining the situation at first hand.
Okinawa, with approximately 600,000 Okinawans cramped into a
small area made even smaller by our use of land for airfields and other
military installations, faces a serious land problem.
The issue of reversion of Okinawa to Japan has been magnified by
the poor timing of the recent so-called Price report, suggesting, as
Okinawans themselves had suggested several years previously, that
the land be purchased, rather than leased, by the United States.
This report, by a congressional committee, was issued while Japanese
elections were being held and played directly into the hands of critics
of the United States. Some Okinawans are now demanding what
amount to life annuities in exchange for their land.
It is alarming that in Okinawa, the one place in the Pacific where
the United States is in undisputed control, left wing activity is more
prevalent than in any of the other countries visited. Only a few weeks
ago the city of Naha elected a mayor with Communist leanings.
To aggravate the situation, the United States Government has three
scales of pay on the island. Americans receive the highest pay,
Filipinos next highest, and native Okinawans the lowest of all. Such
an un-American way of compensating labor cannot be justified.
Inevitably, the Okinawans are made to feel that they are third-class
citizens. It violates the fundamental American principle of equal pay
for equal work. This situation should be corrected.
We should make it clear, once and for all, that Okinawa is of vital
importance to us and that we intend to stay there. The land question
needs to be settled quickly and definitely. Unless this is done we shall
continue to hand an issue to the Communists on a silver platter and to
supply Japanese politicians with ready-made anti-American propa-
ganda.
Until now we have been content to let our military make overall
policy decisions regarding Okinawa. The time has arrived when
civilian judgments might be of greater value than military in deter-
mining matters of civilian policy for Okinawa.
The United States, working in cooperation with other countries of
the free world, should do all in its power to make it possible for Japan
to sell her merchandise in the world's markets. This does not mean
that our markets, and those of other countries of the West, should be
thrown open to all Japanese goods in unlimited quantities. Nor does
it mean that we must resort to a quota system. But more original
and tolerant thinking on our part than we have manifested up to now
is necessary if we are to evolve a formula that will afford market
opportunities to Japan and at the same time diffuse the competitive
effects over our entire economy instead of allowing a few vulnerable
domestic industries such as textiles and pottery to bear the full com-
petitive impact. In Japan, direct assistance is less important than
these other aspects of our relations with that country.

KOREA, JAPAN, TAIWAN (FORMOSA), ETC.
1375
III. KOREA
Korea presents an especially critical problem to the United States.
What we do, or fail to do there, militarily, politically, and economi-
cally, will have tremendous effect throughout Asia and the free world.
Prior to Japanese occupation, the Korean peninsula was a single
nation, possessed of a proud history extending over many centuries.
The Korean culture contributed much to the cultures of China and
Japan. Early in the 20th century, the nation was taken over by the
Japanese who kept it under their control until the end of World War
II. The Koreans resisted Japan in many ways and never acknowl-
edged that they were a permanent part of the Japanese Empire.
Prior to the period of Japanese domination, American missionaries
had established the beginnings of strong Christian groups and had
founded schools and colleges which, although repressed during the
period of Japanese domination, continued to operate. The presence
of American missions, schools, and colleges identified America and
Americans in the eyes of many Koreans as their best friends.
At the end of the war in 1945, the Soviet Union and the United
States agreed that the former would assume responsibility for evacuat-
ing the Japanese from Korea north of the 38th parallel, and that the
latter would assume that responsibility south of the line.
From what we know now, it had long been the desire of Communist
Russia to control the industrial potential of northern Korea. So,
what had appeared at the time to be a logical and temporary division
of responsibility actually permitted the consummation of a long-time
Soviet desire, and the Communists dug in on their side of the line.
We moved our troops out of Korea soon after the establishment of
the Republic of Korea and, in June 1950, the Communists moved in.
The result was the Korean war, in which 32,000 young Americans
died, and many times that number were wounded or injured.
After we and our allies succeeded in pushing the aggressors back
to the Yalu River, intervention by the Chinese Communists changed
the complexion of the conflict and eventually resulted in an armistice
and the establishment of a truce line approximating the 38th parallel.
South Koreans may be divided on some issues, but there is no
division in their recognition of communism for what it is and in their
dedication to resisting it.
They know that without assistance from the United States they
would be in an impossible situation. Directly north of the demarca-
tion zone is a Communist army which is better equipped than they
in terms of airfields, air support, and modern military equipment.
They know that their own military forces are dependent upon Ameri-
can air support in faraway Japan or Okinawa. They feel that they
are as competent as the Communists to use modern aircraft and other
military weapons if only they had them to use.
Koreans feel certain that as long as American troops are present in
Korea they will not be abandoned to the Communists should the
Communists decide to move.
They know that without United States aid it will not be possible
for them to establish a viable civilian economy. They are worried
about statements that are made from time to time by responsible
persons in the United States regarding the possibility of terminating,
or drastically curtailing, United States aid.
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KOREA, JAPAN, TAIWAN (FORMOSA), ETC.
!
A. UNITED STATES SECURITY INTERESTS
There still exists in Korea a state of suspended war, with a line of
demarcation traversing the peninsula at approximately the 38th
parallel.
The United Nations forces have continued to comply with the terms
of the armistice agreement, which specifies that old equipment may
be replaced only by equipment of the same type. In consequence, we
now have there an assortment of largely obsolete World War II type
military weapons. We have not added to the number of airfields and
we have replaced wornout aircraft with aircraft of the type in vogue
during the Korean war.
The Communists, however, have openly, flagrantly, and continu-
ously violated the terms of the armistice agreement. They have
built new airfields and have moved into North Korea large numbers
of modern jet aircraft and other modern military equipment. They
have actually fortified some of the positions within the neutral zone.
B. POLITICAL CHARACTERISTICS
President Rhee effectively holds the reins of power and personally
makes most of the Government's decisions. At times this has been
advantageous to the United States, for he has been able to hold his
government together on a strongly anti-Communist basis.
On the other hand, his extreme anti-Japanese attitude has made
difficult the development of more satisfactory Korean-Japanese rela-
tionships.
•
Since there is an acute shortage of experienced people to manage its
affairs, the Government is relatively inefficient and often indecisive.
Government officials are grossly underpaid with resulting temptations
for graft and corruption.

C. ECONOMIC CHARACTERISTICS
The military program has an important relation to the economic
situation of the country. Over 50 percent of the national Republic
of Korea budget is for military purposes.
Reduction of military expenditures, if that ever becomes feasible,
would reduce governmental expenditures and make additional re-
sources, including mechanical and other skills, available for develop-
mental purposes.
The release of skilled manpower from the armed forces would assist
the development of the civilian economy. On the other hand, the
release of unskilled manpower would aggravate the already serious
unemployment and underemployment problem.
As long as the country is divided, and as long as it is necessary that
it devote so large a share of its national income to military purposes, it
is an open question as to how long it will be before Korea can become
economically self-supporting.
The net balance-of-payments deficit, which exceeded $300 million
in 1956, can be narrowed by reducing the need for imports and by
encouraging exports. Several major import-saving projects are now
under way which can reduce Korea's import requirements significantly
in a few years. Efforts are also being made to increase exports,
although this is difficult owing to the limited resources of the country
KOREA, JAPAN, TAIWAN (FORMOSA), ETC.
1377
and to the difficulty of developing markets abroad. Rice, minerals,
marine products, and handicrafts are most promising, but it will be
several years before exports can be expanded appreciably.
Political differences with Japan are an impediment to trade.
The hwan currency is overvalued in terms of dollars, which places
a premium upon imports, discourages exports, and aggravates the
impediments to economic development. At present the exchange rate
is being held at 500 hwan to 1 United States dollar. A more realistic
rate would be between 650 and 800 hwan to $1.
There has been virtually no foreign investment in Korea since the
end of World War II. The recent signing of the Treaty of Friendship,
Commerce, and Navigation with the United States and the negotiation
of an investment guaranty agreement may remove some of the ob-
stacles to foreign investment.
The Government has indicated that it intends to enact a foreign.
investment law which it is hoped will provide some incentive for
foreign enterprises to invest in the country. Even after these legal
steps are completed, however, many impediments to foreign invest-
ment will remain, particularly military and political instability and
the limited resources and purchasing power of the country.
Overall industrial production today in South Korea exceeds the
pre-Korean war level. Agricultural production has increased slightly
since 1949, but is still considerably lower than in the peak year, 1938.
The rate of growth of total national output continues to be slow.
D. UNITED STATES AID PROGRAMS
The objectives of our aid programs in Korea are (1) to strengthen
the Korean armed forces, (2) to make it possible for the Korean Gov-
ernment to assume an increasing share of the country's defense costs,
(3) to increase the capacity of Korea to support itself economically,
(4) to assist in the attaining of economic stability, and (5) to provide
training for Korean Government administrative and technical per-
sonnel.
After the conclusion of the armistice agreement in 1953, the United
Nations and later the United States embarked upon a massive program
of relief and reconstruction in South Korea. As a consequence, most
commercial, transportation, and communications facilities have been
repaired or rebuilt. This is not true of housing, which continues to
be in critically short supply.
For all practical purposes, we have completed the relief and recon-
struction phase of our aid program and are now entering the more
difficult phase of economic development. Progress is being made in
some fields, particularly coal, electric power, transportation, textiles,
flour milling, and the manufacture of a variety of products for local
consumption.
Korea now has the second largest army in the free world, numbering
over 700,000 men. It is heavily dependent upon our aid program
for its support and maintenance.
The American people should be aware that to maintain an American
army in Korea, equivalent in terms of manpower to that being main-
tained there now by the Republic of Korea, with American support,
would cost between 6 and 10 times as much as at present. Koreans

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make good soldiers and when well trained and equipped constitute
an effective fighting force.
On the economic side, we are spending approximately $300 million
a year in Korea. In fiscal 1956 approximately $100 million of eco-
nomic aid was for project assistance and $185 million for nonproject
assistance. The bulk of the project assistance is in the fields of
industry, mining, and transportation.
Even though development progress is slow, it seems to be moving in
the right direction.
E. EFFECTIVENESS OF THE AID PROGRAMS
It is evident that the United States has little alternative but to
maintain strong military forces in Korea. To remove this military
strength would rob the Korean people of hope, as well as destroy the
hope of other peoples in Asia who are determined to resist communism.
We are not showing ordinary intelligence, however, if in continuing
to support a great Korean military organization we do not provide
the most modern equipment and facilities. The decision should be
made at once to equip our own forces, and those of the Republic
of Korea, with the most modern equipment and weapons of war,
including adequate modern jet air force support.
In the event of any resumption of the Korean war, who will assume
responsibility for explaining to American families whose sons will be
needlessly lost because of our failure to supply modern equipment and
support?
It is strongly urged that we not be "penny wise and pound foolish"
in training the soldiers of the Republic of Korea. If it is true that
only a fraction of the ammunition normally required for training pur-
poses is now available to the Republic of Korea Army, with the result
that their artillery sections are not being adequately trained, then
failure on our part to provide sufficient funds, sufficient equipment,
sufficient ammunition, and sufficient supplies to train an adequate
army may easily result in reliance on our part upon a military effec-
tiveness that may not be there when needed.
Our programs, both military and civilian, would be more effective
in Korea if the staff members responsible for their execution were on
the job for longer periods of time. At the present time the tour of
duty for civilian personnel in Korea is only 18 months. Korea is
designated as a hardship post and, with few exceptions, personnel are
not permitted to have their families with them. It is felt that a
longer tour with accompanying families would be in our best interest.
One of the greatest needs of the Korean people is the acquisition
of management skill, as well as technical know-how. The Koreans
are an intelligent and adaptable people. They need to have not only
technical know-how, but they need to know how to apply it. This does
not mean that there should be any lessening of encouragement for
sending bright young Koreans to American universities for study.
There is, however, a greater need for other Koreans, or maybe the
same Koreans, after they have completed their academic training, to
have practical experience in American operations. Particularly, they
need to be exposed to good on-the-job management experience.
KOREA, JAPAN, TAIWAN (FORMOSA), ETC.
1379
F. CONCLUSIONS AND RECOMMENDATIONS
1. Every effort should be made, short of war, to bring about the
reunification of North and South Korea at the earliest practicable
moment. Military and economic problems become more soluble in
a united Korea than they are in half of a divided nation. If Korea
is to remain permanently divided, the cost to the United States for
United States forces in Korea, for the maintenance of a great Re-
public of Korea military organization, and for the development of a
viable industrial economy will remain very high for many years.
2. It is urged, in view of the violation by the Soviet bloc of the
terms of the armistice agreement, that we ignore the prohibition in the
armistice agreement which prevents us from sending to Korea modern
weapons and modern air force units in order to place our forces on a
par with the opposing forces.
3. It is urged that the Republic of Korea Army be maintained
adequately with such supplies, equipment, ammunition, et cetera, as
are required for effective training as a combat force.
4. The highest possible priority should be given to an adequate
economic program in order to encourage progress toward the develop-
ment of a viable civilian economy in the Republic of Korea.
If this program is to succeed, first consideration should be given to
the maintenance of dedicated direction, both in the Embassy and in
the Office of Economic Cooperation. Our program in Korea has suf-
fered through the frequent turnover of personnel. Steps should be
taken to induce adequately trained persons to remain on the job longer
than 18 months. This means that genuine efforts must be made to
provide adequate housing and other living accommodations for the
families of staff members.
5. It is evident that electric powerplants, cement plants, fertilizer
plants, and other large operations are needed, but the construction of
the physical properties is not sufficient. Korean personnel must be
trained to operate them and the training should be proceeding while
construction is under way. This would make it possible for Koreans
to take over actual operations as soon as possible after the projects
are completed.
6. In Korea the best source for "know-how" and management
experience is in successful small businesses. Since there is almost no
investment capital in the country and since there is not now a climate
likely to attract foreign capital except in a few key areas, it is urged
that our aid program encourage small and independent business
operations.
7. A comprehensive geological survey of the resources of Korea
should be given high priority.
8. Determination of electric power rates, freight rates, and the price
of coal by legislative bodies leaves something to be desired. The
Koreans should be urged to establish a public utility commission or
commissions to free determination of rates from political influences.
9. The Korean foreign exchange rate is being kept artificially high.
As long as this continues, the effectiveness of much of our economic
aid is minimized. Pressure should be exerted upon the Korean Gov-
ernment to maintain a more realistic foreign exchange rate.
The people and the Government of the United States should recog-
nize that in Korea and in the Koreans there is a nation and a people
94413-57- -88
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that look in only one direction for leadership and assistance, and that
is to the United States. They place their faith and their hope in the
future in our hands, insisting only that they not be surrendered to
the Communists.
Our military commanders have confidence in the Koreans as soldiers,
sailors, airmen, and marines, given the proper training and the proper
equipment.
It is evident that with training and encouragement, they can
operate machines and industries and do all the other things that are
required to operate a free industrial society.
The Korean problem is peculiarly an American problem. From
every standpoint-military, economic, and humanitarian—we should
work in cooperation with them, assisting them to the degree required
to make it possible for them to help themselves develop a society that
will assure their people freedom, hope, and opportunity.
This does not mean that we must go on forever expending hundreds
of millions of dollars in Korea. But we should spend what is required
and that will be in substantial amounts for some years to come.
IV. TAIWAN (FORMOSA)
Taiwan is one of the key links in our chain of alliances and defenses
in the western Pacific. Since 1949, when the Communists seized
control of the mainland, it has been the seat of the Chinese Nationalist
Government.
Our intention from the start in Taiwan has been to prevent it from
being taken over by the Communists. This has been accomplished.
Mainland China has disappeared behind the Iron Curtain, but
there still remains in Taiwan, on the side of the free world, a sizable
territory with a large Chinese population (over 10 million) under the
control of the Government of Nationalist China and with a strong
military force buoyed up by frequently repeated Chinese declarations
of intention to liberate their homeland across the Straits of Formosa.
Approximately 80 percent of the present population of Taiwan were
born there.
In December 1954, a mutual defense treaty was signed by the
United States and free China in which there was agreement upon a
military program to serve the best interests of both Taiwan and the
United States.
Free China is a better military and economic risk than Americans
have been led to believe by the preponderance of publicity. Our
military feel that the Chinese Nationalists are an effective military
force. They have a burning desire to return to the mainland. They,
as is the population as a whole, are vigorously anti-Communist.
A. UNITED STATES SECURITY INTERESTS
Taiwan is a vital link in the frontline defense of the free world
against the Communist bloc in the Far East.
It is desirable for us to support free China militarily and to do
everything feasible to stimulate its economic development in order to
give effectiveness to that support.
KOREA, JAPAN, TAIWAN (FORMOSA), ETC.
1381
B. UNITED STATES ECONOMIC INTERESTS
The economy of Taiwan would be able to stand on its own feet if it
did not have to maintain a large military establishment. It will not
be able to do so, however, as long as the military burden is as large
as it is now. It is in our own self-interest, therefore, not only to sup-
port the Taiwan economy as its present level, but also to assist it in
growing and in developing a greater degree of viability.
The more successful our economic programs are, the greater will
be the share of military costs that Taiwan will be able to bear, and the
smaller will be the demands upon us for direct military assistance.
C. OBJECTIVES OF FREE CHINA
The objectives of the foreign policy of Nationalist China appear to
be: (1) to exploit whatever opportunities may arise to weaken the
Chinese Communist regime and to create a situation favorable to the
return of the Government of the Republic of China to the mainland,
(2) to preserve the identity and integrity of the Government of the
Republic of China through the maintenance of its position in interna-
tional affairs in the United Nations and other international organiza-
tions, (3) to secure the largest possible support from the United
States, (4) to retain the loyalty of the Chinese people, not only in
the overseas Chinese communities of Southeast Asia, but also on the
mainland, and (5) to heighten among the non-Communist nations of
Asia opposition to Communist aggression and support for its own
position vis-a-vis the Chinese Communists.
The situation in Hungary has stimulated and intensified the desire
of the free Chinese to return to the mainland as victors over commu-
nism.
D. ECONOMIC CHARACTERISTICS
Approximately one-half of the population of Taiwan live on farms.
As a result of the land-reform movement, farm tenancy at the end of
1955 had been reduced by 21 percent so that the area under tenancy
now accounts for only 16 percent of the total arable land on the island.
Although the plane of living for most people is low by western
standards, there is not much abject poverty on Taiwan. If it were
not for the necessity of carrying such a huge military burden, Taiwan
could be self-supporting.
Development plans rely primarily upon greatly expanded industrial
production to provide more employment and better living standards
for the rapidly growing population, as well as to improve Taiwan's
international payments position.
Although the main island of Taiwan is 100 miles from the mainland,
the Chinese who came from the mainland in 1949 brought with them
large quantities of transport, manufacturing machinery, and manage-
ment know-how. This provided a strong foundation for economic
development.
In 1955 the industrial sector contributed one-third of the total
national domestic product compared with two-thirds contributed by
agriculture, although the relative importance of industry in the
economy is increasing.
To establish the necessary base for industrialization, electric
generating capacity has been increased by 70 percent over the wartime
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peak, and substantial additional capacity is being installed and
planned. Also, there are plans and programs for improving harbors,
railroads, highways, telecommunications, fertilizer plants, shipyards,
and manufacturing enterprises.
Private investors, principally overseas Chinese, have expanded the
cotton textile industry since 1951 to the point that the island not
only is self-sufficient in standard textile lines but also has an export
surplus.
Chemical fertilizers, which before the war were imported from
northern Korea, are being produced domestically in ever larger
amounts. Present plans for expansion contemplate increasing produc-
tion of fertilizer from 168,000 tons in 1955 to 420,000 tons by 1958.
An affiliate of an American shipbuilding corporation recently signed
a 10-year lease for the Keelung shipyards and has announced plans to
construct, initially, two 32,500-ton oil tankers.
The industrialization effort is being made largely through Govern-
ment enterprises. Our advances, therefore, in large measure are
through enterprises that are controlled by the Government.
There was a deficit in the international balance of payments of
Taiwan in 1955 of approximately $70 million (United States) with
exports amounting to approximately $123 million and imports at
$193 million. Because of smaller rice stocks it is expected that the
deficit for 1956 will be slightly larger.
Many Chinese are not attracted to the corporate method of doing
business. They prefer the old family method, apparently feeling that
they can trust members of their families more than they can trust
outsiders.
E. UNITED STATES AID PROGRAMS
The objectives of the United States economic aid program in Taiwan
are to increase productivity in agriculture and industry, with the
ultimate goal of creating a viable economy capable of supplying the
island's ordinary economic needs.
Over 10 percent of the economic aid given to Taiwan since 1950
has consisted of machinery and equipment for the development of
power, industry, and mining.
The Joint Commission on Rural Reconstruction (the JCRR) is
doing an excellent job. Local people are taking part in the program.
They are enthusiastic about it and, since it is a joint program, it
affords no opportunity for criticism of the United States. Particularly
impressive is the land-to-the-tiller program. Over 40 percent of the
funds expended on this work are contributed by the Joint Commission
on Rural Reconstruction, the remainer being provided locally. The
Commission makes loans, rather than grants, whenever possible.
Technical cooperation represents a small but significant part of the
economic aid program. In fiscal 1957 approximately 4 percent of
the $83 million of International Cooperation Administration pro-
gramed aid is scheduled for such activities. The aid includes the
services of a team of about 25 engineers from an American engineering
company, which has provided much of the technical skill needed in
the planning and execution of industrial development.
KOREA, JAPAN, TAIWAN (FORMOSA), ETC.
1383
It also includes the services of over 100 American contract per-
sonnel, comprising technicians provided by United States manufac-
turers of equipment, engineers, consultants, and specialists from such
Government agencies as the Bureau of Reclamation and the Forestry
Service.
F. EFFECTIVENESS OF THE AID PROGRAMS
There seems to be better planning in Taiwan than in some other
areas. The programs have had the advantage of more practical
know-how, particularly that contributed by private consulting
engineers.
The total volume of industrial production in Taiwan is now much
higher than the highest level reached during the period of Japanese
rule. Electric power is double the peak production under the Japanese
and production of chemical fertilizers has risen fivefold. Production
of textiles has risen more than tenfold.
It was disconcerting to find that electric power rates are determined
by the legislature, with little direct relationship between rates, costs,
and profits. There seems to be little appreciation of the necessity for
taking rate-making out of politics by setting up a regulatory com-
mission.
G. CONCLUSIONS AND RECOMMENDATIONS
1. The determination of electric power rates and of coal prices by
the legislature, or by politically motivated commissions, is bad. Rate-
making and price-fixing should be removed as far as possible from the
realm of politics. We urge that the desirability of establishing inde-
pendent commissions for such purposes be called to the attention of
the Chinese Government.
2. Our program for disposal of surplus commodities needs realistic
reexamination. To the extent that foodstuffs and other materials are
furnished to people who need and want them, the program is good.
However, when the program is administered in such a way as to give
the impression that certain surplus commodities are being forced upon
a country in order to solve our own surplus problem at home, more
harm than good results.
3. We must be careful in superimposing our own corporate system
of business enterprise upon a country that for many generations has
followed a quite different system. The Chinese are at present at least
not disposed to favor the corporate system, but prefer their own family
system. This is not to say that we should follow the family system in
our aid program, but that we must be careful not to ignore it.
4. Fisheries and forestry are in need of development. Increased
domestic production of both fish and wood products would assist in
solving the balance of payments problem by making it possible to use
domestically produced products instead of imports, thereby conserving
foreign exchange.
It is important to the United States that Taiwan be kept out of
Communist hands, not only because of its strategic importance, but
because as "free China" it exerts a strong psychological pull upon
the 500 million Chinese under Communist rule and also upon the
whole of Southeast Asia where millions of "overseas Chinese" reside.
The free Chinese armed forces represent the strongest anti-Com-
1384
KOREA, JAPAN, TAIWAN (FORMOSA), ETC.
munist military force in Asia, outside of Korea. Assistance to this
force is a good military investment. As in Korea, expenditures for
military assistance are high but are much less than would be the cost
of maintaining American military forces there.
V. THE PHILIPPINES
Throughout the dark days of the war with Japan the vast majority
of Filipinos remained faithful to the cause of freedom. Many Ameri-
cans who were imprisoned by the Japanese were kept alive through the
faith and courage of Filipinos, who provided food and other supplies,
frequently at the risk of their own lives. In 1946 with the end of the
war, the United States voluntarily gave the Philippines their inde-
pendence, thus honoring a prewar commitment.
There can be no question about the loyal friendship on the part of
the vast majority of Filipinos for the American people. This friend-
ship is sometimes obscured by the fact that some self-seeking Filipino
politicians succeed in getting on the front of the stage by making it
appear that the United States, somehow or other, is negligent in
cooperating with the Philippines.
It is important to both the Philippines and the United States that
there be understanding between the two countries. Our relations
with the Philippines are unique. Whatever happens there, good or
bad, redounds to the credit or criticism of the United States.
A. UNITED STATES MILITARY INTERESTS
The Philippines are an integral part of the arc of United States
defenses in the Pacific. It is important that the United States have
airfields, naval bases, and other military installations in the Philip-
pines ready for immediate use in the event of a military emergency.
The defense of the Philippines, like the defense of Korea and
Taiwan, can be considered intelligently only in the light of the military,
political, and economic picture in the Pacific area as a whole.
Some Americans have been critical of the Philippine Government
for keeping its defense budget so small (about 2 percent of the coun-
try's gross national product). The Government, under the leader-
ship of President Magsaysay, puts greater emphasis upon economic
development and sound reform measures, and upon the military as
an internal defense against communism, than upon a strong military
force for external use.
B. UNITED STATES ECONOMIC INTERESTS
The interest of the United States in the economy of the Philippines
is a part of its larger, overall defense interest. Almost as great in
importance is its interest in maintaining a strong Philippine economy
because of the "showcase" position which that economy occupies as
a recent ward of the United States.
United States direct private investments in the Philippines amount
to over $200 million and net annual capital inflows have averaged
about $20 million during most recent years. Investments are con-
centrated largely in agriculture, mining, public utilities, and commer-
cial trading.
KOREA, JAPAN, TAIWAN (FORMOSA), ETC.
1385
C. POLITICAL CHARACTERISTICS
The political situation in the Philippines today is relatively stable.
A small number of families either own or control most of the land.
They exert great influence upon the political life of the country also,
controlling both Houses of the Legislature. The president, whose
support is particularly strong in the rural sections of the country, is
so popular that many of the measures which he favors have been
passed by the Legislature despite the reluctance of many of its
members.
Although he is a very popular leader, there have been some serious
defections among the politicians with whom he does not always agree.
Communist influence is not great in the Philippines, outside of a few
remaining Huks. Even they are more akin to ordinary bandits than
they are to Communists per se.
President Magsaysay is the first president of the Philippines to
come from the ranks of the "common man," a fact which gives him
great personal popularity for, in the popular mind, he is identified
with large programs of social reform.
The Filipinos are nationalistic, but their nationalism is built
against a background of friendship for the United States.
D. ECONOMIC CHARACTERISTICS
Generally speaking, economic conditions in the Philippines today
are favorable, largely due to the efforts of President Magsaysay, who
has succeeded in giving hope to the Philippine people.
The potential for economic development in the Philippines is tre-
mendous, and it is to our own interest to do all that we can to assist
the Filipinos in realizing that potential.
Over 70 percent of the population of the Philippines are engaged in
agriculture, and agricultural products account for over 40 percent of
the country's gross national product. Production is heavily concen-
trated in a relatively few commodities. The economy is not diversi-
fied. Rice, meat, fish, and many other products still have to be
imported.
Although in a few areas there is a rather serious overpopulation
problem, there is sufficient good agricultural land to support a much
larger population than at present. The country is rich in mineral and
timber resources.
There are many well-educated people in the Philippines, but there
is a shortage of experienced scientists, engineers, and top-management
leaders.
There is considerable unemployment and underemployment. Since
the economy has not been developing rapidly there is difficulty in
creating jobs to absorb net additions to the labor force, not to mention
absorption of the present backlog of the underemployed.
As in other parts of the Orient, there is a family approach to
business, as opposed to the corporate approach characteristic of the
West.
Unlike many other countries, the Philippine Government is not
pushing industrialization so much as a balanced economic growth.
The Philippine economy is characterized by chronic balance-of-
payments difficulties, which, of course, lead to foreign exchange prob-
lems. These difficulties arise from the country's basic economic
1386
KOREA, JAPAN, TAIWAN (FORMOSA), ETC.
structure. Lack of diversity in production and the fact that exports
consist of only a few products selling in world markets characterized
by inelastic demand, together with a pressing need for a wide variety
of imports, make for chronic imbalance in the international accounts.
E. UNITED STATES AID PROGRAMS
Military assistance in the Philippines by the United States is
considerably lower than that which it is making available in Korea,
Taiwan, or Japan; this is a sore point with the Filipinos. Rightly or
wrongly, they think that they should be receiving as much aid from
us, proportionately, as other countries in the western defense system.
The Filipino military leaders have asked the United States for
assistance in building up a military force of some 170,000 men. They
want the United States to provide the equipment and support. As
President Magsaysay has put it, they are willing to supply the man-
power if we will supply the finances.
United States representatives have indicated that we are prepared
to take over the cost of the military "hard goods," but are not willing
to take over the cost of the "soft goods" and other costs.
Aid on the nonmilitary side is pointed toward three objectives,
namely: (1) industrialization, (2) raising living standards, and
(3) improving governmental practices.
On the economic side, the first problem is to increase the produc-
tion of rice. There are many small subsistence farmers, working
farms consisting of less than 3 hectares, who are just emerging from
the feudal system. Because of a lack of incentive in the way of fair
prices, access to credit, et cetera, it has been difficult to get rice to
market. Agricultural credit facilities have been provided and now
constitute a central part of our aid program.
There is a shortage of commercial fertilizer. Most of that which
is available is used for the raising of sugar and pineapple. Little, if
any, is used on other crops.
Emphasis is being laid upon rural development as the most im-
portant single means of raising living standards. Land reform and
development of the extension program of the Department of Agri-
culture are well under way.
On the industrial development side, attempts are being made to
establish new manufacturers, increase the productivity of existing
firms, and to assist in industrial financing.
F. PUBLIC HEALTH AND COMMUNITY DEVELOPMENT
There has been a comprehensive reorganization of the public health
services. Reports indicate that the health program has been highly
successful. Each province has public health personnel working at the
barrio (community) level.
Community development work is moving along rapidly. The
people in the barrios who are working on this program report to a
presidential adviser. There are also community-development coun-
cils at various levels.
Another important aspect of the aid program is assistance in the
establishment of third-country training programs. Some Americans
KOREA, JAPAN, TAIWAN (FORMOSA), ETC.
1387
in the Philippines believe that better results are obtained when
training problems are tackled on the basis of "Asians to Asians,"
rather than on the basis of "Westerners to Asians."
Over 1,200 Filipinos have been sent overseas, primarily to the
United States, for training purposes. Not all of them are students;
many of them are people who are already prepared to take advantage
of advanced training.
In 1955 more than 200 people from other countries in Asia went to
the Philippines for training. It was stated that one of the big advan-
tages of this approach to the problem of development is that it helps
eradicate the feeling that the Philippines are still a colony of the
United States. The training which we are assisting is primarily
technical and vocational. Even with their limited trained manpower
resources, the Filipinos have cooperated in this program at their own
expense.
G. EFFECTIVENESS OF THE AID PROGRAMS
Our aid program in the Philippines is progressing about as well as
can be expected in view of the difficulties inherent in the situation.
Unlike Japan, the Philippines are rich in natural resources. Great
strides are being made and, given enough time and patience, we can
reasonably expect that the Philippine economy will eventually
become fully viable and constitute a strong link in the chain of western
defense.
H. CONCLUSIONS AND RECOMMENDATIONS
1. There is urgent need of tax reform. The failure of domestic
capital to seek investment in industry is explained in large part by the
fact that the present tax system makes it possible for much real
wealth to remain untaxed, or to be taxed at very low rates. If real
estate were to pay its fair share of the tax burden, capital would tend
to find its way into private investment in industry and the country
would be more likely to develop.
2. It is questionable whether the criticism that some Americans
level at the Filipinos for not spending a larger proportion of their
national budget on military defense is altogether logical. Although
there is much to be said for inducing the Philippine Government to
spend a larger proportion of its budget on military preparedness, the
desire on the part of President Magsaysay to put greater emphasis on
improving health, roads, education, and economic conditions of the
lower income groups deserves commendation.
The Filipinos want to build up their military forces-ground, sea,
and air—and are willing to furnish manpower for forces beyond those
required for their own defense if the United States will provide the
equipment and financial support required to maintain them.
This seems to be an equitable proposal in view of the fact that
similar practices are being followed in Korea and Taiwan, and it is
recommended that the makers of United States military policy be
encouraged to reexamine the position they have taken in the matter.
3. As is true in so many other parts of the Orient, traditional,
academic, and professional education is emphasized at the expense of
technical and vocational training. For example, Philippine schools
1388
KOREA, JAPAN, TAIWAN (FORMOSA), ETC.
and colleges graduate each year several times as many lawyers as are
required. Yet there is a serious shortage of technical skills of all
kinds. It is recommended that we do all that we can to induce the
schools and universities of the Philippines to reorient their education
in the direction of putting more emphasis on education of the kind
that stresses "education for the service of people" and a little less
emphasis on the worship of "education for its own sake only."
SURVEY NO. 6
WESTERN EUROPE I
(NORWAY, DENMARK, AND WESTERN GERMANY)
BY
WILLIAM RANDOLPH HEARST, JR., PRESIDENT,
HEARST CONSOLIDATED PUBLICATIONS, INC., AND
EDITOR IN CHIEF OF HEARST NEWSPAPERS
MARCH 1957
1389
CONTENTS
Page
Letter of transmittal___
Introduction……….
I. Conclusions_.
II. Recommendations..
III. Norway.
1393
1395
I
I
1396
0
I
1398
1
1
1399
A. Interests of the United States in Norway.
B. The basic situation in Norway-
C. The nature of the aid programs serving the interests of the
1399
--
1400
-->>
United States.
1402
D. The effectiveness of the aid programs in serving the interests
of the United States in Norway--
1403
E. Changes in the aid programs that would tend to increase their
utility in meeting the basic situation in Norway and in
serving the national interests of the United States...
1405
IV. Denmark..
1405
A. What are the interests of the United States with respect to
Denmark?
1405
B. What is the basic situation in Denmark?
C. Nature of aid programs in Denmark.
D. Effectiveness of aid programs in Denmark in serving interests
of the United States.
E. Changes in the aid programs that would tend to increase their
utility in meeting the basic situation in Denmark and in
serving the national interests of the United States-
1406
t
1408
1409
1411
V. Federal Republic of Germany--
1411
A. The interests of the United States with respect to the Federal
Republic of Germany_
1411
B. The basic situation in West Germany.
1413
C. The nature of the aid programs expected to serve the interests
of the United States..
1415
D. Effectiveness of the aid programs in West Germany in serving
the interests of the United States__.
1417
E. Changes in the aid programs that would tend to increase their
utility both in meeting the basic situation in West Germany
and in serving the national interests of the United States__
VI. Berlin (West Sector)__
1418
1419
A. Interests of the United States in Berlin.
B. The basic situation in West Berlin____
1419
1420
C. Aid programs of the United States___
1421
D. Effectiveness of the aid programs in serving the interests of
the United States_
1421
E. Recommended changes in aid programs.
1421
1391
LETTER OF TRANSMITTAL
JANUARY 30, 1957.
To the Chairman and Members of the Special
Committee to Study the Foreign Aid Program:
Under separate cover, I am sending 25 copies of my report as a
special assistant to the Senate Foreign Relations Committee investi-
gating the foreign aid program.
This report is based on a survey I made, accompanied by Mr.
James Gleason assigned to me by the special committee, in Norway,
Denmark, West Germany, and Berlin.
Never having done anything of this nature before I sincerely hope
that you will find the report sufficiently informative to you and your
committee.
Should there be any other questions by you or any other member
of the Senate Foreign Relations Committee, I shall be only too glad
to try and clarify them, either in writing or at some mutually con-
venient time.
Sincerely,
W. R. HEARST, Jr:
1393
•
WESTERN EUROPE
(NORWAY, DENMARK, AND WESTERN GERMANY)
INTRODUCTION
The field survey requested of your consultant was directed to cover
the scope of the United States Government's foreign aid programs in
Norway, Denmark, West Germany (including the west sector of
Berlin), and Yugoslavia. This activity has been concluded with the
exception of Yugoslavia, where an entrance visa was denied the
committee's consultant. It is not believed appropriate, therefore,
for this report to have reference to the foreign assistance program for
Yugoslavia.
The assignment covered a period of 23 days which, excluding travel
time, permitted a total of 15 days for survey activities. În each
country visited, interviews, briefing sessions or other engagements
were had with United States ambassadors, embassy staffs, and United
States military mission officials. Similar visits were conducted with
foreign ministers for defense, economic, and political affairs. In addi-
tion, briefing sessions were attended with highest ranking North
Atlantic Treaty Organization military officials and United States
military commanders of the Army, Navy, and Air Force stationed
overseas, and site inspections were made when time permitted. Where
available, private discussions were conducted with businessmen and
newspaper representatives, both foreign and domestic. It is the con-
sidered judgment of the committee's consultant that the report that
follows represents an accurate appraisal of the overall effectiveness
of the Government's assistance programs, giving due allowance to the
limitations of time available for the survey.
*
*
*
*
*
*
*
November 4, 1956 marked a day of history in communism's march
among world events. Political reverberations from the invasion
of Soviet troops in the streets of Budapest have significance which
may not be understood for some time to come. In Norway and
Denmark, in the Federal Republic of Germany and in Berlin, the
immediate result was apparent. The era of peaceful coexistence
which blossomed forth from the Geneva Big Four Conference in 1954
was shattered by armored tanks stilling patriots' cries for political
freedom and independence.
Although of lesser impact, the Israel invasion of Egypt on October
29, 1956, and the subsequent British-French action on October 31,
1956, created additional disturbances and uncertainties in the three
North Atlantic Treaty Organization countries visited during the
survey.
Since conclusions must vary with varying circumstances, it is
questionable whether future programs of assistance can be predicated
with great certainty over observations gleaned during fluid periods
94413-57-89
1395
1396
NORWAY, DENMARK, AND WESTERN GERMANY
such as the Hungarian and Suez crises. On the other hand, world
conditions at their worst may constitute the most beneficial environ-
ment to view the past, present and future of government-to-govern-
ment mutual assistance plans.
It should be stated that no cognizance is taken in this report of the
economic strains that the Suez crises placed on the fiscal situations
in the countries surveyed.
There is no question that the Soviet Union's "charm offensive"
of 1955-56 achieved a high degree of success in Norway, Denmark,
and, to a lesser extent, in West Germany. No doubt exists that the
recent events in East Europe have restored the realities of unswerving
Communist objectives toward world domination to their proper
perspective in those countries.
The Middle East crisis, with two key members of the North Atlantic
Treaty Organization charting a unilateral course, caused alarming
reactions in the three survey countries. The weakness of a unified
cohesive force in the North Atlantic Treaty Organization when national
interests and considerations became paramount has laid the ground-
work for the necessity of closer ties and greater consultations among
members joined together in this mutual defense effort.
The conclusions and recommendations, in the order of the countries
visited, are as follows:
(1) Economic aid
I. CONCLUSIONS
A. NORWAY
United States economic assistance was indispensable to the nation's
post-World War II debilitated economy in the period during which
recovery was accomplished. Assistance in the amount of $459.6
million in various aid programs and $2.3 million in surplus commodities
was granted from 1949 to 1953. Economic recovery would not have
been attained by the Norwegian Government until at least 1960
without such foregoing aid.
There is reason to believe that Norway's entrance into NATO could
not have been accomplished without promises of United States econ-
omic assistance. Norway's strategic position on the north flank of
our European defense line has increased United States defensive
capabilities beyond calculation.
Without United States economic assistance, Soviet pressures to
neutralize Norway away from the West would have greatly increased.
Grave danger existed that a war-weary people would have accepted
Soviet aid in lieu of continued economic hardships.
(2) Military aid
Present military strength was made possible only through United
States assistance, but military strength is still below NATO require-
ments. United States military aid amounted to over $564 million.
The existing government concludes that for political reasons present
economic conditions do not permit increased military appropriations.
This conclusion necessitates continued assistance from the United
States or other NATO sources to maintain existing defense levels.
The necessity of maintaining a disproportionate share of the North
Atlantic Treaty Organization's early warning system has increased
the feeling that the country's defense program is of primary benefit
to the United States.
NORWAY, DENMARK, AND WESTERN GERMANY
1397
(1) Economic aid
B. DENMARK
United States economic assistance accelerated Denmark's recovery
from a wartime economy. German occupation of the country placed
temporary strain on the nation's resources, but in general, postwar
economic health of the country is more favorable than in other
countries visited. United States economic assistance programs
amounted to $305 million. Without such aid it is doubtful that the
military preparedness now attained would have been accomplished.
The long history of neutrality in the nation would have been
cultivated by the U. S. S. R. to the detriment of the West if the need
for assistance for Denmark had not been recognized. A look at a map
of Europe is sufficient evidence of the country's strategic position from
a military viewpoint.
(2) Military aid
The present strength is based on United States assistance programs
and continuance of present levels of military effectiveness can be
maintained only with continued aid. United States military aid
amounts to over $394 million.
Its strategic location as the "cork in the Baltic" against Soviet
submarine menace is of the highest defense value to the United States
and to the North Atlantic Treaty Organization.
An effective early warning system makes this area a key to western
defense.
(1) Economic aid
C. FEDERAL REPUBLIC OF GERMANY
Economic assistance to West Germany was the difference between
complete collapse of the German people and their emergence with the
strongest fiscal government in Europe today.
Economic aid programs amounted to over $3 billion. A wartime
economy since 1936 and complete occupation after defeat in World
War II left the country's economy helpless and beyond repair without
outside assistance. With the Union of Soviet Socialist Republics in
complete domination of one-third of her geographical area and 30
percent of her people, West Germany would have been subject to
constant subversive Communist pressures or, in the alternative, com-
plete economic dependence without United States assistance programs.
The country is today a major keystone of Western Europe's defense
plans against the U. S. S. R. This fact alone proves the wisdom and,
in only 11 years after World War II, the efficacy of United States
aid programs.
(2) Military aid
Military aid has completely equipped armed forces up to existing
strength. Lagging military strength is due to the defeat of the
European Defense Community plan in 1953 and the cutback in draft
plans.
If acceptable to West German people, military mobilization to meet
North Atlantic Treaty Organization requirements could be secured
rapidly.
i
1398
NORWAY, DENMARK, AND WESTERN GERMANY
(1) Economic aid
D. BERLIN (WEST SECTOR)
Economic assistance protected and saved over 2 million people
from poverty and complete destitution, as well as possible incorpora-
tion into Soviet territory.
Aid programs in the amount of $600 million were furnished from
1948 to the present date. During the Berlin blockade airlift of
1948-49, every commodity consumed by the sector's inhabitants was
transported for a period of 10 months. This aid strengthened anti-
Communist spirits in all of the countries behind the Iron Curtain.
The value of economic aid can be readily seen by any observer travel-
ing from the western to the eastern sector of the city. Rehabilitation
has been extensive as compared with East Berlin.
One hundred and thirty miles inside the Iron Curtain free Berlin
stands as the only visible beacon of freedom and hope to the captive
peoples of the satellite nations. Its psychological value in maintain-
ing the spirits of the East Germans for eventual freedom cannot be
overestimated. In the minds of all Germans, as long as a free Berlin
is maintained, unification of the entire country will be eventually
accomplished.
(2) Military aid
Aside from local police forces, military strength in the west sector is
composed entirely of United States, British, and French personnel.
1. Economic assistance
II. RECOMMENDATIONS
A. NORWAY
No necessity can be discovered for a continuation of economic
assistance except for assistance directly relating to accomplishing
proposed North Atlantic Treaty Organization defense levels.
2. Military assistance
Military assistance will be required in increasing amounts if the
defense requirements of the North Atlantic Treaty Organization are
to be attained. A possibility exists for the country to increase defense
appropriations. However, doubling or tripling present defense
expenditures would not produce a significant advance in defense levels.
It is recommended that the North Atlantic Treaty Organization
infrastructure program be reviewed with the objective of providing
defense maintenance for smaller nations which have disproportionate
North Atlantic Treaty Organization defense burdens.
1. Economic assistance
B. DENMARK
No necessity is apparent for any economic aid in the future. The
economy of the country is basically sound, with the exception of infla-
tionary trends of rising wages and prices, and should continue on a
healthy basis.
2. Military assistance
To maintain existing defense levels and to increase to North Atlantic
Treaty Organization requirements, continued military assistance is
necessary although the possibility exists for increased defense appro-
NORWAY, DENMARK, AND WESTERN GERMANY
1399
priations in the nation to decrease margin needed. It is recommended
that the North Atlantic Treaty Organization infrastructure program
be reviewed with the possibility of including directly related military
items now being furnished exclusively by the United States.
C. FEDERAL REPUBLIC OF GERMANY
1. Economic assistance
No economic assistance is now being delivered or planned. In view
of the thriving community which has surpassed economic levels of
1939, no necessity is seen for resumption of economic assistance in the
future.
2. Military assistance
No military assistance is recommended for Germany, barring un-
expected reverses in the country's economic growth. Sufficient re-
serves now exist to purchase military equipment and the nation has
indicated its willingness to pay for equipment to undertake military
obligations as requested by NATO. It is recommended that increased
efforts be made to encourage the Federal Republic to accelerate its
defense mobilization processes. The rapid recovery of the economy
of the Republic has been assisted by a concentration on buildup in
peacetime industry.
D. BERLIN (WEST SECTOR)
No assistance is recommended for Free Berlin except small amounts
for morale purposes. Programs identifying continuation of United
States interests in the sector are being maintained.
III. NORWAY
A. INTERESTS OF THE UNITED STATES IN NORWAY
1. Security interests of the United States
It is readily apparent from a study of any polar map that Norway's
geographical position vis-a-vis the Soviet Union is of the highest
strategic value to the defense of Western Europe, England, Canada,
and the United States. From the industrial centers and important
military installations inside the U. S. S. R., the shortest line to any
place in the United States crosses directly over Norway. Norway has
a common border with the U. S. S. R. of approximately 120 miles.
This proximity to the Soviet base of operations and the nearly 2,000
miles to the nearest United States military installation on Greenland
are further evidence of the security interests of the United States in
Norway. Within Soviet control or influence, Norway, serving as a
Communist military base, would reverse the present strategic advan-
tage we possess. It should also be considered that control of the
myriad of Norway's fiords by Soviet vessels would be a grave threat
to shipping and to military operations of the North Atlantic com-
munity nations. Another security interest of the United States in
Norway is the control, in time of conflict, of the Norwegian merchant
fleet. Historically, Norway is a seafaring country and her merchant
fleet is now the third largest in the world. Its control in time of an
emergency would be a valuable weapon. Through her membership
in NATO, this fleet, in wartime, would be available for the military
purposes of that organization.
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NORWAY, DENMARK, AND WESTERN GERMANY
2. Economic and commercial interests of the United States
Economic interests of the United States in Norway are extremely
limited at present. Private capital investment in the country is not
encouraged and is almost nonexistent. Figures submitted showed that
as of 1953, American capital in Norway amounted to approximately
$12 million.
There is only one American firm with a representative in Norway
today, which is an indication of private industry's interests in the
area. On the subject of trade, Norway's exchanges with the United
States represent less than 1 percent of this country's total world trade.
In 1955, imports from the United States were $94 million, while exports
were $59 million. Grains, metals, fish, and fuel are the main items of
commercial exchange.
It should be noted that Norway's waterpower capacity is one of the
highest in the world. Therefore, the bulk of what private United
States investment capital exists has been directed into those industries
which are based on cheap electric power.
3. Other interests of the United States
There are ethnic and cultural interests of the United States in Nor-
way that have been promoted by immigration. It has been observed
that every family in Norway has relatives or a former neighbor who
has emigrated to the United States and this tie tends to help resolve
those differences that exist in the international relations of all countries.
B. THE BASIC SITUATION IN NORWAY
1. Nature of economy of Norway and the capacity of that economy to
develop
The economy of the country is extremely rigid and limited. Fish,
timber, and waterpower constitute the backbone of Norwegian indus-
try. Á limited rural area with a population not exceeding 3½ million
people are not factors upon which to base limitless economic goals.
Industrial development in Norway is proceeding at a slow rate
although considerable progress has been made in recent years. The
Government concentrated on capital investment as its primary goal
after World War II, and in this manner was able to restore and in-
crease the nation's merchant marine to a ranking position among the
world's fleets. The fleet at present is 8 million tons.
The Government aspires to be able to increase production by 3
percent annually and under present world conditions should be able
to accomplish this objective. However, its methods are seriously
hampered by its critical investment policies which, through fear or
foreign economic exploitation, are restrictive. The domestic economy
is closely regulated by the socialistic Government and although full
development is maintained, it is believed that productivity could be
increased with fewer controls.
Norway suffered considerable hardships from German occupation
in World War II and economic programs have been difficult and slow
in progressing. Nevertheless, the gross national product increased
50 percent from 1946 to 1955.
NORWAY, DENMARK, AND WESTERN GERMANY
1401
2. Political factors in Norway which affect its capacity for development
and its ability to use aid programs effectively
The present Government is administered by the Labor Party.
Under this Socialist party, which has been in control continuously
since 1935, the Government has regulated the economy with a strict
system of wage, price, and rent control. The Labor Party received
49 percent of the vote in the last election and the next largest, the
Conservative, 28 percent. All minority parties except the Commu-
nists advocate less government regulation of the economy. The
Communist Party has less than 8,000 followers and only 3 out of 150
seats in the legislature. All parties except the Communists, of course,
advocate a strong defense policy.
There is no doubt as to the appreciation on the part of the Nor-
wegian people or Government officials for the assistance received from
the United States. However, there is some feeling that the United
States was acting in its own interests as much as that of Norway in
granting technical and military assistance.
A serious impediment to national progress exists under the Govern-
ment's restrictive foreign investments policies. This attitude un-
doubtedly springs, in part, from the strong nationalist feeling in
Norway that has developed since she won her independence from
Sweden and Denmark in 1905. In addition, it is believed that Gov-
ernment officials fear political pressure might upset existing social
programs and practices if foreign interests entered the economic life
of the country. It is questionable whether a change in government
would produce immediate results as far as the necessity for continuing
outside military assistance is concerned.
3. Strategic requirements for defense of Norway, alliances and inter-
national arrangements for defense, and present military capacities
With the close proximity of Norway to the U. S. S. R., the defense
requirements for adequate security protection are formidable. Al-
though occupation by the German army in World War II had the
effect of dispelling an air of neutrality with respect to the Soviet
menace, there still exists a danger of unrealistic planning whenever
Communist policies become seemingly directed toward coexistence.
However, the recent Soviet activities in Hungary swept away the
delusions that were fostered by the Soviets after the Geneva Con-
ference in 1954.
The hundreds of deep fiords that cut into the coastline give Norway
an overall ocean front of more than 12,000 miles. This fact, added
to that of having a common border with the Soviet Union, creates
a problem of adequate defense that is beyond the capabilities of the
country. There is no question that an alert feeling in opposition to
the Communist menace exists today but the neutrality of her neighbor-
ing country, Sweden, and public awareness of Norway's vulnerable
position, tend to result in a critical attitude by the Norwegian people
of requests for additional defense spending.
Norway has been a member of NATO since its beginning in 1950.
The Government has an announced policy against the stationing of
foreign troops in Norway. This was promulgated to neutralize the
Soviet Union's threats at the time she joined NATO. This policy

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NORWAY, DENMARK, AND WESTERN GERMANY
and Sweden's neutrality complicate proper defense training, but no
change in either is possible under existing circumstances.
Norway has a bilateral agreement with the United States for the
supplying of military equipment. Present military capacity of the
country is considered adequate for existing conditions, although addi-
tional expansion of defense facilities will have to be made to insure
sufficient defense. The Norwegian army at present has an extremely
limited offensive capability, but it is believed sufficient to retard
aggression until other military assistance arrives.
The Norwegian navy is in need of modernization and expansion
and her defense capabilities are limited. The air force is the most
effective service unit from an offensive viewpoint, but modernization
and maintenance are continuing problems in this arm also. A missile
development program in Norway would undoubtedly increase its
military capabilities to an important degree. The early warning
system in Norway, as noted previously, adds considerably to the
defense posture of the North Atlantic community.
4. Special or unique factors in the situation in Norway of significance
to the operation of the aid program
Norway has been encouraging foreign loans for the continuation
of her capital investment program and in recent years several barter-
type arrangements have been concluded with great success. By this
method, foreign loans are received for the purpose of constructing a
capital industrial plant and repayment is made in the item produced
by the plant. In this manner, for example, an aluminum and a
magnesium plant have been constructed with considerable and bene-
ficial effect on the economy. The Governments of Switzerland and
the United States have extended assistance in this form and un-
doubtedly the Norwegian Government would like to have an extended
program entered into on this basis. The shortage of manpower and
limited physical facilities and resources (only 3 percent of the land is
tillable) make Norway a difficult area for which to foresee a healthy
and growing economic future.
C. THE NATURE OF THE AID PROGRAMS SERVING THE INTERESTS OF THE
UNITED STATES
1. Objectives of the United States aid programs in Norway
The only aid program currently operating in the country is a mili-
tary assistance program. The economic assistance program officiall
closed on June 30, 1956 although economic aid, except for a small
"winding up phase" program, terminated as of fiscal year 1952.
The military program has been designed to assist Norway in bring-
ing up its military defense capabilities to meet NATO requirements
and United States defense interests. It has also been the purpose of
United States assistance to encourage the development of a military
production base in Norway which would allow her to carry on inde-
pendent manufacture of parts, minor weapons and equipment.
2. Type and magnitude of aid programs operating in Norway
Although as indicated above, the United States economic assistance
program has ended in Norway, it might be of value to report the aid
of this type granted up to June 30, 1953. Total assistance under
United States economic aid programs came to $459.6 million. This
NORWAY, DENMARK, AND WESTERN GERMANY
1403
does not include transfers under the United States surplus agricultural
program which came to an additional $2.3 million.
The United States military assistance programs have been operating
in Norway since fiscal year 1950. Up until June 30, 1956, the total aid
granted was in the neighborhood of $564 million. This military
assistance has completely equipped the existing Norwegian military
force.
3. Administrative direction, coordination and operation of aid programs
in Norway
The military assistance program (MDAP) is administered by a
military assistance advisory group (MAAG) under the direction and
general supervision of the United States Ambassador. There is good
coordination between the American officials of both offices as well as
cooperation with Norwegian officials on a political and defense level.
D. THE EFFECTIVENESS OF THE AID PROGRAMS IN SERVING THE
INTERESTS OF THE UNITED STATES IN NORWAY
1. Relevance of the objectives of the aid programs to the situation in Nor-
way and to the interests of the United States
The cost per capita of German occupation during World War II
was higher in Norway than other countries of Europe. The devasta-
tion left by the Germans, especially in the northern areas of the nation,
placed an economic burden on Norway, the effects of which would still
be felt in the absence of United States economic programs. With the
general policies of intervention engaged in by the Soviets subsequent
to the war and the close proximity of Norway to the U. S. S. R. zone
of influence, it is realistic to assume that without United States
economic assistance to Norway, that country's decision to enter
NATO might have been different. In 1949, when the first Marshall
Plan aid became available, Norway was in a position of having in-
vested such a large percentage of available capital in capital invest-
ments that she was in danger of being incapable of feeding herself.
Since Norway imports 50 percent of her food, economic aid was a stark
necessity. Although some economists might quarrel with a fiscal
program which placed itself in jeopardy by overextending a capital
investments program, the hardships which the Norwegian people
endured through rationing to improve the long-range fiscal wealth of
their country have to be understood and appreciated. Most of the
rationing controls were not terminated in Norway until 1950, 5 years
after the war.
On the military assistance program, it would not be inaccurate to
report that the military posture of Norway today would not exist
without United States aid. It is without question in the best interests
of the United States to have an effective early warning system and
defensive alliance with Norway.
It is difficult to assign a priority to United States defense interests
in Western Europe. However, most military strategists agree that
Norway's physical location with respect to the Communist military
potential is of the highest military value from a defense point of view
to Western Europe and the United States. The objectives of this
country's military assistance program to Norway are well served.
1404
NORWAY, DENMARK, AND WESTERN GERMANY
2. Relevance of the type and magnitude of aid programs to the basic
situation in Norway and to the interests of the United States
At the present time, the Government in Norway is spending about
4 percent of the nation's gross national product for defense expendi-
tures. The gross national product in Norway is near the $3 billion
level. Norway's military budget is approximately 20 percent of
the Government's budget, and in view of political pressures in the
country and the economic outlook, there seems no likelihood that
much of an increase can be expected in the near future.
It is the judgment of this report that no diminution of military
assistance to Norway can be had without jeopardizing the existing
military establishment and reducing the defensive effectiveness of
NATO's northern flank. It is beyond the capacity of the Norwegian
people to purchase the most modern weapons, aircraft, and naval
vessels available. Forty-five percent of the military budget of
Norway is now being allocated to the purchase of equipment and it
has been pointed out before that the necessary force goals could not
be reached even if Norway were able to double its present military
expenditures. The problem of modern equipment in Norway's
mobilization program is serious and substantial.
It is believed that a realistic appraisal of this important military
area should show that NATO could grant further recognition to the
unequal burden carried by Norway. It is believed that the United
States is fully undertaking its obligations in this problem with the
present size and scope of its military defense assistance program.
The additional problem of maintenance and replacement of military
equipment for the existing military forces of a country like Norway is
also going to have to be realistically faced.
3. Effectiveness of administrative control, coordination, and operation of
aid programs as related to the basic situation in Norway and the
interests of the United States
The administration, coordination, and operation of the military aid
program, from all appearances, is being effectively accomplished.
During the brief period permitted for survey activities in Norway, it
was not possible to make a detailed study for this phase of the report.
Relationships between United States Embassy officials and military
assistance advisory group representatives and officials of the Norwe-
gian Government appeared excellent. There is a generally noticeable
appreciation among the people for the assistance granted to Norway
by the United States.
4. Related activities of the United States in Norway which assist or hinder
the aid programs in serving the national interests
There has been some criticism in Norway of the 50-50 shipping
provision in United States surplus commodity programs, and this has
tended to limit the extent of Norway's participation in this program.
It might be appropriately stated here that, although Norway's mer-
chant shipping fleet is the third largest in the world, most of its con-
struction was contracted for in countries other than the United States
because of high costs here at home. There were no other related
activities of the United States observed in Norway.
NORWAY, DENMARK, AND WESTERN GERMANY
1405
E. CHANGES IN THE AID PROGRAMS THAT WOULD TEND TO INCREASE
THEIR UTILITY IN MEETING THE BASIC SITUATION IN NORWAY AND
IN SERVING THE NATIONAL INTERESTS OF THE UNITED STATES
1. Recommended changes in objectives of aid programs in Norway
The objectives of this Nation's military assistance in Norway is to
assist a friendly country in establishing the means for her own defense
and to provide for the security of the peoples of the remaining coun-
tries of the North Atlantic Treaty Organization including our own.
As long as the menace of communism to peace exists, no change is
recommended in these objectives of our military assistance program.
2. Recommended changes in type and magnitude of aid programs in
Norway
It is the conclusion of this report that no necessity can be foreseen
which will require consideration of any resumption of economic assist-
ance. On the military program, the assistance granted to date has
been observed as being effectively utilized and of indispensable mili-
tary value. It is recommended that further studies be made as to
means to promote within NATO more rapid military mobilization
without increasing the level of United States assistance.
3. Recommended changes in administration, direction, coordination,
and operation of aid programs in Norway
There is no recommendation here on the administrative or operative
aspect of the military assistance program. There is a sincere feeling
in Norway among Socialist government officials that the United States
could increase its present program since it would not be an excessive
financial burden on this Government and in addition it would be a
further investment in its [United States] own interests. It is believed
that United States officials should emphasize with possible constructive
effects the role the American taxpayer has undertaken in providing
economic, technical, and military assistance to many countries since
World War II. The proportion of the United States national debt
and the burden at home are not being given sufficient attention in
Norway.
IV. DENMARK
A. WHAT ARE THE INTERESTS OF THE UNITED STATES WITH RESPECT
TO DENMARK?
1. Security interests of the United States
From a military point of view, Denmark's geographical location
has considerable value to the security and defense of the United States.
Because of its proximate position to the Soviet Union, protection
against a surprise attack from that quarter is assured. In addition,
agreements concluded in 1951 authorizing the use of Greenland for the
stationing of United States military personnel on United States bases
have contributed to developing a defensive military strength in case
of an emergency. Denmark, constituting the "cork" in NATO's
defense plans for the Baltic Sea, has a relatively high military value
for all members of the North Atlantic alliance.
1406
NORWAY, DENMARK, AND WESTERN GERMANY
2. Economic and commercial interests of the United States
Denmark being a small country with a population of 4½ million is
primarily a trading nation with no natural resources. It follows that
United States economic interests in the area are minor. It is esti-
mated that overall United States investments in Denmark do not ex-
ceed $30 million.
In the commerial trade field, imports from the United States have
averaged over $70 million per year during the past 6 years. (This
compares with exports from Denmark to the United States of $50
million per year in the same period.) The United States ranks as the
fourth largest exporter to Denmark and the third largest customer for
Danish commodities. Trade items usually consist of raw materials
and fuel from the United States and agricultural, fish, and manufac-
tured products (alloys, furniture, silver, etc.) from Denmark.
It should be noted that a tourist trade of considerable proportion
has been of increasing importance to the Danish economy and to
United States commercial interests. It is estimated that nearly
500,000 visitors will tour Denmark in 1956, over 100,000 of them being
Americans. This trade, in addition to cultural and social values to
both countries, will produce over $50 million for Denmark.
B. WHAT IS THE BASIC SITUATION IN DENMARK?
1. Nature of Denmark's economy and its capacity for development
The economy of the country is one with a settled pattern and, with
present world conditions, little opportunity exists to vary or experi-
ment. The economy is characterized as being stable with a forecast
of gradual increases in the nation's gross national product, principally
due to increased productivity.
The economic history of Denmark is one of basic agricultural devel-
opment with industrial production recently assuming first place
both in the number of people employed and in contributions to the
gross national product.
The country's land areas cover 16,600 square miles, an area ap-
proximately one-fifth the size of Minnesota, Kansas, or Nebraska.
Over 80 percent of the land is in cultivation with the average farm
being 38 acres. (This compares to the average farm in the United
States of 215.3 acres, 1950 census.) Agriculture is highly developed in
Denmark with good yields on inferior land that must be treated
constantly with artificial and natural fertilizers. The main products.
of Danish agriculture are milk, pork, eggs, and cheese. Approximately
two-thirds of all Danish exports are agricultural products with the
principal market being England. Danish agriculture reached its
prewar levels in 1950 and has progressed gradually each year since.
Increased mechanization and cooperative methods of farming and
marketing have been primarily responsible for this increase but it is
estimated that Denmark's agricultural capacity will be reached in
the near future, if it has not already been attained. Agriculture and
related industries employ nearly 500,000 workers, which constitutes
approximately 25 percent of the working force.
Danish industry has greatly surpassed prewar levels. Employment
in industry and related fields exceeds 1 million employed. Metal
products, machines, beverages, and chemical products constitute
Denmark's chief export items. The construction industry has been
NORWAY, DENMARK, AND WESTERN GERMANY
1407
contributing to Danish industrial development and it has, for the
past 8 years, been a main foundation of industrial activity. Un-
employment is less than 2 percent for all branches of employment.
Existing capacity for development of the Danish economy rests
mainly on increased industrial development and productivity per
man-hour. The gross national product is now about $900 per capita,
which corresponds favorably with other European countries. Indus-
trial expansion is handicapped by the complete lack of natural re-
sources, which necessitates the importation of all of its raw materials,
including fuel to operate factories. Governmental policies encourag-
ing increased mechanization in agriculture will release needed workers
for industrial development. Denmark's economic future is woven into
a simplification of European trading policies and the development of a
common market in Europe. The country's dollar balances have im-
proved in recent years, but any slight economic dislocation such as is
involved in the current oil shortage puts this margin in jeopardy.
Development of atomic energy as a source of power would estab-
lish an independence of other nations for fuel and energy.
The cost of living over the past few years has been relatively stable
but there has developed in recent months a trend toward increased
wages and prices. The inflationary effects of this development, if
continued, will create added burdens on the Danish economy. Gov-
ernment-sponsored programs to encourage foreign investments in
Denmark would be of assistance in facilitating industrial expansion.
There is an acute shortage of investment capital at present in the
country.
2. Political factors in Denmark which affect its capacity for development
and its ability to use aid programs effectively
As in other Scandinavian countries, the policies of government are
dependent to the largest extent on the particular parties that control
the political power in the country. This fact must be understood in
the light of recent history which has seen little change in the political
complexion governing the Scandinavian nations in recent years.
In Denmark, no single party has a majority at the present time.
The largest party, the Social Democrats, organize the present Gov-
ernment without the absolute power of control, which necessitates
some cooperation with a minority party (Radical Liberty-anti-NATO
and Defense.)
All of the major parties in Denmark have evidenced support for
continuation of the Government's strong defense policy and the NATO
alliance. Although elections are scheduled in the country for the
fall of 1957, it is not believed that any major shift in foreign policy
will ensue as a result of political changes. The effect of a change, if
any, in the present Government would be reflected in domestic policy
and programs within Denmark. It is believed the election of the
conservative or moderate liberals (second and third largest parties),
or a coalition of the two, to control of the Government would probably
indicate more emphasis placed on defensive strength and economic
independence.
In any appraisal of foreign and domestic policies advocated by
political parties in Denmark, an appreciation must be maintained of
the neutrality influence within the country. Denmark has been a
neutral nation since 1864 even though an occupied nation in World
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NORWAY, DENMARK, AND WESTERN GERMANY
War II. The influence of neutralism today is in part generated by
the knowledge that Denmark is an "open" country, difficult to defend
and only 10 minutes' distance from Soviet jet plane bases.
3. Strategic requirements for defense of Denmark, alliances, international
arrangements for defense, and present military capacity
Denmark has been a member of NATO since its inception in 1949.
Its decision to join this mutual security alliance was preceded by
discussions with Sweden and Norway, directed toward a Scandinavian
pact with emphasis on complete neutrality.
Strategically speaking and looked at from an overall western
defense posture, Denmark's military value has high priority. This
value is best reflected by its physical position as an early warning area
and as a base of operations for both maneuvers and antisubmarine
activities. Military progress during the past 6 years is easily discern-
ible. It cannot be forgotten that before 1950, Denmark had no mili-
tary forces or tradition. In addition to commitments to the other 14
nations under NATO, Denmark has a bilateral agreement with the
United States on the use of Greenland for military operations by the
United States and an agreement calling for military aid for Denmark.
4. Additional factors in Denmark of significance to the United States aid
programs
Foreign private investment in Denmark has not been greatly
encouraged in recent years. This is partly due to fear of foreign
economic domination and competition. This policy seemingly could
be adjusted to encourage the investment capital that is needed. In
turn, this would permit an increase in defense expenditures with an
accompanying independence of United States military aid.
C. NATURE OF AID PROGRAMS IN DENMARK
1. The objectives of United States aid programs in Denmark
The ends of United States Government-to-Government assistance
programs in Denmark from 1948 to date have been twofold: first, to
assist in the economic rehabilitation made necessary by the stresses
and strains created by World War II; secondly, to assist in the estab-
lishment of a firm defense foundation within the country and to make
available the necessary equipment for the proper performance of
NATO defense objectives. Generally speaking, the ultimate ends of
our aid program have been to strengthen the economy of the nation
from the danger of Soviet economic penetration from within and the
military establishment from Soviet aggression from without. An
important objective of assistance to Denmark has been and continues
to be to strengthen the security and defenses of the United States.
In this connection it should be mentioned again that continuation
of defense arrangements on Greenland are both necessary to and
depend on cooperation and understanding between the United States
and Denmark.
2. Type and magnitude of aid programs in Denmark
Of the $305 million expended for economic assistance by the United
States in Denmark, approximately $25 million constituted credits
with the EPU (European Payments Union) countries who author-
ized conditional credits to Denmark in return for dollar aid received
from the United States.
NORWAY, DENMARK, AND WESTERN GERMANY
1409
In military assistance programs, Denmark has been allocated
$394.3 million as of August 31, 1956. This amount covers fiscal years
1950-56. All of the aid funds, military and economic, have been
grants with the exception of two Marshall Plan loans in the amount of
$33 million. The only aid items not included in the preceding items
were an agreement for disposal of approximately $8 million of surplus
commodities (grain and coal) and offshore procurement in the amount
of approximately $15 million annually for the past 4 years.
3. Administrative direction, coordination, and operation of aid programs
in Denmark
Operational control of aid programs in Denmark has come under
the supervisory jurisdiction of the Ambassador with the military
mission acting with primary responsibility. Recommendations are
received from both sources by superior authority in Washington.
Although the International Cooperation Administration mission
was closed in Denmark on June 30, 1956, the Embassy counselor,
before its termination, acted as deputy chief or chief of the mission,
Even though the technical aid mission has been closed, a "country
team" still operates in Denmark consisting of the Ambassador,
economic or political representatives of the Embassy and the head of
the MAAG (military assistance advisory group). This country
team, organized to coordinate and facilitate the administration of
aid programs, meets on a biweekly basis. There is, in addition,
frequent consultation between subordinate members of the Embassy or
the military assistance advisory group.
In cooperation with the Embassy, the military assistance advisory
group screens military equipment requirements presented by the
Danish Government and forwards the Government's requests with
recommendations to defense officials in Washington. Our military
aid program with Denmark is on a bilateral basis.
D. EFFECTIVENESS OF AID PROGRAMS IN DENMARK IN SERVING
INTERESTS OF THE UNITED STATES
1. Relevance of the objectives of the aid programs to the situation in Den-
mark and to the interests of the United States
The interests of the United States in Denmark during the past
decade can be expressed as the creation in the country of a stable
economy and a collective defense base. There is no question of
genuine national appreciation in Denmark for past assistance granted
by the United States and a favorable climate has been created which
presages continued good relations between the two nations.
Undoubtedly, there is much improvement that could have been
made in the administration of the Government's economy in the years
following World War II. In the period 1947-50, the Government
under Socialist control insisted on instituting social welfare programs
which called for heavy expenditures of money. Again in 1953, the
Government inaugurated a heavily subsidized housing program and
these programs have had inflationary effects.
It can be stated categorically that United States economic pro-
grams have been a success from the point of view of assisting in the
creation of a sound economy. It is not clear that the scope of United
States economic aid provided was absolutely necessary to the estab-
lishment of this economy.
1410
NORWAY, DENMARK, AND WESTERN GERMANY
Under current systems of budgeting, no budget deficit has existed
since 1946. Undoubtedly, American aid since 1948 has been instru-
mental in creating the surpluses that existed. The present Danish
Government is spending about $140 million for defense purposes in
its current budget, which is an increase of approximately $60 million
since the North Atlantic Treaty alliance. However, it must be con-
sidered that Denmark's overall budget is only some $700 million for
the year 1955–56. With the cost of modern items of military equip-
ment-jetplanes, battleships, minesweepers beyond the financial
ability of small nations to procure, there is no other method, except
through arrangements with countries capable of providing such, for
them to secure the necessary equipment. There is no simpler explana-
tion for the military assistance program than the foregoing.
2. Relevance of the type and magnitude of aid programs to the basic
situation in Denmark and to the interests of the United States
The comments submitted under the preceding subsection are also
applicable under this heading. The interests of the United States in
sustaining a free and independent government in Denmark, playing
its part in the defense of the West, need not be labored. Our bilateral
arrangements with that country have produced a mutual advantage
to both nations. The advantages of stationing United States forces
in Greenland, 2,600 miles from Moscow and 3,700 miles from New
York, are apparent. It is believed that additional efforts should be
made for the North Atlantic Treaty Organization to assume more of
the burden of financing continued military buildup and, in addition,
the maintenance of the country's military establishment.
3. Effectiveness of administrative control, coordination, and operation of
aid programs as related to the basic situation in Denmark and to
the interests of the United States
It is not believed that this report can include competent comment
on this section. Obviously, the only criterion usable in this survey is
the acid test that the results of the aid programs were the best answer
of the value of the system and the personnel that administered them.
It appeared that relationships between officials of the two Govern-
ments dealing with the programs were excellent. This was also true
with respect to the feelings between Americans in Denmark and the
Danish people in general. It was evident that stronger recommenda-
tions from United States officials could be made to encourage local
initiative and economic independence. A feeling of concern over the
disposal policy of United States surplus agricultural commodities was
noticeable. It is believed that full appreciation of economic and
agricultural problems existing in the United States has not been
fostered or encouraged.
4. Related activities of the United States in Denmark which assist or
hinder the aid programs in serving the national interests
No particular activities were in evidence which had influences on
the aid programs. Obviously, the United States Information Agency
activities would have an effect on this country's assistance programs.
However, there was not sufficient time for adequate observations of
these activities.
NORWAY, DENMARK, AND WESTERN GERMANY
1411
E. CHANGES IN THE AID PROGRAMS THAT WOULD TEND TO INCREASE
THEIR UTILITY IN MEETING THE BASIC SITUATION IN DENMARK AND
IN SERVING THE NATIONAL INTERESTS OF THE UNITED STATES
1. Recommended changes in objectives of aid programs in Denmark
Inasmuch as the only aid program remaining in Denmark is that of
military assistance, no recommendation will be submitted on eco-
nomic assistance except the following: viewing the economic factors.
existing in the country and the projected fiscal future, there is no
foreseeable necessity for any resumption of economic assistance.
2. Recommended changes in magnitude and type of aid programs
On military assistance, it is clear that even though Denmark can
increase its own military expenditures, the scale of military spending
required to bring the military situation to the required levels is beyond
the capabilities of the country. It is recommended that there be no
change in present arrangements between the United States and
Denmark. However, it is also recommended that additional efforts
be made to encourage policies that will result in increasing defense
expenditures by the Government there. It is particularly recom-
mended that additional efforts be made to encourage the North
Atlantic Treaty Organization to assume additional financial respon-
sibilities now borne solely by the United States.
3. Recommended changes in administration, coordination, and operation
of aid programs
This report contains no recommendations on the administration
or operation of the military program. It is believed that increased
efforts to emphasize the critical burden being borne by the American
people in continuing to pay for military assistance could be profitably
made.
V. FEDERAL REPUBLIC OF GERMANY
A. THE INTERESTS OF THE UNITED STATES WITH RESPECT TO THE
FEDERAL REPUBLIC OF GERMANY
(FOR THIS REPORT, WEST GERMANY WILL BE THE REFERENCE USED)
1. Security interests of the United States
The security interests of the United States in West Germany
became apparent after the U. S. S. R. commenced her maneuvering
and belligerent tactics following World War II. With the zones of
occupation of the United States, Great Britain, and France facing
the largest area of Soviet penetration in Eastern Europe, Communist
obstruction on questions of unification of the country and establish-
ment of an independent and responsible government made necessary
a line of Western defense including West Germany. Although the
industrial capacity of the country had been demolished during the
war, Soviet control of this potential would have been a grave risk
for the free world to assume.
West Germany obligated herself in 1954 to assist in contributing to
the common defense plans of the North Atlantic Community. The
United States, having participated in two wars against Germany, is
intimately connected with the responsibility of undertaking mutual
94413-57-90
1412
NORWAY, DENMARK, AND WESTERN GERMANY
defense with West Germany. The headquarters for all United States
army and air force forces in Europe is in West Germany and the
great bulk of United States military personnel in Europe is stationed
in the Federal Republic. The security interest of the United States
can be stated as reliance on West Germany as a military ally in the
first zone of the area to be protected from Communist aggression. It
is clear that Communist occupation of all the agricultural and indus-
trial strength of Germany would constitute a formidable obstacle in
the event of war with Communist Russia. The strength, defensively,
of our other allies in Western Europe is also integrated with an effect-
ive military force existing in West Germany.
2. Economic and commercial interests of the United States
It has been estimated that total direct investments of Americans in
the Federal Republic of Germany were approximately $330 million in
the summer of 1956. Some of the largest corporations in the United
States have investment interests in the country. This development
has taken place in spite of official governmental policies which do not
encourage foreign capital. There are no tax concessions, customs
privileges or other ordinary inducements for capital investments.
In the area of commercial trade, the Federal Republic imported
$883,777,000 worth of goods from the United States in 1955.* This
constituted 15 percent of the total dollar value of West German trade
during this period. In the same year, exports to the United States.
were $402,695,000. This amount represents 12 percent of total
Western German exports in 1955.
There are practically no strategic or critical raw materials in West
Germany and none are exported. One of the particular trade arrange-
ments between the United States and the West German Republic of
importance to the United States is a triangular trade pattern where
raw materials are shipped to the Federal Republic for processing
and the manufactured goods are then shipped to a third country,
at times an underdeveloped area. In this manner, surplus commodi-
ties have been shipped to Germany, such as cotton textiles, and the
finished product has been shipped to a Near Eastern nation like Pak-
istan. In 1950, a typical trade arrangment in this pattern was
the shipment of $8 million of grain to the Federal Republic, the
proceeds of which were used to purchase fertilizers, electric goods,
iron and steel products for shipment to India, Cambodia and Pakistan
under the mutual assistance program.
3. Other interests of the United States
The position of the United States in the Federal Republic has never
been higher. Even after two world wars wherein great human and
economic destruction was the aftermath of United States participa-
tion in the conflicts, a feeling of unity of interests is noticeable every-
where in West Germany. Much of this development can be traced
to wise Allied policies after the war and willingness to assist in facili-
tating the rehabilitation necessary. Undoubtedly the United States
Government has interpreted the policies of this Nation to the satis-
faction of the German people. This interest of cementing per-
manently the close relationships that are possible between the two
nations should not be neglected in the future.


NORWAY;› DENMARK, AND WESTERN GERMANY
1413
B. THE BASIC SITUATION IN WEST GERMANY
1. Nature of economy of West Germany and capacity for development
The gross national product of the country has increased since 1948
from about $18 billion to $41 billion and the economy of West Ger-
many is the most progressive in all of Western Europe today. The
greatest difficulty that had to be overcome in rehabilitating the
economy of West Germany was the establishment of an economic
base without the agricultural areas of the eastern part of the country.
Currency reform in 1948, United States assistance which from 1946
to 1949 amounted to $1.5 billion, the inauguration of constitutional
government, the influx of refugees to strengthen the labor force, and
the characteristic industry and initiative of the German people were
the major factors in the phenomenal recovery that has taken place.
West Germany is today about 75 percent self-sufficient in food
supplies and is the fourth largest buyer of United States food products.
Agriculture is only 11 percent of the gross national product and con-
siderable improvement remains to be made. Strip farming, lack of
mechanization and backward agricultural methods are the main
problems that have to be overcome in this area.
The standard of living in West Germany is higher in every respect
today than it was in 1939. Unemployment in the nation is only around
the 2 percent margin and 25 percent of its gross national product goes
into capital investment. Housing remains a critical problem. It has
been said that coal, water, and people are the basic ingredients of the
West German economy, and the lack of raw materials in the country
for its great industrial development is evidence of the truth of the
proposition. Industry represents about 40 percent of the gross na-
tional product and the end manufactured items are varied and exten-
sive. One of the aspects of the economic recovery of West Germany
that contributed to the present fiscal picture was the control of infla-
tion through taxation and balanced wage and price increases. At the
present time, reduction of the work week to 40 hours and control of
farm prices are two of the main objectives of the nation's labor forces.
West Germany's economic capacity for development is limited only
by its investment program and available manpower. The most criti-
cal need for continued development is long-term investment capital
which is in short supply. The present industrial output is based on
short-term capital which makes the economy more sensitive to eco-
nomic disturbances in other countries. Present consumption in West
Germany is at an all-time high and the inflationary pressures from
this factor are serious.
2. Political factors in West Germany which affect its capacity for develop-
ment and its ability to use aid programs effectively
The government in the country has been noted for its stability when
compared with the rest of Western Europe. With a federalized form
of government, elections have been conducted in 1949, 1953, and will
be again in 1957 with the present administration having received
successive mandates to administer the affairs of state. The nation's
constitution, adopted by the people in 1949, guarantees a representa-
tive government and protection for basic human rights.
1414
NORWAY, DENMARK, AND WESTERN GERMANY
Rearmament, reunification and social welfare programs are the
main issues of contention in the political life of West Germany. All
of the political parties are vigorously opposed to communism but the
methods for opposing this menace have been disagreed upon. How-
ever, this disagreement has never centered upon or affected the assist-
ance programs of the United States to the Federal Republic. There
was a substantial opposition in the country to efforts to establish a
European Defense Community and also to the decision to join the
North Atlantic Treaty Organization. This disagreement was centered
on a feeling for neutrality which exists among the German people and
also a belief that unification would never occur if West Germany per-
mitted itself to be rearmed. In view of present political sentiment in
the nation, the West German Government has been forced to reduce its
programs of accomplishing North Atlantic Treaty Organization force
goals and has recently approved a shorter conscription period for its
armed forces. It is believed that the present stretching out of Ger-
many's defense program will not be an obstacle to the nation's mobili-
zation effort, although changed economic conditions and political
pressures could affect present thinking in the days before the election.
3. Strategic requirements for defense of West Germany, alliances and
international arrangements for defense, and present military capacities
There is no reason to doubt the unanimity of judgment in West
Germany on the critical threat to peace posed by the militant force
of communism. In part, the antagonism toward Moscow and its
present government is embedded in history. But the facts of recent
relations with Russian communism-the brutality of its postwar
treatment, its aggressive actions in Berlin and East Germany, its
continued obstruction to unification of the country-are ponderous
evidence of communism's unswerving hostility to an independent and
free Germany. The willingness of the West German Government to
participate in integrated European economic organizations as the
European Coal and Steel Community, the European Defense Com-
munity and the Common Market Plan are signals of their recognition
that the security problems of Western Europe are joint and common.
West Germany is today a member of the West European Union
and the North Atlantic Treaty Organization. Under these treaties,
she has obligated herself to participate in jointly contributing to
erecting a defense establishment on the basis of collective planning.
These agreements call for the mobilization of 12 armed divisions as
an initial contribution. In addition to these treaty commitments,
West Germany has agreed to make further financial contributions to
support Allied forces in the country until May 5, 1957. It should
be noted in this report that the West German Government has pro-
vided an estimated $11 billion in the past 9 years for occupation and
support costs of Allied forces stationed in the Federal Republic and
Berlin. Of this amount, 5 billion was made available to the United
States.
The West German Government has recently revised its mobilization
plans with the general result of stretching out its rearmament program
and NATO commitments. The official reasons assigned for this
development were that the force of political and psychological ob-
stacles dictated such a course. Military judgment of those respon-
sible for this action is that by increasing the number of volunteers,
NORWAY, DENMARK, AND WESTERN GERMANY
1415
training plans can be revised with an overall result of strengthening
the combative and defensive forces when they are available. An addi-
tional obstacle assigned for this change in planning is the lack of suit-
able barracks and training areas. The Germans contend that the
availability of military bases has been critical due to the occupancy
by allied forces and complications in the eminent domain provisions
of the Constitution.
4. Special or unique factors in the situation in West Germany of signif-
icance to the operation of the aid program
It is concluded that most of the extraordinary problems involved in
the rehabilitation of West Germany have now been, or are in the final
stages of, being resolved satisfactorily. Since the end of the war in
1945, over 10 million refugees and expellees have had to be incor-
porated into the West German economy. The housing shortage,
already critical, became a primary problem for resettlement of these
people and 40 percent of all new housing was allocated to this group
of Germans. Almost all of these displaced Germans have been
resettled and are now gainfully employed.
Due to political decisions which have delayed military mobilization,
the Government has not been expending all its appropriated funds
for its own defense buildup. It is expected, however, that the present
rate of mobilization will be accelerated in the near future.
Foreign private investment in the country has been discussed previ-
ously and, obviously, governmental policies on this subject and the
amount of such investment are important in the consideration of
assistance programs.
The United Nations has been giving assistance to the Government
in the resettlement of refugees problem. In 1956, this aid amounted
to $700,000. In addition, a number of voluntary welfare agencies
have been providing aid in small amounts in connection with this
problem.
C. THE NATURE OF THE AID PROGRAMS EXPECTED TO SERVE THE
INTERESTS OF THE UNITED STATES
1. Objectives of the United States aid programs in West Germany
At the present time there is no United States economic assistance
program in West Germany. This country's aid programs directed
toward economic rehabilitation terminated in 1955. The objective
of this assistance was to fulfill the ends of repairing the extensive war
damage in Germany and by avoiding mistakes of post-World War I
planning, to strengthen the country's participation in world peace
programs.
The sole objective of this Nation's military assistance program has
been the creation in West Germany of defense combat forces to meet
the requirements of NATO's military necessities. This objective is
limited to defense purposes aimed at erecting, in the briefest time
possible, an effective deterrent to Soviet aggression from the East.
The nation's geographical proximity to the center of the Communist
threat adds to the necessity of strengthening this area.
The presence
in the Federal Republic of the headquarters of United States military
forces and the bulk of this Nation's forces in Europe contributes to the
urgency of facilitating West Germany's participation in our common
1416
NORWAY, DENMARK, AND WESTERN GERMANY
defense efforts. Another phase of the objective of military assistance
programs in West Germany is to provide assurance to the German
people that some of her former enemies in World War II are willing to
accept her on equal terms instead of as a suspected neighbor to be
watched with guarded suspicion.
2. Type and magnitude of aid programs operating in West Germany
Although there is no economic assistance program still operating
in West Germany, mention here of the scope of United States assist-
ance in recent years to the country may be enlightening. From 1945
through June 30, 1956, the United States granted over $3 billion in
direct economic aid to the Federal Republic. In addition to this
amount, another $800 million was granted through inter-European
assistance and surplus commodity programs.
The grant military assistance program in West Germany is based on
the so-called Nash list. This agreement, consummated in 1953, called
for military assistance in the form of materiel. This equipment
has been for the most part delivered except for those items which the
military forces of West Germany are incapable of utilizing at their
present stage of mobilization. Almost all of the military equipment
for the army and all of the equipment for the navy has been delivered
but delivery of air force equipment has been slowed up by lack of avail-
able pilots and training facilities. It should be mentioned here that
a critical problem of barracks and military quarters exists in West
Germany, heightened by the needs of essential American, French, and
British NATO military forces stationed in the country and slowness of
German military construction. Efforts to reduce military housing
requirements have been carried on by United States officials to the
maximum extent possible.
The equipment which has been delivered or promised to the West
German Government is as modern in most cases as that possessed by
United States military forces. These deliveries are to be augmented
by other United States equipment now being purchased by West
Germany as reimbursable aid.
3. Administrative direction, coordination, and operation of aid programs
in West Germany
The United States military assistance program in West Germany
is under the jurisdiction of a Military Assistance Advisory Group which
is established within the United States embassy. Superior respon-
sibility and general directional control are delegated to the United
States Ambassador as the chief of the United States diplomatic mission.
The Military Assistance Advisory Group in Germany is under the
military command of the United States Commander in Chief in Europe,
and the chief of the Military Assistance Advisory Group advises and
makes recommendations of military needs in West Germany to that
headquarters. The chief of the military assistance advisory group
makes arrangements for and furnishes assistance in training and use
of equipment and weapons furnished under the military assistance
program. As of October 1, 1956, there were 236 military personnel
in the military assistance advisory group in West Germany.
NORWAY, DENMARK, AND WESTERN GERMANY
1417
D. EFFECTIVENESS OF THE AID PROGRAMS IN WEST GERMANY IN SERVING
THE INTERESTS OF THE UNITED STATES
1. Relevance of the objectives of the aid programs in West Germany to
the situation there and to the interests of the United States
In recent years, the Soviet Union has attempted to capture neutral-
minded peoples with well publicized campaigns highlighting a reduc-
tion of Soviet military personnel along with the gradual troop with-
drawals from the satellite nations. Before the recent events in Hun-
gary took place, this campaign had achieved some success in Germany.
Actually, however, opposite efforts were taking place in the satellites
and the U. S. S. R. Increases have been made in some sections of
Soviet troop strength and overall effectiveness of their offensive
combative power has increased. It follows, therefore, that the
validity of the United States military assistance objectives have been
strengthened in the same measure.
The rapidity and determination with which Soviet troops were
committed to put down the uprising in Hungary is brute evidence of
the extent to which the U. S. S. R. values the military advantage it
possesses in Eastern Europe. In a similar evaluation, the United
States and the rest of the North Atlantic Community must continue
to strengthen its western flank. The position of Denmark and
Norway are reduced to a position of military vulnerability without the
participation of West Germany in defense of the Baltic Sea.
The military assistance program served to further some economic
interests of the United States and has had a psychological value for it
serves to assist in establishing a feeling of kindredship between the two
countries.
2. Relevance of the type and magnitude of aid programs to the basic
situation in West Germany and to the interests of the United States
At the present time there is no economic assistance program and the
military assistance program has been phased for early completion.
West Germany intends to buy all of her military equipment in the
future. Her favorable fiscal position and dollar balance justifies this
undertaking by the West German Government. It has been esti-
mated that it will cost $4 billion to mobilize the German Army to
NATO required strength.
Under the Government's offshore procurement program, West
Germany was awarded $180 million of defense work with electronics
orders receiving the largest share of the attention.
With the exception of small amounts of money that are involved in
training and a mutual weapons development program, there are con-
templated no further expenditures of United States moneys for grant
aid to West Germany for military equipment.
It might be appropriate to point out at this juncture that the mili-
tary program for United States forces in Germany has been of signifi-
cant assistance to the economy of West Germany. For example, in
fiscal year 1956, the United States Air Force expended $307 million in
the Federal Republic. Of this amount, $88 million were expended by
United States military personnel. The impact of these sums on the
economic life of Germany has contributed to furthering the objectives
of United States aid programs in the country.
1418
NORWAY, DENMARK, AND WESTERN GERMANY
3. Effectiveness of administrative control, coordination and operation of
aid programs as related to the basic situation in West Germany and
the interests of the United States
Judged by effects observed in the country, administration and
coordination of the aid programs in West Germany cannot be criticized.
There is a general atmosphere of close affiliation readily observable in
the relations between United States and West German Government
officials which is productive of confidence and frankness between the
two countries. There was not a sufficient opportunity during the
survey in West Germany to make a detailed study of methods of
improving program operations.
4. Related activities of the United States in the Federal Republic which
assist or hinder the aid programs in serving the national interests
Although for all practical purposes, United States grant-assistance
programs have terminated in West Germany, some offices such as the
United States Information Service and the Military Assistance Advi-
sory Group are still active to carry out these programs, and to assist
Germany in programing its large reimbursable aid purchases.
There is some overlapping and duplication of responsibility and
operation between officials of the United States Information Agency
and United States Embassy employees in connection with furthering
the interests and objectives of United States assistance to West
Germany.
E. CHANGES IN THE AID PROGRAMS THAT WOULD TEND TO INCREASE
THEIR UTILITY BOTH IN MEETING THE BASIC SITUATION IN WEST
GERMANY AND IN SERVING THE NATIONAL INTERESTS OF THE UNITED
STATES
1. Recommended changes in objectives of aid programs in West Germany
Based on the economic advances made in West Germany in recent
years, the objectives of United States economic assistance have been
well served. Today, the economy of the nation is progressing at a
more rapid pace than in any other area of Europe. The assistance of
United States grants is readily acknowledged as playing the primary
role in effectuating West Germany recovery. The gross national
product of West Germany has doubled in the last 6 years, and given
stable world conditions and wise Government policies on capital
investment, economic prosperity goals in the country will be limited
only by manpower and other resources available.
In the military assistance field, it is believed that more progress
could be made in West Germany if political considerations were not
an impeding factor. In this context, it cannot be forgotten that
Germany's participation in rearmament had been circumscribed by
Allied policies up until December 1955. Coupled with this drawback,
the fact that the German people have undergone tremendous military
defeats in a space of 35 years has produced a noticeable lack of enthu-
siasm for rearmament, even though no popular discord over the nature
of the enemy, Communism, exists.
Recent developments within the Government that resulted in re-
ducing the period of military service for German youth have created
a slight strain on mutuality of defense objectives. It is hoped that
additional efforts will be made by military and embassy officials to
NORWAY, DENMARK, AND WESTERN GERMANY
1419
encourage a speedup of the present mobilization planning. In this
connection, a noticeable strain in relations between West Germany
and other North Atlantic nations has been developing over the
country's economic advances at a time when the Federal Republic is
not sharing in the development of a military mobilization base. It
has been intimated that if West Germany were forced to establish
its own weapons development program as other NATO nations have
done, she would be forced to compete more equitably in trade areas
with those nations. It is the observation of this report that there is
some merit in this position.
2. Recommended changes in type and magnitude of aid programs in
West Germany
Since there are no continuing aid programs, economic or military,
in West Germany, no comment is necessary here. However, on the
basis of the survey made, it should be stated that no necessity can be
foreseen for a renewal of any financial assistance in the immediate
future.
3. Recommended changes in administration, direction, coordination, and
operation of aid programs in West Germany
It is not believed that competent criticism can be made on these
topics due to the brief period available for the survey in West Germany.
There is reason to believe that an excessive duplication in activities
in connection with aid programs exists among United States offices in
the country. It is recommended that the responsibility of United
States Information Service employees in this field be better coordinated
with United States Embassy activities.
VI. BERLIN (WEST SECTOR)
(Due to continued occupation of the West Sector by Allied_forces,
and the significance that a free Berlin symbolizes to the German
people, a brief report is included here on assistance to the former
capital)
A. INTERESTS OF THE UNITED STATES IN BERLIN
One hundred and ten miles inside the Iron Curtain, Berlin has been
occupied by the four Allied Powers since the end of World War II.
The joint administration of Berlin provided for in the Four-Power
Agreements was severed when the U. S. S. R. withdrew from the
Allied Kommandatura in 1948 and commenced the Berlin blockade.
Since 1948, the three Western Powers have exercised effective juris-
diction over the three Western Sectors of the city, the eastern part
being "incorporated" within the Soviet zone of military control.
In the establishment of the Federal Republic in 1949, Berlin was
given a separate legal status, although a close relationship between
the two political entities has continued. Provision was made for
representatives of the Berlin Government to sit as nonvoting members
of the Federal Republic's Legislative Assembly, and other economic
and political collaboration is maintained.
The three Allied Powers have granted the fullest political power to
the people of the west sector, and free elections have been held with the
organization of a city government. The interests of the United States
1420
NORWAY, DENMARK, AND WESTERN GERMANY
in maintaining the symbol of freedom represented by Berlin behind
the Iron Curtain are psychological as well as strategical. In May of
1952, the United States joined with France and the United Kingdom
in a declaration that the presence in Berlin of representatives of the
three nations was essential to the peace of the free world. The state-
ment further declared that an attack on the west sector of Berlin
would be deemed an attack upon their respective forces. This policy
has been reaffirmed since that date and has been included in policy
statements of the NATO itself.
The United States has no significant economic or commercial
interests in West Berlin.
B. THE BASIC SITUATION IN WEST BERLIN
In 1939 some 980,000 dwellings existed in West Berlin. In World
War II, 320,000 of these were destroyed and the population decreased
by some 780,000 individuals. The rehabilitation required, merely
to provide the basic necessities of life in what was formerly the third
largest city in the world, is beyond description. The scope of the
recovery that has been accomplished can be observed by visiting and
comparing the east and west sectors of the city. The rubble still
remaining in the former is extensive.
In East Berlin, rationing of the basic food essentials is still in effect.
In West Berlin, no rationing exists and unemployment is down to
11 percent from the high mark in 1952 of 31 percent.
During the war, an estimated 10 to 35 percent of West Berlin in-
dustrial capacity was destroyed. This has now been restored and
increased by 20 percent. In the past 10 years, 85,000 dwellings were
constructed and the population has increased to over 2,200,000. The
number of schools, churches, and hospitals has been increased to its
prewar figure. The gross national product has been doubled in the
last 5 years alone, with the percentage each year averaging 13 percent.
If it is remembered that the flow of commerce in the west sector
depends on well-defined and restricted road and air lanes, it can only
be concluded that economic progress in the area has limitations.
Industrial production must be expanded further to substitute for
enterprises and services that it will be impossible to revive in the
absence of reunification. Refugees still constitute a problem in
housing, maintenance, and medical care, over 400 per day coming
into West Berlin alone. From 1949 to date, nearly 1 million refugees
have fled to the west sector of the city.
There is a remarkable degree of political stability in the west sector.
A coalition government, representing the two major parties in the
Federal Republic, is in control of the sector's government. In the
last election, December 1954, 92 percent of the eligible voters exercised
their franchise.
West Berlin has no military forces except local police attachments.
These officials have responsibility for maintaining peace and order in
the sector and controlling transit into the city. Military detachments
representing United States, Great Britain, and French responsibilities
in the west sector are stationed in their respective zones.
NORWAY, DENMARK, AND WESTERN GERMANY
1421
C. AID PROGRAMS OF THE UNITED STATES
From 1948 to date, the United States has granted over $700 million
to aid the economy of the west sector of Berlin. The objectives of
this assistance were to strengthen the independence of 2 million people
in the area and to carry out the United States Government's announced
declaration to continue to maintain its position in the city against
aggression. The largest amount of these funds was expended for
reconstruction and investment programs. Most of the early objectives
of the aid assistance, clearing away of rubble and reconstruction, have
been accomplished and major emphasis is now on development of
private industry.
Administrative control over aid programs for Berlin is under the
direction of the United States Embassy in the Federal Republic.
The Government of West Germany channels requests and assists in
programing funds for use in West Berlin through a counterpart
program.
D. EFFECTIVENESS OF THE AID PROGRAMS IN SERVING THE INTERESTS
OF THE UNITED STATES
In view of the economic recovery made in West Berlin, the aid
programs of the United States in helping to maintain the only island of
freedom behind the Iron Curtain must be considered a substantial
success. The high morale among the people of the area is itself
sufficient evidence that United States objectives there have been well
served.
Due to the complete dependency at the time of the West Berlin
people on United States assistance, no comparisons exist to evaluate
the amount of financial assistance that has been given to West Berlin.
There is no question of the personal endeavors of the people of Berlin
that were put into the general recovery of the area. There is no
criticism that can justly be made of the economic rehabilitation that
has been accomplished in 11 years.
The economic assistance to West Berlin has been reduced to a mod-
erate scale.
E. RECOMMENDED CHANGES IN AID PROGRAMS
There are no recommendations to be made with respect to West
Berlin. It is the judgment of the report that our position in Berlin
has been justified, that our aid programs have helped to accomplish
our objective and that Allied control of the western sector should be
maintained at all costs.
SURVEY NO. 7
SOUTHEAST ASIA
(VIETNAM, THAILAND, CAMBODIA, LAOS, BURMA,
AND INDONESIA)
BY
CLEMENT JOHNSTON
CHAIRMAN OF THE BOARD
UNITED STATES CHAMBER OF COMMERCE
MARCH 1957
1423
CONTENTS
Letter of transmittal.
I. Introduction and summary.
II. General conclusions___
III. The area's problems.
1
IV. United States problems in the area.
V. Individual country studies_-_-
A. South Vietnam__
B. Thailand_--
C. Cambodia….
D. Laos___.
E. Burma..
F. Indonesia_
Page
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I
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1
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I
I
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I
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1425
LETTER OF TRANSMITTAL
To the Chairman and Members of the Special
Committee To Study the Foreign Aid Program:
I have the honor to submit herewith a report covering observations
in southeast Asia during November and December 1956. The area
surveyed included Burma, Thailand, South Vietnam, Laos, Cambodia,
and Indonesia. Brief stops were made en route at Karachi, New
Delhi, Hong Kong and Tokyo, where additional pertinent information
was secured.
We were received everywhere with great courtesy and extreme
cordiality by our Ambassadors and the members of their staffs, by the
heads and the members of the United States Operations Mission and
United States Information Service groups, by the officers and men
of our military missions, as well as by the heads of state, the ministers
and the high military officers of the countries visited. We made a con-
sistent effort to visit the rural and "up-country" areas, the principal,
or typical, industrial plants, the military installations, and the sites
of some of the aid projects, as well as the capital cities. In anticipa-
tion of our visit, extensive preparations in the form of outlines and
statistics of both current and completed programs had been made and
were most helpful to us. This material is being transmitted separately
for placement in the files of your committee. We were afforded every
opportunity to visit the actual operations and to talk with the officials
and with others concerned. At no time was there the slightest in-
dication of information being withheld.
It has been a high and deeply appreciated honor to have been asso-
ciated with this study, and I trust that my efforts will prove to be of
value. I am most grateful to your committee for the company and
assistance of Mr. John Carlton of your committee staff, who accom-
panied me throughout the journey.
CLEMENT D. JOHNSTON.
1427
94413—57—————91
SOUTHEAST ASIA
(VIETNAM, THAILAND, CAMBODIA, LAOS, BURMA, AND INDONESIA)
I. INTRODUCTION AND SUMMARY
Southeast Asia is undergoing a period of phenomenally rapid
change. Two hundred million people are experiencing their first taste
of political freedom, unprepared for the sudden end of colonialism,
unprepared for self-government.
Much has been achieved. The free world can count itself fortunate
that the incidents and upheavals in the area, serious though some have
been, have been markedly fewer and less widespread than the Com-
munist agitators had hoped to achieve.
Thailand in particular has given us an impressive demonstration
that when people are contented and happy, communism makes but
little progress.
The United States military aid program has done and is doing a
superb job. The march of communism by force of arms has been
checkmated or contained; the threats of armed aggression within the
area have been materially lessened. The achievements in the area now
raise basic questions:
Is it now practicable to begin to deemphasize military aid?
Have we now reached a period of relative balance against Com-
munist aggression when our best weapon is not more arms, but more
happy people?
Among the other questions which should now be faced are these:
1. What is the probable duration of the necessity for large-scale
American aid? Two years? Ten years? Or will it be 30 years?
2. In our efforts to emphasize the local aspects of achievements in
the program, the nature and amount of United States aid is being
deliberately played down to such a degree that only a few among the
native population are aware of either the fact or the significance of
United States help. Should this policy of self-effacement be con-
tinued or should United States aid be increasingly channeled into
spectacular, or at least tangible, projects bearing a United States
label?
3. Should we continue to support governments in power if there
are indications of poor standards or maladministration, or denial of
the basic principles of freedom and democracy?
4. Should aid be given "with no strings attached", as the Com-
munists seek to appear to be doing, or should we continue with our
attempts, frequently unsuccessful, at accountability for funds ex-
pended?
5. Should the size and type of equipment of each country's military
and naval forces be related to any possible external aggressor or
1429
1430
SOUTHEAST ASIA
combination of aggressors, or should it be confined to the reasonable
requirements of internal security?
6. Should we recognize the practice of virtual "handouts" to
peoples who are as yet unprepared for a higher scale of either pro-
ductivity or consumption? Should we concentrate instead upon long-
range educational programs designed eventually to bring higher
standards of living?
7. Massive United States expenditures in some primitive areas have
raised the current scale of living far beyond anything the productive
capacity of the native population can sustain. Can these expenditures
now be terminated, or sharply reduced, without creating grave unrest
and possible revolution?
8. Have we, through our "soft" treatment of the neutralist nations.
who solicit or receive aid from Communist nations and free nations
alike, allowed ourselves to be maneuvered into an "aid race" that,
in its way, could be almost as disastrous as an "arms race"?
9. In our attempts to win favor with leaders and with the populace,
should we allow ourselves to become party to a popular but question-
able course, as against a sound but unpopular course?
10. At what point does continuing large-scale aid, either military
or economic, with its inevitable and numerous and assiduous admin-
istrators and advisers and inspectors, begin to create more resentment
than gratitude? Are we overdoing aid in some areas?
On the basis of firsthand observations in the area, these questions
are raised in order to discuss them, not to provide all the answers.
They also are troubling many of the representatives of the United
State who live with these problems, as well as some of the nationals
concerned.
II. GENERAL CONCLUSIONS
If there was ever a master plan for the formulation and direction
of the aid program in southeast Asia, it is not now immediately
discernible.
One gains the impression that the present diversity and hand-
tailored nature of our program is more likely the result of our as-
sembling a number of competent and kindly people and, in effect,
instructing them:
"The people of southeast Asia are in need of our help. They have
health problems, security problems and economic problems. Their
governments are threatened with collapse. We don't want the Com-
munists to get them. Go out and do what is necessary.'
""
Reflecting their homegrown counterparts in the domestic American
scene, our scores of current aid projects are not only nonuniform, but
run the whole gamut from hard-boiled realism to "starry-eyed do-
goodism." This lack of apparent plan is charged to the "crash"
aspects of the programs.
The United States is ably, even outstandingly, represented in this
region. Our ambassadors and embassy staffs are performing in a
most meritorious manner. The military has sent outstanding leaders
and instructors (who are also competent diplomats) to fill the military
advisory posts and the United States appears to be getting a per-
formance which reflects credit upon us as well as upon those we seek
to aid.
SOUTHEAST ASIA
1431

Some of the personnel in the technical and economic aid programs
are outstanding. In a few cases, however, there are reflected the
hasty recruiting methods and the difficulties of persuading topflight
people to join a noncareer service and accept the hardships, incon-
veniences and health hazards of the southeast Asia region.
For the most part, our programs are well conceived, well directed
and well executed, but there is a general need for refining and for
concentrating activities.
In some instances, however, this good performance in the field has
been nullified by the seemingly interminable process of gaining clear-
ances in Washington; and the inability of our Government to give
reasonably prompt answers doubtless has lost us some prestige.
If there are any easy answers to the problems enumerated or touched
on above, your observer has not found them. He has, however,
reached some overall conclusions:
1. The original programs of military and economic aid were neces-
sary, and results thus far have justified the large expenditures of
money, material, and manpower involved. An otherwise inevitable
collapse has been postponed and possibly prevented.
2. The improvement in the security situation has brought a new
phase. It is now possible to build more slowly and more soundly.
3. The dollar volume of aid to southeast Asia can and should be
reduced by at least half during the next 2 years.
4. Increasing emphasis should be placed upon education and upon
technical assistance.
5. National pride and self-respect may be a decisive factor. Self-
reliance should be emphasized.
Loans, even though their eventual repayment may be questionable,
should replace money grants. Except in case of famine or other
disasters, large movements of commodities should be governed by
trade agreements rather than handed out as direct gifts.
6. The primary role of the United States should be to inspire by
example and to assist in developing competency through education
and technical training, not to shoulder the whole burden of normal
operation. Some of our agencies are tending to forget this.
7. The greatest opportunity for economic recovery and for an ac-
companying quick, cheap, and bloodless triumph over the forces of
communism would be to get private enterprise and individual initia-
tive a chance to show what they can do in every area where they are
willing to venture. The opportunity is being neglected. There is little
or no encouragement for private enterprise. It is politically more
popular to create state-owned, publicly administered monopolies which
also afford opportunities for patronage and special favors.
8. Too many people in southeast Asia believe that "capitalism"
and "colonialism" are synonymous and that both mean "exploitation."
A generation must pass and educational standards must be substan-
tially raised before our friends in southeast Asia will understand what
Americans mean when they talk about free enterprise and a competi-
tive system, and before they themselves can follow our private
enterprise example.
9. A new and burning spirit of nationalism pervades the business
field as well as the political field.
The able and experienced and well-financed traders and industrial
ists and planters of foreign origins, who in the past have conducted
1432
SOUTHEAST ASIA
more than two-thirds of all the business, are now being driven out
or denied, directly or subtly, the right to operate, despite the fact
that no one with either capital or experience is available to take their
place.
10. The most glaring failure to date has been the lack of any signifi-
cant progress toward the achievement of a sound economy. The de-
velopment of a sound financial and business structure has been post-
poned by security requirements, upon which have been based demands
for large and well-equipped armies, navies and air forces. Almost as
insistent are demands for greatly increased public services and in-
dividual benefits, with no increase in taxes. The peoples of these
former colonial countries, convinced that they have long been the
victims of conscienceless exploitation, are now demanding these things
as a matter of right.
11. With the possible exception of Thailand, a worsening of the eco-
nomic situation may be expected throughout this whole rich and po-
tentially productive area.
12. The fledgling governments are as yet unwilling to demand
genuine sacrifice on the part of the citizens, many of whom are already
restive over the delayed arrival of the promised prosperity for all.
III. THE AREA'S PROBLEMS
The policy of the United States is "to assist independent nations
to remain independent." The southeast Asians, however, seem to find
it difficult to grasp the idea of such large-scale, openhanded benevo-
lence with no strings attached. They are still looking for some secret
"price tag" attached to American aid. They talk of independence,
but circumstances do not clearly point away from the concept of a
status of semisatellite, toward the democratic concept of full national
freedom that is our basic objective.
The success of the United States aid program from this point on
would seem to depend not so much upon the number of divisions
trained and equipped and ready for the field, nor upon the number
and diversity of economic aid programs, nor upon the impressive
totals of United States dollars expended. It must rest upon the en-
during conviction of the people themselves that United States aid was
and is offered to help them do the things best calculated to improve
their lot and make their people healthier and happier. To succeed,
it also must be followed by a permanent, self-sustaining, stable econ-
omy.
The people of southeast Asia are a proud and sensitive people and
the claim, constantly reiterated by their own as well as the outside
press, that theirs is one of the most backward areas of the world,
rankles in their souls. The fact that the American aid, now being so
freely given, is at once a disproportionately large and indispensable
part of their national budgets is disturbing to the thoughtful.
All of the countries of southeast Asia are rich in natural resources;
all have large areas of potentially productive land not presently in use.
Food is plentiful and cheap. Hunger is an infrequent problem. The
area unquestionably can sustain an agreeable free standard of living.
The impact of European colonialism remains evident, but it should
also be recorded that southeast Asia does have an impressive array
of physical facilities provided by the colonial administrations.
SOUTHEAST ASIA
1433
Well-built and well-equipped railroads, port facilities, public build-
ings, public markets, some good hard-surfaced roads, thousands of
bridges, and well-laid-out cities with well-paved streets remain as
tangible and creditable evidences of a vast expenditure of time,
thought, energy and capital by the French, Dutch and British. The
term "underdeveloped" so frequently applied to the area, while prob-
ably correct by western standards, conveys an impression of complete
primitiveness not justified by the facts.
The problem of southeast Asia today is not the problem of settling
an uncharted wilderness such as Americans faced a century ago, al-
though there are arresting challenges. The problem now is how to fill
the vacuum left by the sudden termination of European controls, the
general exodus of European engineers and administrators and account-
ants, and the flight of European capital. This problem is vastly com-
plicated by the scarcity among the native population of men and
women who are trained in government and commerce. Even fewer
were educated for business or for higher public administration; most
are without practical experience in those fields.
These problems are not unique. Other underdeveloped areas have
faced similar obstacles and with time, patience and a sufficient number
of qualified advisers, administrators and technicians brought in from
outside, they have been overcome.
Why the lack of development in these countries which are so rich in
natural resources? If they are currently "have-not" nations, it is only
because their agricultural lands and grazing lands, their mineral
resources and their productive capacities are not being sufficiently uti-
lized. This circumstance is due to formidable adverse factors, some
of which are: (1) the Communist menace; (2) excessive nationalism;
(3) the anti-Chinese movement; (4) an inadequate tax system; and
(5) the distressing fact that even some of the ablest and most dedicated
leaders were deprived, by colonialism, of greatly needed experience
and are so unversed in the requirements of government administration,
of finance and of sound business practice, as to be unable even to com-
prehend the existence of some problems, much less to solve them.
Communism. Substantial progress has been made in dealing with
the first of these five adverse factors-communism. The area is gen-
erally anti-Communist and, among officialdom at least, its dangers are
appreciated and largely are being adequately resisted. There seems
to be no general comprehension that the other four are adverse factors.
Excessive nationalism.-The chief of one aid mission remarked, "In
all the conflicts between nationalism and sound economic policy, na-
tionalism has prevailed." But this is the heart of a regional complex
that is not easily explained, not readily comprehended.
National pride and aspirations are understandable but they should
not be carried to the point of national suicide. In some countries,
foreign capital is being pressured into flight or surrender, even though
there is no native capital to take its place. Nationalism is being pur-
sued with all the zeal of a new-found religion. So many Asiatic people
seem incapable of distinguishing between colonialism and capitalism.
(Colonialism is universally detested.) The reasoning goes this way:
the colonial powers had capitalistic systems; therefore, colonialism
is capitalism. It is just as simple as that. Most Americans probably do
not realize that to the vast majority of Asiatics, "capitalism" is a bad
1434
SOUTHEAST ASIA
word, synonymous with monopoly, with exploitation, with usury and
extortion, with "public be damned." Even the most enlightened
among the people of Asia associate the word "capitalism" with the
European or classical capitalism, which is cartelism: controlled pro-
duction in a controlled market. This is more than a mere problem in
semantics. We are endeavoring to sell the advantages of a free market
and a free way of life to a billion or more people in Asia on the blithe
assumption that they know what we are talking about. And they
don't.
If one-tenth of the people of Asia had ever seen a Sears, Roebuck
store, our task of promoting a free way of life as an alternative to
communism would be immeasurably easier. Most of the merchants,
traders, and industrialists that the people of Asia have known in the
past have charged all that the traffic would bear and paid as little as
possible for labor and for raw materials. The purifying force of full
and free competition in a free market, the competition of the best
product at the lowest price as we know it in America, is nowhere in
evidence. Where capitalism is considered evil and predatory, it is not
difficult to see that communism, with its controlled prices and its
promises of redistribution of land to the landless, might yet be a
problem with which the governments will have to deal. At the risk of
offending some of our European allies, we should make it plain that
the system in which we take pride includes not only political freedom,
but a distinctive brand of economic freedom; that it is an economy of
abundance rather than of controlled scarcity; that its hallmark is
the free market where the man who produces or sells a better product
at least cost is automatically rewarded.
The anti-Chinese movement.-In every city of southeast Asia, the
Chinese merchants dominate the trade and finance and much of the
industrial activity. Even in remote Indonesia, the Chinese represent
two-thirds of the middle trading life of the country.
Some of these Chinese have Nationalist leanings; others favor the
Red Chinese. Still others are perhaps best described as overseas
Chinese with no active political affiliation. Generally, they live in
Chinese communities in the cities and towns and retain their distinc-
tive dress and customs. Because they are shrewd traders and because
they work harder and longer hours than the native population, they
have accumulated much of the wealth; and because of this they are
mistrusted, feared, and often hated. The Chinese are regarded by
many as exploiters of the people. The effect of their domination of
trade is to create a sort of Chinese colonialism, creating a resentment
for which there are historic parallels. This anti-Chinese sentiment
is beginning to take tangible shape in the form of specific anti-Chinese
legislation and administrative rulings by some of the new nationalist.
governments. It is not suggested that the United States take sides or
intervene in any way, except perhaps to counsel moderation. There
is, however, cause for grave concern. In the past, it was the Chinese
who bought the rice from the villagers, who processed it and put it in
the channels of international trade. They were the importers. They
supplied the credit to the farmers and the villagers.
The departure of the French and the Dutch left a great void in the
economic life of southeast Asia, a void that seems to increase with each
further departure. If the campaign against the Chinese is further
SOUTHEAST ASIA
1435
intensified, the results could be disastrous; there are no others yet
available to perform the functions of credit and of merchandising at
the individual or village level. The Chinese question cries for a
prompt and fair solution but the answers are not yet apparent. Given
time, it seems reasonable to assume that the indigenous native popula-
tion will develop an adequate merchant class, but time is a precious
commodity in this area that is absorbing American aid at a rate of
nearly a billion dollars a year without too much to show for it.
The inadequacies of the tax systems and of public administration.-
Conferences with presidents, with prime ministers, with cabinet mem-
bers and with numerous other officials, and with a considerable number
of businessmen, all pointed unmistakably to the real "soft spots" of
southeast Asia. These are: (1) the notable and distressing lack of
business know-how; (2) the lack of willingness to venture; and (3)
the rudimentary state of social conscience and of the traditions of
personal and business integrity so necessary for the proper keeping
of books and accounts and for the proper assessment and collection
of taxes.
In common with others in many parts of the world, the people of
southeast Asia are attempting to reap all of the benefits of democracy
without assuming any of its burdens. Mr. Justice Brandeis said:
Democracy requires continuing sacrifices by the individual
and more exigent obedience to the moral law than any other
form of government.
It seems unreasonable to expect freedom and democracy to long
endure where they are not supported by traditions of dedicated public
service, strongly backed by adequate bookkeeping and vigorous and
forthright auditing at every level of business and government. It is
reported to be a common practice in some of the southeast Asian coun-
tries to assess and collect taxes only from those who are not favored by
those in power. Loose practices which are attributable to lack of
training and inexperience probably are no greater than those in other
underdeveloped areas of the world. However, there is an important
difference in that, along with its sponsorship, the United States seems
to have assumed a considerable degree of moral responsibility for de-
velopment of standards by these new southeast Asian countries. We
may be doing a far better job in providing military training and in
aiding education, public health, and highway construction than in the
more basic jobs of public administration and public finance; or that
job may be bigger and more difficult. But in the present system, there
is almost total budget reliance upon easily collected import and export
duties. This source will not provide revenues sufficient to support the
type of government required for a self-sustaining, free economy com-
patible with interests of the United States and the free world.
IV. UNITED STATES PROBLEMS IN THE AREA
The greatest disservice that we can do to these new countries is to
fail promptly and sharply to disabuse them of their current apparent
assumption that there are no limits to American generosity and that
any and all budgetary deficits will be supplied promptly and cheer-
fully by the American taxpayer. Despite any contrary impressions
►
1436
SOUTHEAST ASIA
that may have been entertained, the time is clearly at hand to start a
prompt and rapid tapering off of United States aid, both military and
economic, if the countries are ever to learn to stand on their own feet.
Unpleasant as the process may be, it will be a real kindness to certain
of these countries if we "talk tough" and give them the real unvar-
nished facts of economic existence.
Communist aid to neutralist countries—a growing factor.-There is
a challenging development in the rapidly evolving contest between the
Communist world and the free world. That is the massive, spectacu-
lar and well-executed Communist aid to the neutralist countries of
southeast Asia-notably Cambodia, Burma, and Indonesia. For ex-
ample, Russia has signed a $100 million aid loan with Indonesia at
4 percent interest, with the interest forgiven for the first 4 years. As
another example, Cambodia has signed 1 trade agreement with Com-
munist China for 5 million pounds sterling per year and another 8 mil-
lion pounds sterling 2-year trade agreement "with no strings attached”
in the fields of transportation, light industries, irrigation and educa-
tion. The Soviet Government has promised Cambodia an as yet un-
described amount of aid and there are similar promises from Poland
and Czechoslovakia.
American aid for Cambodia, unfortunately, from the public rela-
tions angle bears the stigma of being an outright gift and in some
quarters it is therefore resented as much or more than it is appreciated.
For all our openhanded good intentions, we are sometimes out-
maneuvered public-relations-wise and suffer by comparison. In Cam-
bodia, the Russians are building a new hospital. In Cambodia, the
United States pays the army. And because of clerical inexperience,
some units have received no pay for more than 3 months. Our repre-
sentatives did their full job; the United States provided the money on
schedule. But how is the vexed, unpaid soldier to know? Happily,
these shortcomings have been more than counterbalanced by the heroic
and self-sacrificing efforts of other Americans at all levels of the
organization chart. But, nonetheless, they are regrettable.
The aid race in neutralist countries.-There appears to be no an-
nounced United States policy as to what to do about the aid program
in the avowedly neutralist countries which openly request and eagerly
enter into aid and trade agreements with the Communist bloc coun-
tries. Judging from the stepped-up program of good-will visits by
top Communist leaders and the increased numbers of trade negotiators,
it seems obvious that the volume of Communist trade and aid pro-
posals will increase in the months ahead. The other countries of
Asia, currently classed as nonneutralist, may well raise their eyebrows
and be tempted to reexamine their own positions when they see the
double desserts being bestowed upon neutralists while they themselves
are forced to endure privation and observe the strictest economy.
Some of the so-called no-strings-attached trade offers may be espe-
cially difficult to resist. It would be most unfortunate if the United
States were to find itself whipsawed in a competitive aid race and
placed in the doubtful position of seeming to try to outbid our rivals
for the privilege of giving away our aid. One possible way of avoid-
ing involvement in an aid race would be to make it abundantly clear
that the United States aid program in each country has been based
upon an appraisal of the total needs of the country and its people;
SOUTHEAST ASIA
1437
that the purpose of the program is to help independent countries re-
main independent; that it is not an attempt to purchase favor or alle-
giance through gifts. Because our aid program is based upon this
previously appraised total need, it would appear that each and every
gift or trade arrangement from Communist sources or any receipt
from any other source, either foreign or domestic, if it contributed to
the meeting of this overall or total need, should make possible an
immediate corresponding reduction in the total United States aid.
Self-help. In several of the countries visited there was a notice-
able tendency to sit back and let the United States do things that
the countries themselves are well qualified to do. For example, for
the construction of secondary roads and the digging of canals there
is a vast amount of available and otherwise idle labor during the dry
season. There was an equally noticeable tendency of United States
officials not to insist upon the host country making maximum con-
tribution where this contribution took the form of hand labor.
Where machinery was available, it was invariably used even where
hand labor was cheaper. Aid which takes the form of pampering,
or which features dependence upon a degree of mechanized operation
which the country will normally be unable to support, will in the long
run do more harm than good. The prompt termination of unneces-
sary aid may be just as essential to the attainment and maintenance
of national independence as the provision of necessary aid.
The size, equipment, and training of the military and naval forces.-
Progress in the restoration of security and public order has been
marked during the 2 years which have elapsed since the French
withdrawal from Indochina. The absence of major overt actions
by the Chinese Reds and the Vietminh and the waning power of the
Malayan Communists has afforded a welcome opportunity to re-
establish war-torn economies and to restore public service. Except
for the Pathet Lao in northern Laos, no reservoirs of armed and
organized dissidents remain. At present, the Southeast Asia Treaty
Organization, with its implied promise of unlimited American sup-
port, appears to be an effective bulwark against major armed aggres-
sion. It was pleasing to note that mutual respect and personal
cordiality between the members of the Southeast Asia Treaty Organ-
ization's working staff seem to have reached new heights.
It is even more pleasing to report that the time seems ripe for
substantial reductions in troop and equipment levels in the area.
Such military cuts are possible in all four of the countries now re-
ceiving United States military aid-Vietnam, Laos, Cambodia, and
Thailand-although each of the four governments would, no doubt,
strongly protest. Such resistance is related to and is explained by
the chauvinistic type of nationalism of southeast Asia. It is also
"good politics." Nationalism almost invariably finds expression
in the form of increased armaments. Also, control of the army and
the police is a convenient and effective means of protecting political
tenure, as well as of maintaining security.
It is disconcerting to an American, who considers all-important
the Communist menace, to find officers of a non-Communist coun-
try also thinking in terms of possible military operations against a
neighboring people of the same faith. More than one of these nations
is using United States funds to build and equip armed forces, some
1438
SOUTHEAST ASIA
of whose officers and men seem to think of their mission only in
terms of ancient hostilities and rivalries. Communism and Communist
aggression obviously do not constitute the primary menace, nor provide
alone a sufficient challenge to motivate current military training
programs.
So long as the Southeast Asia Treaty Organization offers security
against Communist aggression, it would appear that the military
forces of Cambodia, Laos, Thailand, and South Vietnam are in every
case larger and more heavily equipped than the needs of mere internal
security would dictate. Obviously they are incapable singly to oppose
for long any determined move by Red China. So, however valid the
decisions that motivated the establishment of the troop and equipment
levels of 2 years ago when armed communism was actively on the
march, it now seems timely that these levels should again be reviewed
in the light of the present-day outlook. They should be studied, not
in the light of the nationalistic aspirations of a particular country or
of a particular leader, but in consideration of the overall security
needs of a whole region, whose vast population is essentially peace-
loving and home-loving, and whose thoughts seldom stray beyond the
boundaries of the village and the rice paddy. The great need of these
people is to be let alone militarily so as to devote maximum effort to
correcting a deplorably low level of education, sanitation, and eco-
nomic productivity. Security needs must of course be met, but the
armament needs of internal security are far less than is required to
resist external aggression. Tanks can be replaced by armored cars;
jeeps and weapons carriers can be replaced by bicycles; wheeled artil-
lery can give place to small arms. Police and local constabulary can
assume many of the security functions now being performed by the
army. And, it might be well to add, the temptation to seek military
adventures across ill-defined national boundaries will be correspond-
ingly reduced.
Action needed. There is one situation requiring prompt action and
immediate correction. Conditions which existed at the time may have
justified the United States decision to support the currencies of Viet-
nam, Laos, and Cambodia at the arbitrary rate of 35 piasters or other
local currency to the dollar. Today that figure is utterly unrealistic, as
becomes apparent when we examine the need for monetary reform in
Vietnam. The added and unnecessary cost to the United States tax-
payer is approximately $20 million a month. This money is not going
into public treasuries; it is going into private pockets. Of even more
importance, the faith of the newly freed people of the area in the
integrity of democratic government is being shaken by the spectacle
of the undeserved enrichment of a favored group.
In Vietnam, for example, United States representatives have met
with only limited success in the past 2 years in persuading the Viet-
namese Government to adopt and apply sound economic and fiscal
policies, so essential to a development program. These conflicts in-
volve a basic clash between political nationalism and sound economics,
and nationalism has prevailed. This is evident in various facets of
handling commercial aid. It appears also in budget administration,
for in practice there is no real budget control and, consequently,
budget deficits have increased inflation in the economy. Likewise, the
Government has shown a singular reluctance to exercise vigorously its
taxing authority.

SOUTHEAST ASIA
1439
The result has been a mounting monetary inflation. In the past
2 years prices have risen in Vietnam by about 30 percent. For vari-
ous reasons the value of the piaster in international markets has de-
teriorated even more. The contrast between the official rate of 35
piasters to the dollar and the official "free market" rate of 75 piasters
to the dollar is overshadowed by the local black market rate and
Hong Kong parallel market rate of 100 to 120 piasters to a dollar,
rates which have increased by at least one-third since the campaign
against foreign business interests began. This inflationary situation
is seriously distorting the economy. Large windfall profits are being
made by importers and merchants importing at a 35-piaster rate and
selling on a 75 or 100 general market rate. To counter rising prices,
controls and police actions are applied. This, in turn, demoralizes
the business community. United States aid cannot bring any real
and lasting benefits to Vietnam, Laos, or Cambodia as long as the
false values of inflation are diverting resources to uneconomic ends.
The shape of government.--It would be a grave mistake to assume
that any of the southeast Asian countries have yet achieved the kind
of freedom and democracy that Americans ordinarily think of. Free-
dom and democracy are worthy ideals and sound objectives but we
should recognize that for the present even the front-runners among
the southeast Asian countries cannot yet claim to have established
this concept in government.
The usual pattern presents a strong man and his associates, benevo-
lent and well disposed toward the eventual achievement of popular
government. The Government is buoyed by the indispensable Amer-
ican aid and there are liberal crumbs from the table for the loyal
followers. But in the final analysis, it is authoritarian government
and there appears to be but little chance for anything materially
different until education for citizenship qualifies the masses for a
fuller participation in a more truly democratic system. There is
such a paucity of those qualified to lead in the cause of freedom that
in at least four of the countries the death of a single man might
change the entire course of government.
As an amusing commentary upon the most extreme condition of
lack of public awareness which was encountered, the results of a
recent public-opinion poll in Laos are cited:
Ninety percent of those interviewed did not know where the
King lived.
Only 10 percent knew the name of the Prime Minister.
Fewer than half knew the name of their own country.
And despite our contribution of more than 90 percent of the
country's budget, only 2 percent had heard of American aid.
Changing conditions and a possible source of friction.-As the chal-
lenges of dire emergencies are markedly receding, the problems of
everyday living begin to assume increasing importance.
One seemingly unimportant point might well be stressed.
The number of American jeeps, American uniforms, American faces,
which one encounters on the principal streets of the principal cities
seems disproportionately large to a native population that has an in-
nate mistrust or resentment of anything alien or nonnational.
No "Americans Go Home" signs have as yet appeared and they may
not appear as the people are both well mannered and grateful, but a

1440
SOUTHEAST ASIA
marked reduction in the numbers and ubiquity of American personnel
and in overmeticulous American supervision of local operations seems
clearly desirable.
As a result of its excessive nationalism, southeast Asia faces a de-
teriorating economic situation in many important areas. This nation-
alism is a force that cannot be stayed by outside means and it seems
destined to run its full course despite its destructive byproducts.
Some bitter disappointments are in store for people who have been
told that their troubles were at an end. If the American presence is
overobvious we will inevitably be made the scapegoat for failures or
shortcomings in which we had little or no part.
The suggested halving of dollar expenditure in southeast Asia should
be accompanied by a corresponding reduction in American personnel—
both military and civilian.
Education-the long but surest road.-Most of our present programs
while helpful and well executed somehow fall short of reaching the
real heart of southeast Asia's problems.
We are concentrating upon material things while most of the prob-
lems are spiritual or have their roots in attitudes which can only be
reached or altered through the processes of education.
Only through education can the continuing long-range needs of the
area be met.
This will be a long process that may require 15 or even 30 years of
outside aid before it can become completely self-sustaining.
The cost in both money and effort, while considerable, would prob-
ably be less than that of other forms of aid.
The results should be enduring.
V. INDIVIDUAL COUNTRY STUDIES
The above portion of this report has sought to deal in general with
the southeast Asia region and common problems of that region.
In subsequent sections there are submitted more detailed reports on
each of the countries visited and observed.
A. SOUTH VIETNAM
When I visited South Vietnam in late November of 1956, flags
were still flying, decorative arches remained in place, and banners
continued to proclaim the first anniversary of a free nation which
had been celebrated on October 26.
President Ngo Dinh Diem and his reform, anti-Communist, govern-
ment had advertised to the populace wholesale claims of progress
and of the good days ahead. For the populace of 12 million who are
militantly assuming a place of importance in the free world camp it
had been the most significant year in the recent history of southeast
Asia.
The Diem government now has set for itself the high goal of
becoming the "economic showcase" of the free world in Asia. Al-
though still preoccupied with the problems of internal security and
the ever-pressing threat of aggression from enemies beyond her bor-
ders, Vietnam is placing great faith in a new 5-year plan and in the
pronounced desire to demonstrate what prosperity accompanies the
free world design.
SOUTHEAST ASIA
1441
That she is falling far short of her goals to date is obvious. That
her people may be unready for the realities of world economics, and
hence moving toward disillusionment, is an inescapable suspicion.
I spent more than 2 hours with President Diem, and many hours
with members of his cabinet as well as with the United States repre-
sentatives in the country, United States businessmen and mission-
aries who know him best. I was favorably impressed by Diem's
earnestness, his determination, his stubborn adherence to his aims,
and his apparent dedication to the free world program.
Vietnam's young Government has many obvious weaknesses. The
nation faces tremendous economic, social and military problems. We
can nevertheless be heartened by the fact that the Government appears
to be one of "strong" men; and we probably should make allowances
because the country has just emerged from 8 years of destructive,
disruptive, internecine war.
Inescapable are the facts that Vietnam is the key to United States
interests in southeast Asia, and that she is heavily dependent upon
United States aid, support and encouragement.
Vietnam's Government is struggling with a complex of problems.
The Diem Government officials know that she has the natural resources
to achieve an economy which will be self-sustaining. Their problem
is lack of experience. For during 100 years as a colony of France,
the Vietnamese occupied subordinate posts in all areas of officialdom.
Now that the French have pulled out and the Vietnamese have com-
plete control, only a few know the methods and the routes to the goals
they have set.
Even when in the 5-year plan the path to prosperity is laboriously
etched, further progress is stopped for lack of capital.
In the colonial structure under the French there was little oppor-
tunity, and apparently as little will, to develop a national capital
system. At any rate, capital ventures to date have been almost wholly
French and Chinese.
The French investors and entrepreneurs largely have withdrawn
from residence in the country. The Government flagged much of
the capital, but it remains idle in the banks. Hostility in the Govern-
ment to French investment, and fears on the part of the French cap-
italists as to what the Government may do with their assets, has
precluded industrial expansion and halted previous industrial
operations.
Chinese capital also is idle. The Government is involved in trouble-
some disputes with its Chinese population, from whence comes most
of the merchants, small financiers, and developers, over terms of
Chinese operations in the country. The result, a product of the intense
nationalism which pervades the country, is an impassé and economic
stalemate.
The Diem Government's popular decree restricts commercial opera-
tions to those who were born to, or have officially assumed, citizenship.
Diem's problem in the resultant predicament is intensified because it
represents the essence of nationalist spirit, and is probably his most
generally beloved order.
At Saigon, the Chinese live apart in their own communities.
(Cholon is the Chinese part of the capital city area but its contiguity
and indigenousness are dubious.) On their own, they want no part of
1442
SOUTHEAST ASIA
Vietnam citizenship. Though many are generations away from the
motherland and completely dependent upon the resources of the land
of their adoption, they admit no allegiance. The deadlock is hurtful
both to the nation's economy and to the alien merchants.
United States representatives feel confident that the problem will
work itself out along some of the various compromise proposals laid
before Diem, though compromise appears elusive.
Diem's obvious alternative to French and Chinese development
capital is to cultivate and draw American capital. A handful of
United States importers, however, though anxious to operate in Sai-
gon, are finding themselves handicapped by Government restrictions,
as well as by the inability of the Government to act promptly on
applications for import licenses and other clerical requirements of
import transactions.
Mistakes and misadventures in Vietnam on the part of the United
States as well as the youthful and energetic Nationalist Government
representatives have been numerous. The most urgent problems in-
volved are: (1) failure to apply realism to United States economic aid
which is now dependent upon "budget support"; (2) the Government's
inability to prompt a forward movement in industrial recovery; and
(3) a muddled and dangerously deceptive monetary system crying for
reform.
The United States must assume her share of the blame for the fact
that the people of Vietnam now are living by false standards under a
"phony" inflated currency.
Under agreement which Washington has yet to modify in the face
of repeated recommendations, United States dollar aid is extended
on a basis of $1 for 35 piasters. The piaster, even in the semiofficial
market, is worth less than half the official rate and is about one-third
the value on the black market, or at the financial center of Hong Kong.
The United States therefore is getting no more than 50 percent of the
mileage we should expect on the aid dollar.
Tied to inflation also is the system of aid-budget support, under
which the United States ships marketable commodities to Saigon for
sale at United States prices, and uses the piaster proceeds to pay the
Vietnam Army and meet other Government costs for which our assist-
ance is pledged.
United States and Vietnam officials on the spot recognize the defi-
ciencies and dangers in the present system. Reaching agreement as
to solution, and obtaining more positive high level decisive help from
Washington, constitute the current aspect of the problem.
Yet, withal, President Diem and the young men he has about him
exhibit an unmistakable determination to succeed. Vietnamese and
foreigners alike in Diem's second year are now beginning to lay odds.
he will make a go of it, whereas a year ago they were counting another
miracle each day his government survived. Some say even the vice
lords-Lee Van Vien and other leaders of the notorious Binh Xuyen-
are resigned to the reform administration of Diem, who in his first
year destroyed their racketeering by force of arms and deposed their
corrupt police. Even some of the remaining French are quoted as
admitting Diem has given the area its best and cleanest Government
in memory.
In his second year, Diem does have some exhibits to which he can
point with pride. For one thing, the dissident elements in the popu-

SOUTHEAST ASIA
1443
lation have been won over or subdued. The Cao Dai, a dominant and
powerful religious sect, supports Diem and is even helping move
toward bringing together all religious elements into a new national
religion in a distinctive and loyal Buddhist order. For the most part,
domestic security has been established, although patrols still occa-
sionally have a brush with scattered Vietminh individuals or groups.
A semblance of economic order has been achieved and the country is
bustling with activity, though the permanent stability is questionable.
With United States training assistance, a new and competent police
force has supplanted the debased constabulary which was the product
of vice world operations. A military organization, battle experienced
and devoted to new career training, is continuing to improve in skills
and, presumably, effectiveness.
The United States assistance program has contributed substantially
to this progress, and has earned a high degree of acceptance and grati-
tude among the Vietnamese populace as well as among the Govern-
ment leaders.
The economy picture is variously estimated to be spotty and stable.
Successive good rice harvests had been partially offset by a downward
trend in rubber production. Prices have leveled off and wages have
moved upward. Industrialization was marked by establishment of a
watch factory and importation of glass-manufacturing machinery,
but other commitments await development of more favorable Govern-
ment policies.
United States support of the anti-Communists in Indochina has
now mounted well past the billion-dollar mark. In 1953, the United
States gave $785 million to France in what proved to be a futile effort
to insure defeat of the Communists in the war against France and
her loyalists and anti-Communist supporters. In 1950, a United
States aid mission for the Associated States was established at Saigon
and carried on a program through French Government channels.
With the fall of Dienbienphu and the partition of Vietnam under the
Geneva Accords, United States aid was rechanneled to go directly to
the new native government, as was done in the other Associated States,
Laos and Cambodia. In the past 2 years, after the French withdrew,
the United States has spent more than a half billion dollars in
Vietnam.
Our principal activity has been in supplying dollars for paying the
armed forces and in helping to train and advise the military.
The second most important single contribution has been to the re-
settlement of the 880,000 refugees who fled from north Vietnam and
under terms of the Geneva Accords were permitted to be transported
from the north capital, Hanoi, to the south capital, Saigon. Through-
out the countryside, in 35 localities, these refugees have been estab-
lished in new villages and placed on a self-sustaining basis. I visited
and inspected the new refugee settlement in the deep delta country at
Cai San, where 40,000 newly happy displaced persons now occupy the
widespread village along 13 new kinhs (canals). These farm families
were brought to the area only last May. They themselves supplied
the labor to hand-dig the indispensable canals, build the native thatch
houses, start the individual fishponds, and put in their first rice crops.
At the Cai San village headquarters, which is in charge of a Vietnam
commissioner and a United States adviser, fly the Vietnam and United
94413-57-92
1444
SOUTHEAST ASIA
States flags side by side. It requires only the appearance of an
American in the village to convince one that the United States not
only has done a great humanitarian and sociologically sound work,
but that it has won us new and permanent friendships.
The entire resettlement project, a tremendous accomplishment, cost
$93 million-about $100 per person-and some 200 million pounds of
rice and other surplus United States agriculture commodities. Now
ready to harvest their first crops, the newly placed villages require
only nominal assistance for the new season and will be wholly self-
sustaining in a few months. No new funds for this activity are being
sought in budgets now under consideration.
Because military aid in initial phases in Vietnam was of the utmost
importance, I rather exhaustively examined the military assistance
program, talked at length with United States military personnel, and
visited the Vietnam military training centers. As in other places in
southeast Asia, one is impressed with the fact that the United States
has sent to Vietnam professional military men who not only are highly
competent in their fields, but men of dedication who are also able in
the art of diplomacy. Americans have found that the Vietnamese
are quick to learn, but are without experience in many basic areas.
Except for a few who developed in combat in World War II and the
subsequent campaigns against the Vietminh, few had ever assumed
leadership responsibilities. It is in development of these latent talents,
as well as skill in the use of modern weapons, that American com-
missioned and noncommissioned officers seem to be achieving much,
and particularly in imparting leadership instruction, and developing
whole self-reliance. A new military school at Thu Duc under Gen.
Le Van Nghiem, a veteran of French field service in World War II,
appears to have the seed for a modern military academy.
The United States assistance program in Vietnam as it operates to-
day offers one of the best examples of how a "country team" should
operate. Under the general chairmanship of the United States Am-
bassador, all of the agencies representing our Government function
in a splendidly coordinated manner and if there are any jurisdictional
or other rivalries, they are not evident.
And while the military and resettlement problems have been para-
mount, the United States aid mission leadership has not been so pre-
occupied with them that team effort was not directed to other fields.
Great hope for the future unquestionably is in education. Much
has been done, but nothing appears significant in the light of the over-
whelming need. Vietnam even lacks a textbook system. Much is
made of the plan, already operative, to bring in 10 textbook experts
to begin writing and translating for publication. However, the text-
books will not be of great use until progress has been made in meeting
the need for eight to ten thousand elementary schools, along with
trade and vocational training programs, and a system of libraries
throughout the country. Some 5,000 villages have no schools at all.
Health and sanitation problems are ancient, but offer ever more
pressing challenges. Our Public Health Service representatives have
developed a substantial program, and have in training rural health
teams in all of the 40 provinces. Malaria control is a priority objec-
tive. United States teams cannot escape the obvious competitive per-
formance of the Communists in North Vietnam where a 500-bed hos-
SOUTHEAST ASIA
1445
pital in Hanoi, to be staffed by East German doctors, is under con-
struction.
United States technicians also are striving to aid in the more difficult
program of raising farm standards, developing civil aviation, re-
pairing and expanding the war-torn system of highways and railways,
developing the waterways, transport, telecommunications and power
systems, and raising standards in many fields. What has been accom-
plished by the Michigan State University team with the police force
is being undertaken in other Government departments by public
administration technicians from the same institution, with agreeable
but less spectacular results.
I visited a new vocational school and a new agriculture training
school in the rural areas far south of Saigon and was tremendously
impressed not only by the the training program but by the products
already manifest.
That American-type fat broilers and prolific layers are replacing the
spindle-shanked colorful yard chickens is a most significant accom-
plishment perhaps more than many other achievements which are
publicly acclaimed when you know of the oriental love for cock-fight-
ing. To find enthusiasm for adult education and widespread accept-
ance of the vocational school is likewise pleasing.
Encouragement, and at the same time a potentially dangerous com-
placency, are drawn from the conviction by officials and the masses of
people that in the war's end and the Geneva Accords the citizens of
South Vietnam came out better than their brothers up north. The
man on the street says conditions are bad in North Vietnam, and the
Government leader is confidently expecting the rank and file to rebel
against the Vietminh. The manner in which the Communists dealt
with the revolt in Hungary seemed to shake their faith somewhat,
but a recent flurry over land reforms was overpublicized in Saigon
as a full-scale rebellion partially because such a revolt has been antici-
pated.
Virtually every accomplishment in Vietnam's brief history bears
the stamp of America's cooperation and has been carried out with
our assistance. United States representatives, however, have sought
in most cases to attribute to the Vietnam officials whatever public credit
resulted. A less self-effacing policy in this regard now appears in-
dicated, although publicity must not be more than a secondary goal.
It must be clearly emphasized that President Diem freely acknowl-
edges his nation's wholesale gratitude to the United States. He
speaks fully and feelingly of American support and aid. He candidly
admits his mistakes and asks for patience while he deals with vexing
problems which delay his nation's economic progress. He views se-
curity as his major problem, and lists other needs as education and
communications. His pressingly persistent request is for aid to build
up his road system, particularly the coastal route to Tourane, to bring
elements and areas of his country closer together.
Diem points out that many problems which deter his young nation
are holdovers from colonial days. His goal is complete economic as
well as political independence, and he looks to America for his model
and his counsel.
It is with ill-concealed eagerness that President Diem looks forward
to a possible 1957 visit to America, where he spent part of his exile.
1446
SOUTHEAST ASIA
12
10
He views Americans as his nation's best friends, and he views such a
visit as not only an opportunity to report progress and plans in
Vietnam, but also as a means of gaining new prestige and assured
strength for the "democratic showcase" of Asia. If such a visit would
help to bring him nearer to solution of some of his basic problems in
economics and business practice, it would be more than justified.
100
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SOUTHEAST ASIA
1447
BASIC STATISTICS, SOUTH VIETNAM
Area: 66,000 square miles.
Population: 12 million in 1955 (estimated)
Population density: 170 per square mile.
Religion: Buddhist 90 percent.
Main exports: Rice, corn, and rubber.
Main industries: Rice milling, lumber, livestock, compressed gases.
Main exports: Rice, corn, and rubber.
Main occupations: Agriculture.
Per capita gross national product: $133 in 1955 (1954 prices). Conversion rate
35 piastres per dollar.
Per capita caloric intake: 2,490 (Cochin China Province).
Average life expectancy: 30 years (estimated).
Literacy rate: 20 percent.
Education: Only 26 percent of children 6-17 attend school. High school facili-
ties are available for 9 percent of those of secondary school age and vocational
school facilities for only 1 percent.
Railroads: 500 miles.
Roads: 7,300 miles.
Motor vehicles: 26,500.
Navigable waterways: Important.
Significant basic resources: Rubber.
B. THAILAND
An American representative once called Thailand "the land of the
ever-ready smile," a phrase readily understood by the visitor to this
traditionally free and happy country.
The United States enjoys an historical friendship with Thailand.
One is not in Bangkok long before realizing that Thais cherish the
fact that the United States, in the face of a declaration of war by
the Japanese-sponsored puppet government during World War II,
refused to return the declaration. Thais are also proud that in the
Korean war Thailand troops went to fight at the side of Americans
and remain there today with the security forces.
Initial emphasis is given the historic and genuine character of our
relationship because it colors and flavors the entire assistance program
in that country.
The United States is well represented in Thailand, where Americans
are held in high regard. Probably it is partially due to the fact that
they have been able to work in a favorable climate that there is much
to show for a comparatively modest effort.
As examples of the projects which have added much to United
States prestige are the highway construction, education and health
programs.
Prior to the time United States Public Health Service officials joined
the United States aid mission staff in Thailand, malaria was under-
mining the health of a quarter of the population every year. In 1950
there were 5 million malaria cases and 45,000 deaths due to the dis-
ease. By 1956, through a program of malaria control, the toll had
been reduced to 1 million cases and 10,000 deaths. Both United States
and Thailand public health officials now say that by 1960 the incidence
of illness and death due to malaria will not be appreciable, if present
personnel training and eradication projects are continued.
In addition, United States and Thailand public health officers are
training teams for the rural areas as well as villages and expect to
make more spectacular gains in raising sanitation and health stand-
1448
SOUTHEAST ASIA
ards. Thais are now being trained to take over the entire health
program within a few years. Demonstrating the advantages of Amer-
ican private enterprise as well as engineering skills is the Northeast
Highway project. With modern machinery and materials, American
concerns are building a 160-kilometer dual land hard-surface road
which is probably superior to anything ever seen in southeast Asia.
Engineers and construction crews are engaging in a pioneering effort
and at the same time helping to meet one of Thailand's outstanding
needs-skilled labor training. In visiting the Raymond construction
camp, I was much impressed by many stories of the relationships
American workmen established with the rural Thais and saw evi-
dences of gains for American prestige among natives who could see
and testify of their own knowledge of the American way of life. The
engineers, foremen and workmen seemed to have grasped their oppor-
tunities, as should all citizens, also to be ambassadors. It is unfortu-
nate that there has been a less-than-to-be-desired number of such spec-
tacular projects throughout the underdeveloped areas where United
States assistance is being extended.
Another field in which United States personnel are making evident
contributions to higher standards is in education. One can visit new
and developing schools at Bangkok and elsewhere and be impressed
by the progress shown. Particularly is this true of the vocational or
trades schools for both boys and girls, and for the new college of
agriculture, still under construction but already showing remarkable
results. One must assume here that the Americans at work are also
serving as ambassadors, for the Thai director of this college told
me: "What you people [of the United States] have, you use to benefit
the world; your help has made our college possible."
United States aid officials report that substantial advances have been
made by other groups working in technical training, the Indiana Uni-
versity group, which has a training contract in public administration,
being cited in particular. An Oregon State University team is helping
to establish the college of agriculture.
In several days spent with the United States military assistance
group, I encountered encouraging advances along many lines. The
United States mission is admirably led and capably staffed, and the
apparent response of the Thai officers and men indicates a superb
training job is under way. One of the dynamic military personalities
of southeast Asia is the Thai commandant of the armored school, and
the officers and men under him appear inspired by his leadership. The
army and air force leaders likewise appear capable, enthusiastic and
suitably placed.
It might be expected that in an armed force of some 92,000 of
ficers and men some of the leaders hold their commissions because of
political influence. That may be said of Thailand forces with little
fear of contradiction, but the strictly political leaders appear not
to interfere too much with the training and operations of the capable
officers and men under them. Some progress has been made in per-
suading Government leaders to set aside a practice, which may be
a tradition, that a high-ranking officer must be a successful politician
before he is a military commander, and to be convinced perhaps that
a general who has 12 private businesses on the side may be too pre-
occupied to direct a military organization.
SOUTHEAST ASIA
1449
At any rate, Thailand has some of the best military facilities in
southeast Asia and the air force headquarters is good by any stand-
ards. The Thai Air Force is small but good, and has some newly de-
livered United States jet planes. The airbase development program
is progressing, but 4 more years are needed to make all planned bases
operative. There appears to be some civilian pressure against too
many United States jeeps and uniforms in evidence and too much
military in Thailand life; at any rate, for the current year the Thai
Government is reducing its own military budget from $88 million to
$75 million in a total budget of $281 million. There is no disposition,
of course, to ask reduction of United States military aid expenditures.
Thailand and its capital city, Bangkok, are the headquarters for
the Southeast Asia Treaty Organization and have provided an im-
posing, adequate structure to house operations under the treaty. This
treaty has brought together representatives and staffs of the nations
which are parties thereto, but it has not provided any military forces
as has the North Atlantic Treaty Organization in Europe.
1
It is in the light of the treaty obligations that United States rep-
resentatives talk of a frequently embarrassing subject: how to explain
the fact that "neutral" countries seem to be getting priority attention
in United States consideration of dollar assistance and economic
development. The United States-Thailand country team therefore
feels fully justified in recommending a broader program for Thai
operations.
United States representatives have also been strong in urging the
International Cooperation Administration to join with the Interna-
tional Bank for Reconstruction and Development in advancing funds
to build a giant multipurpose dam where the Chao Phraya (Mother of
Rivers) passes through the hill country. Such a dam would place an
additional 5 to 7 million acres in rice cultivation and provide flood
control, water conservation, and the nation's first major powerplant.
(I inspected the site of this promising project.)
United States team members also say a broadened program should
provide for additional billets for Thailand-United States exchange
of persons, and for Thais going to the United States for training in
the one-way program. The thousand Thais making these training
studies in the United States are now returning with a missionary
zeal for the American way of life.
United States representatives also emphasize that outstanding
needs, yet to be approached, are for canning and cold-storage facili-
ties, a better telecommunications system, and improved credit and
marketing systems. Thai leaders agree with United States estimates
that the three greatest needs are in the fields of (1) communications,
(2) power, and (3) skilled-labor training. It is true, they point out,
that Thailand is prospering by southeast Asia standards, but there is
a bare balance between imports and exports at about $335 million
annually and the present state of underdevelopment will continue
unless the assistance program is continued, and reinforced with an
economic development program.
Thailand's overall economic outlook is generally favorable. De-
spite recent-year floods, droughts and pests, agricultural production
1 Parties to the Southeast Asia Treaty Organization pact are: Thailand, Pakistan,
Australia, New Zealand, the Philippines, United States, Great Britain, and France.
1450
SOUTHEAST ASIA
has remained high; the rice production goal is 1.5 million tons per
year and the rubber output has been climbing. Exports have ex-
ceeded $335 million, but imports also have climbed appreciably, main-
taining an even balance. Government budgeting has indicated sizable
deficits but this is partially a bookkeeping fault since the gap between
spending and income is much narrower than between appropriations
and revenue estimates.

THAILAND
18
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SOUTHEAST ASIA
1451
With Thailand's untapped, enormous natural resources, she can
be made fully self-sustaining, richer and economically stronger, and
hence a more powerful and valuable ally, with the proper help. The
development of an unprecedented power system alone will bring
great advances. The standard of living and national strength can be
appreciably enhanced by development of modern water and sanita-
tion systems. Adequate, good roads and transport systems, plus a
modern marketing system, could quicken business life beyond present
concepts. These development proposals all are continually in the
Thai-United States conferences.
Area: 198,000 square miles.
BASIC STATISTICS, THAILAND
Population: 20,300,000 in 1955. Chinese 15 to 20 percent. Other races include
Malayans, Indochinese, and Indonesians.
Population density: 100 per square mile.
Annual population growth: 1.9 percent, slightly above the average for the area.
Religion: Buddhists (85-90 percent); Muslim, Christian, and other (10-15
percent).
Agricultural land: 18 percent of total area.
Agricultural land per capita: 1.1 acres.
Main crops: Rice is the major crop with rubber next in importance. Peanuts,
fruits, coconuts, tobacco, sugar, and mung beans are also grown. (Area under
rice cultivation was about 64 percent of total area under cultivation.)
Main industries: The country has relatively few industries of which rice milling,
sawmilling, fishing and tin and tungsten mining are of the greatest importance.
Sugar, cement, paper, and textiles are also produced. New industries are being
introduced but in insufficient numbers to make a significant impact.
Main exports: Primarily rice (45-60 percent), rubber, tin, teak and tungsten.
Main occupations: 90 percent of the working population are employed in agricul-
ture, forestry and fishing.
Per capita caloric intake: 2,080 calories.
Per capita gross national product: $101 in 1955 (1954 prices: conversion rate 20
baht per United States dollar.) (Agriculture 43 percent; industry and mining
16 percent; commerce, transportation and communication 20 percent; other
21 percent.)
Average life expectancy: 49 years in 1947-48.
Infant mortality rate : 65 deaths per 1,000 live births in 1953.
Literacy rate: 54 percent.
Teachers: 480 per 100,000 population. Buddhist monasteries control most of the
elementary education in rural districts.
Railroads: Approximately 2,100 miles.
Roads: Approximately 4,200 miles in 1953. The inadequate highway system is
being improved as a result of an expanded highway program.
Navigable waterways: 3,700 miles of rivers and canals; the Chayo Phraya River
and its tributaries and canals carry 75 percent of the inland traffic.
Motor vehicles: 42,000 (1953).
Shellac..
Rubber, natural.
Tin...
Tungsten..
! Not available.
Material
Significant basic resources
Percent of
known free
world
reserves
Production
as percent of
free world
output (1954)
Percent of
United
States
imports from
this source
(1955)
(1)
5
7
20
16
6
(1)
4
11
4
NOTE.-Manganese, molybdenum and antimony have been found in small quantities in Thailand
1452
SOUTHEAST ASIA
C. CAMBODIA
The kingdom of Cambodia is firmly in the political control of Crown
Prince Sihanouk, who is the nation's dominant political personality
although he holds no office. Neutralism is his announced policy.
Chinese capitalists and merchants are found dominating the nation's
economy. Chinese comprise 25 percent of Phnom Penh's population
and are said to have a "stranglehold" on the business life of this capital
city. Ten percent of the nation's population is Chinese.
Cambodia has under way an ambitious 2-year economic development
program and, while some aspects appear unrealistic, its potential
benefits are obvious.
Widespread construction activity in Phnom Penh is one of a number
of healthy economic signs. Rice and rubber production is up again
after a near-disastrous period in 1954-55, but it is still touch-and-go
to gain a favorable export-import balance, both now being approxi-
mately $50 million annually. Cambodia has turned increasingly from
Vietnam to Hong Kong for imports. The Cambodian economy con-
tinues to be heavily dependent upon foreign assistance.
The United States is the principal contributor of foreign aid, but
the French aid program is also of importance and Colombo plan coun-
tries are helping. Substantial aid is also coming from Communist
China and programs are offered by Russia and India, as well as tech-
nical assistance from the Philippines.
(Our visit to Cambodia coincided with the official visit to the capital
of China's premier Chou En-lai and the arrival of a new American
Ambassador to that post.)
The United States military effort is especially noteworthy. A
well-trained little army appears to be strongly pro-United States,
although the skills of our military personnel have been applied there
only 19 months.
China's premier has promised the Cambodians $20 million for a
hospital and other visible works and has publicly apologized for not
doing more. In contrast, the United States has taken 2 years in prom-
ising a greatly sought road to the new port of Kompong Som and con-
tracts still had not been approved. This port on the Gulf of Siam is
being built by the French to satisfy the national hunger for an inde-
pendent outlet to eliminate dependence upon Saigon.
This case is typical of a number of instances in which project ap-
provals are issued in Washington only after seemingly interminable
and incomprehensible delays. Even our best friends in southeast Asia
are perplexed and disappointed at the apparent inefficiency of the Gov-
ernment in a nation whose businessmen are hailed as the most progres-
sive and most efficient in the world.
The United States Operations Mission still has under way a giant
dredging project, pumping silt from the Mekong River to fill in Phnom
Penh lowlands, and has studies under way for water and electric sys-
tems. United States money is paying the army. Much has been done
to develop a compatibility with the anti-Communist free world, but
the competition is keen. Communist pressures and activities are
multiplying.
The Phnom Penh government is cooperating in public health efforts
and in control of cattle disease. The malaria program aspires to
SOUTHEAST ASIA
1453
complete eradication of this disease by 1961. Technical assistance in
public administration and similar government fields has made friends
among government personnel.
Cambodians by and large look upon the democratic way of life as
meaning absence of taxes and obligations. Our own aid program
also was said to have been restricted by a general understanding that
the International Cooperation Administration Director in Washing-
ton had decreed a policy of "no bricks and mortar," thus stopping the

CAMBODIA
||22
10
18
104
100
102
C HINA
Red
River
BURMA
16
12
10
BURMA
106
108
110
PHONG SALY
N ORTH
SAM NEUA
Mekong
River
LUANG PRABANG
VIENTIANE
THAILAND
Gulf
of
Sia m
SUMATRAV
BANGKOK
MALAYA
KOR
A
Mekong
O
KEY
Rice
22
Fish
HANOI
Rubber
HAIPHONG
S
Gulf
of
Tonkin
C A M B OD I I A
BATTAMBANG
TOHLE
PURSAT
PHNOM PENH
FORMOSA
PHIL.
akong
HUE
20
18
TOURANE
16
SOUTH
Se a
५
14
QUI NHƠN
NHA TRANG
DALAT
12
VIETNAM
SAIGON
S
по
100
102
104
106
108
110
10
1
1454
SOUTHEAST ASIA
United States mission from any "visible" projects comparable to the
Union of Soviet Socialist Republics and Red China contributions of
hospitals and schools.
Some United States representatives feel Washington holds a too-
tight rein on the Cambodian operation, and feel circumstances justify
a "targets of opportunity" type of operation. They said the aid
program must be given a greater flexibility and geared for fast, con-
clusive action.
Several conclusions with regard to Cambodia are inescapable: The
interests of the United States are paramount in preventing further
expansion of communism in southeast Asia. The Russian Govern-
ment also gives highest priority to the cold war in Indochina; Chou
En-lai's week-long visit to tiny Cambodia and the Union of Soviet
Socialist Republics' assignment of one of its top Paris-trained Com-
munists to the Phnom Penh post are straws in the wind. Cambodians
are anti-Communist because they are pro-Cambodian. Americans are
respected for their individual ability.
The Crown Prince has shown considerable skill in apparently en-
couraging both Communists and westerners to seek to outdo each other
in extending aid to this country.
Conditions appear good enough to warrant the belief that present
dollar expenditures for United States aid could be cut in half without
undue damage to the economy. There should be accompanying reduc-
tions in the size and scope of the Cambodian military establishment,
which would still be fully adequate to meet all normal demands of
internal security.

Area: 67,000 square miles.
BASIC STATISTICS, CAMBODIA
Population: 4,400,000 (1955).
Population density: 60 per square mile.
Religion: Buddhist 95 percent.
Agricultural land: 29 percent.
Unused but potentially productive land: 27 percent.
Agricultural land per capita: 3.1 acres.
Main crops: Rice, rubber, corn, beans, kapok.
Main industries: Rice milling, fishing, lumbering, livestock.
Main exports: Rice, rubber and corn.
Main occupations: Agriculture and fishing.
Per capita caloric intake: 1980.
Average life expectancy: 30 years.
Literacy rate: 15 percent (average Cambodia, Laos and Vietnam).
Teachers: 150 per 100,000 population.
Railroads: 290 miles.
Roads: 600 miles hard surface roads; 1,200 miles passable only in dry season.
Navigable waterways: 875 miles.
Significant basic resources: Rubber.
D. LAOS
More adjectives have been used on Laos than on any area of com-
parable size in all of Asia, but the area still remains undescribed.
Suffice it to say its people are hardy and that their day-by-day accom-
modations do not attract tourists, even those with a pronounced pre-
dilection for the primitive.
In Laos, with its important strategic location and long common
border with Red China and with North Vietnam, the understandable
zeal of the military command in attempting to establish military forces
SOUTHEAST ASIA
1455
of sufficient strength to deter Communist expansionist adventures
has resulted in an economic imbalance of major proportions.
Laos was formerly the frontier area of French Indochina. Its bor-
ders enclose one of the most primitive and most malaria-ridden areas
of the world. Formed in 1947 from a convenient grouping of three
formerly separate principalities and with no national history of its
own, it is an area rather than a nation. Its 91,000 square miles are
roughly equivalent to the area of the State of Oregon-twice the
size of Pennsylvania. It has a population of 1,400,000 people. In the
entire country there are few professional people such as doctors,
lawyers, and engineers. The bulk of the population are tribesmen,
living on a subsistence basis, many hunting with crossbows and culti-
vating opium poppies.
The normal exports of Laos have averaged around $2 million per
year. This was cut in half by the 8-year civil war and the coffee
blight. In 1955 exports were less than $1 million. Unofficial estimates
of the value of the illegal opium traffic would add another $3 million
per year—a total export trade of less than $5 million per year.
But the United States is now paying and equipping the army of
26,000 men at a cost of $34 million a year. Programs in the economic
and health and education fields are costing an additional $13 million
a year. For these and other purposes, the United States is bringing
in goods and cash at a rate of approximately $50 million per year.
As a result, the people of Laos are being encouraged to import goods
at a rate approximately 10 times higher than the level which they, with
their limited productivity, are currently able to support.
The army is said to be a good army of its kind and it is reported
to be doing a good job in reducing banditry and in restraining Com-
munist infiltration or invasion. At least we think that the army is
good, but we are forced to take it on faith since we have no means of
checking the numbers, the whereabouts or the efficiency of the great
bulk of the troops. The French have the training mission and they
are apparently supplying competent officer and training personnel.
The French also established the pay scale for the troops. It is a high
pay scale (see attached table) for troops and may well reflect the
extreme hazards which prevailed when it was established, hazards
which are now believed to be materially lessened.
Military pay scales in southeast Asia (base pay and allowances—monthly)

Rank
Private (1st class)
Sergeant (master)
2d lieutenant..
Major..
Colonel.
General.
Thailand
Vietnam
Laos
Cambodia
$28.50
$31.33
$25.06
$15.00
43.50
73.92
100.44
132. 20
43.50
133.86
116. 13
182.30
93.00
210. 18
220.93
242.60
186.00
284.03
314. 81
311,40
421.00
413.69
340.69
351.80
Under present circumstances, the United States is acting on faith
and is footing the bill for the pay and maintenance of the troops sight
unseen. There is no evidence or suspicion of bad faith. It should,
however, be clearly recorded and understood that any system or
arrangement that does not afford opportunity for reasonable checks as
to the accuracy of numbers or accounts is inconsistent with the prin-
ciples of free government and should be corrected.
1456
SOUTHEAST ASIA
What is more profoundly disturbing is the major imbalance that
is being created in the Laotian economy due to creation of so many
new and hitherto unsuspected wants among primitive people, the
arming with modern weapons of the previously unarmed tribesmen,
and the distressing weakness of the new and fledgling Government.
Laos has taken steps toward achieving economic development.
A much-needed commercial bank has been established, a trade and
customs agreement made with Thailand, and a new transport route
developed linking Bangkok and Nongkai in Thailand, with Thadua
and Vientiane in Laos. Experiments are continuing on the Bolovens
Plateau with Hawaiian and Philippine coffee trees to replace those
lost to the insect blight in recent years.
But the inadequacy of the Nongkai-Thadua Mekong River Ferry,
which has limited the new highway route to 2,000-3,000 tons per
month, bars any real hope for expanding trade to the degree required
for real development. The United States aid mission has proposed,
and has been awaiting a Washington answer on, a new and modern
ferry system; as much as such a river crossing is needed, providing
it would be far from a solution of Laos economic problems. Ob-
stacles to any substantial development include political insecurity,
lack of internal capital, scarcity of labor, and poor and deteriorating
transport facilities.
The measure by which this country falls short of being self-sustain-
ing is the fact that, although land is plentiful, weather conditions
almost ideal, and nearly everybody farms, the rice production does
not meet native needs, and United States aid requirements include
the import of up to 20,000 tons of rice for food.
The fact that the new bank apparently is prospering, and that for-
eign exchange reserves are continuing to increase from the $33 million
in 1955, is more a tribute to the United States dollar than to any-
thing in Laos.
It doesn't take a graduate economist to reach the inescapable con-
clusion that, if the present massive United States expenditure is
continued for 2 or 3 years and is then either discontinued or is ma-
terially reduced, a condition of near chaos would almost certainly
ensue. The disbanded soldiery would probably resort to banditry.
The hill folk who once led a marginal but reasonably contented exist-
ence, unaware of manufactured goods and of modern mechanical con-
trivances, would suddenly be made unhappy by finding all these de-
sirable things again beyond their reach.
Their Communist neighbors to the north on the other side of an
ill-defined boundary would not be slow in taking advantage of such
a made-to-order situation. It is therefore suggested that: (1) the
pay scale of the Laotian troops be reviewed to determine whether
substantial reduction of present rates is now feasible; and (2) that
prompt measures be taken to reduce materially the size of the exist-
ing armed forces.
Militarily, this would involve some elements of risk.
In the economic field, downward adjustments clearly are indicated.
Some immediate steps must be taken to seek the natural level of the
economy-if violent collapse is to be averted when United States
dollar aid is withdrawn. This could be some years, if the United

SOUTHEAST ASIA
1457
States decides to continue support of Laos until the country achieves
viability, but false standards are undesirable in any case.
The unsoundness of the present artificial exchange rate and the
lack of capacity of the Laotian economy to absorb the large amounts
of United States-financed imports that are being brought in to gen-
erate local currency for the pay of the troops are becoming increasing-
ly manifest in the widespread smuggling of goods into Thailand.
The latter is a danger signal that should not be ignored.

LAOS
22
100
102
C HINA
BURMA
PHONG SALY
104
Rod
River
SAM NEUA
20
Mekong
River
LUANG PRABANG
196
106
108
110
NORTH
VIENTIANE”
Sn
18
HỒNG KHẢI
16
12
10
SUMATRAN
THAILAND
Gulf
of
Siam
BANGKOK
MALAYA
FORMOSA
PHIL.
KEY
Rice
Fe
Iron Ore
SHANOI
(Sn
Tin
HAIPHONG
Gulf
of
Tonkin
Fe
HUE
TOURANE
A м во
| A
TONLE
SOUTH
BATTAMBANG
PURSAT
PHNOM PENH
kong
OÀI KHÔN
NHÀ TRANG
DALAT
VIETNAM
SAIGON
1 h
0
S
22
20
18
100
102
104
106
108
110
UNCLASSIFIED
12
10
1458
SOUTHEAST ASIA
A large proportion of the current United States aid program is for
the construction of a road leading to the northern border of Laos.
Roads are instruments of civilization and progress. Good roads also
ease the path of the invader. Much of Laos is trackless wilderness.
The forward units of the Laotian Army are currently being supplied
by parachute drops. The ruggedness of the terrain and the current
absence of roads and bridges offer a more effective resistance to mass
invasion by Chinese Red armies than could be mounted by the Laotian
military forces in being. Under present conditions, if roads are built
by the United States they should be concentrated near the southern
boundaries.
The United States should recognize that if it elects to continue to
assist Laos, it is acquiring a ward with few developed resources and
limited possibilities. The new nation is led by a small group of men
who, no matter how patriotic, are limited in training. Their only
experience has been in subordinate positions in colonial administra-
tion and they found themselves propelled suddenly into the leader-
ship of a primitive country. Estimates range from 10 to 50 years for
the time required to develop a viable economy which can be self-sus-
taining for the generations ahead.
BASIC STATISTICS, LAOS
Area: 91,000 square miles.
Population: 1,400,000 (1955).
Population density: 16 per square mile.
Religion: Buddhist.
Agricultural land: 8 percent.
Agricultural land per capita : 3.2 acres.
Main crops: Rice, coffee, opium.
Livestock: Of potential importance.
Main industries: Tin mining.
Main exports: Tin, coffee, livestock.
Main occupations: Agriculture, 90 percent of the farmers are subsistence
farmers.
Per capita caloric intake: 1,920.
Average life expectancy: 30 years (estimated).
Literacy rate: 15 percent.
Waterways: Mekong River is a main transportation artery.
Roads: 1,600 miles.
Motor vehicles: 1,900 (excluding military).
Air transportation : 2 airlines serve the country.
Significant basic resources: Tin, forest products.
E. BURMA
A country of 20 million in an area the size of Texas, Burma is like
much of southeast Asia in that she is discovering that a new-found
independence carries responsibilities as well as nationalistic preroga-
tives. Burma appears to find her natural inclination to be anti-
Communist, yet has made concessions to Red pressures and feels a
continuing consciousness of the presence to the north of a potentially
hostile force which could overwhelm her from anywhere along a 1,000-
mile common border with Red China.
In 1953, after 21 millions of a $35 million United States assistance
program had been spent, the aid program was cancelled at the request
of the Burmese Government, and United States technicians with-
drew. A misadventure in the Yunnan province, when there were
SOUTHEAST ASIA
1459
rumors that the United States helicopters helped move troops hostile
to the Peiping China Government, and the continuing Burma-China
border dispute, which is still unsettled, contributed to the pressures.
The impact of friendly United States assistance, however, remains in
Burma. The technical assistance in agriculture was halted but the
program continues along United States-laid lines. The Ford Founda-
tion still is active in agriculture, and Burma, anxious to continue
efforts to raise standards of cotton, rice and tobacco, needs and wants
technical aid in this field as well as in the fields of village development
and sanitation. Despite cutting off of the United States program,
Burma remains essentially friendly to the United States. The Bur-
mese Government's economic adviser is Robert R. Nathan, a United
States economist, who has a staff of a dozen or more engineers from
the United States, instructing and advising in United States methods.
There is a real struggle behind the scenes over the issue of socialism
versus private enterprise in industry, with socialism winning by
default, as there is little encouragement of private enterprise. Three
large Government-owned industrial plants are now under construc-
tion at Rangoon.
Rice futures is the key to agricultural stability. Until 1953 there
was a seller's market in rice, and while there was no great problem in
this all-important industry in 1956, apprehension exists with regard
to the future. Uncertainty as to United States plans with respect to
disposal of its surplus rice is particularly unsettling. Burma is
exporting in excess of 1 million tons of rice annually, out of a crop of
612-7 million tons. Rice sales in 1956 exceeded 2 million tons, includ-
ing term contracts with Russia, India, Japan, Indonesia, Communist
China, Ceylon, Hungary and Yugoslavia.
In other areas of the economy, Burma has problems. The cost of
living is up and the threat of damaging inflation persists. And the
development of textile and jute industries brought difficulties. How-
ever, Burma has been having a trade surplus of about $50 million,
with exports about $230 million and imports about $180 million. The
Government, though, is running a sizable deficit.
Nationalist attitudes are colored, too, by fears inherent in the in-
filtration of the economy by the Chinese, and prospects are that unless
the nation gets help the Chinese will gain ever more economic power.
Our representatives feel that the best opening for the United States
to establish a firm, lasting relationship is to aid in economic develop-
ment; and the Mu River dam, for which a World Bank loan is sought,
offers the initial, basic opportunity.
Western influence in Burma is strong, and while there is no way
of measuring the strength of her western ties, Burma undoubtedly
reflects genuine friendship.
Burma is by nature anti-Communist but fears Red China. The
Communist Party made significant gains in the recent general election
and now holds 40 of the 250 seats in the Assembly. These Communist
gains are reported to have been a factor in the respected leader U Nu's
recent reassumption of the Prime Ministership.
94413-57-93
1460
SOUTHEAST ASIA
KEY
Rice
Textiles
Tobacco
Oil
Ni Nickel
Ag) Silver
Sn) Tin
Pb) Lead
(Zn) Zinc
DIA
20
BORONGA-IS
16
12
Chin
Hills
Special
Division
RAMREE
CHEDUBA
BAY
OF
BENGAL
92
BURMA

PREPARIS L
(INDIA)
CAR NICOBAR (INDIA)
„Irrawadd
96
100
Kachin State
F
CHIN A
(Ni
Ag
Pb
andalay
Shan State
Kayahi
State
RANGOON
Karen:
State:
GULF OF
MARTABAN
ANDAMAN
SEA
LAOS
THAILAND
Bangkok #
Sn
MERGUI
ARCHIPELAGO
GULF
OF
SIAM
96
100
1
28
24
20
16
12
SOUTHEAST ASIA
1461
Area: 261,000 square miles.
BASIC STATISTICS, BURMA
Population: 19,400,000 in 1955.
Religion: Buddhist (90 percent); other (10 percent).
Population density: 73 per square mile.
Annual population growth: 1.0 percent.
Agricultural land: 13 percent of total area.
Agricultural land per capita: 1.12 acres.
Unused but potentially productive land: 12 percent of area.
Main crops: Rice is the most important crop. Peanuts, cotton, timber, and
rubber are also important. The production of jute is increasing.
Main industries: Rice mills, petroleum, lumber, textiles, and mining. Addi-
tional industries are being established under the development program. Under
construction are a steel rolling mill, a jute mill, a tea factory, and certain other
plants.
Main exports: Rice, lumber, cotton, rubber, metals, and ores.
Main occupations: Approximately 70 percent agriculture; mainly rice cultivation.
Per capita caloric intake: 2,200 calories.
Per capita gross national product: $52 in 1955 (in 1954 prices: conversion rate
4.762 kyats per dollar) of which agriculture 50 percent; industry and mining
17 percent; commerce, transportation, and communications 19 percent; other
14 percent.
Infant mortality rate: 230 deaths per 1,000 live births (1953) in 60 cities having
a population of 1.2 million.
Literacy rate: Approximately 35 percent of population in 1953 (estimate).
Teachers: 120 per 100,000 population (1953).
Railroads: 2,200 miles.
Roads: 25,000 miles.
Registered motor vehicles: 24,000 (1954).
Pro-
Significant basic resources: Tin, 6 percent of known free world reserves.
duced 1 percent of 1954 free world output. Teak resources are large. Petro-
leum, tungsten, and nickel are produced in Burma but the quantities are not
large.
F. INDONESIA
The United States is Indonesia's best trading partner with com-
bined imports and exports of $260 million in 1955. Private American
investment in Indonesia is estimated at $150 million. An Export-
Import Bank development loan of $100 million was made in 1950.
The United States aid program in Indonesia has been substantially
restricted by circumstances of world political developments but a
small group of United States representatives has accomplished much.
Fewer than 150 people are engaged in the United States aid program.
The United States contribution largely has been in technical assist-
ance in the fields of agriculture, industry and mining, transportation,
labor, health and sanitation, education, public administration, and
community development and housing. All of this is costing from $10
million to $25 million annually and there is no present demand or
proposal for any substantial increase beyond the latter figure.
Outstanding accomplishments have been in malaria control, where
6 to 9 United States technicians and 6,000 Indonesians are engaged
in a 5-year program; exchange program contracts with the University
of California in medicine and the University of Kentucky in agricul-
ture; an educational exchange program for teachers with Tuskegee
College; and a very comprehensive police training program. United
States technicians substantially aided the Government in its public
administration training, a program held off for 2 years by local politi-
cal pressure, but now being sought again by the Djakarta government.
As elsewhere, it is apparent that too great a sacrifice is made to our
own bureaucracy or red tape; one extreme estimate is that 95 percent
1462
SOUTHEAST ASIA
of the work in the program is in the preparation of Washington
directives and, on the other hand, in making required reports to Wash-
ington. United States prestige is lost when it takes 8 to 9 months to
fill personnel requests, 2 years to approve a contract, and as long to
arrive at decisions in pressing matters.
Indonesia, the sixth largest country in the world, offers possibly
the outstanding challenge and opportunity in all of southeast Asia.
Communism reportedly is strong in the area but it managed to poll
only 6 million votes out of the 40 million cast in the last general
election. Communists do dominate the labor movement. Indonesians
evidence a great curiosity about America, as evidenced by the popu-
larity of English language classes. Appointments to exchange situa-
tions in the United States are avidly sought, even by leaders of fac-
tions not friendly to the West. The United States has accumulated
some $50 million in local currency in Djakarta banks from sales of
surplus agricultural products under Public Law 480. A gradual
broadening of the program, with a greater degree of flexibility or local
autonomy to the United States representatives, might be a calculated
policy with less than the normal risk.
Indonesia's economic problems are appalling; crops have been dis-
appointing, rubber prices and demands have been declining, along with
petroleum production at the same time; consumption of food crops
and gasoline and kerosene has substantially increased. Indonesia is
importing 800,000 tons of rice alone, buying 250,000 tons from the
United States. The Government also has experienced large budgetary
deficits exceeding a quarter billion dollars annually since 1952, con-
tributing to the inflationary trend.
There is evident a growing dissatisfaction and unrest due to Indo-
nesia's failure to achieve economic progress since independence. With
the distressing lack of know-how among its native population, coupled
with the strong spirit of nationalism which refuses to distinguish be-
tween capitalism and colonialism and therefore is hostile to foreign
investment, there seems to be no immediate prospect of economic im-
provement. In fact, it was apparent in 1956 that Indonesia would be
fortunate to escape major revolution.
Under the circumstances, United States aid in educating individuals
will probably be of greatest ultimate value. The type of technical
assistance now being given Indonesians unquestionably will be of much
greater help than would projects undertaken in connection with Gov-
ernment agencies. These could conceivably be swept away in the
changing tides.
SOUTHEAST ASIA
1463

BASIC STATISTICS, INDONESIA
Population: 81,900,000 (1955).
Area: 576,000 square miles.
Population density: 140 per square mile (Java-Madura, 1,000 per square mile;
Agricultural land per capita: 0.3 acres.
Agricultural land: 7 percent of total area.
Annual population growth: 1.6 percent.
other islands, 45 per square mile).
Religion: Muslim (95 percent); Christian and other (5 percent).
". THAILAND
(SIAM)
INDOCHINA
MALAYA
ĮMATRA:
INDONESIA
BRUNEL
NORTH
BORNEO
ARAWAK
Pontianak
BORNEO
[Palembanį {
BILLITON
Rubber
KEY
Coffee
Coal
Petroleum
Rice
Sugar
Copra
(Fo
Iron Ore
Tobacco
Tin
Tea
Gold
(Batavia)
N
MADURA
0
• THE
PHILIPPINES
N
Makassar
0
200
६.
200
FLORES
400 Miles
400
Kilometers
HALMAHERA,
2
TIMOR
CHINA
UNITED STATES
OF INDONESIA
Area of Main Map
AUSTRALIA
CERAM
NETHERLANDS
NEW GUINEA
AUSTRALIA
1464
SOUTHEAST ASIA
Main crops: Rubber, copra, rice, corn, sweetpotatoes, cassava, sugar, palm
kernels, soybeans.
Main industries: Textiles, hard fibers, rubber goods, cement, petroleum, tin
mining.
Main exports: Rubber, petroleum and products, copra and tin ore.
Main occupations: Agriculture 71 percent.
Per capita gross national produce: $127 in 1955 (1954 prices, conversion rate 11.4
rupiahs per dollar).
Per capita caloric intake: 2,040 calories.
Infant mortality rate: 200 to 300 deaths per 1,000 live births.
Average life expectancy: 32 years.
Medical services: Approximately 1 physician per 70,000 persons and Ɛ5 hospital
beds per 100,000 persons.
Literacy rate: Approximately 55 percent of adult population.
Teachers: 140 per 100,000 population (1951).
Railroads: Approximately 4,000 miles.
Roads: Approximately 43,000 miles of which 75 percent are improved.
Motor vehicles: 116,000 cars, trucks, and buses; 69,000 motorcycles (1954).
Significant basic resources

Tin ore-
Material
Petroleum...
Rubber, natural.
Bauxite..
Abaca..
Sisal (including henequin)…………
Palm oil and kernels….
Percent of
known free
world
reserves
Production
as percent of
free world
output (1955)
Percent of
United
States im-
ports (1955)
20
1
9280
19
1 35
39
2008
3
36
1
(1)
9
2
1
(2)
5
13
$ 36
1 A large proportion of United States imports of tin bars and blocks comes from countries which obtain tin
ore from Indonesia.
Not available.
• Palm oil.
NOTE.-In prewar years approximately 85 percent of the world's supply of black and white pepper came
from Indonesia.
SURVEY NO. 8
SOUTH ASIA
(AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON)
BY
DR. LEWIS WEBSTER JONES, PRESIDENT,
RUTGERS UNIVERSITY
MARCH 1957
1465
CONTENTS
Page
Letter of transmittal___
I. Summary of conclusions and recommendations respecting United
States aid to south Asia__
1469
II. General consideration of United States aid in south Asia as a whole__
1. The case for United States aid to south Asia
1471
1473
1473
8)
(c) The case for United States aid_
2. Objectives of United States aid to south Asia.
(a) General objectives..
(b) Separation of military from economic and “develop-
ment" aid_
(a) Importance of south Asia to the United States_
(b) Goals and problems in the modernization of the
economies of the south Asian countries__.
1473
1473
1474
1
1
I
1
1474
1474
1474
(c) Comments aimed at further clarification of the objec-
tives of United States technical and economic aid..
1475
(d) "Impact" versus "anonymity".
1475
(e) United Nations versus American aid.
1476
I
(f) Fighting Communism.
1477
(g) "Aid without strings"?___.
1477
(h) Mutual respect based on mutual advantage___
(i) Gifts or loans?_
(e) Technical assistance_-
The need for economy.
(k) Aid to south Asia a long-range undertaking.
(Specific objectives.
3. The amount and forms of aid.
(a) How much aid can the United States afford?.
(b) The needs of south Asia: reasons for the economic
underdevelopment of the area_.
(c) Some measures of need_
(d) Amount and kinds of aid needed.
Problem: getting enough of the right kinds of peoples.
Direct grants of surplus agricultural products under
Public Law 480_.
(h) Materials, equipment, and capital.
I
I
1478
4178
1478
1478
1478
1479
1479
1479
1
1480
I
1480
1480
1481
1481
1482
1
(i) The case for loans..
1482
The role of private enterprise_-_
1483
4. Comments on some particular aid programs.
(a) Village "AID" and community development programs.
(b) Education__
1484
1484
1485
(c) The University-International Cooperation Adminis-
tration contracts__
1486
(d) Medicine and public health.
1487
(e) The population problem..
(ƒ) Military aid to Pakistan_
5. Administration_
(a) More precise definition of aid undertakings_
(b) Longer range planning and commitments.
(c) Decentralization of detail to regional or country di-
1487
I
1
1488
I
1489
1
I
I
t
1489
1490
rectors__
(d) Regional development_
1490
1490
1
6. Problems and prospects__.
1491
1
1
1467
1468
CONTENTS
III. Comments on the several countries: Afghanistan, Pakistan, India
and Ceylon...
1. Afghanistan.
(a) The Helmand Valley project.
(b) Transportation__
(c) Education_
(d) The United States aid program in general_
(e) Encouragement of private enterprise.
2. Pakistan..
3. India
(a) Scope of United States aid_.
(b) Food production___
1
(c) Education, research, and extension services_
(d) Public health.
I
I
I
1
Village "AID" (agricultural-industrial development).
Other forms of United States aid.
Capital development programs.
General comments...
(a) Scope of United States aid___
(b) India's development plans.
(c) General comments on United States aid.
4. Ceylon.
I
1
+
1
I
1
1
Page
1492
1492
1493
1494
1494
1495
1495
1496
1496
1497
1497
1498
1498
1498
1499
1499
1500
1500
1501
1502
1503
LETTER OF TRANSMITTAL
RUTGERS UNIVERSITY,
New Brunswick, N. J., January 15, 1957.
To the Chairman and Members of the Special
Committee to Study the Foreign Aid Program:
In accordance with the request of the Senate Committee on Foreign
Aid, I have made a field examination of the United States aid pro-
gram in south Asia. This inquiry was carried on between the 18th
of October and the 22d of November 1956. The enclosed report covers
the four countries in this vital area: Afghanistan, Pakistan, India,
and Ceylon.
I have attempted to carry out the mandate of the committee by
approaching the problem from the standpoint of the broad and basic
policy issues in foreign aid, rather than from the standpoint of tech-
nical and administrative detail.
The report itself is in three parts. Part I is a brief summary of con-
clusions and recommendations. Part II deals with the area as a whole,
giving a fuller explanation of conclusions and recommendations. The
final section is a brief characterization of the several countries.
Throughout the trip I have had the most cordial cooperation of the
leaders and officials of the several countries. I wish also to thank many
members of the United States Departments of State and Defense, the
International Cooperation Administration, and the United States In-
formation Service for their splendid help. Everything possible was
done to facilitate my work by members of the executive departments of
our own Government, as well as by the Ministers of State and the civil
servants of the countries of south Asia. Beyond this, I have been
greatly helped and influenced by the many conversations with Ameri-
can missionaries, businessmen, the press, and many private citizens
of the countries.
I was assisted throughout by Mr. J. Clement Lapp of the Legislative
Reference Service of the Library of Congress. My wife Barbara
Jones did heroic work in the last stages of writing the report. My
secretary, Miss Barbara Peyser, stayed up nights to type the manu-
script. I am extremely grateful to them.
Finally, I wish to thank the Senate committee for the rare oppor-
tunity of serving you.
Sincerely yours,
LEWIS WEBSTER JONES
1469
SOUTH ASIA
(AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON)
I. SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS RESPECTING
UNITED STATES AID TO SOUTH ASIA
1. Aid to south Asia is justified by the strategic importance of the
region, its potential strength as a part of the free world, and its vul-
nerability to internal or external Communist threats by reason of its
present economic underdevelopment.
2. The purposes of American aid to south Asia require clarification,
with emphasis on the positive. Our main purpose is the same as that
of the south Asian countries themselves; to build world peace and
prosperity by strengthening them as independent, politically stable,
economically progressing nations.
3. The effectiveness of all our aid policies in south Asia would be
greatly enhanced by a clear separation of military aid from assistance
in economic and technical development.
4. Military aid to Pakistan should be continued; but there is a need
for clarification of the agreements with respect to the duration, the
kinds and the amount of military aid; need for prompt fulfillment of
our undertakings; and need for continuing review in the light of the
total world situation as it affects military defense.
5. Economic and technical aid should be organized for the long pull.
Outside aid, in varying forms and amounts, will be required until the
level of education and productivity has risen to the point where south
Asian countries can train their own technical personnel, and provide
their own capital from internal savings and from export surpluses.
These developments may take from 10 to 50 years.
6. Longer commitments to particular programs and projects are
desirable, in order to fit our aid more effectively into the 5-year
development plans of the receiving countries, as well as to insure the
most effective allocation of available funds. The necessity for negoti-
ation every year, on every project, is costly and wasteful.
7. There is need for clearer definition of the kinds of programs in
which the United States will participate. The criteria for determin-
ing eligibility of projects, as well as for the expansion, down-scaling
or ending of particular programs, should be established. Hastily
undertaken or ill-considered projects, proliferation or impromptu
expansion, are sometimes wasteful.
8. Detailed administration in the execution of approved projects
should be delegated to the people in the field, in order to minimize
waste, delays, and frustrations.
9. Regional planning of river development and transportation, and
other undertakings which involve more than one south Asian country,
would benefit the whole area. It might also enable the United States
to use its diplomacy, backed by economic aid, to help in the settlement
of some troublesome issues and conflicts between nations.
1471
1472
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
10. Technical aid is the least burdensome, the most immediately
effective, and the most acceptable form of aid, and should therefore
be generously supported.
11. Technical aid programs would benefit by a policy of paying
more for the best people. One $15,000-a-year man is often a better
investment than 3 at $5,000.
12. The contracts between the International Cooperation Adminis-
tration and the participating colleges urgently require revision. De-
fects are at present so serious as to threaten a breakdown of this
extremely valuable program.
13. The emphasis in economic aid should shift from gifts to loans.
Loans are less burdensome to the United States, more acceptable to the
south Asian countries. Exceptions to this general recommendation
are: (a) Grants of surplus agricultural commodities under Public
Law 480; (b) certain equipment and materials immediately essential
to the technical aid programs in education, food production, health
and welfare; and (c) certain large "generative" projects necessary
for any subsequent economic development, such as river development
and power transportation. Even here a shift from gifts to loans would
seem to be desirable.
14. More should be done to develop the "private sector" as a field
for domestic and foreign investment. This would involve inter-
governmental agreements, cooperation with Asian and American
business and commercial organizations, and some adjustment and
revision of existing American foreign trade policies and restrictions.
The exchange of persons programs under the Fulbright and other
acts offer successful models which might usefully be extended to
include business and commercial people.
15. General conclusions: How much the United States can afford
to invest in economic aid to south Asia is a matter for Congress to
decide, in the light of our own domestic needs, and our total world
commitments. Aid to these underdeveloped countries, which are
potentially strong Asian bastions of the free world, offers an un-
rivaled opportunity to use American technical and economic
resources in the interests of world peace and prosperity.
Success cannot be guaranteed; the population problem poses formid-
able economic difficulties, and some political dangers. But our aid,
and that of other economically advanced countries, is something new
in history. It represents a form of statesmanship which is essential
in the solution of the enormously complex problems of a world in
rapid transition.
The costs involved are considerable, but small compared with the
costs of war, or the loss of free south Asia to the Communist bloc.
I believe that American self-interest, as well as our responsibility
to the free world, require that the United States continue to aid in
the development of the south Asian countries to the limit of our
ability, in partnership with the countries concerned, and with the
long-range views advocated in the foregoing recommendations.
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
1473
II. GENERAL CONSIDERATION OF UNITED STATES AID IN SOUTH ASIA
AS A WHOLE
1. THE CASE FOR UNITED STATES AID TO SOUTH ASIA
(a) Importance of south Asia to the United States
The subcontinent of the Asian land mass which includes the coun-
tries of Afghanistan, Pakistan, India and Ceylon is now, and will be
in the future, of great concern to the United States and to the peace
and prosperity of the world.
Western civilization, dominant for several centuries, is being chal-
lenged by the rising Eastern nations determined to win full equality
of status. The challenge can result in a new balance of cooperation
among independent peoples; or it can split the world in a lethal con-
flict between East and West.
South Asia is a geographic and cultural bridge between the two
worlds.
Afghanistan and West Pakistan lie close to Russia, and form the
southeastern flank of the area known as the Middle East. India and
East Pakistan are bordered on the north and northeast by the Asian
area dominated by Communist China.
Pakistan is the largest Moslem country. India, with close to 400
million people, is the world's largest democracy.
Culturally, the south Asian countries have close ties with the West,
colored by ambivalent attitudes, derived from the long rule of Great
Britain. The official language is English. The rule of law, the civil
service, and parliamentary government are a valuable inheritance from
British rule. But the scars of a subordinate colonial status, and of
the struggle for independence during which many of the present
leaders spent years in British jails, are also apparent. Anything
which smacks of colonialism or imperialism, or of racial inequality,
is strongly resented and opposed.
In short, the countries of south_Asia_are potentially a source of
great strength to the free world. But they are currently an area of
dangerous weakness, by reason of their economic backwardness. Un-
less they can make rapid progress in building up their economic
strength, they may fall prey to internal or external Communist
influence.
(b) Goals and problems in the modernization of the economies of the
south Asian countries
The masses of the people in south Asia exist at a level which has to
be seen to be believed or understood by an American. The gap be-
tween their poverty and our affluence is as obvious to them as it is to
us; and the necessity for narrowing the gap is as important to us as it
is to them.
South Asian leaders are acutely aware of the necessity to increase
living standards rapidly and recognizably. But it is Operation Boot-
strap: the internal resources, both in skill and in capital, necessary
to get started are lacking. Heroic efforts will be required in educa-
tion to conquer illiteracy, as well as to train the technical personnel
for the staffing of government, education, agriculture, and industry.
Food production must be increased to attain even a reasonable standard
of nutrition, There is no possibility at present of raising adequate
1474
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
amounts of capital for immediate or long-term development out of
internal savings or export surpluses.
The urgency felt by leaders throughout south Asia is affected by
population pressure, and by the strength of the Communist bloc: can
productivity be raised fast enough to keep ahead of rising numbers?
Can it be done under the relatively slow conditions of democratic
decision?
(c) The case for United States aid
Under these circumstances, I believe the case for continued United
States aid is clear and compelling.
The wide discrepancy in living standards between the advanced
industrial countries and these underdeveloped areas is a basic cause of
world instability.
Prosperity in all parts of the closely linked modern world is in-
divisible. Peace is the prime requisite. The United States gains by
the existence of strong, healthy economies in other parts of the world,
as we have long recognized by our policies in relation to Europe.
We cannot afford to lose south Asia to the Soviet and Communist
China bloc. I was deeply impressed, throughout my travels, with the
intensity of nationalist feeling in each of these newly independent
countries, and the fervor of their aspirations for economic and social
progress. The great prestige of Communist China in south Asia
rests on the belief that China, another underdeveloped Asian country,
has made rapid and significant progress in realizing both these widely
shared aspirations.
They are aspirations with which Americans must feel a deep sym-
pathy. Our help in achieving them offers the best chance we have
of demonstrating the superiority of free institutions over the methods
of dictatorship.
American aid in the development of south Asia is equivalent to an
investment in democracy and peace.
2. OBJECTIVES OF UNITED STATES AID TO SOUTH ASIA
(a) General objectives
Neither in this country nor in south Asia are the objectives of
American aid always clearly understood. They need clarification,
if they are to win support among the American people, give an intel-
ligible basis for the policies of the legislative and executive branches
of our Government, and achieve the desired results in the recipient
countries.
I am convinced by my entire experience in south Asia that we need
to make our purposes clear, with a strong reemphasis on positive
goals. (As someone has suggested, the key word should be "attain-
ment" rather than "containment.")
Our positive purpose can be clearly and simply stated. It is to
safeguard the peace and prosperity of the free world, by helping to
build up strong, stable, independent governments, and economically
and socially progressing nations, in this strategic area.
(b) Separation of military from economic and “development” aid
The most damaging confusion I encountered results from a wide-
spread belief that our primary purpose is military defense. While
there may be compelling reasons for giving military aid, the im-
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
1475
plications of the mutual security idea are often misunderstood
and resented. We get no credit for aid which seems to have a purely
selfish purpose, or to threaten the integrity and independence of the
receiving nation. In India, particularly, armaments are thought to
increase the likelihood of war. Indians make much of their own
devotion to peace, but do not always recognize that ours is equally
intense.
Policy decisions concerning military aid and development aid are
of a different order. How much and what kind of military aid the
United States should extend to any country is a function of global
strategy, depending on world relations and alliances as they affect
the changing needs of national defense. Economic and technical aid,
it is true, is a factor in building military potential; but that is by
no means its sole or primary purpose.
Even if there were no cold war and no necessity for defensive alli-
ances, our interest in aiding these underdeveloped countries to move
closer to 20th century standards of health, welfare, and economic
progress would remain strong. Economic and technical aid is widely
approved, and its separate emphasis would enhance its effectiveness.
Its administrative divorce from the military aid program would have
a good effect on our relations with India and Ceylon, and help to
clarify our overall objectives in Pakistan and Afghanistan.
I recommend, therefore, that consideration be given to putting the
full responsibility for the military aid program under the Department
of Defense; and that technical and economic aid be separately admin-
istered under civilian agencies.
(c) Comments aimed at further clarification of the objectives of
United States technical and economic aid
It is not surprising to find that some confusion exists in respect to
the purposes of our aid programs. Both for the advanced and for
the underdeveloped countries the problems are new, and the road
ahead uncharted.
Our own policies represent a mixture of motives, some improvisa-
tions, and some brilliant innovations.
Our humanitarian tradition disposes us to save lives by providing
food for famine relief, and medical aid in the conquest of disease.
The American genius for and interest in putting knowledge to prac-
tical use disposes us to share our technical skills. We have sought
friends and allies under the threat of the cold war; and we have been
acutely aware of the appeal of communism among people who have
so little to lose, so little to hope for, under existing conditions of
poverty.
(d) "Impact" versus "anonymity"
The entry of Soviet Russia into the aid picture sets up a certain
rivalry, and some feeling of competition for credit. For example,
the Russians are conspicuously present in Afghanistan; one bumps
into them everywhere. They have paved some roads in Kabul, and
built an impressive grain elevator complete with mill and bakery.
Our aid to Afghanistan's educational system, while at least equally
important, is far less visible. Should we therefore go in more for
showy projects, clearly labeled as American?
I do not believe we should make this a primary consideration. The
impact projects can cut both ways, and do not always have the antici-
94413-57———————94
1476
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
pated effect. It was enlightening to me to hear Afghans express their
pride in having paved the roads themselves as indeed they did,
since they furnished all the labor. Local pride may be easily offended,
if foreign aid is too conspicuously labeled.
Moreover, any undue emphasis on impact could distort our aid
away from its true objective, which is to put economic and technical
assistance to maximum usefulness in projects which are most urgently
needed, or which have the greatest generative effect. If there is a
choice between such projects, impact would be a valid consideration.
Airlines, power stations, dams, and railroads are examples of sound
projects having a large impact; but many equally essential under-
takings will remain relatively invisible and anonymous.
One form of visibility does, however, seem to me to be worth stress-
ing: that is aid which reaches the people directly and recognizably.
The gap between the leaders and the underlying population is every-
where dangerously wide. In some areas, reform has not yet gone far,
and government is regarded with some hostility and suspicion,
from which we should strive to disassociate ourselves. American ac-
tion in other parts of Asia has sometimes suffered from identification
with the perpetuation of oppressive conditions. The Village AID and
community development programs, described briefly below, are excel-
lent examples of American-aided projects which have a most con-
structive impact on the people they reach.
(e) United Nations versus American aid
Several thoughtful observers with whom I talked went so far in
their preference for anonymity as to advocate the channeling of the
bulk of our aid through the United Nations. This, it was suggested,
would be more acceptable to national pride.
We ought perhaps to contribute more to United Nations programs,
which are doing excellent work, as are the private foundations. These
organizations can aid in some areas which the United States Govern-
ment cannot enter without incurring the risk of being misunderstood:
for example, aid in setting up governmental organizations, and in the
whole field of public administration. Soviet propaganda is always
ready to accuse the United States of trying to take over the govern-
ments of the countries receiving our aid.
But my own conviction is that direct American aid should continue
to receive main emphasis in our aid program to south Asia. The
matter of American support and understanding is important. I doubt
if it would be possible to win the continuing support of the American
people for increased contributions to the United Nations on a suffi-
ciently large scale to replace American aid. I see no good argument
for giving up control of our own programs.
Increased understanding between south Asia and the United States
is an important byproduct of aid which is frankly from one people to
another, and this outweighs the occasional frictions which are in-
evitable. I believe the United States is making valuable cultural as
well as economic contributions to south Asia; and the exchange of
persons between south Asian countries and America is of cultural
benefit to both peoples. My own observations convince me that the
long-run effect of American aid will be to strengthen the ties of friend-
ship and common purpose between two areas which, though alien to one
another for centuries, are now neighbors in a newly shrunken world,
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
1477
(f) "Fighting communism"
American preoccupation with the dangers of communism has led
to some concern about the avowedly socialist preferences of some
south Asian leaders, notably in India.
I do not believe that we should be unduly worried by socialism as
it is practiced in south Asia. Nor should we exaggerate the dangers
of their present relations with Communist countries. We can still
accomplish our aims without attempting to create states exactly in
our image. It is unreasonable to expect these underdeveloped coun-
tries to adopt American ideas or patterns of social organization in
entirety.
An inestimable asset, from the American point of view, is that all
the south Asian countries are committed to democratic, parliamentary
government. The internal danger of communism can best be met by
improving the standard of living and showing that economic progress
can be made as rapidly under democratic methods as under Communist
dictatorship.
Western capitalism is identified in the minds of many south Asians
with economic imperialism and a subordinate, raw-material produc-
ing colonial status for Asian peoples.
Many of the current Indian leaders were educated in British univer-
sities at a time when Fabian socialism was the dominant economic
creed. They believe in the welfare state and see state enterprise as
the quickest, most just and most practical way for them to achieve
economic progress; and indeed all these countries lack the personnel,
the experience, the capital, and the business and financial institutions
to embark extensively on free private enterprise. The masses of the
people have no understanding of or interest in free private enterprise,
nor the remotest chance of engaging in it. Even in Afghanistan,
Pakistan, and Ceylon, where the governments are doing all they can
to encourage private investment, and attract foreign investment capi-
tal, there is as yet no real alternative to government initiative.
It is, however, important to recognize that welfare-state, democratic
socialism is perhaps farther removed from communism than it is from
modern American capitalism. Close acquaintance with America, a
byproduct of our aid programs, is likely to discredit rather com-
pletely any lingering Marxist notions of the "misery of the prole-
tariat" under capitalism, and increase the appeal of free economic
institutions.
I heard again and again that the climate of opinion is changing,
even in India, and that the potential contribution of private enterprise
as a factor in development is being more generally valued. I am con-
vinced that successful development depends to a large extent upon
strengthening the so-called private sector, and I have made some sug-
gestions along this line in section 3 below.
(g) “Aid without strings”?
The fact that the United States aid program is designed to
strengthen south Asia as part of the free world does not mean, as some
critics suggest, that we are seeking to "buy friends."
There is no justification, in my opinion, for any aid program, any-
where in the world, which smacks of either patronage or appeasement,
or which attempts to use economic aid as a substitute for diplomacy.
This is certainly not the case in south Asia. We are cooperating
1478
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
with these countries in their own purposes, because our interests are
served by their economic and social progress.
Friends cannot, of course, be bought; but our aid will win friends
most surely if it is given "without strings"; that is to say, without
conditions in any way unacceptable to the pride or the purposes of
the recipient countries. We must respect the goals and values which
they set for themselves.
(h) Mutual respect based on mutual advantage
It remains my conviction that American self-interest, preferably,
of course, enlightened, is the only justification for the burden which
foreign aid places on the American taxpayer. Mutual advantage is,
moreover, the only healthy basis for relations of mutual respect be-
tween nations.
(i) Gifts or loans?
Giving is always a delicate operation, whether between individuals
or between nations. It can lead to destructive as well as to construc-
tive relationships and attitudes.
I believe that the emphasis of our economic aid should shift wher-
ever possible from a gift to a loan basis. Loans are less burdensome
for the American taxpayer, and more acceptable to the self-respect
of the south Asian countries. This point was repeatedly stressed by
south Asian leaders with whom I talked.
The economic reasons for preferring gifts to loans, and some of
the problems raised, are further discussed below.
(j) The need for economy
It is unnecessary to argue the need for economy and efficiency in
the operation of our aid programs on economic grounds. Here I want
to call attention to their psychological value.
While I believe we should be as generous as our means allow in
extending aid, whether in the form of gifts or loans, mutual respect
will be enhanced by a determined effort on our part to cut down
waste, and to insure that the maximum results are achieved for each
dollar expended. We cannot afford to waste dollars; it is damaging
to give the impression that we can.
The recommendations concerning administration below are made
with these considerations in mind.
(k) Aid to south Asia a long-range undertaking
Aid to south Asia is not comparable to a WPA project, affording
temporary relief in a temporary emergency. Nor is it like the Mar-
shall Plan, which helped put the industrial countries of Western
Europe on their feet after the disruption of their economics during
World War II.
It is a long-range program of cooperation in development plans
which will take many years to fulfill. The amount and kinds of aid
must at every stage be geared into the developing needs and absorp-
tive capacity of each country, changing and eventually tapering off
as their own resources grow.
(1) Specific objectives
The most urgent tasks to which our aid is being directed are those
dealing directly with health and welfare: increasing the food supply,
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
1479
improving nutrition, raising the standards of sanitation and public
health, and so on.
Industrial development is equally essential, in order to raise the
general level of productivity, employ the growing surplus of man-
power, provide tools, materials, and markets for improved agriculture,
and produce export goods with which to earn foreign exchange. The
kinds and extent of industrial development which are appropriate
vary from country to country. Indian industry is already compara-
tively advanced, and India has the resources essential to heavy industry
and considerable industrial growth. In Pakistan, Afghanistan, and
Ceylon such prerequisites to industrial development as power and
transportation are at present lacking, and mineral resources are defi-
cient. Heavy industry in these countries would appear to be out of the
question at present. Agricultural processing, pharmaceutical and light
chemical industries, and the manufacture of certain consumer goods
seem to be most appropriate.
Basic to the whole program is education: the conquest of illiteracy,
the education of a democratic electorate, and the training of govern-
ment personnel and technicians of all kinds.
3. THE AMOUNT AND FORMS OF AID
(a) How much aid can the United States afford?
The amount of aid which the United States can afford to extend
to south Asia cannot of course be determined by an examination of
this area alone. I shall not attempt to estimate it. Our aid policies
must be weighed against our domestic needs, our global commitments,
and the benefits which can be expected to accrue to the United States
by this, as against some other, form of expenditure. I would merely
point out that very large expenditures for the constructive purposes
of economic development are trifling compared to the costs of war
in lives, materials, destruction, and disorder.
The cost to us varies with the different forms of aid, and this matter
will be discussed below.
(b) The needs of south Asia: reasons for the economic underdevelop-
ment of the area
South Asia needs outside aid because it is so far behind the Western
countries in economic development. A brief examination of some of
the reasons for this may be useful.
The industrial revolution which transformed the economy of Eng-
land in the late 18th and early 19th centuries, spreading to Europe
and reaching its highest point of development in the United States,
bypassed south Asia, while affecting it in some respects disadvanta-
geously.
British rule developed India and Ceylon mainly as colonial econo-
mies. The prevailing doctrines of free trade and laissez-faire, though
held idealistically by many Englishmen, worked for the advantage of
English manufacture and commerce, but not for those of India.
Indian textile manufacture was strangled, handicraft industries de-
stroyed, and further Indian industrial development discouraged. The
care of the British rulers to preserve and respect social and religious
customs also had the effect of dampening progress. Most of the Brit-

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AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
ish personnel in India was drawn from a class which knew nothing
of business enterprise, and held it in low esteem.
At the same time, the application of public health measures stimu-
lated the growth of population, especially after 1921. This has aggra-
vated rural poverty and impeded agricultural progress. Competition
for land raised rents, and pressure for food production perpetuated
soil-depleting agricultural practices.
South Asia thus presents startling contrasts: it contains modern
airlines, but the buffalo cart remains the principal means of trans-
portation. It has penicillin plants, but villagers bathe in and drink
the stagnant water from ponds in which buffalo wallow, and live in
the most intimate relation to cow dung, which is used for fuel as well
as for fertilizer.
There is no reason, therefore, to think of the present state of social
and economic backwardness as something inherent in the situation,
and likely to be permanent. On the contrary, India, Pakistan, and
Ceylon are using their new independence to attack all these problems
vigorously.
(c) Some measures of need
The magnitude of the need for aid can be indicated by a few
statistical contrasts.
In 1953, gross per capita product in Ceylon was approximately $108,
in India $61, in Pakistan $46, and in the United States $2,286.
In 1954, the number of square yards of cotton cloth available for
per capita consumption (production plus imports minus exports) was
in Ceylon 11.9, in India 12.4, in Pakistan 7.5, and in the United States
65.5.
In 1954, per capita rail traffic in ton-miles was 79 for India, 38 for
Pakistan as against 2,632 for the United States.
Per capita steel consumption (production plus imports less exports)
affords some measure of industrialization. In 1953 it was 12 pounds
for Ceylon, 11 for India, 5 for Pakistan and 1,376 for the United
States.
In 1951, the rates of illiteracy were estimated as follows: Ceylon,
42 percent; India, 80 percent; Pakistan, 86 percent. The United States
illiteracy rate for 1952 was 2.5 percent.
The most telling measure of human need is the contrast in life
expectancy: children born in India in 1956 may expect to live on the
average 32 years. The American life expectancy is almost 70 years.
(d) Amount and kinds of aid needed
Evidently, the needs of south Asia are staggering, far beyond the
capacities of the United States or of all the advanced countries to-
gether to supply. The contrasts cited above cannot be quickly nar-
rowed, even by the most determined efforts of the south Asian coun-
tries. All that can be expected is significant progress.
The practical problem therefore resolves itself into this: In what
forms and amounts can our necessarily limited aid be most effectively
used with maximum benefit to the receiving countries, and with mini-
mum costs to the United States?
(e) Technical assistance

The most conspicuous shortage from which south Asia is suffering
is what we call in this country know-how. They have a superfluity of
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
1481
manpower, abundant natural resources, intelligence and determina-
tion. My own impression, shared by many other observers, is that
manual dexterity and interest in mechanical gadgets is of an unusually
high order: a blow-out will immediately conjure up a crowd of eager
and effective helpers in remote and apparently empty country. Ex-
tremely ingenious makeshifts are resorted to, when new parts are
needed for imported machinery. The fact remains that technical
knowledge and personnel are lacking in every one of the areas in which
south Asia is seeking to advance.
Technical aid, in all its forms, is our most powerful lever in helping
south Asian countries to help themselves. Americans are by nature
interested in getting things done, and are regarded in south Asia as
the people who know best how to do it.
Technical aid is the cheapest form of aid, and yields the highest
results per unit of effort and cost.
Technical aid is moreover highly acceptable to the governments and
peoples of the receiving countries.
The United States is at present furnishing technical experts to
help in program planning, in the detailed planning of particular
projects, and in the execution of projects. An attempt is made to
train "counterpart" technicians on every project; but it is not always
possible to do so, and at best American experts and technicians will be
needed for a long time to come.
I believe the United States should give the greatest possible support
to technical assistance to south Asia, with an emphasis on quality as
well as quantity.
(f) Problem: getting enough of the right kinds of people
On the whole, American personnel is of high quality. But we are
short of technicians ourselves. The pay and living conditions for
work in south Asia are not at present sufficiently attractive for the
long pull, though we have many dedicated people working at a
sacrifice. There is some danger, perhaps, that universities and other
participating organizations will "dump" their relatively incompetent
staff members on the foreign programs.
The cost of paying more for better people would be small, and would
yield high dividends. One $15,000 man would often be a better export
than three at $5,000.
More consideration should also be given to sending out first-class
men and women who might be available only for short periods, but
who could contribute a great deal in a visit of 2 or 3 months.
(g) Direct grants of surplus agricultural products under Public
Law 480
Another "natural" for United States aid is in famine relief, and the
improvement of nutrition. Our agricultural problem is one of abund-
ance; we produce more than can be sold at a profit. The agricultural
problem of south Asia is one of chronic shortage of basic foods,
aggravated at times of flood, crop failure and other natural disasters
to the point of famine.
Therefore, our aid under Public Law 480 should be continued. It
is obviously justified on humanitarian grounds. It yields counterpart
funds through the local sale of the products, which are used to meet
part of the costs of our technical assistance programs. It adds little
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AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
(if anything) to the costs of existing price-support programs of the
Department of Agriculture.
I would, however, question the wisdom of allocating these counter-
part funds to the military aid program, which is currently being done
in Pakistan. This practice lends color to the belief that all our aid
programs are motivated by military and defense purposes.
Difficulties have been encountered with regard to the proper storage,
distribution and sale of the food materials provided. In some areas,
the traditional preferences of the people for certain kinds of food, for
example, rice rather than wheat, or some special type of wheat rather
than another, have created problems. The American officials con-
cerned have made great progress in dealing with these and other
related problems. Others remain to be solved. I talked with one
harassed East Pakistan food official who had been unable to get con-
sideration for storage difficulties which had led to the wastage of some
much needed foodstuffs.
(h) Materials, equipment and capital
Technical assistance itself gives rise to certain direct needs for
materials and equipment. Examples are teaching and demonstration
materials, laboratory equipment, fertilizers, agricultural machinery
and medical supplies. The total expenditure required is relatively
small, and it is essential.
The provision of large-scale capital equipment and funds to finance
industrial development is a different problem, of much greater
magnitude.
The United States has given some assistance in enterprises which are
basic to any subsequent development of the economy. Examples are
river development programs for flood control, irrigation, and hydro-
electric power; port development, railway and road construction; the
development of such mineral resources as coal, iron, bauxite, lignite,
petroleum, and natural gas. We have also assisted in the building of
factories for the production of fertilizers, chemicals, textiles, agricul-
tural machinery, and some consumer goods.
Our assistance in these capital development programs has been con-
siderable, but it is small in relation to their total size. India's program
will illustrate this point.
During India's first 5-year plan, the Indian Government expended
a total of approximately $4,345 million for all purposes, about 60 per-
cent being for capital investment.
India estimates the total need for outside assistance from all sources
and for all purposes to complete the second 5-year plan at $1.6 billion.
The requirements of Afghanistan, Pakistan, and Ceylon are smaller,
but the total needs of south Asia for outside capital during the next
few years, and until such time as the economies have developed to the
level where internal savings plus export surpluses make them self-
sufficient, are obviously very large.
(i) The case for loans
It seems quite impractical for the developed countries to provide
capital on such a scale except through loans. I have already men-
tioned the psychological arguments in favor of loans rather than
gifts; the economic arguments are equally compelling.
Every advanced industrial country, except Great Britain, has relied
on foreign capital in the early stages of industrial growth. Great
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
1483
Britain was able to start the whole process with capital accumulated
from foreign trade to which the Indian trade contributed heavily.
Our own development was financed in part by British capital (not
all of it paid back), and we were a debtor nation until after World
War I. The export of capital from advanced to underdeveloped
areas has been an indispensable factor in world economic development.
However, profound changes in world economy, and especially the
existence of the Communist bloc of countries, has created entirely new
problems. Russia and China have achieved their own economic devel-
opment, largely without benefit of outside capital, at the expense of
severe human suffering forced on their people by dictatorial govern-
ments. Nineteenth century export of private capital is labeled by
Marxist theory as economic imperialism. It is suspect in south Asia.
If we are to participate in the south Asian development plans, as
I believe we must, the bulk of the capital furnished will necessarily be
in the form of intergovernmental loans. I found unanimous opinion
among south Asian leaders favoring long-term loans as the soundest
way of meeting their capital needs.
American participation in loans to south Asia will require exten-
sive study, policy determination, and intergovernmental agreements
covering such matters as interest rates, methods of determining eligibil-
ity, and possibly the establishment of some new form of lending
institution.
More basic than these is the question of how interest and amortiza-
tion charges on loans can be met, and how the loans can be repaid
in the long run. This is ultimately a matter of achieving a sufficient
export balance in the debtor countries to provide the necessary foreign
exchange. Assuming continued and successful economic development,
this should not be too difficult in the cases of India and Ceylon.
Afghanistan and Pakistan have a more serious problem in developing
their economies to provide any export surplus. Acceptance of some
payments in the local currencies would be a possible means of post-
poning the problem; and profitable reinvestment of such funds in local
industry would contribute to the development of the economies, and
thus to their eventual ability to repay the loans.
The United States must, however, give consideration to necessary
adjustments in its foreign trade policies, if ultimate repayment is to
be possible. This is true whether loans are made to governments by
governments, or whether they represent private investment. The
continued prosperity of the United States will depend upon the extent
to which the volume of international trade can be increased; but trade,
of course, implies the willingness to receive imports as well as to send
out exports. Foreign investment as a whole has contributed enor-
mously to world economic development, in spite of the losses which
have occurred. Investment in south Asia is not without risk, but the
benefits to the world economy promise to be great.
(j) The role of private enterprise
For a number of reasons which I have mentioned above, public
enterprise is dominant in south Asia. The "private sector" gets rela-
tively little encouragement in India, and is not yet well developed in
the other countries which are attempting to encourage private
enterprise.
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AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
While we must continue to work with governments and recognize
their right to determine their own forms of social and economic
organization, I believe there is scope for more programs which would,
directly or indirectly, stimulate domestic business enterprise, and
afford a more favorable field for American and other foreign private
investment.
As leadership changes, and as these countries develop economically,
it seems likely that the contribution which private enterprise could
make will be more widely recognized.
The private sector is as much in need of technical assistance as the
public sector. Since most of our programs are in aid of government
enterprises, we are doing relatively little for the private sector.
An excellent program is being conducted in India by the Ford
Foundation, for the development of an industrial extension service in
the small business field. The Ford Foundation is working with a
Government agency which provides services and technical informa-
tion to small business, much in the manner of the United States De-
partment of Commerce. Other governmental agencies, like India's
Industrial Credit Investment Corporation, created with the support
of the International Bank, combining foreign and domestic capital
both public and private, afford some stimulus to private enterprise.
I believe it is in our interest, as I am certain it is in the interest of
south Asia, to develop the private sector as a field for domestic and
foreign investment.
This will require cooperation between American governmental and
business agencies. It will also require the formulation of policies and
intergovernmental agreements on such questions as the negotiation
of treaties covering guaranties against expropriation, double taxation,
and repatriation of profits.
Consideration should also be given to offering such inducements to
American investors as 5-year tax relief, investment insurance, and fa-
cilitation of the exchange of persons for business purposes. Other
countries are currently doing more of this sort of thing than we are.
A more fundamental problem relating not only to south Asia, but
to world trade as a whole, is the reconsideration of existing trade
barriers and restrictions.
4. COMMENTS ON SOME PARTICULAR AID PROGRAMS
I shall make no attempt to give an exhaustive description of all of
our aid programs. Here I offer comments on some which seemed to
me peculiarly significant and successful, or which presented interest-
ing and typical problems.
(a) Village "AID" and community development programs
One of the most striking and inspiring impressions I gained was of
the progress being made in the villages of India and Pakistan. These
villages contain some 85 percent of south Asia's millions.
These people have lived passively from time immemorial under
primitive, tradition-dominated conditions of poverty, in which the
only change seems to have been a slow deterioration as the pressure
of numbers on the land increased.
Government programs, called in Pakistan Village AID (agricul-
tural-industrial development) and in India community development,
are waking the villages to new hope, new life, and new initia-
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
1485
tive. Village leaders trained in agricultural, public health, and
home-science techniques, with the aid of American colleges and
universities, teach elementary sanitation, nutrition, and improved
methods of cultivation. The receptivity of the people is astonishing
and encouraging. Old men are learning to read; boys and girls
are engaging in the equivalent of our 4-H Club projects. My im-
pression is that the improbable jump from the remote past into
the 20th century may be largely successful.
Our aid will be needed for some years to come. An optimistic esti-
mate puts the time required to train enough village workers adequately
to staff all India's villages at 10 years.
The American universities aiding in these programs are doing an
excellent job. In bringing technical knowledge to the people who are
to use it, the experience of university staff members on American
farms and in industry seems to be readily transferable to the very
different conditions of south Asian life. These men and women are
used to dealing with people as they are, adapting techniques and
teaching methods so that they can be readily absorbed and applied.
(b) Education
Throughout south Asia, there is an all-out effort to get the children
into schools (target for India: 60 percent in elementary schools by
1961, and all in school at the end of the third 5-year plan); to in-
crease the numbers in secondary schools and colleges; and to effect
drastic reforms in educational methods and content at the secondary
and university levels.
At one end of the scale is the problem of widespread illiteracy.
At the other end is inappropriate university education inherited
from the British. This "prestige" education, reinforced by caste
prejudice, was presumably effective in training government clerks
and lawyers under British rule. But the product is not what south
Asia needs today. Too often, he is an intellectual gymnast, a verbal
virtuoso, unable or unwilling to work with his hands, unable to find
a suitable job. Such people form a small intellectual proletariat.
(I heard it said that Madras has "the lowest rate of illiteracy, the high-
est proportion of university graduates, and the largest number of
Communists" in all India.)
In between these two extremes, there is a vast shortage of teachers,
technicians, and researchers of all kinds. These problems are recog-
nized everywhere, and are being tackled with enthusiasm, hard work,
and devotion.
The receptivity for any aid we can give is almost unlimited. The
appeal of the American educational system, especially the land-grant
colleges and State universities, with their varied practical programs,
research and extension, and their close relationship with the constit-
uencies they serve, is very strong. We have here an unrivaled op-
portunity to influence south Asian development.
I am acutely aware, as the south Asians are not, that their receptiv-
ity is greater than our capacity to provide aid, in view of our own
educational shortages. One Pakistani official tried to persuade me
that we ought to build and equip a complete land-grant college, as a
demonstration. My own problems in getting adequate facilities for
the young people of New Jersey made me a poor audience for the plea,
valid as it may be. I even found myself envying the universal en-

1486
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
thusiasm for education, and the recognition of its crucial importance.
In spite of these personal misgivings, I recommend the continuance
and strengthening of our technical educational aid in teacher train-
ing, in lending personnel, in helping set up specialized research and
teaching programs, and in providing the most essential laboratory
and other educational equipment in strategically chosen spots.
Bringing Asian students to American universities for special train-
ing is also valuable, though it presents certain problems. Some stu-
dents are not mature enough to absorb the shock of the different en-
vironment; others like it so well that they do not want to go back.
Education of south Asians in America should be thought of as a
supplementary expedient. Far more important is aid in building
schools, colleges, and universities as closely related to their local
"constituencies" as are our State universities to ours.
鑫
​American educational personnel are among our most effective am-
bassadors. The academic community is the nearest thing we have to
a true "international community." I have already commented on the
success of our agricultural and extension specialists in communicating
with the people.
Americans working in south Asia under the several exchange of
persons programs also make excellent cultural ambassadors. Many
people commented appreciatively on the high quality of the Fulbright
fellows, or on the work of particular individuals. On their return,
they will bring back valuable understanding of the countries in which
they have lived.
It is clearly in our interest to be as generous as we can in sending
good people to south Asia to aid in all aspects of educational advance.
Though friendship cannot be "bought," it can be won, and the spread
of American educational influence may be the determining factor in
the future political alinement of the south Asian countries.
(c) The University-International Cooperation Administration con-
tracts
Some serious defects in the present contract arrangements between
the International Cooperation Administration and the participating
colleges and universities are so acute as to threaten the breakdown of
the entire program. Several universities have already withdrawn;
more will do so if the situation is not remedied.
The colleges find it almost impossible to operate under the admin-
istrative frustrations they encounter. Projects initiated and agreed
on in an atmosphere of urgency and enthusiasm bog down in endless
delays, disgust, and discouragement.
The original contracts were fairly general, and worked reasonably
well. As the program has grown, there has been an increasing tendency
to write into the contracts a great many details, exceptions to which
must be approved by the International Cooperation Administration.
When lawyers, accountants, and security people have to pass separately
on contract details, often with an excess of zeal and caution, and when
overall authority to look after the program as a whole is lacking, things
have gotten into pretty bad shape. The International Cooperation
Administration lacks the staff to pass on changes in any of the hun-
dreds of details which the colleges find won't work. Thus a college
asks for an exception to the salary contract in order to get a good man.
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
1487
Letters and telegrams go unanswered, and meanwhile the job remains
unfilled, or the man is gone.
For an analysis of this problem, and proposals for remedying it,
I refer the Special Committee to Study the Foreign Aid Program
to the report of the committee on foreign technical cooperation of the
American Association of Land-Grant Colleges and State Universities,
dated November 12, 1956.
(d) Medicine and public health
The average life expectancy in India is estimated at 32 years. Some
6 million people die annually from insect-borne and filth-generated
infectious diseases such as plague, smallpox, cholera, malaria, and
many others, for which preventive measures are well known.
Under these conditions, any improvement in sanitation, or the ap-
plication of well-known public health measures including immuniza-
tion, can produce dramatically successful results. Significant prog-
ress is being made, through United States Government aid, the
World Health Organization, the foundations, and the missionary
groups.
The backwardness of south Asia in sanitation is inconceivable by
American standards. But even the most ignorant villager is as eager
as any of us to save his own and his children's lives, once he is taught
how. The Village AID and community development programs are be-
ginning to teach him the importance of such elementary things as the
value of an uncontaminated water supply. Villagers accustomed to
drinking stagnant water in which cattle as well as people wallow are
proud of their new wells.
Disease control at higher levels is also making progress. I cite only
the malaria control program, which poses an interesting problem.
Endemic malaria exacts a heavy toll in death and reduced efficiency.
The present control program attacks the malaria-carrying mosquitoes.
The people in charge are convinced that, through mass immunization
to eliminate the human link in the malaria chain of infection, an eradi-
cation program rather than a control program would be effective. This
would require increased expenditures for the next few years, after
which the problem would be licked, and most of the costs of further
control eliminated. It seems evident that we should afford the neces-
sary increased funds for this project.
(e) The population problem
Saving lives is a basic human value. We must continue to aid south
Asia in the conquest of communicable disease. The stubborn fact
remains that, as long as birthrates remain at their present high level,
any rapid reduction in the death rate from these causes increases the
potential toll of starvation and malnutrition.
Several highly placed officials frankly expressed their belief that
medical and public health measures should be slowed down until more
progress has been made in increasing the food supply.
But under prevailing conditions of widespread malnutrition, in-
creasing the food supply is itself a public health measure, and the re-
sulting growth of population threatens to swallow up all gains.
For this reason, education in family limitation is being carried on,
especially in India. This, too, is a public health measure. It is directed
at raising the standards of health and welfare toward the levels of
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AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
the advanced countries, where low birthrates as well as low death rates
prevail.
(f) Military aid to Pakistan
Of the south Asian countries I visited, only Pakistan is receiving
American military aid.
I have already noted the desirability of separating military aid from
aid in economic development. It would be inappropriate in a report
of this kind to attempt a detailed discussion of our military aid pro-
gram. I shall therefore present only some observations and comments
which may be of general interest.
Issues created in other countries.-Military aid to Pakistan creates
issues in other countries, particularly in India.
Feeling between the two countries is affected by the long Hindu-
Moslem strife, by the violence attending partition, and by the unsettled
Kashmir dispute.
India's neutralism and pacifism are other factors. Indian statesmen
express an aversion to armaments and military alliances as more likely
to lead to war than to peace. They claim that their own defense budget,
a drain on scarce resources, has to remain high because of the American
military aid to Pakistan.
However, I do not believe that these considerations should affect the
continuance of our military aid to Pakistan, to which we are in any
case committed. Whatever damage has been done to our relations with
India is water over the dam. Much more damage would be done by
terminating our agreements with Pakistan. Nor does it seem to me
that any of Pakistan's neighbors need to feel threatened by our mili-
tary aid. Certainly our purpose is to build defensive strength, and we
ought perhaps to make this fact more clear. In view of the impossi-
bility of defending East Pakistan, and the relative size and strength
of the two countries, India would appear to have little real cause for
alarm.
Positive reasons for military aid to Pakistan.-First, West Pakistan
is of great strategic importance in the defense of south Asia. It lies
across the historic invasion route through the Khyber Pass.
Second, the presence of nomadic and warlike tribes in the mountain
regions bordering Pakistan and Afghanistan has always created a
problem of keeping order, requiring military strength.
Third, Pakistan is a link between the Middle East and Asia, being
part of both these regions.
Fourth, Pakistan is the largest and strongest Moslem country, with
potentialities for constructive leadership.
Fifth, Pakistan is friendly toward the West, opposed to interna-
tional communism, and has assumed military obligations under the
Baghdad pact and SEATO.
Sixth, West Pakistan has a long military tradition, going back
from father to son for centuries. I was struck by the excellence of
the military personnel, and their enthusiasm for the military life.
Under these conditions, aid in building a strong defensive army is
an important factor in building national pride and self-confidence.
The Pakistani seemed to me to be admirable potential allies.
Some problems and difficulties in the military aid program.-There
were thus good reasons for embarking on a program of military aid
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
1489
to Pakistan. We are obligated to continue this aid, and to live up
fully to our commitments.
So far, we have not done so. There have been many delays and
disappointments, and consequent misunderstandings.
The main trouble seems to be in the vagueness of the original aide
memoire, and the apparently somewhat casual way in which this im-
portant program was launched. Whatever the merits or the faults
of that procedure, the need now is to make our commitments clear,
and then to fulfill them promptly.
The purpose of American military aid to Pakistan is to build
up a reasonable level of defensive strength. On the other hand,
the ambition of some of the military leaders is to make the country
into "a bristling bastion for the defense of the Near East and all south
Asia." A prevailing view was expressed as follows: Pakistan made
a great decision to support the free world unequivocally, at a time
when America was looking for allies. This was done at the risk of
angering some of Pakistan's neighbors. Therefore, having made
an alliance for the purpose of massing military strength to forestall
any Communist offensive, it is incumbent upon the United States to
arm Pakistan on a massive scale.
In spite of some tensions arising from the disparity between our
relatively modest defensive goals and the ambitions of some Pakistani
military men, in spite of the delays in the delivery of promised mate-
rials, working relations between our military staff and the Pakistan
army are excellent. Our military and diplomatic people are doing
a commendable job in resolving difficulties, and in bringing the pur-
poses of the two countries into closer harmony.
How far we should go in providing and maintaining a military
establishment in Pakistan above the economic capacity of the country
to support; what kinds and amounts of aid should be given; for
what period of time-all these are questions calling for top-level
policy decisions, as well as for continuing review.
5. ADMINISTRATION
Perfectly smooth planning and execution of an aid program of such
scope and magnitude as we are undertaking in south Asia is not to
be expected. One could comment on many excellencies and efficiencies,
but certain criticisms frequently voiced point to measures which could
and should be taken in the interests of economy and efficiency.
I have already mentioned the need to revise the ICA-university
contracts. Other measures recommended are the following:
(a) More precise definition of aid undertakings
There are some unfortunate examples of hastily adopted or ill-con-
ceived projects.
There is a related tendency toward the proliferation or mushroom-
ing of programs. While the resulting work is often good, it is not
always selected as the best and most productive use of limited resources
in relation to any overall plan.
Administrative machinery is therefore needed which will define
more precisely the types of programs in which the United States will
engage, and afford objective criteria for the adoption, continuation,
expansion, or downscaling of projects. Priority should be given to
those having the greatest generative effect per dollar expended.
1490
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
(b) Longer range planning and commitments
The development plans of most countries are on a 5-year basis.
United States aid programs are based on annual appropriations.
Some unnecessary costs and lowered efficiency result from the prac-
tice of prolonged and continuing negotiation for each separate proj-
ect. Longer commitments, guided by the more precise criteria sug-
gested above, would increase the economic-and the psychological-
effectiveness of our aid. Moreover, the advance assurance of our as-
sistance over a period of several years would make for sounder
planning.
(c) Decentralization of detail to regional or country directors
While some frustrations experienced by American personnel origi-
nate in the local participating governmental agencies, some originate
in Washington. There are delays in getting projects approved, de-
lays in getting approved projects under way, failure to provide prom-
ised materials, or refusal to send the kinds of materials asked for by
the people on the spot. There are also some unfortunate cases where
unsuitable individuals have been sent out for whom no one had asked.
This practice should be stopped.
Decentralization of the detailed planning and execution of ap-
proved programs would go far to remedy these always costly diffi-
culties.
(d) Regional development
American aid is at present given to each country as a separate unit.
But in many cases the economic progress of several countries together
hinges on development programs which extend beyond the boundaries
of a single state.
Aid on a regional basis could not only stimulate programs of this
regional kind; it could also be used to help in the settlement of polit-
ical controversies between neighboring states.
For example, both Pakistan and India have an interest in the waters
of the Indus Basin. Of the 5 rivers flowing into west Pakistan, 3
pass through India. Both countries are engaged in some develop-
ment programs involving hydroelectric power and irrigation. Polit-
ically, the Indus Basin is a source of controversy between them; eco-
nomically, both would benefit by a concerted plan of development
undertaken with outside assistance. (The problem of the interstate
use of water resources in our own Western States should give us some
sympathy with the difficulties involved in reaching agreement.)
A similar need for joint action exists between east Pakistan and
India in the Brahmaputra-Ganges Delta area.
Afghanistan is land-locked and needs an outlet to the sea. Eco-
nomically, a transportation outlet through Pakistan with facilities
at the port of Karachi and a transit agreement would benefit both
countries. Politically, it would tend to orient Afghanistan toward
the democracies of south Asia. A similar case exists for transporta-
tion facilities linking Nepal with India.
It would therefore seem highly desirable for the United States to
strive, through diplomacy backed by economic aid, to encourage the
undertaking of projects which no country can undertake alone, but
which will benefit the whole region.
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
1491
6. PROBLEMS AND PROSPECTS
The United States is making a large investment in south Asia. It
is
my
belief that we should make an even larger one, by continuing
our present technical and economic aid, and working out long-range
loan agreements which will help meet the capital deficit in the coming
years.
The cost is justified if we succeed in our purpose: the strengthening
of the free world and the peace.
But success cannot be guaranteed in this or any other complex
human undertaking. It will require an extraordinary amount of
wisdom and steadfastness of purpose on both sides. Economically and
politically there are formidable difficulties to be overcome.
South Asia embarks upon its industrialization program handi-
capped by an extremely unfavorable land-man ratio. There is general
agreement among economists that overpopulation has been a depres-
sive factor in Indian development.
The problem is widely recognized by south Asian leaders. Eco-
nomic and social advance is seen as a race between rates of improve-
ment in productivity and rates of population growth. Unless indus-
trialization can make rapid progress, the only achievement which can
be foreseen is more poor people, not better-off people. At best, the
rise in living standards will be less than it would be if population
pressure were less intense.
Disappointed hopes might lead to disastrous political consequences.
The wide social gap between the leaders and the masses of the people,
and the great diversity of languages and cultures within each coun-
try, aggravate the internal political problem.
At present, the south Asian countries earnestly desire peace. Rising
population pressure may affect this attitude adversely.
Industrialization in other areas has been associated with an explo-
sive increase in numbers, as improved living standards cut down death
rates, while birthrates remained high. The 19th century saw a spec-
tacular increase in numbers in Western Europe and America. The
North American Continent was filled up with people of European
stock. There are few empty spaces available for the expansion of the
south Asian peoples.
The danger of war is probably greatest when a country has reached
the stage of industrial development which makes modern war possible,
but which still leaves the people much worse off than people in other
countries. Thus historically aggressive behavior has characterized
nations which started late on the process of industrialization, expe-
riencing rapid population growth after the easily accessible spaces and
resources had been taken up. Germany, Italy, and Japan are cases
in point.
The early-developing countries achieved a new population balance,
at a high standard of living, as such influences as urban conditions
brought birthrates down near to the level of the lowered death rates.
The process has taken several generations, during which the rise in
numbers was steep. Whether the adjustment of birthrates can be
speeded upon remains to be seen; education for family limitation has
not before been tried on a peasant population.
94413—57——————95
1492
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
On the positive side, one cannot fail to be inspired by the vitality,
the intelligent and devoted leadership, the willingness to work and
the determination to succeed which one finds everywhere.
The Indian elections held in 1952 were an adventure in democracy
which Americans must applaud. Over 160 million people, most of
them illiterate, went to the polls in an orderly fashion, and exercised
a free choice among candidates of rival parties.
The economic and social progress already made is impressive. More
has been accomplished than could have been reasonably predicted 10
years ago.
Moreover, the aid being extended by the United States and other
advanced countries to the underdeveloped regions is something new
in human history. It offers the hope that statesmanship will prove
equal to the enormously difficult problems which the 20th century poses,
and that we shall develop enough wisdom to solve them without the
wars and revolutions which have been the tragic accompaniments of
world change in the past.
Therefore, I believe we have no alternative but to assume the risks
involved, and to work with all the generosity, patience and wisdom
we can muster to promote the transition of south Asia to a new and
more productive economy. It is an unavoidable responsibility of
free world leadership which the United States must recognize.
III. COMMENTS ON THE SEVERAL COUNTRIES: AFGHANISTAN, PAKISTAN,
INDIA, AND CEYLON
1. AFGHANISTAN
In considering United States aid to Afghanistan, it must be recog
nized that the danger of Soviet domination is greater here than in
the other three countries of south Asia. Afghanistan shares with the
Soviet Union a common border extending for 1,458 miles; another
border separates it from Communist China.
Landlocked, Afghanistan has been both a buffer state and an inva-
sion route between India and the countries to the north and west.
During the last century it maintained its independence sandwiched
between the southward expansion of the Russian empire and the
northwestern expansion of the British from India.
In its economic offensive, the Soviet Union has made a target of
Afghanistan. Soviet approaches are difficult to resist, for a small
border country which has great need for outside assistance. The Soviet
long-term loan of $100 million made in December 1955 followed a
long series of lesser Soviet aid projects. The U. S. S. R. has paved
the streets of Kabul, provided the city with a fleet of buses and taxi-
cabs, and almost completed a large grain elevator and modern bakery.
These are impact projects; but it may be that their impact is greater
in creating nervousness in the West than in winning the people of
Afghanistan into the Soviet orbit. My impression is that their geo-
graphical position has made the Afghans skillful bargainers. The
blockade imposed by Pakistan during 1955 resulted in a great increase
in Soviet-Afghan trade. But it seems likely that a firmer orientation
to the south and west would result from improved transportation
facilities and trade agreements, giving Afghanistan a good outlet to
the sea.
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
1493
Afghanistan is fiercely independent, and determined to remain so.
The Moslem religion is incompatible with communism. To the extent
that Afghans have had close contact with the outside world—and this
applies only to a thin upper stratum—that contact has been mainly
with the western democracies.
While it seems to me unwise to allow competition with the Soviet
Union to govern our aid policies in Afghanistan, I believe it is in the
American interest to help strengthen the economy of the country and
promote trade relations between Afghanistan and the non-Communist
world, thus strengthening its independence.
In my conversations with the ministers and permanent secretaries
of the Royal Government of Afghanistan, I was impressed by the
determination of the Government to achieve progress. The drive
for betterment which has swept the less developed areas of the world
is expressed in Afghanistan in a succession of 5-year plans, directed
at building roads and improving communication, bringing new lands
into cultivation, constructing irrigation and hydroelectric power proj-
ects, and extending education.
The prospects of rapid development are, however, remote. Most
of the people are engaged in agriculture, but there is a large nomadic
population. Very few persons are engaged in business or the pro-
fessions. Industry is rudimentary, supplying a few simple consumer
goods. The rest must be imported, paid for largely by exports of
fruit and karakul. The terrain, the climate, and the sparsity of popu-
lation make road maintenance a difficult and a costly burden. So far
as is known, mineral resources are insufficient to support the develop-
ment of heavy industry. Coal is not plentiful. The hydroelectric
power potential is enormous, but its development requires very large
capital outlays. Several power development projects are in progress.
(a) The Helmand Valley project
The largest project in which the United States aid program is
engaged is the development of the Helmand Valley for purposes of
irrigation, flood control, hydroelectric power, and resettlement.
Contrary to widespread impressions, this project was initiated, not
by the United States, but by the Afghan Government in 1946. Al-
though an American engineering company undertook the original
contract, the United States Government did not come into the pic-
ture until several years later as a result of Export-Import Bank loans
amounting to $39 million made in 1950 and 1954 for the completion
of dams and irrigation canals.
Much has been made, in exaggerated press accounts, of the short-
comings of the Helmand Valley project. There is no doubt that
serious mistakes were made in the original planning. Adequate agri-
cultural surveys were not made; salinity and drainage problems were
not foreseen. (Some of our American multipurpose river develop-
ment projects have been known to suffer from similar failures to
coordinate engineering and agricultural planning.) Mistakes and
failures have also occurred in some plans for resettlement of nomads.
Nevertheless, the Helmand Valley is of immense importance to
Afghanistan, and real progress is being made, with the help of Ameri-
can technicians. The Kajakai and Arghandab Dams and some 200
miles of main canals, lateral canals, and drainage works have been
completed. Another 100 miles of canals are under construction. When
finally completed, the system will irrigate approximately 750,000 acres
1494
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
of land now under cultivation and about 200,000 acres of reclaimed
land. Factories, villages, and towns are planned for the valley, to
be supplied by its hydroelectric powerplants, which will also furnish
electricity to the city of Kandahar.
Our technical assistance has included aid in the operation and
maintenance of the canal system; the training of Afghan personnel;
the collection of hydrological data and the training of personnel in
this field; assistance in resettlement and community development
programs in the valley; technical advice to the Helmand Valley Au-
thority in the administration and management of the program; assist-
ance in agriculture, public health, sanitation, and education.
(b) Transportation
A second major area in which the United States is extending aid is
in the development of transportation and communications.
The extension and improvement of main highways and feeder roads
within the country is basic to further economic progress. The United
States is providing a road maintenance unit, which trains personnel
and supplies heavy equipment. (The U. S. S. R. has contributed
heavy equipment for roadbuilding and tarring, and a tar factory
in Kabul.)
Passenger cars and trucks have been supplied by the United States
(and by the U. S. S. R.).
Air transportation is another important area of United States aid.
The United States has agreed, over a 3-year period, to grant $14.5
million (of which $5 million is in the form of a loan) for the develop-
ment of an airways system. The United States will provide modern
pressurized aircraft to Aryana, the Afghan airline; assist in the con-
struction of an international airport at Kandahar and domestic air-
ports throughout Afghanistan; and provide management, operation,
and training aid. Pan American Airways is participating in the
program, and reportedly will invest some $200,000 in Aryana airlines.
Negotiations for United States aid in the development of rail and
highway links between Afghanistan and Pakistan are now in progress.
This would seem to me a project which the United States should do
its utmost to encourage and support. Good transportation facilities,
combining highways and railroads, giving Afghanistan access to
Pakistan markets, and an outlet to the sea through the port of Karachi,
would immeasurably benefit the economy of Afghanistan, and in-
crease its orientation toward the free world. It is my impression that
the present negotiations have already lessened the tension between
Pakistan and Afghanistan which led to the unfortunate closing of the
border in 1955-56.
(c) Education
A third important area of United States aid, perhaps the most
important in the long run, is education.
At present, schools of all kinds are lacking for most of the popula-
tion. Only about 5 percent of the boys, and less than 1 percent of the
girls of primary school age attend school. There are only about 9,000
students in secondary, technical, and teacher-training schools, and
about 700 students in the University of Kabul. The rate of illiteracy
exceeds 90 percent.
The United States has assisted the Ministry of Education in a
number of ways.
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
1495
An institute of education has been set up under a contract with
Teachers College of Columbia University, and is undertaking an
intensive program of training for school administrators and teachers.
A special feature is the establishment of an English-language pro-
gram. The decision of the Government of Afghanistan to adopt
English as the preferred second language is favorable to our future
relations with the country.
Through another contract, with the University of Wyoming, the
United States is helping the Afghan Institute of Technology, dealing
with the expansion of technical education at the high school level.
Particular concerns of this institute are the training of technicians
for the Helmand Valley operation, and preparing students for the
newly established faculty of agriculture and engineering of the Uni-
versity of Kabul. The University of Wyoming is also assisting the
faculty of agriculture and engineering in the establishment of voca
tional agriculture departments in provincial high schools.
Kabul University is receiving United States technical assistance in
organization and administration, and an adviser has been made avail-
ble to the dean of the medical faculty. This help is much appreciated.
The president of the University of Kabul has further requested that
an American educator of broad experience in university administra-
tion be sent to advise him on the development of a sound, long-range
program. Here is an example of ways in which highly qualified peo-
ple might be used effectively for relatively short periods of service to
influence the development of a whole country.
I was most favorably impressed with the drive for educational im-
provement among Afghan education and other government officials.
From 1952 through 1956 the United States spent a total of $2,410,000
for educational projects in Afghanistan. I believe this expenditure
will pay good dividends for the United States as well as for Afghan-
istan.
(d) The United States aid program in general
During the period from fiscal year 1952 through 1956, actual United
States expenditures for assistance programs in Afghanistan amounted
to $4,764,607. The estimated expenditure for fiscal year 1957 is $9
million.
It is my impression that our programs are well administered, and
that the general emphasis is sound. Morale among the American per-
sonnel is high, and relationships with the Afghan officials appear to
be cordial. The inability to make long-term commitments is a handi-
cap to American aid programs, here as in other parts of South Asia.
To date, only a small proportion of our assistance has been in the
form of commodity grants, the emphasis, I believe a desirable one,
being on technical aid.
(e) Encouragement of private enterprise
The Government of Afghanistan is making a determined effort to
stimulate private business and industry within the country and to
attract foreign investment capital. Thus, the foreign investment law
enacted in 1954-55 provides equal treatment for foreign and Afghan
investors, permitting foreign investors to transfer profits at the pre-
vailing rates of exchange. Applications totaling $2 million have been
received from Japanese, Czechoslovak, German, Italian, and Austrian
firms, mostly in the field of manufacturing.
1496
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
2. PAKISTAN
The new nation of Pakistan faces many difficult and complex
problems.
While Pakistan has a single name, a single central government, a
single national consciousness and the unity of the Moslem religion, the
nation is divided into two states separated by a thousand miles of
Indian territory.
The people of East Pakistan are ethnically and culturally closer to
the Indian people of West Bengal and the delta area than with their
distant brothers in West Pakistan; and the West Pakistanis in turn
have close cultural ties with the Indians of the Punjab and northern
plains. West Pakistan speaks Urdu; East Pakistan speaks Bengali.
West Pakistan produces wheat and cotton, East Pakistan rice and
jute. The dry west needs irrigation; the wet east suffers from floods.
Basic transportation in the west is by donkey and camel, in the east
by elephant and water buffalo.
Politically, too, there are striking contrasts between the two regions.
The military tradition in West Pakistan is strong. The Bengali of
East Pakistan have no such tradition; indeed, they are closer philo-
sophically to the pacifism of India. Up until now, the leadership of
the central government has been predominantly from West Pakistan.
The very wide gap between the leaders and the people in both states
of Pakistan seems to me to present some dangers. There is a stirring
of political consciousness throughout the country, and in East Pakistan
a growing social unrest.
At the time of partition in 1947, Pakistan was predominantly agri-
cultural, about 85 percent of the people being engaged on the land.
Nevertheless, food production fell short of meeting the needs of the
people, who suffered from widespread malnutrition and periodic
famine. Cotton and jute were the two main cash crops. There was
very little industry, most of the textile and jute processing mills being
located in India.
The new country also had to create government machinery, for
which few trained people were available. Confronted with the neces-
sity of advancing on many fronts, Pakistan at first resorted to im-
provisation and a variety of improvement schemes were launched. It
has only been recently that a planning board was established; and now,
some 10 years after partition, the first 5-year plan is almost ready for
adoption. This plan was prepared with the assistance of an able
group from Harvard University, working under a Ford Foundation
program.
(a) Scope of United States aid
During the period 1952-56, the United States contributed $110 mil-
lion in project aid to Pakistan, exclusive of military aid.
In the first 2 years, economic development aid was directed toward
increasing agricultural production, improving health, and support-
ing Pakistani Village AID programs. In 1954, a program of special
economic assistance was added, under which $14.5 million was granted
to provide equipment for a fertilizer factory and other capital projects.
În 1955, special economic assistance was incorporated in the defense
support program and was expanded to include the provision of es-
sential consumer goods and industrial raw materials.
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
1497
The United States also participated in a special flood relief program.
A wheat grant was made to Pakistan in 1953, and two subsequent
agricultural assistance grants have been made under Public Law 480.
Military assistance began in 1954.
(b) Food production
One of the first objectives of Pakistani economic development is
to achieve self-sufficiency in food production. It has been estimated
that the cost of importing enough food to raise per capita consumption
to 16 ounces a day would amount to $600 million annually. During
1956, the United States contributed $72 million to provide food
imports.
Between 1952–56, the United States has engaged in some 20 project:
aimed either directly or indirectly at increasing food production
The total United States contribution to these projects has approxi
mated $59 million, representing 52 percent of the total cost of the
program. These programs include an agricultural research and dem-
onstration project, a soil and water conservation project in West
Pakistan, a ground water survey in West Pakistan, fisheries develop-
ment projects, the Makhi Dhand land reclamation project, the Ganges-
Kobadek irrigation and the Karnaphuli multipurpose projects in East
Pakistan. Funds have been granted for the purchase of fertilizer
and the United States has contributed to the construction of a fertil-
izer factory at Daud Khel. Other programs of this nature include
aid in combatting locusts and for the construction of modern grain
storage facilities.
While these and other programs have been constructive, the effects
are slow in the face of existing obstacles. Some of these are: eroded
lands, floods, silting, salinity, exhausted soils; extreme density of pop-
ulation in East Pakistan; and the difficulty of changing the age-old
habits of the people.
Increased food production is dependent in large part on the motiva-
tion of the farmer. Unless he can see the benefits to himself of pro-
ducing a cash crop with which he can buy consumer goods, he will not
adopt improved methods of farming. These motivations are for the
most part lacking in Pakistan. Development of industry to provide
cheap consumer goods would increase the incentive of the farmers,
and so tend to increase food production.
(c) Education, research, and extension services
Under such circumstances, our aid in education, research, and exten-
sion is badly needed. Among the programs in which the United
States is now participating are:
1. A nursing education project designed to upgrade basic nurs-
ing training in five schools;
2. Nurse administrators and teachers to aid a center for post-
graduate education of registered nurses;
3. The provision of basic libraries, reference materials, and
teaching aids to medical teaching institutions;
4. Instruction and scientific equipment to a basic medical science
institute for training instructors for medical colleges;
5. Professors, teaching aids, and equipment for the new Pesha-
war Medical College;
6. The training of physicists and engineers in a nuclear-reactor
school;
1498
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
7. The industrial research and development center at Lahore in
West Pakistan;
8. An industrial productivity center for training industrial
technicians;
9. Diesel locomotive training schools in both East and West
Pakistan;
10. The intercollege exchange program under which teachers,
administrators, and students are exchanged between 5 United
States and 5 Pakistan universities; and
11. A program for the provision of general educational ad-
visory services. In addition, special participants have been called
forward for advisory purposes in various educational programs.
These programs are making an essential contribution to the economic
development of Pakistan. Others which would be equally valuable are
not yet being done; but the need is almost unlimited, and how much
technical aid the United States can afford to offer becomes the deter-
mining factor.
(d) Public health
Some of the medical training programs in which the United States
engages have been mentioned. In addition, the United States has
participated in the public health advisory services program by pro-
viding technicians who advise the Government of Pakistan in public
health planning and the administration of public health programs.
Equipment has been provided for a tuberculosis hospital in East
Pakistan. Under the mass disease control program, the United States
is cooperating with the United Nations in malaria control; technicians,
sanitary engineers, pumps, well casings, and other equipment have
been provided for municipal and village water supply programs aimed
at reducing waterborne diseases; assistance has also been provided for
the design of water and sewage systems for the cities of Karachi,
Chittagong, and Dacca; and equipment and technicians have been
provided for a medical instruments repair center. These programs
aimed at improving public health and sanitation are most beneficial.
The cost of these technical services to date has been comparatively
slight. It would be wrong, however, to convey the impression that
what is being done is adequate to the needs of Pakistan.
(e) Village "AID" (agricultural-industrial development)
The most vital area of improvement which immediately touches the
lives of the largest number of people in Pakistan is the Village AID
program. Specific projects include such diverse activities as the con-
struction of village wells, storm drains, and latrines; adult literacy
classes; village schools; agricultural extension; training of women in
sewing; nutrition and sanitation; malaria control measures; handi-
craft industries and other activities to improve living conditions in
the villages. In the short-run view, these programs convince the vil-
lages that the Government is actively concerned with their needs. In
the long run, Pakistan can develop only as fast as the benefits of edu-
cation, health, sanitation, and economic improvement are brought to
the great masses of people.
(f) Other forms of United States aid
These include assistance to a mineral and geological survey; an
industrial development survey; advisers for the development of
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
1499
natural-gas fields both in East and West Pakistan; technicians for a
number of engineering projects; advisers in railroad shop produc-
tion, civil aviation, trade, and investment, coal mining, road and
highway construction; and advisers in various fields of public
administration.
(g) Capital development programs
While it is difficult to draw a sharp line between technical assistance
and capital development, I believe that the United States should define
those categories of programs in which we will participate on a long-
term loan basis rather than through cash or equipment grants. Some
technical assistance might be provided in planning stages. I believe
that programs for the development of power (including hydroelectric
and natural gas), transportation and communications, mineral extrac-
tion, harbor development, and industrial development should be loan
programs. Although we are now committed upon such programs as
the Ganges-Kobadek irrigation project, the Karnaphuli multipurpose
project and other capital projects involving extensive cash or equip-
ment grants, in the future such capital programs could be handled
on a loan basis.
(h) General comments
Í have not discussed the military aid program, except in general
terms in section II of this report. It does, however, raise certain
questions relating to our other aid programs: how much does the
military establishment drain off competent manpower and first-class
leadership from other sectors of the economy? Is the present empha-
sis on military strength too great for the supporting capacity of the
economy as a whole? What would happen to the economy of Pakistan
if our military aid were discontinued? How does our military aid
affect our relations with Pakistan and the other south Asian countries?
My own impression on this last point is that United States relations
with Pakistan are excellent; but, as I have already said in section II
above, it is advisable to separate economic from military aid, and to
stress the defensive purposes of the latter. One of the most con-
structive opportunities for United States diplomacy in south Asia is
to use our good offices in working toward a solution of some of the
outstanding disputes between nations; in order to have any influence,
our impartiality and our basic interest in the economic development
of every country needs to be emphasized.
The administration of aid programs in Pakistan has suffered more
than in some other countries from the usual difficulties mentioned
in the general section of the report. Projects have been inadequately
planned and poorly defined, and have exhibited a mushrooming
tendency. This has been due in part to the improvised schemes
resulting from the lack of a basic development plan for Pakistan.
The general recommendations mentioned earlier (sec. II (5)) apply
with special force to the aid programs in Pakistan.
Pakistan is receiving economic and technical assistance under the
Colombo plan from Australia, Canada, and New Zealand; also from
the United Kingdom, Sweden, West Germany, and the United Na-
tions. It is estimated that from 1951 to 1954, some 10 percent of the
total development outlay of Pakistan has come from foreign grants
and loans.
1500
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
Significant progress has been made in building up manufacturing,
especially in cotton, textiles and jute processing. But the rate of capi-
tal formation within the country remains very small.
The Government of Pakistan is doing more than other south Asian
countries to encourage investment in the "private sector." Fiscal in-
centives, such as 5-year tax exemption on new industrial undertakings,
generous initial depreciation allowances, and tariff protection for cer-
tain domestic industries have been given. An attempt is being made to
attract foreign investment capital: the original capital can be repa-
triated in full, together with capital gains and profits ploughed back
into such industries; foreign investment may constitute up to 60 per-
cent of the share capital of any industry except public utilities; and
assurances for reasonable compensation and its full remittance in the
event of nationalization have been given.
Pakistan faces enormously difficult economic and social problems,
and will need outside technical aid and outside loan capital both for
Government-sponsored development projects and in private industry,
for many years to come. I believe the aid we are giving is a good in-
vestment in a promising country.
3. INDIA
India is the largest country in south Asia, and has the greatest indus-
trial potential. It is about half the size of the United States, but con-
tains more than twice as many people. India's 385 millions comprise
the world's largest democracy.
About 82 percent of these millions live in some 550,000 villages.
They speak 11 different major languages, and some 544 different dia-
lects. While the Hindu religion predominates, there are at least 8
other religious groups; 37 million Moslems are still in India after
partition. The tasks of Government are therefore complex and diffi-
cult.
India fared somewhat better under the partition than did Pakistan.
Most of the existing industries, including the large Tata steel enter-
prises, went to India. India also had an extensive system of rail-
roads. But Pakistan encompassed the important wheat and rice pro-
ducing areas, and India's agriculture was relatively unproductive.
One cannot fail to be impressed by the progress which this new
nation has made. The problem of establishing a government have
been met with a strong determination to follow the difficult path of
democracy. The first 5-year plan, completed in 1956, was made on
the basis of wide public debate and discussion. The plan reflected the
desires of the state governments, and a choice in favor of immediate
benefits to the people rather than enforced savings for capital develop-
ment on the Soviet model.
(a) Scope of United States aid
Between 1952 and 1956 the United States contributed $326 million
in assistance to India. Of this total, 42.9 percent was for agriculture
and mineral resources; 20.6 percent to industry and mining; and 20
percent for the development of transportation. The balance was
applied to health and sanitation, community development, and edu-
cation.
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
1501
The extent and diversity of United States aid to India is illustrated
by the following selection from the 63 programs undertaken:
1. Commitment of $36 million during fiscal 1955 and 1956 for
the procurement of United States wheat. The resulting Indian
counterpart funds were made available to India for the Rihand
Valley development project.
2. Nine interuniversity programs providing for exchanges be-
tween American and Indian universities.
3. A total of $64 million made available for the import of stee!
for agricultural implements.
4. Sixty-three million dollars to cover the costs of supplying
8,700 freight cars, 100 locomotives, steel and rails for railway
rehabilitation.
5. Approximately $23 million for the construction, powering,
and casing of some 5,000 deep tube wells calculated to increase
food production by 500,000 tons yearly.
6. A grant of $25.3 million for the procurement of fertilizer.
7. Equipment amounting to $21.5 million to support malaria
control programs.
Among other programs, the United States provided heavy equip-
ment and/or technical assistance for river development projects, com-
munity development, rural electrification, fishery development,
groundwater exploration, industrial research, storage of food grains,
and advisory services in the fields of public administration, educa-
tion, and agriculture. While not exhaustive, these indicate the range
of assistance activities. During the 4-year period, 174 technicians
were assigned to India.
(b) India's development plans
At the end of its first plan, in 1956, India had arrived at near self-
sufficiency in food production. This is attributed to the intensive ef-
forts in land reclamation, river development, irrigation schemes, and
deep tube wells bringing new lands under irrigation, to the completion
of a large fertilizer factory at Sindri and to the effects of agriculture
extension services upon the individual agriculture worker. Now,
under the second 5-year plan, India has shifted its emphasis from
agriculture toward rapid industrialization with particular emphasis
upon the development of basic and heavy industries. The goals set
reflect a compromise between what might be accomplished under
dictated austerity on the one hand and a slow but steady rise in imme-
diately visible living standards on the other.
Among the goals of the second plan, to be achieved during the 5-
year period ending in 1961, steel production capacity would be in-
creased from 3 to 6 million tons. Actual steel production would
increase by 231 percent. The net output of all factory establishments
is expected to increase by 64 percent, while output of capital goods
industries would increase by 150 percent.
The installed capacity for public owned electric power would in-
crease from 0.6 to 4.3 million kilowatts. Electricity would be brought
to all towns having a population over 10,000.
There would be a 15 percent increase (10 million tons) in the pro-
duction of food grains. An additional 21 million acres of land would
be brought under irrigation.
1502
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
There would be a 30 percent increase in the number of teachers in
primary and secondary schools. Per capita expenditures would in-
crease at the rate of 3 percent annually. The total national product
would increase 25 percent, representing an increase in per capita in-
come of 18 percent.
On the basis of what the Planning Commission has considered to
be the minimum level of necessary development and the maximum
reasonable extraction of internal capital and deficit financing, there
exists a gap to be met through external assistance during the 5-year
period amounting to $1.68 billion.
While judgments may vary as regards the prospect for achieving the
goals of this second 5-year plan, I believe that the interest of the
United States and other developed countries lies in helping India to
achieve its maximum development. This belief is not prompted by
any fear that India, with its present leadership, will voluntarily turn
to communism. Rather, it recognizes the positive political and eco-
nomic benefits the democratic world will reap through contributing
to the development of India. At the same time, it recognizes the chal-
lenge posed by the rapid economic development of Communist China.
It recognizes further the influence of India upon other countries of
Asia.
(c) General comments on United States aid
Of the total United States assistance provided during the first plan,
$298 million were expended for equipment or commodities, as com-
pared with approximately $28 million expended for United States
technicians and the training of Indian technicians.
I believe the reasons I have already given for emphasizing technical
aid apply to the case of India. It is the cheapest form of aid for us,
and will in the long run do most to further India's independent eco-
nomic and social progress. India's manpower and resources are very
great; her development will ultimately depend on the application of
science and technology to their utilization.
United States technical aid has been used in education, research,
and extension services, in public health and sanitation, and in the com-
munity development programs. Under the changed emphasis of the
second 5-year plan, more will presumably be needed in the fields of
power and basic industrial development.
While the rate of internal capital accumulation is rising, India's
development plans call for more capital than can be provided without
external aid. India's leaders expect to meet the deficit by borrowing.
If the United States is to participate significantly in India's develop-
ment, therefore, it would seem essential to work out the terms, the
conditions, and the mechanics for making long-term intergovernmental
loans.
Whereas in Afghanistan and Pakistan the present dominance of
Government initiative results, rather, from the lack of a middle
class and established business and industrial and financial in-
stitutions, in India the preference for public enterprises is a
matter of political belief. It is an aspect of welfare-state,
Fabian socialism, and is the preferred method of economic ad-
vance among many of India's present leaders. But India, more than
the other south Asian countries, had already achieved considerable
development of industry under British rule, and several large private
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
1503
industrial "empires" exist, such as the Tata concerns. I believe, as
do many of India's businessmen and industrialists, that more positive
encouragement of the "private sector" would be to India's advantage.
On the whole, the prevailing atmosphere is discouraging to private
business. India is doing something to encourage domestic industry,
through such agencies as the National Small Industries Corporation,
which assists in the financing, organization, and technical problems
of small industries; and the Industrial Credit and Investment Corpo-
ration, already mentioned, which mobilizes private and public capital,
domestic and foreign, to finance private industrial development.
But the field for foreign private investment in India is at present
not attractive. The Indian Government is inviting the collaboration
of foreign capital in certain lines and has under consideration a
scheme submitted by the United States for guaranteeing United States
investment in India.
I believe the United States should explore the possibilities, in co-
operation with American and Indian business organizations as well
as the Indian Government, of increasing the role of private foreign
investments.
4. CEYLON
Ceylon is closely linked to the other Commonwealth nations par-
ticipating in the Colombo plan. The standard of living is among the
highest to be found in Asia, the annual per capita income being about
$120.
Ceylon is the only south Asian country to produce a large export
surplus; the economy is based on three major export crops: rubber,
tea, and coconut. Exports comprise about one-third of the total na-
tional product, and these 3 crops provide about 30 percent of total
employment.
Because of the large-scale plantation system, and because Cey-
lon's ports are active shipping centers, labor organization takes
on some of the characteristics common in the Western countries.
Longshoremen and dockers are the same the whole world over. There
are strong radical groups and more lively interparty political strife
than in the other countries. Socialism is not a doctrine somewhat
"paternalistically" imposed by the leaders, as in India; it is more of
a grassroots movement, but with many factions and matched by other
conservative parties. Unemployment is a serious problem.
Here, as elsewhere in the newly independent south Asian countries,
the Government has formulated development plans, in this case 6-year
plans, the first embarked upon in 1947, the second now in progress.
The Government has put primary emphasis on the improvement of
internal transportation and port facilities, the development of fuel
and hydroelectric power, and the increase of food production; as well
as services designed to improve the human capital, such as education,
public health, and housing.
Industrial development is thought of as mainly the province of the
private sector, and Ceylon offers encouragement to domestic invest-
ment through technical assistance, credit, marketing assistance, and
tax concessions. Foreign capital is welcomed in industrial fields, but
not in trade or transportation. Indian, Japanese, and Danish concerns
are participating in such enterprises as an aluminum-wire factory, a
shirt factory, and a ham-bacon-sausage factory. More foreign enter-
prises are under negotiation.
1504
AFGHANISTAN, PAKISTAN, INDIA, AND CEYLON
A basic problem in this productive agricultural country is food.
Of total food consumption, Ceylon has to import about half the rice,
all the wheat and sugar, and many other items. One-third of the total
cultivated area is devoted to the production of foods for domestic
consumption, two-thirds to the export crops.
Population density on the cultivated areas is among the highest
in the world-530 persons per square kilometer; and the population
is growing at the rapid rate of 2.8 percent annually.
To find land, food, and employment thus becomes a primary objec-
tive. Jungles are being cleared, and dry land irrigated. Ceylon
hopes, through these measures, to resettle some 140,000 families within
a few years.
Ceylon is receiving technical and economic assistance under the
Colombo plan from other Commonwealth nations.
United States aid was granted in 1956, and is only now getting
underway. It amounts to about $6 million. The United States is pro-
viding 30 locomotives, and assistance in the conversion of the existing
railway signal system. To improve highways, $800,000 has been
allocated to furnish equipment and technical assistance for a materials-
testing laboratory, and heavy-repair facilities. Anticipating an
increasing United States participation in agricultural development,
including land reclamation and agricultural training, research, and
extension, a survey team from Texas Agricultural and Mechanical
College is developing a preliminary plan of operations.
Government officials with whom I talked were enthusiastic about
the development plans, optimistic about their success, and eager for
United States technical and material aid of the kinds now being given
or planned.
I believe we should continue to furnish technical aid as it is
requested. Here, as elsewhere in south Asia, more extensive participa-
tion in Ceylon's economic development would seem to me to depend
upon working out arrangements for long-term loans, and upon
increased private investment.
The situation is in some ways comparable to that in Afghanistan:
both countries are peripheral, and have trading relations with the
Communist bloc. Ceylon has a barter agreement with China, exchang-
ing rubber for rice. Both are vulnerable from several sides; Ceylon
is concerned about the influx of Tamils from southern India, and
is exposed to southeast Asia and the Chinese mainland. The United
States is in direct competition with the Communist bloc in relations
with Ceylon. Any aid we give has to be given tactfully; it is par-
ticularly important to send out excellent people, and to do only what
we are asked to do.
There are obvious risks, both because of internal political factors
and because of Ceylon's exposed position. But economic development,
providing a rising standard of living, is the best defense against
internal communism; and Ceylon is definitely oriented toward the
West by reason of her Commonwealth ties.
Therefore I believe the United States has a strong interest in
cooperating with Ceylon, through technical aid, loans, and the encour-
agement of American investment.
SURVEY NO. 9
CENTRAL AMERICA AND THE CARIBBEAN AREA
(CUBA, HAITI, DOMINICAN REPUBLIC, PANAMA, COSTA
RICA, NICARAGUA, HONDURAS, EL SALVADOR,
GUATEMALA, AND MEXICO)
BY
JAMES MINOTTO
FORMER MUTUAL SECURITY AGENCY CHIEF IN PORTUGAL
MARCH 1957
1505
CONTENTS
Letter of transmittal_.
Summary and recommendations_
I. The interest of the United States in Central America and the
Caribbean area_
A. Security interest_-_.
B. Economic and commercial interest._--
II. Basic situation in the countries visited__
A. Defense requirements and other factors..
B. The Inter-American Highway---
C. The Inter-American Geodetic Survey.
D. Nature and objectives of foreign aid programs.
E. Military assistance_
F. Technical assistance.
G. Economic assistance_
H. General comment..
III. Country summaries__-
A. Cuba
B. Haiti
C. Dominican Republic...
D. Venezuela__
E. Panama__
F. Costa Rica___
G. Nicaragua__
H. Honduras..
I. El Salvador…….
J. Guatemala..
K. Mexico..
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94413-57-96
LETTER OF TRANSMITTAL
PHOENIX, ARIZ., February 4, 1957.
To the Chairman and Members of the Special Committee to Study the
Foreign Aid Program:
It is a privilege to submit to the Special Senate Committee to Study
the Foreign Aid Program the report of the on-the-spot survey, which
I undertook at the request of the committee, to study United States
Government foreign assistance programs in Central America and the
Caribbean area.
I am deeply grateful for the honor of having been selected by your
committee to make this study.
The ten countries in Central America and the Caribbean area
covered by the survey are: Cuba, Haiti, the Dominican Republic,
Panama, Čosta Rica, Nicaragua, Honduras, El Salvador, Guatemala,
and Mexico. They constitute the area frequently referred to as
Middle America. In addition, Venezuela was also visited and brief
mention is made of it in the report.
The period of time available for the survey (November 15 to De-
cember 18, 1956) was short, and with the exception of Cuba, Guate-
mala, and Mexico, it was possible to spend only two or three days in
each country. Despite the short time available, discussions and inter-
views were held with many individuals, both public and private, whose
views were pertinent to the purpose of the mission, to ascertain the
effectiveness of foreign assistance programs in serving the national
interest.
The cooperation extended by the embassies, military missions and
United States operations missions in every country visited is greatly
appreciated. The interviews with the chiefs of state and other high-
ranking government officials, which were possible in most of the
countries visited, were most rewarding. Discussions with American
businessmen, local businessmen, and prominent individuals in other
fields were very helpful, as were talks with representatives of inter-
national organizations.
I also would like to express my appreciation to the Departments of
State and Defense and the International Cooperation Administration
for the fine cooperation they extended to me.
My assistant, Mr. Harold T. Lamar, of the Legislative Reference
Service, Library of Congress, rendered excellent support on this
mission. I also want to thank him for his fine contribution to the
preparation of this report.
Respectfully submitted.
JAMES MINOTTO
1509
CENTRAL AMERICA AND THE CARIBBEAN AREA
(Cuba, Haiti, the Dominican Republic, Panama, Costa Rica, Nica-
ragua, Honduras, El Salvador, Guatemala and Mexico)*
SUMMARY AND RECOMMENDATIONS
United States foreign assistance programs in Central America and
the Caribbean area are small in comparison with programs in other
areas of the world. The countries involved are restricted in area
and in population. However, the importance of these countries to
the United States should not be judged by their size. Their proximity
to the United States and their future political, economic, and social
orientation are of direct concern to the national interest.
The foreign assistance programs in Middle America are confined,
for the most part, to military assistance and technical cooperation.
Grant aid or loans for economic development under the foreign aid
programs only are extended to meet emergency conditions such as
presently prevail in Guatemala.
The substantial amount of foreign aid which has been extended to
countries in the Far East, South Asia, and the Middle East, and to
Europe in years past has been given in response to the world-shaking
events which have taken place in those areas. A computation of the
amount of foreign aid which has gone to Latin America since the end
of World War II reveals nothing new to our neighbors to the South.
Rightly or wrongly, the United States is viewed as neglectful of its
friends in the Western Hemisphere.
Many of our Latin American friends feel that an "air of condescen-
sion" pervades the attitude of the United States toward their impor-
tance both economically and culturally. The magnitude and wealth
of the United States in comparison with any one of these countries
cannot help but result in a "rich uncle, poor relations" feeling. It
is important to the national interest that the United States be espe-
cially concerned with this feeling and its implication for the future
orientation of the countries of Central America and the Caribbean.
A lack of interest and a failure to act as an interested, cooperative,
and friendly neighbor could lead some day to a situation not unlike
the one in which the United Kingdom and France find themselves
today in the Middle East.
The following recommendations are based on an assessment of
United States interests in Central America and the Caribbean area,
and an assessment of how effectively those interests are being served
by the quality and quantity of foreign assistance presently being
extended.
Recommendations for military assistance
1. It is recommended that present levels of military assistance be con-
tinued.― Military assistance is contributing significantly to the internal
*Mexico and Panama, properly speaking, are not parts of Central America. For convenience in prepar-
ng the report, the two countries are included among the countries separating North from South America
and differentiated from the Caribbean island Republics.
1511
1512
CENTRAL AMERICA AND THE CARIBBEAN AREA
security of the countries receiving such assistance and to overall
hemispheric defense, and it should be continued.
2. It is recommended that machinery be established in the Department
of Defense whereby small quantities of military equipment may be more
expeditiously delivered to countries in Central America and the Caribbean
area. Frequently, it appears that the attention given to other areas
and the modest quantities of military equipment requested work to
the disadvantage of the effectiveness of the program in Central America
and the Caribbean area.
Recommendations for technical assistance
1. It is recommended that technical assistance be continued on the
country-to-country basis and that the present levels of technical cooperation
be maintained. Bilateral programs of cooperation with these countries
in their efforts to develop technical skills are in the national interest.
Such bilateral cooperation constitutes an important means of achiev-
ing mutual understanding and should not be relinquished for multi-
lateral programs of technical cooperation.
2. It is recommended that the technical assistance program be placed on
a more permanent basis.-Annual uncertainty over funds hinders
effective planning and programing. More financial flexibility is not
inconsistent with annual reviews and appropriations by Congress.
3. It is recommended that the participant program be expanded when
feasible.―The training of local citizens is a most successful part of the
technical assistance program. It deserves continued support as a
direct contribution to the furtherance of United States interests.
4. It is recommended that continued use be made of contract per-
sonnel.-Contractual arrangements with private firms and universities
are proving highly satisfactory and should be used more widely.
This is especially true of the growing need for specialists for short-term
consulting and advisory assistance.
5. It is recommended that the position of Director, United States
Operations Mission, be given more authority.-In a few countries the
Director of the United States Operations Mission is hampered by the
lack of proper responsibility and authority. This lack of authority
and responsibility applies both to the degree of direction from Wash-
ington and to the support by the American Embassy in the country.
6. It is recommended that more consideration be given to the deficiencies
and delays in filling vacancies and new requests for technicians.—It is
felt that the technical assistance program could be more effective if
the International Cooperation Administration would give less time to
directing activities in the field and more attention to the problems of
personnel recruitment.
Recommendations for economic assistance
1. It is recommended that economic assistance be given a larger role
in foreign assistance programs in the area.
2. Specifically, it is recommended that the present policy of no develop-
ment loans except for emergency conditions be less stringently enforced.-
By any standard, a comparison of aid expenditures in this area with
foreign aid given in other regions is not indicative of the basic condi-
tions prevailing in Central America and the Caribbean and the signifi-
cance of United States interest in the area. The present policy is not
consistent with the basic need for developmental loans in some
countries and the interests to be served by the extension of such loans.
•
CENTRAL AMERICA AND THE CARIBBEAN AREA
1513
I. THE INTEREST OF THE UNITED STATES IN CENTRAL AMERICA AND
THE CARIBBEAN AREA
One of the cornerstones of United States foreign policy, the Monroe
Doctrine, has long served as a reminder to the world of the United
States interest in all Latin America.
A. SECURITY INTEREST
The security interest of the United States in Central America and
the Caribbean area is a part of the overall concept of the defense of
the Western Hemisphere. In terms of strategic military considera-
tions, the proximity of Middle America to our own borders and to the
Panama Canal, long has dictated the announced policy on the part
of the United States Government that outside threats to stability in
that area, either through internal subversion or overt military action,
cannot be tolerated.
The availability to the United States of sites for naval and air
operations and the denial of such sites for use against the United
States by other countries are considered essential parts of our security
interest. The United States also has discovered the ease with which
some of these countries can be subverted to a base for mounting a
Communist-led psychological offensive against the United States.
Guatemala provides an object lesson not to be ignored.
The interests of the United States in the maintenance of the existing
friendly relationships in this area, the strengthening of political ties
and the capacities to resist outside forces, both military and socio-
economic, are fundamental interests. They are in danger of being
overlooked when, as now, other areas of the world occupy the center
of the stage.
Politically, we cooperate with countries of Central America and
the Caribbean area in the United Nations, in the Organization of
American States, in the Inter-American Defense Board, and in other
regional and international organizations. Hemispheric solidarity on
issues which confront the court of world opinion is considered to be of
direct importance to the interests of the United States. Less direct,
but equally essential, are the implications of that solidarity for the
cause of world peace. As countries whose resources still have a
potential for development, the nations of this area have a common
bond with other regions. At times this common bond can be more
influentially utilized than all the power which we possess as a world
leader.
B. ECONOMIC AND COMMERCIAL INTEREST
Economically, the countries in Central America and the Caribbean
are predominantly agricultural. Except for Mexico, and possibly
Cuba, manufacturing is limited and mineral production is in the
beginning stages.
The commercial interest of the United States in the countries of
Middle America is considerable despite the size of the countries and
the relatively underdeveloped aspects of their economies. This inter-
est will increase as the level of economic activity rises. Unlike some
countries in South America, the agricultural products which they pro-
duce are more likely to be complementary with, rather than supple-
mentary to, products grown in the United States. Likewise, they
1514
CENTRAL AMERICA AND THE CARIBBEAN AREA
should be more inclined to turn to the United States for the manu-
factured commodities which they want.
Approximately 10 percent of United States exports go to the 10
countries covered by this survey. Likewise, imports from the area
account for 10 percent of total United States imports.
TABLE I.-United States foreign trade with the 10 surveyed countries in Central
America and the Caribbean area, 1955
Mexico..
Guatemala………..
El Salvador.
Honduras
Nicaragua.
Costa Rica.
Panama.
Cuba...
Haiti.
Dominican Republic..
Total, 10 countries..
[Millions of dollars]

Country
United States
exports
United States
imports
699.9
396.8
56.5
71.1
46.8
61.9
33.9
22.7
38.7
25.6
43.2
28.1
75.9
20.4
451.2
421.8
31.6
16. 4
60. 1
62.2
1.537.8
1, 127.0
Total, all countries.
Source: Department of Commerce, 1955.
15,390.0
11, 382.0
In general, United States exports to Central America and the
Caribbean consist of manufactured goods. Machinery, automobiles,
chemicals, and iron and steel mill products are among the leading
exports. Foodstuffs such as wheat, corn, and fats and oils are also
important export commodities.
Imports from the area include such tropical products as sugar,
coffee, cocoa, essential oils; fibers, such as abaca, henequen, and sisal;
and wood products such as mahogany. Some of the last-mentioned
commodities, as well as mineral products imported from the area,
such as copper, lead, zinc, chrome, and nickel, are strategic materials.
The importance of these materials and the significance of their
availability and proximity have been repeatedly stressed in recent
years.
Further, it should not be forgotten that the paucity of geological
data in most of these countries prevents a real assessment of their
future strategic importance. For example, in almost every country,
oil explorations are being conducted by American and foreign oil
companies. Aside from the strategic importance, their foreign trade
is highly significant. Imports from and exports to the United States
dominate the external commerce of these countries.
The United States provides the largest source of foreign private
investment. The extent of United States interest is indicated by the
fact that over $2 billion, or 10 percent of the total value of United
States direct investment, is accounted for by direct investment in
the 10 countries in Central America and the Caribbean. Foreign
investment by American business in agriculture and mining pre-
dominates, although American interests in small industries, such as
cigarettes, beverages, and other consumer items, are found in every
country.
New attitudes toward foreign investment are taking shape in
Middle America. It would behoove American business to take a
CENTRAL AMERICA AND THE CARIBBEAN AREA
1515
closer look at the activities of Europeans in their efforts to increase
their commercial interests in the area. Heightened competition in
foreign trade for United States exports also indicates that American
business can no longer take these markets for granted.
While the United States considers private enterprise the main force
for development in this area, it would appear that European business-
men are far more solicitous of Middle America as a future market
and source of raw materials than are American businesses. Prompt
delivery and the extension of long and easy credit terms are two
methods by which European businessmen are expanding their sales.
The reentrance of European commercial and business firms into
Central America and the Caribbean is not necessarily prejudicial to
United States interests. However, in a region which is seeking
means to develop economically and which is so close to the United
States, it is to the overall interest of the United States that American
business not be replaced to a point where American commercial
influence is less than that of other countries.
As with other underdeveloped areas of the world, it is deemed to be
in the national interest of the United States that Central America
and the countries of the Caribbean develop their resources more fully.
Economic growth and diversification will add to the importance of
these countries as trading neighbors, and it is hoped that there will
be increased opportunities for investment by private enterprise, both
domestic and foreign.
Higher standards of living, improved health conditions, and greater
educational opportunities can go far in promoting an increased social
awareness. With the participation of more citizens in the economic
life and social consciousness of these countries, it is hoped that political
stability in some of the countries will cease to be as illusive as it has
proved to be in the past. It might be added, too, that their balanced
development will speak eloquently throughout the world for the
advantages to be gained by seeking a better life through democratic
processes.
What is at stake in terms of the future national interest are the
direction and methods by which the efforts toward development are
made. The effects of the pressures that build up in the development
process are also a matter of concern to United States interests.
Stated positively, it is to the national interest that development as
it evolves in this area rest on a firm base of expanding private initiative
and private enterprise, not necessarily the American form of private
enterprise but one adapted to local desires and needs. Social develop-
ment, in terms of our own interest, must include a growth in respect
for the individual and a recognition of the importance of giving to
each the opportunity to better himself. The spread of individual
freedom is a goal we seek in all areas of the world. Politically, it is
necessary that an ever greater mutual understanding and respect
characterize our relations with these countries.
For example, cultural exchange is a concept that requires improve-
ment in our relationship with these countries. What is needed is a
reorientation in our thinking toward this area. United States foreign
assistance programs are bringing the Americans of North America
and Middle America closer together but there is a great deal of "going
through the motions" to much of what we do in Central America and
the Caribbean.

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CENTRAL AMERICA AND THE CARIBBEAN AREA
The small size of most of these countries, their nearness to the
United States, and the basic feeling of friendliness which many of the
people hold for the United States should not be allowed to reduce the
quality of our representation in Central America and the Caribbean.
The problems faced by most of the countries, the interests of the
United States in the area, and therefore in these problems, require our
best talent. This means our best talent in representation, which is far
more important in this area than the amount of foreign assistance
which may be extended.
II. BASIC SITUATION IN THE COUNTRIES VISITED
The 10 countries visited are similar in many respects. Economic
conditions and problems do not appear to vary greatly from country
to country. However, the causes of these conditions and problems
and the availability of resources, material and human, are different.
Conditions in Mexico, one of the most advanced of these countries
and the largest in population and land area, are so different that they
must be omitted from the discussion of the overall basic conditions,
although some of the problems in the other countries are shared by
Mexico.
The dependence of every country in Central America and the
Caribbean on the export of one or a few agricultural commodities for
the bulk of its income makes the economies very susceptible to the
vagaries of weather and world markets. The lack of economic develop-
ment and the absence of diversified economic activity result in low
living standards.
None of the countries has a per capita income equal to one-fifth
the per capita income of the United States. In addition, there is a
wide gulf between the incomes of the few well-to-do and the incomes
of the mass of the people.
Manufacturing is limited in most of these countries and provides
a small proportion of income to labor. The lack of resources, financial
and material, deters the growth in manufacturing activity even in
those types of industry adaptable to the economies. Many of these
countries import foodstuffs, for example, which they could well grow
and process themselves.
The labor forces are unproductive by United States standards.
There is unemployment and underemployment in most countries.
Where labor is strong, as in Cuba, the seasonal factor of unemploy-
ment results in restrictive labor practices. The lack of education also
makes the labor force susceptible to the influence of Communists and
other troublemakers.
Illiteracy rates vary from 73 percent in Haiti to only 12 percent
in Costa Rica. Opportunities for education are by no means uniform,
and the lack of trained teachers, teaching materials, and schools
result in low educational standards. Concepts of vocational educa-
tion are only beginning to make themselves felt.
Health and sanitary conditions, while improving, continue to be
deplorable, especially in many rural areas.
The lack of roads, both main highways and farm-to-market roads,
inhibits the assimilation of whole regions into the economies of the
countries. Modern port facilities and airports are yet another need.
Communication and power facilities are inadequate and are in need
of modernization and expansion.
CENTRAL AMERICA AND THE CARIBBEAN AREA
1517
In most of the countries visited there is a lack of local capital to
carry forward basic development programs of a public nature, such
as roads, ports, sanitary installations, and health and educational
improvements. The absence of such facilities is a deterrent to foreign
investors.
In brief, all the elements which have come to be recognized as
indicative of underdeveloped economies are present in varying degrees.
As in most parts of the world, there are rising aspirations for a better
life. Everywhere in Central America and the Caribbean one can
observe efforts being made to stabilize and diversify the economies,
improve standards of health and education, and in general conduct a
program of development. In some countries, well-rounded plans for
economic development have been adopted. In other countries, less
formal efforts toward development have been undertaken. In several
instances assistance in planning for development has been extended
by the International Bank for Reconstruction and Development.
Despite the fact that better results are apparent when balanced plans
for economic betterment are adopted, it has been necessary frequently
for governments to reduce the magnitude of their plans due to crop
failures, floods, hurricanes, or other disasters or due to failures to
obtain the necessary financing from outside sources. The economies
have little viability. Minor disturbances can set back development
plans for several years.
Among the principal inhibiting factors to development is the lack of
trained technicians. It extends from the lack of skilled labor, which
results in low productivity, through a scarcity of doctors and nurses
able to provide basic medical service requirements, to the shortage of
management and administrative personnel, both governmental and
private. These inhibiting factors can be eliminated in time. More
adequate support of education and increased emphasis on vocational
education on local levels are necessary. Outside assistance is essen-
tial, however, especially in advanced training, if the shortage of
technicians in most of the countries is to be overcome.
Lack of initiative in some countries is definitely an inhibiting factor.
In some instances it is based on ignorance of even the possibilities of
better living standards, as among the people in the rural areas of
Haiti. Or it may rest on the unwillingness to relinquish the old ways
of living as among some of the Indians in Guatemala. Undoubtedly
the complete assimilation of such people into the economic life and the
political and social structure of these countries must be figured in
decades rather than years.
As mentioned previously, the capital needed for providing the basic
public facilities such as roads, ports, schools, and sanitary installations
is not available locally. It must be obtained from outside sources.
The provision of such capital and the increase in technical skills which
must accompany the development of public facilities rest, in the long
run, on the assistance and cooperation of other countries.
The situation as it involves the stability of governments in Central
America and the Caribbean is frequently fluid. Mexico, of course, is
an exception. No offense is meant in repeating an old saw about
politics being the major industry of several of these countries.
Despite frequent changes in administrations, progress is being made.
It would appear that the greatest pressure on those seizing control by
extralegal means is the pressure for a return to constitutional govern-
1518
CENTRAL AMERICA AND THE CARIBBEAN AREA
ment. This is true of the junta that staged a "bloodless coup" in
Honduras last year. The stability of their administration depends
in large measure on how soon they will hold elections. This is also
true in Haiti, where the people successfully staged a sitdown strike to
protest and defeat the unconstitutional methods used by the out-
going President in attempting to retain his office.
Instability in governments in this area is undoubtedly a hindrance
to economic development. On the other hand, it might be said that
given the present level of the concept of integrity and public trust
held by some officials in these countries, instability is the only safety
valve the people have for protecting themselves against personal greed.
Fortunately, the threat of internal subversion through Communist
efforts is judged by our representatives to be negligible. Events in
Guatemala should serve as a reminder that things are not always
what they seem. For example, the Castillo Armas government in
Guatemala must convince most of the people that they are better off
than they were in 1954 if the present trend toward more democratic
government is to be maintained. If the government is unable to
demonstrate such improvement, very few observers in Guatemala are
willing to predict the orientation of the new administration that will
come to power in 1960.
The great gap in incomes in several of these countries plus the lack
of education present a fertile field for Communist activities. The
Communist Party is outlawed in almost every country in the area.
Despite this fact, untoward events, or dramatized issues of the local
government against the people in some countries, can result in a repeat
of the unhappy history in Guatemala from 1950 to 1954.
The existence or lack of free institutions in these countries cannot
be judged by United States standards. Every government has its
own newspaper. Some form of press censorship is a rule rather than
an exception in most countries. Religious worship by all is permitted,
if not approved. Like other phases of living, personal liberty must
develop and spread in most of these countries as more people partici-
pate as citizens in the economy and politics of their countries.
There is little effective criticism of foreign assistance programs in
most of the countries. Except for the military assistance programs.
in countries with which the United States has bilateral military agree-
ments, and defense support in Guatemala, the aid activities are con-
fined to technical cooperation. In most instances the programs are
well received and appreciated. In fact, as would be expected, there
is a desire for more assistance, especially in the field of development
grants and loans.
Since the activities in technical assistance are undertaken only at
the request of the host government, situations rarely arise which oc-
casion serious disagreement. The size of programs in this area in
relation to aid programs in other parts of the world appears to many
people in this region to be inconsistent with policy pronouncements
on the importance of hemisphere friendship and solidarity.
A. DEFENSE REQUIREMENTS AND OTHER FACTORS
There are often disagreements among the governments of the
countries in Middle America. Groups in exile, allegedly aided and
abetted by other countries in the area, cause great concern and much
CENTRAL AMERICA AND THE CARIBBEAN AREA
1519
misunderstanding. Although these disagreements are serious matters
to the countries involved, they do not usually prejudice United States
interests because the machinery of the Organization of American
States is increasingly being recognized as a real means of settling
disagreements.
Internal threats are very real, although at times they tend to be
exaggerated for the benefit of the government in power. Since the
armed forces traditionally hold the balance of power in most of these
countries, the ability of the military to secure the stability of the
country rests upon the individual loyalty of the military forces to the
government.
The regional defense arrangement particular to Latin America is
the participation in the Inter-American Defense Board. In addition,
bilateral military agreements with the United States have been made
by all countries in the area except Panama and Costa Rica, which
have no army, and El Salvador and Mexico. The capacity of most
of these countries is not developed to the extent that they could
assume overall responsibility for providing their own defense in the
event of war.
Foreign investment, especially American investment, is contribut-
ing to development. The United Fruit Co. and Standard Fruit Co.,
for example, are expanding their operations. Exploration by oil com-
panies is going forward in almost all the countries.
While on the surface all the countries encourage private investment,
governments are cautious about granting concessions which make them
subject to criticism. On balance, however, a more welcome feeling
toward foreign private investment is being evidenced in every country.
In Mexico, for example, the success story of Sears, Roebuck & Co.
has made local businessmen aware, perhaps for the first time, of the
real competitiveness of the American market system. Repercussions
are being felt, and at present no additional mass retailing operations
by foreign capital are being permitted. However, the marketing
techniques have made a tremendous impact on the attitude of Mexican
businessmen.
The operations of the United Fruit Co. in recent years have done
much to reorientate the attitude of many people in Central America
toward American investments. The United Fruit and Standard
Fruit Cos. are usually among the highest paying employers in agri-
culture. Their training schools and other programs in themselves
constitute a sizable technical assistance and public health contribu-
tion.
As these countries reach higher stages of development, private in-
vestment can be an even greater stimulus to further development.
No assessment of the amount of private investment can be made for
the area as a whole. However, it can be said that while the contribu-
tions of private investment are important to Mexico and Cuba, for
example, the overriding need of some of these countries is for public
development capital. Such capital is needed to provide the public
facilities which will attract additional private investment.
Two sources of such capital are the Export-Import Bank and the
International Bank for Reconstruction and Development.
The loan activities of the Export-Import Bank are more limited in
the developmental field than those of the International Bank for
Reconstruction and Development. The purpose of the Export-Import
1520
CENTRAL AMERICA AND THE CARIBBEAN AREA
Bank is to encourage American exports. In this respect, however, the
loans of the Export-Import Bank have proved helpful to many
countries in financing development projects.
Because of the sound financial policies pursued by the International
Bank for Reconstruction and Development, many countries often
tend to discount its real contribution. However, in pursuing such
policies the Bank works with the governments in planning the loans.
Such assistance is valuable to development plans. The controls
exercised by the bank in paying out the loans, in many cases, probably
assure a much more effective achievement of the purpose of the loans.
Several United Nations agencies and related organizations conduct.
programs of economic development and technical assistance in these
countries. Private organizations and business firms also engage in
limited activities of technical assistance. No assessment of these
activities was possible within the limited time of the survey. The
extent to which American personnel in the aid program attempt to
coordinate with international and private organizations is discussed
below.
The United States is furnishing assistance to the countries in Middle
America outside the mutual security program. Our participation in
the completion of the Inter-American Highway and the work carried
out by the Inter-American Geodetic Survey of the United States Army,
however, have much the same implication for economic development
that foreign assistance activities have. This is true both in the
expenditure of funds and in the transference of technical skills.
B. THE INTER-AMERICAN HIGHWAY
The contribution of the United States toward the construction of
the Inter-American Highway (from Laredo, Tex., to Panama City)
can be considered as one of the first foreign assistance activities of the
United States. From 1934 to 1955 the United States expended over
$50 million assisting in the construction of sections of the highway in
the five Central American Republics and Panama. Mexico has fi-
nanced its own highway construction in connection with the Inter-
American Highway.
In 1955 the United States Congress appropriated $62,980,000 to
expedite the completion of the highway. Immediate steps were
undertaken to place the uncompleted sections under construction.
At present over 20 projects are under construction or scheduled for
construction.
The projects are financed by means of a project agreement between
the Bureau of Public Roads (on behalf of the United States) and the
Ministry of Public Works in each of the cooperating Republics. These
agreements provide project funds on the basis of two-thirds United
States and one-third cooperating Republic. Most of the work is to be
completed by 1959.
Since July 1955 all work is being performed by construction con-
tractors. These activities are providing valuable contributions to
the countries. The highway itself is of great economic importance to
them. It will stimulate trade and commerce within the countries as
well as among them. In addition, the expenditures of funds for
materials, labor, and other services provide additional economic
activity. The training of local citizens in construction methods and
CENTRAL AMERICA AND THE CARIBBEAN AREA
1521
procedures is also important. The lack of construction specialists
has in the past proved a hindrance to the creation of much needed
transportation facilities.
Personnel of the Bureau of Public Roads frequently are requested
to lend their assistance and advice to the Ministries of Public Works
on other construction projects. In this respect their efforts are not
unlike the work being done by technicians in the technical assistance
program. Their activities are coordinated with the other United
States missions in these countries in a satisfactory manner, with the
United States Ambassador in each country having final responsibility.
C. THE INTER-AMERICAN GEODETIC SURVEY
The purpose of the Inter-American Geodetic Survey is to provide
technical assistance and guidance in a cooperative program to complete
geodetic control and the production of maps in each of the countries in
Latin America with which the United States has made mapping and
charting agreements.
The Inter-American Geodetic Survey has missions in all ten of the
countries in Middle America. The missions in these countries have
local responsibility for the United States share of the cooperative
mapping program. The United States contributions are: the loan
of all types of equipment to cooperating governments; the provision
of technical advice and assistance on all phases of cartography; the
provision of on-the-job training for personnel of the cooperating
governments; and, the accomplishment, with United States resources,
of key mapping operations which are beyond the capacity of the
collaborating governments.
The results of the work which is being conducted by the Inter-
American Geodetic Survey are of value to the countries involved.
The mapping and charting can be of great assistance in plans for
economic development. In addition, the training provided will help
solve the problem of the overall lack of trained personnel, since the aim
of the Inter-American Geodetic Survey operation is the cartographic
self-sufficiency of the local government agencies.
D. NATURE AND OBJECTIVES OF FOREIGN AID PROGRAMS
Foreign assistance activities of the United States in Central America
and the Caribbean are confined to military assistance and technical
cooperation, except in Guatemala, where defense support is being
extended to meet emergency conditions. United States objectives
are to maintain and improve the essentially friendly relationships
already existing; to promote the defense of the Western Hemisphere
and bolster its solidarity; and to assist the individual nations in their
efforts toward more stable economies and balanced development.
Military assistance programs are small in Central America and the
Caribbean area. Something less than $10 million was requested for
the current fiscal year.¹ Technical assistance programs totaled about
$9.6 million in fiscal year 1956. In addition, approximately $21
million was obligated in 1956 for development assistance in Guatemala
and Haiti, of which $3.9 million was in the form of surplus agricultural
commodities. Program obligations for technical assistance and defense
1 Public disclosure of the size of country programs in military assistance is not possible.
1522
CENTRAL AMERICA AND THE CARIBBEAN AREA
support for the area in 1957 are estimated at $25 million. There are
no loan activities for economic development purposes under the foreign
assistance program in this area.
E. MILITARY ASSISTANCE
The military assistance program in Central America and the Carib-
bean area is confined to countries with which the United States has
bilateral military agreements. Such agreements have been made
with Cuba, Haiti, the Dominican Republic, Nicaragua, Honduras,
and Guatemala. There are no agreements with Mexico, El Salvador,
Panama, and Costa Rica. The objective of military assistance is to
assist the countries to develop military units which are to be used for
agreed hemispheric defense missions. These units also contribute to
internal security and make the countries better able to defend their
own coastal areas or territorial waters.
Under terms of the military agreements the United States under-
takes to supply material for equipping an agreed-upon number of
defense units and agrees to maintain and keep in repair some of the
end items provided. In addition, the privilege of purchasing military
equipment on favorable terms is extended. Also involved is the
training and instruction of some of the personnel of the armed forces.
In Central America and the Caribbean, the country programs are
developed jointly by the local military officials and the United States
military personnel in the Military Assistance Advisory Groups. After
consultation with the United States Ambassador and the country
team, such programs are forwarded to the area commander in chief,
in this case the Commander in Chief of the Caribbean, and final
approval is given by the Defense Establishment in Washington. In
addition, members of the Military Assistance Advisory Group usually
serve as the regular military mission to the countries.
The competency of the Military Assistance Advisory Groups in Cen-
tral America and the Caribbean area is a credit to the Military
Establishment. The planning of military programs and their coor-
dination with other United States programs is satisfactory.
The equipment provided appears to be fully consistent with the
ability of the Armed Forces to make use of it.
The training of personnel in Armed Forces schools in the continental
United States, the Panama Canal Zone, and other areas, is a vital
and effective part of our military assistance program in Central
America and the Caribbean. The opportunity for advanced schooling
for both officers and enlisted men has been readily accepted in most
instances. Indoctrination in methods and procedures of organization,
administration, planning, maintenance, and a score of other skills
and concepts, knowledge of which we take for granted, has an effective-
ness far beyond the scope of military efficiency in these countries.
As a rule, most countries utilize efficiently the military personnel
attending training programs. However, there have been cases where
the returning officer was quietly mustered out of the service. A clear
understanding, therefore, between the chiefs of our military missions
and the local military leaders is necessary in order that the training
given may be utilized efficiently.
It would be undesirable for the United States to urge military
expenditures upon any country which is not capable of sustaining such
CENTRAL AMERICA AND THE CARIBBEAN AREA
1523
expenditures. If it is believed that the country's military program is
too large in terms of its resources, a firm and quick reply to its request
for equipment should be given. It is to our interest as well as to the
interest of such countries that we do not contribute to an overextension
of their economies in terms of military expenditures.
It is highly desirable, however, that to the extent possible such
arms as these countries do possess be of American manufacture.
Otherwise, problems of the application of training and of supply could
seriously impede joint operations in time of conflict. This is especially
true in this area where no overall organization performs the same
coordination function that the North Atlantic Treaty Organization
performs in Europe.
It may be understandable that in terms of the small size of the mili-
tary assistance program in Central America and the Caribbean, the
delivery of equipment is not of the highest priority. Frequently, it
appears that the attention given to other areas and the modest quanti-
ties of equipment requested work to the disadvantage of the effective-
ness of the program in Central America and the Caribbean. There
have been several instances where deliveries have been delayed for
unreasonable lengths of time. This appears to be true for both
equipment covered by grant aid and equipment requested under the
reimbursable fund provisions.
It is recognized that the procurement and allocation of military
equipment on a global basis is not a simple problem. Regardless of
area priority and size of program, however, some method should
be established whereby grants or purchases of small amounts of equip-
ment can be expeditiously handled. The prestige factors and good-
will involved necessitate the fulfilling of agreement obligations with
all possible dispatch.
The
With the exceptions noted above, however, the military assistance
program in Central America and the Caribbean area is serving the
needs of the United States in terms of the national interest.
training aspects are well worth the time and money expended. The
growth of mutual respect and understanding which results from the
interchange and association between military personnel is of real
value in establishing the basis for American hemispheric solidarity and
security.
F. TECHNICAL ASSISTANCE
The technical assistance program has as its objective the assistance
to and cooperation with the efforts of the 10 countries toward develop-
ment. The bilateral technical assistance program of the United States
rests on the request for assistance by the host governments. The
United States cooperates with the host government by sending United
States technicians to the requesting country, by bearing the costs of
training local citizens in the United States, or in other training centers,
and by contributing United States funds toward special jointly
financed agencies, either joint fund operations under a regular ministry,
or under "servicios.
""
The technical assistance program of the International Cooperation
Administration operates through a United States Operations Mission
in each of the 10 countries. The types of activities vary in response to
94413-57-97
1524
CENTRAL AMERICA AND THE CARIBBEAN AREA
different needs, local conditions, and the willingness of the host
government either to request or to support effectively various
programs.
The fields of activity in which United States personnel of United
States Operations Missions are engaged are: agriculture, health and
sanitation, education, industry and mining, public administration,
transportation, labor, community development and housing, etc.
Regardless of the activity, however, the objective of the program in
each field is the passing on of skills, techniques, methods and pro-
cedures whereby the local citizens themselves can bring the advantages
of modern technology to bear upon the problems with which their
countries are faced.
The following table shows the estimated obligations for fiscal year
1957 for both the technical assistance and defense support (Guate-
mala) programs in Central America and the Caribbean area.
CENTRAL AMERICA AND THE CARIBBEAN AREA
1525

Central America and the Caribbean area estimated country program obligations, 1957 ¹
[Costs in thousands of dollars]
Country
Transpor.
Agriculture Industry tation
Health and
Labor
sanitation Education adminis-
tration
Public Community Miscel-
develop-
ment
laneous
Total
Costa Rica.
Cuba..
Dominican Republic.
400
49.0
183
33.0
583
51
83
El Salvador.
Guatemala-technical assistance.
324
92.0
580
68.0
30
29129
28
229
75
109
40
45.0
1,026
40
100
68
20.0
527
220
17.0
237
92
249
105
62
31.0
955
15
340
270
110
70
97.0
1,580
Guatemala-defense support.
5, 600
8, 900
500
15,000
Haiti-technical assistance.
476
343
180
30
78.0
1,107
Honduras
430
11.0
150
35
155
368
91
1, 240
Mexico.
30
542.5
110
448
50
20
82.5
Nicaragua.
393
42.0
60
31
214
43
1,283
783
Panama..
363
32.0
25
277
340
20
13
1,070
Venezuela..
127
10
30.0
167
Total
8,906
869.5
9, 299
320
2, 582
1, 922
510
166
400, 5
24, 975
Estimated country program obligations, 1957, are based upon program plans covered
within ICA approvals 57-2 and 57-4, approved Oct. 10, 1956; and are subject to revision
Source: International Cooperation Administration
during the fiscal year.
1526
CENTRAL AMERICA AND THE CARIBBEAN AREA
1. Administrative direction
In Central America and the Caribbean area the extent of control
exercised by agencies in Washington over the technical assistance pro-
grams reflects a preoccupation with unnecessary administrative pro-
cedure. Agency approval is required for most individual projects for
example. Accounting procedures apparently consume much effort
both in the field and in Washington.
While ultimately the magnitude of the programs must be reviewed
and coordinated on a global assessment of needs and costs, many of
the details of program operation could better be left to the responsi-
bility of the Director of the United States Operations Mission in the
foreign country. The Director of a United States Operations Mis-
sion, if competent, should be more able to judge local situations than
are officials in Washington.
Technical assistance programs in Middle America are not large.
To be effective, they should not be encumbered with excessive control
from Washington.
In most of Central America and the Caribbean, the Ambassador, or
an Embassy official designated by the Ambassador, works with the
Director of the United States Operations Mission as a team in aid
planning and operation. Where this situation prevails the program
is effective from the standpoint of Embassy-United States Operations
Mission coordination.
The freedom of the United States Operations Mission to get its
views to Washington usually depends on the Ambassador's concept
of his position as Chief of Mission. When the Ambassador and the
Director of the United States Operations Mission work as a team,
there are usually no objections to the full and free contact by the
United States Operations Mission with the International Cooperation
Administration in Washington.
The International Cooperation Administration, as provided by Exec-
utive order, is a semiautonomous agency in the Department of State.
The International Cooperation Administration has several carefully
delineated functions which are quite different from the government-
to-government relationships over which the Department of State has
responsibility. One function of the International Cooperation Admin-
istration is to operate programs of technical assistance. To operate
effectively the International Cooperation Administration must be rec-
ognized as having operational functions and responsibilities. Like-
wise, in the field, the United States Operation Mission must be recog-
nized as having operational functions quite separate from Embassy
functions. The position of the Director of an aid mission is one of
the keys to effective operations. The International Cooperation Ad-
ministration would do well to place greater emphasis on this position.
2. Relationship between missions and host governments
With a few exceptions, the effectiveness of the program is enhanced
by the working relationship between United States Operations
Mission personnel and their counterparts in the host governments.
Difficulties that do arise stem mostly from misunderstandings of
policy decisions made in Washington, rather than from disagreements
regarding policy on local issues. Broadly speaking, the effectiveness
of working relationships depends upon the character of United States
Operations Mission-Embassy relationships discussed above.
CENTRAL AMERICA AND THE CARIBBEAN AREA
1527
3. Personnel policy and problems
A great deal of dissatisfaction was expressed by several officials in
the governments of the countries visited over the delay in obtaining
technicians once they had been requested and their positions approved.
The length of time which transpires between the request of the host
government for a technician and the actual arrival of the technician
on the scene results in delays in the program and misunderstandings
and discouragement on the part of both the United States Operations
Mission and the host government. As other studies prepared for this
committee have shown, the recruitment of specialists with capabilities
to carry out technical assistance work is a highly complex and difficult
problem. Regardless of the reasons, however, these delays reduce
the effectiveness of the program.
Another source of dissatisfaction is the discussions concerning the
policy of personnel rotation after a 2- to 4-year period. If followed
rigidly, such a policy could do much harm to the program. If a
technician wishes to remain in a country, and if his work is satisfactory
to the Director of the aid mission, the Embassy and the host govern-
ment, he should be left to complete his work.
As seen in Central America and the Caribbean area the main need
of technical assistance programs is, and will remain, a need for
technicians interested in the work, willing to go to foreign countries,
speak the language and learn the customs, and capable of transferring
their specialized knowledge to others.
4. United States Operations Missions personnel
The caliber of United States Operations Missions personnel in
most of the countries is excellent. The missions for the most part are
well directed by experienced men who have been in technical assist-
ance work for a number of years. The technicians as a rule are well
trained and with few exceptions bring to their work a sense of dedica-
tion. In this area, the size of the aid missions does not appear to be
excessive. In fact there were unfilled positions in almost every
mission.
5. Use of private contractors
In most instances in the 10 countries visited, contractual arrange-
ments with universities and private firms for carrying out technical
assistance work are satisfactory. Some difficulties exist over interpre-
tations of terms of contracts as they apply to contract personnel.
In fields of activity where, by the nature of the operation, the
relationship between the United States Operations Mission and the
host government might be delicate, the use of contract personnel
proves an excellent method of extending guidance and assistance
while avoiding possible friction for the whole program. In some
instances contract personnel can be much more frank with host
government officials than can direct-hire technicians.
As the technical assistance program evolves and the assistance
extended in a country becomes more advisory and less operational, the
need for specialists for very brief periods of time will increase. This
short-term type of assistance can probably be extended more efficiently
by contractual arrangements. However, for programs in which the
assistance is more operational, including supervision or control of
expenditures of joint funds and control of technicians supervising
1528
CENTRAL AMERICA AND THE CARIBBEAN AREA
programs, the use of direct hire of technicians is more readily adapt-
able because of the control which must be exercised.
6. Participant program
The lack of trained local personnel is very often an impediment to
the effective completion of technical assistance projects. In some in-
stances it has been difficult to select participants (local citizens) for
training in certain fields because of the lack of qualified candidates for
such training. Shortages of qualified personnel even for training em-
phasize the real need of these countries for increasing the overall
educational aspects of the technical assistance program. The general
level of technical skills in any underdeveloped country is a major factor
in the absorptive capacity for effective use of investment and develop-
ment loans.
The training programs in the 10 countries are well received. For
the most part, effective use is made of the returning trainees within
the program or within the government ministries. At times return-
ing trainees fail to return to the position for which they received their
training. Thus, the immediate purpose of the training is not met.
In cases where the trainee is essential to the operation of the pro-
gram, care should be taken to insure his return to the position for
which he is being trained. However, when the training is of a more
generalized nature, it makes little difference, if the end result is the
effective use of the training acquired. By and large, the training or
participant program is a success by any standards. It was noted,
in conversation with American businessmen in the countries visited,
that the training program is the best known and most respected part
of the technical assistance program.
The development of constructive labor movements in many of the
countries in the area is another example of the importance of the
participant program. Indicative of the growing interests in labor in
all Latin America is the recent good-will tour headed by Mr. George
Meany, president of the American Federation of Labor-Congress of
Industrial Organizations. At the request of the labor unions of Latin
America, Mr. Meany, accompanied by Mr. David Dubinsky, Mr.
O. A. Knight, and Mr. Serafino Romualdi, made a tour of several
Latin American countries. The reception given by Ambassador
Julian F. Harrington for Mr. Meany and his party in Panama afforded
an opportunity to talk with these American labor officials as well as
officials of Panamanian labor unions.
The training of local labor leaders in the United States, and also
the training of Ministry of Labor officials, is essential if a truly con-
structive labor movement in all of these countries is to be achieved.

7. Surplus disposal
There is very little capacity for use of surplus agricultural com-
modities in Central America and the Caribbean.
Approximately $7,200,000 in corn, wheat, and beans were sent
to Guatemala in fiscal years 1955 and 1956 under Public Law 480 and
section 402 of the Mutual Security Act of 1954, as amended. As a
rule, Guatemala is self-sufficient in corn. The aid mission in Guate-
mala maintains that the wheat imports displaced regular commercial
shipments. Much difficulty was encountered in selling the beans.
Further plans for surplus disposal are not contemplated. Except to
CENTRAL AMERICA AND THE CARIBBEAN AREA
1529
meet emergency conditions, it does not appear that the use of surplus
disposal is adapted to Central America and the Caribbean area.
8. Coordination with other programs
Every mission in Middle America is aware of the essentiality of
coordinating its activities with the activities of United Nations agen-
cies and private organizations. The brief time available to look into
the activities of other agencies, public and private, which are engaged
in technical cooperation, did not permit an evaluation of the extent
of duplication of effort among the different agencies involved in the
work.
The most serious type of duplication usually arises between the
International Cooperation Administration missions and the agencies of
the United Nations. In conversation with the regional director of
United Nations technical assistance activities, it was learned that he
visits with each mission at the beginning of each year to discuss activi-
ties for the coming year. If it appears that duplication of effort
between the International Cooperation Administration and some
United Nations agency will arise, the situation is discussed with the
host government and other arrangements usually are made.
The United Nations regional director has little real control over
the activities of the specialized agencies. There has been some dis-
cussion of establishing a country supervisor or control officer for all
United Nations technical assistance activities. To be successful,
however, the acquiescence of the specialized agencies would be neces-
sary. Ultimately, duplication problems rest with the host govern-
ments. The International Cooperation Administration should urge
the establishment of a coordinating official in the host government in
those countries which do not have such positions.
9. Effectiveness of the technical assistance program
With the exceptions noted above, the technical assistance program
in Central America and the Caribbean area is effectively serving the
national interests of the United States. The cooperative efforts of
the United States Operations Missions with the agencies and minis-
tries of the host governments are designed to meet the most critical
needs for trained technicians. The programs in agriculture, health,
and sanitation, education, transportation, public administration, and
others are in fields in which development is basic.
The familiarity with American business and labor relations and
operations fostered by programs in industry and labor are well worth-
while. In addition, American products become better known through
such programs as well as through activities in vocational education.
The possible discovery of additional strategic materials as indicated
by present programs in mining also is of interest to the United States.
The trainee program, as well as the exchange program under the
Department of State, is of special importance in Central America and
the Caribbean area. Such programs contribute to the growth in
understanding of private initiative, personal freedom, and public
responsibility, as such concepts are applied in the United States. The
application of these concepts within the local political, economic and
social framework of these countries can do much to increase under-
standing. Likewise, the growth in respect for and knowledge of other
people on the part of Americans contributes to the identification of
mutual interests. The technical assistance program in Central
1530
CENTRAL AMERICA AND THE CARIBBEAN AREA
America and the Caribbean area should be continued at levels con-
sistent with the initiative shown by the host governments and the
ability of the countries to make use of the assistance provided.
G. ECONOMIC ASSISTANCE
The present program of economic assistance in Central America
and the Caribbean area is confined to a program of defense support
in Guatemala. Some $15 million will be spent in the fiscal year 1957.
This grant assistance is viewed as a commitment by the United States
to assist Guatemala in rising above the past inertia of its economy
and the economic chaos brought about by the Communist regime.
The expenditure of funds for agriculture, transportation, health and
sanitation, and rural resettlement are being used effectively and wisely.
The situation in Guatemala is still such, however, that the failure
to support effectively the present administration could result in a
reversal of the trend toward responsible democratic government.
Such a reversal would be detrimental to United States interest.
With all due respect to the desirability of keeping grant assistance to
a minimum, it would be regrettable to risk losing the effectiveness of
past expenditures in Guatemala on the supposition that future grant
aid is not in line with present policy in the area. The Ambassador
and the Director of the United States Operations Mission in Guatemala
are doing a highly commendable job and should be supported in their
efforts toward protecting and furthering United States interests in
Guatemala.
H. GENERAL COMMENT
It cannot be doubted that the real hope for development in this
area lies in the growth in private enterprise, both domestically and
through foreign private investment; that is, if development is to be
consistent with the national interests of the United States.
In several countries in this area private enterprise can presently
look forward to fewer obstacles to investment in the future. In
others, however, the lack of resources and the failure to understand
the advantages of private investment as a means to development
continue to deter any real growth.
The failure to appreciate the contribution of foreign capital to
development, at times based on memories of past experience with
foreign capital, is a situation that requires patience and education by
example.
The lack of capital resources is reflected in the inadequate roads and
other transportation facilities and in poor health and sanitary con-
ditions. Construction of such public facilities requires the expendi-
ture of public funds which very often are not available. Aside from
private developmental capital in agriculture and certain extractive
industries, the lack of basic public facilities is a deterrent to private
investment.
Some of this public development capital is being provided by such
institutions as the International Bank for Reconstruction and Devel-
opment and the Export-Import Bank. However, there still remains a
need for long-term capital on terms fitted to the ability to repay. In
several countries it was mentioned that the Smathers amendment
(introduced by Senator Smathers, Florida) to the Mutual Security
CENTRAL AMERICA AND THE CARIBBEAN AREA
1531
Act of 1954, as amended, which authorizes long-term loans at low rates
of interest, seems to be fitted to the need for long-term capital to
supplement that provided by the International Bank for Reconstruc-
tion and Development and enable these countries to make real
progress.
It is prudent, however, to take another look at the need for low-
interest, long-term, capital loans in the area, and to measure United
States interests there as opposed to other areas of the world where
such loans are being made.
The present policy of no development grants or loans except in
emergency conditions is not consistent with the need for such capital
and United States interest in the area. Ultimately, development of
the area depends upon the effective encouragement of private invest-
ment. However, there are some conditions which must be improved
before the proper environment for private investment can be achieved.
III. COUNTRY SUMMARIES
The brief time available in each of the 10 countries visited did not
permit an exhaustive study of the Central American and Caribbean
countries. Therefore, summaries are restricted to comment on the ob-
served effectiveness of the individual programs in serving the interests
of the United States.
A. CUBA
Foreign assistance programs in Cuba include both military aid and
technical cooperation.
The military assistance program in Cuba is one of the larger
military assistance programs in the area. Our assistance in military
equipment and training contributes to the internal security of the
country and provides the necessary environment for military co-
operation with the United States in time of war. The program is
consistent with the security interest of the United States in Cuba
and should be continued.
United States technical assistance in Cuba is more advisory than
operational in nature. There are no joint fund operations. There is
effective coordination and cooperation with other activities of the
United States in Cuba. Technicians render advisory and administra-
tive assistance in agriculture, education, transportation, public
administration, labor, and industry. Costs of the program in fiscal
year 1957 will be approximately $527,000.
The emphasis of the program is in the fields of agriculture and
education. Cuba's great need is agricultural diversification. Even
a partial solution of the seasonal labor problem resulting from
dependence on sugar production should provide impetus to less rigid
labor practices and encourage investment in new lines of activities.
The technical assistance program in Cuba receives the enthusiastic
approval of most American businessmen there. The training pro-
gram, especially the training of Cubans in the United States, was
noted by American businessmen interviewed as of special value to
the furtherance of United States interests.
The program of technical assistance in Cuba should be continued
as it is effectively serving United States interests there.
1532
CENTRAL AMERICA AND THE CARIBBEAN AREA
B. HAITI
Haiti has received military assistance, technical assistance, and
economic aid in recent years. At present the program is confined to
programs in military assistance and technical cooperation.
The military assistance program in Haiti is small. In view of the
economic capacity of the country, the magnitude of the program is
well adapted to the needs of United States interests in Haiti.
In 1955 and 1956 the United States granted Haiti assistance in
the form of economic development funds. This grant aid was given
in response to the plight of this small country resulting from devasta-
tion wrought by hurricane Hazel. The aid has been obligated to
programs for economic reconstruction and development in agricul-
ture, water resources and road construction. No economic aid was
included in the fiscal year 1957 budget.
The technical assistance program in Haiti is expending slightly
more than $1 million per year. The emphasis of the program is on
agriculture, health and sanitation, and education. There is also a
small program in public administration. The main activities are
joint operations and are geared to the basic needs of Haiti. Within
the limitations of conditions in Haiti, the technical assistance program
is effective and certainly is needed. The United States Operations
Mission is doing a commendable job and coordination with other
activities is efficient. However, continuance of the program on the
present basis should rest on improvements in other situations.
Economic and social conditions in Haiti are deplorable. Recently
instability in the Government has added to the seriousness of the
general situation.
The failure of succeeding governments in Haiti to carry out real
measures to improve basic conditions has resulted in growing unrest.
United States activities in Haiti have come under criticism. Dissatis-
faction has arisen over the Export-Import Bank loan to Haiti for
the development of the Artibonite Valley.
The Export-Import Bank's loans to Haiti called for the construc-
tion of a dam and the development of a basic irrigation system in
the Artibonite Valley. The development of the Artibonite Valley
would bring about 50,000 acres into production. The cost of con-
struction of the dam and irrigation system anticipated in the original
loan was $14 million. Errors in estimating construction costs, and
other factors, have resulted in an extension of loans by the Export-
Import Bank totaling $27 million. In addition, the Haitian Govern-
ment itself has expended slightly less than $5 million.
The errors in estimating costs in construction, and personality
clashes, have resulted in some friction between the Haitian Govern-
ment representatives and American technicians working in Haiti.
It is felt by many individuals that the revenues from the power
facilities and the irrigation system can never yield enough to pay for
the costs of construction. Even now the project stands uncompleted.
The obligation to the Export-Import Bank is, of course, an obligation
of the Haitian Government. There has been no indication that this
obligation will not be honored. However, the ability of Haiti to pay
for the loan depends primarily on what progress can be made in
overall economic development.
The United States must, in its own interests, scrutinize more care-
fully the expenditure of funds extended either on a loan or grant

CENTRAL AMERICA AND THE CARIBBEAN AREA 1533
basis. This is necessary to assure that such funds are expended for
the full benefit of the Haitian people.
In fact, our activities in assisting Haiti in economic and social
development must be reviewed in light of the events of the past few
years. Inasmuch as there has been a change in the Government in
Haiti, such a review will be of benefit both to that country and to
the United States.
It is doubtful that conditions in Haiti can improve without some
assistance. It is, therefore, recommended that the United States
offer to the Government of Haiti some form of administrative assist-
ance in order to improve Haiti's financial position. While such a
step is drastic, it is needed. Grant aid may be necessary, also, but
it should not be extended until such time as the conditions indicate
that it can be expended effectively and efficiently.
C. DOMINICAN REPUBLIC
United States foreign assistance programs in the Dominican Re-
public include both military assistance and technical cooperation.
The military assistance extended to the Dominican Republic ap-
parently is well received. Indicative of the cooperative efforts in the
military sphere is the recent dedication of the United States-operated
guided missile base in the Dominican Republic.
The technical assistance program is surprisingly small in the
Dominican Republic in view of the basic problems. In fiscal year
1957 the program, which is confined to education, will cost $237,000.
The activities of the educational program, which is conducted by a
jointly-operated servicio, include vocational education, industrial arts,
and rural school teacher training. The program is efficiently operated.
However, the quality of support rendered to the United States
Operations Mission by the Embassy is not satisfactory for effective
operation. As a result, the program is not serving the interests of the
United States to the fullest extent possible. Cooperation and coordi-
nation between the Embassy and the aid mission should be improved
if the program is to be continued.
D. VENEZUELA
The amazing growth of Caracas and the vast income flowing from
Venezuela's resources, especially in oil, make it difficult to understand
the necessity for a United States technical assistance program in
Venezuela. Nevertheless, the program in Venezuela is an excellent
means of improving friendly relations and assuring the Venezuelans
that the United States has an interest in their country over and above
commercial interests.
The program is small and is limited to assistance in public health.
Aside from the costs of United States technicians, $25,000 per year is
contributed to the program by the United States while $560,000 is
contributed by Venezuela. The program is effectively serving the
interest of the United States.
The commercial interest of the United States is indicated by the
fact that American oil companies contribute to the Venezuelan
Government over one-half the cost of the entire budget. One com-
pany alone pays almost the entire costs of the public works program.
1534
CENTRAL AMERICA AND THE CARIBBEAN AREA
E. PANAMA
The importance of the Panama Canal Zone to the national security
of the United States is well recognized. The headquarters of the
United States Commander in Chief of the Caribbean is located in the
Zone.¹ He and his staff are to be commended for their fine accom-
plishments and the high caliber of the United States military staffs
throughout the area.
There is no military assistance program in Panama, since United
States military forces are stationed in the Canal Zone and since
Panama has no armed forces as such.
The technical assistance program in Panama is of special impor-
tance. This program can do much to solidify the friendship between
Panama and the United States and to increase mutual understanding
on problems between the two countries, especially those arising out of
considerations involved in the Canal Zone.
The program in Panama embraces the following activities: agricul-
ture, industry, transportation, health and sanitation, education, public
administration and community development. The activities of the
missions are effective in serving the national interests of the United
States and the program should be continued.
It has been said by some that Panama has the "canal complex"
and that it will continue to depend on the United States and the com-
merce of the canal instead of instituting reforms and programs of self-
development. However, the new administration in Panama which
came to office in the fall of 1956 is indicating a renewed interest in
development. The United States, with an overriding security interest
in Panama, can do much to support the efforts of the Panamanian
Government by making clear that it stands ready to assist in real
programs of development that will widen the economic base and will
furnish the mass of the people greater educational and economic
opportunities.
F. COSTA RICA
Costa Rica is representative of the divergencies in people, resources,
and economic conditions that are found in Central America. This
small country has a literacy rate of some 88 percent. A boast fre-
quently repeated is that Costa Rica has more schoolteachers than sol-
diers. This is indicative of the widespread aspirations for economic
betterment to be found in the country.
There is no military assistance program in Costa Rica although
security forces are receiving training in the military schools in the
Canal Zone.
The technical assistance program of the United States Government
in Costa Rica costs about $1 million per year. Activities engaged in
by the United States Operations Mission are: agriculture, industry,
transportation, labor, health and sanitation, education, and commu-
nity development. For its size, Costa Rica has one of the largest
training programs in the area. The success of the training program
is due in part to the high literacy rates found in the country.
With the growing strength of the middle class in Costa Rica the
technical assistance program should become more advisory and less
1 During the visit to Panama, Gen. William K. Harrison was Commander in Chief of the Caribbean.
Since that time, December 1956, Lt. Gen. Robert M. Montague has assumed command.
CENTRAL AMERICA AND THE CARIBBEAN AREA
1535
operational. Under these conditions greater use could be made of
contract personnel, especially university people.
Costa Rica is beginning to look outward for sources of industrial
development. There are some indications that the government is
favorable toward public development of basic industries such as
power. The technical assistance program in Costa Rica should be
continued as an effective means of furthering United States interests
in this country.
G. NICARAGUA
The United States operates both a military assistance program
and a technical assistance program in Nicaragua.
The military assistance program in Nicaragua is operated by a
military assistance advisory group. These United States Army
officers and enlisted men also serve as the military mission to Nica-
ragua. They appear to have the utmost confidence and respect of the
Nicaraguan officials and are effectively representing United States
interests in the country. Various factors, however, have delayed the
effective use of the military equipment previously supplied under the
agreement. Action is now being taken to activate the military unit
for which the equipment was supplied.
Under the technical assistance program in Nicaragua some $783,000
will be obligated in fiscal year 1957. Activities of the program include
assistance to the Nicaraguan Government in fields of: agriculture,
education, health and sanitation, transportation, industry and com-
munity development. The greatest emphasis is on agriculture and
education.
The demonstration and research center operated by the agricultural
servicio is particularly noteworthy. It represents a fine example of
joint efforts on the part of the United States Operations Mission and
the Nicaraguan Ministry of Agriculture. Also deserving special note
is the vocational school to which the University of Florida, on contract,
furnishes administration and operational guidance. This school is
filling a real need in Nicaragua for the lack of trained mechanics and
other labor technicians.
The technical assistance program in Nicaragua should be continued.
The cooperative efforts of the United States and Nicaragua are effec-
tively serving the mutual interests of both countries.
H. HONDURAS
The foreign assistance programs in Honduras include both military
assistance and technical assistance.
The military assistance program has as its immediate objective
assisting in the formation and training of an infantry battalion. The
program is progressing satisfactorily. However, there is a basic con-
dition in Honduras that raises the question of whether additional
military aid is not required. In eastern Honduras there are large
areas completely undeveloped. The lack of roads and other govern-
mental facilities prevents even a slight development of the area.
effect, law and order are practically unknown in the region.
In
The Honduran Government does not have the resources to stabilize
this area. Yet, there are unknown resources there which must be
brought within the country's economy and under the influence of
governmental authority if overall development is to be achieved.
1536
CENTRAL AMERICA AND THE CARIBBEAN AREA
The internal stability of Honduras will be at stake as long as this
area is not brought under some semblance of law and order. The
country mission in Honduras has recommended that military assist-
ance be increased in order that this problem can be solved. It would
appear that such an increase in military aid is warranted by the basic
situation and by the United States interests involved.
The technical assistance program in Honduras is dealt with on a
country team basis. The various United States missions in Honduras
are to be commended for their effective coordination and cooperation.
The cost of the technical assistance program in Honduras is approxi-
mately $1.2 million. Activities are being undertaken in the fields of
health, agriculture, education, civil aviation, highways, census, tariff,
and coal development. The first 3 are conducted through cooperative
services and the last 5 activities mentioned above are advisory in
nature.
The technical assistance program is effectively meeting the needs
in Honduras to the extent that such needs can be met by programs
of technical cooperation. The program certainly should be continued,
but Honduras is one example of the necessity for the exercise of
patience on the part of the United States in cooperative development
efforts. The achievement of stability and development in Honduras
is a long-run problem and requires both outside assistance and patient
understanding of interests and goals.
I. EL SALVADOR
El Salvador is caught between limited local resources and an
expanding population. The Government is developing a long-range
program of economic and social development. In its efforts toward
development, it has requested the assistance of several international
agencies, in addition to the assistance requested of the United States.
There is no military assistance program in El Salvador. The
technical assistance program of the United States in El Salvador costs.
slightly less than $1 million per year. The technical assistance
activities in the fields of agriculture, industry, labor, health, and
sanitation, education, and public administration, are well adapted to
Salvadorean needs.
The individual United States technicians in El Salvador are to be
commended for their efforts. However, the program in El Salvador
would be more effective if the mission, when present commitments are
completed, would revise the program and reduce the number of
activities.
The quality of support given by the Embassy to the United States
Operations Mission is to be questioned. More effective coordination
and support are necessary for the success of the program.
The program should be improved as suggested above and continued
as a necessary means of serving United States interests in El Salvador.
J. GUATEMALA
United States foreign assistance activities in Guatemala include
military assistance, defense support aid, and technical assistance.
The military assistance program in Guatemala is small, and it has
been effective. At present, training is the major part of the program
and no increase is contemplated in the immediate future.
CENTRAL AMERICA AND THE CARIBBEAN AREA
1537
The technical assistance program in Guatemala is the largest
technical assistance program in the area. This year some $1.6 million
will be expended. There are direct-hire technicians and contract
personnel giving assistance in agriculture, industry, transportation,
labor, health and sanitation, education, public administration, and
community development.
In addition to the technical assistance provided, some $15 million
in defense support is being obligated during fiscal year 1957. These
grant funds are being expended for economic development programs
in agriculture, transportation, and health and sanitation.
One of the more important programs of the Guatemalan Govern-
ment in which the United States cooperates is the building of roads,
both main highways and farm-to-market roads. The lack of trans-
portation facilities long has deterred development of the more remote
regions of Guatemala.
Assistance, both advisory and financial, is being extended to a
program of rural resettlement under which several thousand families
are receiving parcels of land for nominal fees, as well as other assistance,
such as rural credit. This program is meeting a great need in
Guatemala for a strong agricultural middle class. It is significant to
point out that one of the larger tracts of land on which rural resettle-
ment is going forward was ceded to the Guatemalan Government by
the United Fruit Co. Most American businessmen interviewed in
Guatemala approve and support the United States foreign assistance
efforts there.
The coordination and cooperation between all the United States
missions in Guatemala can be characterized as excellent. Further,
the relationships between the aid mission personnel and officials in the
Guatemalan Government are conducive to effective achievements
of the program objectives.
Despite the emergency aspects of the situation in Guatemala the
expenditure of aid funds has not proceeded on a crash basis._ Careful
scrutiny has been given to every program and project. Frequent
evaluations have been helpful in pointing to needs for shifts of emphasis
in the overall program. The Ambassador and the Director of the
United States Operations Mission and their staffs are to be commended
for the fine work they are doing in furthering United States interests
in Guatemala.
The immediate question the United States faces in Guatemala is
how long economic assistance must be continued to meet the require-
ments of United States interests in Guatemala. As has been pre-
viously mentioned, a reversal of the trend toward more democratic
government is possible if the present administration is unable to
demonstrate gains over the next 3 years.
A review of the financial situation by our representatives indicates
that the costs of the programs needed cannot be borne within the
borrowing limits of the Guatemalan economy. Grant aid is needed to
supplement loans from the International Bank for Reconstruction and
Development and local financing of Government expenditures.
It must be emphasized that the United States is more than just an
interested observer in Guatemala. Our policy statements in the past
assuring Guatemala of our interest in their plight and the interests of
the United States in supporting the efforts toward development under
1538
CENTRAL AMERICA AND THE CARIBBEAN AREA
democratic processes constitute a moral commitment to Guatemala
that all reasonable assistance will be extended.
It is recommended that grant aid be extended to Guatemala on the
basis of the recommendations of our representatives there.
K. MEXICO
United States foreign assistance activities in Mexico are limited to
a program of technical cooperation. In comparison with the size of
Mexico, the technical assistance program in that country is modest.
Obligation of funds for fiscal year 1957 will amount to approximately
$1.3 million.
Fundamentally, the technical assistance extended to Mexico con-
sists of advisory and consultative services of technicians and monetary
contributions for supplies and materials to carry out cooperative
demonstration projects. The major administrative and financial re-
sponsibility of the program lies with the host Government. Coopera-
tive efforts are being undertaken in the following fields: health and
sanitation, industrial productivity, industrial research, training of
mechanics and operators of heavy roadbuilding equipment, mining,
geology, and regional studies in central banking.
Training of local citizens is an important part of the technical
assistance program in Mexico and one of its most successful operations.
It is estimated that at least one-third of the cost of the program goes
toward training of Mexican citizens in the United States.
The exchange of knowledge and transfer of skills through non-
governmental channels, especially the operations of private business
firms in Mexico, is of great significance to the economic progress of
the country.
It was observed that in their business relations most American
businessmen in Mexico contribute to a better understanding between
the people of Mexico and ourselves. Several American businesses are
creating a more favorable and friendly investment climate by rein-
vesting all or a part of their earnings in Mexico, thereby demonstrating
a faith in the future of that country. Of particular significance in
this respect is the foresight shown by a power company of foreign
origin that is permitting Mexicans to invest in the company's expan-
sion. Such action has resulted in favorable reaction as convincing
proof that the company believes its future lies in the development of
Mexico.
The opportunity to talk with Sr. Fidel Velasquez, head of the labor
movement in Mexico, was most rewarding. The constructive attitude
of the labor movement in Mexico that has developed within the past
decade (and the subsequent diminution in Communist influence) is a
situation not generally known in the United States.
Such evolving conditions in business and labor in Mexico as are
discussed above are contributing factors to a sounder understanding
and more friendly relations between Mexico and the United States.
It is not clear that real cognizance is taken of such developments in
our overall relationship with Mexico.
The individual competency of the personnel in the United States
Operations Mission is high. However, under present conditions the
full potential of the program effectively to serve the interests of the
United States in Mexico is not being realized. A more effective
CENTRAL AMERICA AND THE CARIBBEAN AREA
1539
appraisal of the economic situation by Embassy personnel with regard
to United States interests is needed. A broader understanding of
the technical assistance program is required. In addition, an increase
in the quality of support given by the Embassy to the United States
Operations Mission can result in greater effectiveness of the program.
The past history of United States relations with Mexico and the
psychological effect of living next to a world power are things that
should not be forgotten in our relations with Mexico. The success
of our policies largely depends on the degree of confidence that our
official representatives can instill in the Mexican Government with
regard to the mutuality of interest of the aims which the United States
pursues.
94413-57-98
SURVEY NO. 10
YUGOSLAVIA
BY
ALLAN B. KLINE
FORMER PRESIDENT, AMERICAN FARM BUREAU FEDERATION
APRIL 1957
1541
•
CONTENTS
Letter of transmittal_
I. Introduction__
II. Strategic location of Yugoslavia_
III. Yugoslav-Soviet Union relations_
IV. Yugoslav-United States relations_.
V. Economic conditions in Yugoslavia_.
VI. Military posture of Yugoslavia
VII. Stability of Yugoslav Government_
VIII. Recommendations on aid programs..
Appendix:
Economic data_.
-
Mutual security economic assistance to Yugoslavia.
Sale of surplus agricultural commodities under Public Law 480--
Use of mutual security counterpart and local currency sales proceeds.
Use of Public Law 480 local currency sales proceeds..
Wheat shipments to Yugoslavia.
Yugoslav consumption (wheat)
Yugoslav consumption (cotton).
I
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LETTER OF TRANSMITTAL
To the Chairman and Members of the Special Committee to Study the
Foreign Aid Program:
Attached is a report on Yugoslavia. It states conclusions and
recommendations, and in the briefest possible way the most important
considerations back of these judgments. In this statement every
effort has been made to exclude rather than to include, in order to
give emphasis to things which seem to me to be important.
Respectfully submitted.
ALLAN B. KLINE.
1545
YUGOSLAVIA
I. INTRODUCTION
The Government of Yugoslavia is a Communist government. Its
philosophers are Communist ideologists. Josip Broz Tito is in full
command. The whole fabric of thinking in control there is in contra-
diction to our own philosophy of the appropriate relationship of
government to people, and of people to their government.
Our program in Yugoslavia is sizable. The population is something
over 17 million. Exclusive of very large United States contributions
to the United Nations Relief and Rehabilitation Agency for Yugo-
slavia immediately postwar, and important private relief operations in
the country, largely with United States Government resources, the
United States assistance programs in Yugoslavia to date have totaled
more than $1.5 billion. Continuation of expenditures certainly de-
serves careful accounting of past programs and appraisal of any future
ones on the basis of the most discriminating judgment of United States
interests. The Yugoslavs direct their activities, vis-a-vis this country,
according to their interests as they see them. In the long run, we
shall not only get along with them better, but serve our own pur-
poses most effectively, if we deal with their government on the basis
of what seems to us to be in our interests. And, let us not forget
that we are dealing, as a government, with the Government of Yugo-
slavia. We are not, in these programs, dealing as individual taxpayers
here with individual citizens there.

II. STRATEGIC LOCATION OF YUGOSLAVIA
Its geographic location is strategic. Inserted here is an outline
map so that this point can be seen as well as read. It takes only a
glance to see that on the east and northeast are Russian satellites,
Bulgaria, Rumania, and Hungary, backed on the north by Czecho-
slovakia, and on the northeast by the Soviet Union. On the north-
west is Austria, a power vacuum. On the southwest is Albania, a
Communist-controlled country with close working relationships with
Russia.
Again, Yugoslavia has a long coast line on the Adriatic with free
access to the Mediterranean. There are already reasonably good
roads to Rijeka, a major seaport, which boasts a shipyard. This
yard already produces 15,000-ton vessels and is currently being readied
for the production of ships twice that size and better.
Yugoslavia is a perfectly natural "next step" for an expansionist
Russia. All of this is but to reemphasize the statement already made.
Their geographic location is strategic.
1547
1548
YUGOSLAVIA

I T
AUSTRIA
+
K
CZECHOSLOVAKIA
• Ljubljana
Rijeka
*20850!
HUNGARY
YUGOSLAVIA
Belgrade
Adriatic
ALBANIA
RUMANIA
U.
S.
S.
a.
BULGARIA
Black
Sea
Dardanelles
ܐ Darde
GREECE
Aegean Sea
Bosporus
TURKEY
Sea of
Karmara
урата
TURK EY
Medit
ano an n Sea
The Government of Yugoslavia has already been characterized in
a few words. Internationally its situation is unique. In the current
world struggle, it is "in between." The physical location of the
country has been, and continues to be, a most important cause of its
international policies.
III. YUGOSLAV-SOVIET UNION RELATIONS
Immediately after the war there was a complete accord with Russia.
In fact, Tito was approved by Russia for the job of managing Yugo-
slavia.
The serious rift with Russia took place in 1948, at the time of the
Berlin air lift. I visited Yugoslavia for a few days during 1950.
At that time the Yugoslav people, with whom I talked, were freely
discussing the evils of Stalin's regime were, in fact, at least as harsh
with it as most Americans. This break was made tenable by Ameri-
can assistance. The reasons will be clear later when we look at their
economic situation.
YUGOSLAVIA
1549
Two years ago followed the "normalization" of relations with
Russia. This was a recognition on the part of Yugoslavia of the
advantages which it could achieve if it could gain favoritism and
credits with Russia and her 'satellites, and at the same time make a
deal with the West, and be assisted by the United States.
At the moment her relations with Russia are strained. For this
there seem to me to be three major reasons. The first is Yugoslavia's
insistence that she will not adhere to any bloc. This does not fit the
ideas of the Russian Government for a worldwide Communist setup.
The second difficulty between Russia and the Yugoslavs is their
philosophy of "separate roads to socialism." This again emphasizes
nationalism as against a monolithic Russian-controlled Communist
state.
A third and very serious difficulty involves Russian loans. Subse-
quent to the rapprochement, very large loans from Russia were
negotiated on terms of interest and repayment most favorable to the
Yugoslavs. Recently, these loans have been "postponed."
In my conversation with Tito, it became clear that Russia had set
conditions for these credits that Yugoslavia was unwilling to meet.
While he did not name the conditions, they were probably not con-
cerned with the business aspects of the loans. These loans were
primarily capital loans for the building of a very large aluminum
plant, and fertilizer and hydroelectric plants, as well as others. It
is possible that the Russians felt free to make conditions which would
not be acceptable because their own economy would have been em-
barrassed had the agreements been carried out. However, this is
only a guess. In any case, the loans are off and the Yugoslavs are
very much irritated.
IV. YUGOSLAV-UNITED STATES RELATIONS
The two most important aspects of Yugoslavia's foreign relations
concern its dealings with Russia and its dealings with the United
States. The United States relations have reflected the same condi-
tions described above, but with opposite effects.
From the end of the war until the break in 1948 there was increasing
skepticism in the United States with regard to the Government of
Yugoslavia. This paralleled the growing recognition in our country
of the fact that the Russian dictatorship did intend to rule the world.
It became increasingly clear to Americans that our way of life was
threatened by this intention and it seemed that Yugoslavia was clearly
part of the power of Russia.
The break in 1948 made it seem possible that this situation could
be altered to our advantage. From that time until now we have
given them, in total assistance from the American people, over $1.5
billion. Of this, some has been in military assistance.
The seeming accord with Russia a couple of years ago raised grave
doubts as to the future intentions of Yugoslavia. It, therefore,
caused us to question the ultimate use of economic and military
strength which they might develop as it related to the world struggle
for freedom.
Currently the prospects for solid gain to the cause of freedom from
a successful and independent Yugoslavia are very much improved
indeed.
1550
YUGOSLAVIA
V. ECONOMIC CONDITIONS IN YUGOSLAVIA
In order to appraise the prospects and make reasonable decisions
with regard to our own interests, it is necessary to take a look at the
economic situation. Attached to this report (see appendix) is a
brief statistical analysis prepared for me in our Embassy at Bel-
grade. I shall here set down some of the most meaningful aspects
of the current status.
The economy of Yugoslavia is not viable at present. Their most
difficult situation concerns food. The diet is basically a bread diet.
It has been upgraded since before the war, but the upgrading involved
primarily the substitution of wheat for corn.
The prewar population of Yugoslavia was about 14 million. They
claim to have lost 1 person out of 9. In spite of these losses, the
present population is 17-odd million.
Agriculture is unprogressive. Production now is only at the pre-
war level. In addition, because of urbanization and industrializa-
tion, a much higher proportion live in cities. Except in very good
years, they require imports approximately sufficient to feed the urban
population.
While there is recognition of the necessity for improving agriculture,
the immediate outlook is not good. The Yugoslavs tried a thorough-
going collectivization program and gave it up because it did not work.
There is no question about their interest. Among major govern-
mental officials, who spent considerable time in our interviews discuss-
ing their plans for agriculture, were President Tito, Vice President
Vukmanovic-Tempo, Secretary of State for Foreign Affairs Koca
Popovic, Under Secretary of State for Foreign Affairs Vladimir
Velebit, member of the Federal Executive Council Slavo Komar, and
several others. There is no question but that they understand the
necessity. There is no question but that the agricultural resources
are there. There is a grave question about their ability to get the
job done at least in the near future.
The next question raised is, of course, whether they are able to
export industrial products to pay for these necessary imports. The
answer is "No." They do have exports and they talk a great deal
about them, but their balance of payments is still an unfavorable one.
In 1956 they imported almost $200 million more than they exported,
and for so small an economy this is a very large amount.
Furthermore, this is not a new situation. Yugoslavia is already
burdened with an outstanding foreign debt of approximately $300
million. Some of the amounts outstanding on major loans and
credits are:
International Bank for Reconstruction and Development.
The United Kingdom.
Export-Import Bank..
Germany.
1
I
I
Million
$53. 2
51. 2
48. 2
42. 6
From the above situation, it is clear why they are so much interested
in loans. The gist of the conversation on this point with Mr. Tito is in
order. He mentioned their requirements for capital and stated that
it was his opinion that the United States could well afford to furnish
the capital. When asked what he considered to be our interests in
aid to them, he gave the usual answer of "peace"-to be sure, not in
a word. They would like to have private capital. I explained to
YUGOSLAVIA
1551
him that our Government did not say to an individual or to a com-
pany that it should invest its money in the United States, or in some
other country, but left them free to invest it where they thought
it would do them the most good. I analyzed the situation and
pointed out that it did not seem possible that any considerable private
capital could move to Yugoslavia under present circumstances.
Then I explained to him that when he proposed capital from the
United States, and when it couldn't move of its own accord, the dis-
cussion was removed from a strictly economic one to a political one.
Once it was in the political field, then in our country it was essential
that the people believe that it was in their interest. I explained to
him that neither the Ambassador, nor the President of the United
States, nor the Secretary of State, nor all of them could invest money
except as Congress appropriated it from taxes paid by our citizens.
Further, I explained that Congress was, of necessity, sensitive to what
the people considered to be their interests, and drew the conclusion
that it should be obvious that any considerable movement of capital
from our country to his, under these circumstances, would have to be
based upon both countries being convinced that their interests were
well served by such investment.
To summarize the economic situation, the economy of Yugoslavia is
not a going concern at the moment. Its weakest point is food pro-
duction. It has an unfavorable balance of payments in foreign trade
and already a very considerable foreign debt. They are intensely
interested in new capital-in outside capital. Without assistance
from the United States they would have no choice but to go back to
Russia.
VI. MILITARY POSTURE OF YUGOSLAVIA
Certainly a word about the military is in order. Our military
assistance personnel work under some handicaps in the country. It
is their best opinion, and certainly it seems an altogether reasonable
one, that Yugoslavia could not withstand any considerable military
action mounted against them by Russia.
They could furnish an effective delaying operation. They would
finally retreat into the mountains, and from there could hold out for
a long time and tie down a great many opposing troops.
VII. STABILITY OF YUGOSLAV GOVERNMENT
In any program of aid, the question of the stability of the govern-
ment at home is important. There is discontent in Yugoslavia.
There are various groups hard to hold together, but there is nothing
at the moment to endanger the administration.
The determination not to be part of the Russian bloc is real. There
are many reasons for this conclusion. One is the possibility of trade
with the West, and another is their very sincere hope of getting assist-
ance from the United States. They may also believe that they can do
better, insofar as Russia is concerned, by maintaining an independent
position, if possible. Further, it seems to me entirely consistent with
the personal interests of the people now in command in Yugoslavia.
The major personalities would probably be removed as one result of
close dependence on Russia. It would not come immediately but it
1552
YUGOSLAVIA
would seem inevitable in light of the fact that they have already
caused the Russian government considerable embarrassment.
VIII. RECOMMENDATIONS ON AID PROGRAMS
Certain recommendations seem in order. Since the economy is
not viable, and since their independence from the Russian bloc is
essential to us as well as to them, we should continue economic aid
based on our own interests as we see them.
The defensive capabilities of Yugoslavia will be considerably
improved by completing the promised military aid. The components
involved would be useful for their purposes and consistent with our
aims. They are not of such a nature as to be a threat to us in any case.
Relations will be greatly improved if these commitments are fulfilled
promptly.
There has been a modest technical assistance program in Yugoslavia.
We should give favorable consideration to this sort of aid. It has the
ability to multiply results. It would seem to me profitable to make a
modest shift in our aid in the direction of emphasis on this program.
Our interests there must be considered primarily on the basis of our
own defense. Continued military and economic aid must be con-
ditioned on constant reappraisal of the United States interests.
APPENDIX
YUGOSLAVIA
Economic data
Population___.
Area
Gross national product (GNP) in 1955.
Per capita consumption in 1955-
Defense expenditures, a percentage of GNP
Imports, in fiscal year 1956.
Exports, in fiscal year 1956.
Gold and dollar reserves:
1955
1938.
Index of industrial production:
Prewar
1950__
1
1955___
Index or wholesale prices:
I
1
I
1
I
I
1
1
t
1
1
17,700,000.
98,608 square miles.
$5.2 billion.
$144.
10 percent.
$486 million.
$293 million.
$29 million.
$57 million.
55.
100.
138.
Industry:
1953.
1955__
Agriculture:
1953__
1955.
100.
107.
100.
126.
Mutual security economic assistance to Yugoslavia
Fiscal year 1951..
Fiscal year 1952.
Fiscal year 1953…….
Fiscal year 1954.
Fiscal year 1955..
[In millions of dollars]
Fiscal year 1956...
Proposed fiscal year 1957…….
Estimated total, June 30, 1957-
Obligations

Economic
aid
Technical
exchange
1 92.9
81.4
0.1
121.8
.6
64.8
1.7
43.5
2.-.8
29.0
1.0
13.5
1.5
446.9
4. 1
¹ Includes $65 million emergency food relief assistance program in fiscal year 1957 administered by State.
• Reflects deobligations of $1.3 million and obligations of $0.5 million.
Sale of surplus agricultural commodities under Public Law 480
Fiscal year 1955.
Fiscal year 1956....
Fiscal year 1957...
Total..
[In millions of dollars]

Title I
Title II
(CCC prices)
52.0
46. 7
71.2
98.3
221.5
46.7
1553
1554
YUGOSLAVIA
Use of mutual security counterpart and local currency sales proceeds (generated by
programs through fiscal year 1956)
Counterpart:
[Millions of dollars]

Total accu- Approved
mulations
(90 percent
account)
for release
(Oct. 30,
1956)

Military projects.
128.2
128.2
Agriculture projects..
33.0
29.0
Industry projects..
22.8
22.8
Tourism, transportation, etc., projects..
Unprogramed.
20.0
20.0
21.3
Total..
225.3
200.0
Sec. 550 sales proceeds:
Offshore procurement.
5.0
Kopar Buje community development..
20.0
20.0
Zagreb Ljubljana Highway..
10.0
10.0
Total...
35.0
30.0
Sec. 402 sales proceeds:
Loan for mutual defense support…………
Zagreb Ljubljana Highway.
15.0
10.0
10.0
Mutual defense projects...
Total...
23.0
48.0
10. 0
Use of Public Law 480 local currency sales proceeds (generated by programs through
Title I:
fiscal year 1956)
[Millions of dollars]

Loans for economic development..
Military facilities for common defense………….
United States purposes..
Total
Title II: Economic development projects...
1 There have been no releases of Public Law 480 local currencies.
----
Total ac-
cumula-
tions 1
82.7
88.8
50.0
221.5
23. 4
YUGOSLAVIA
1555
Wheat shipments to Yugoslavia¹ (June 30, 1956)
[Thousands of dollars]

Cumula-
tive
Fiscal year
1956
Expenditure basis:
Total food and agriculture..
Bread grains.
Other foodstuffs.
Obligation basis:
Total food and agriculture..
Bread grains..
Public Law 480, title I, program basis:
Total food and agriculture.----
Bread grains....
Other foodstuffs.
Public Law 480, title II, program basis:
Total food and agriculture..
Bread grains...
Other foodstuffs.
201.107
95. 156
28.699
15. 143
23.328
203.164
21.260
95, 288
10.300
*.328
105. 032
60.500
76. 132
41.200
10.800
10.800
45.700
44.625
1.075
1 Figures exclude the $65 million emergency food relief program administered by State in fiscal year 1951.
All figures exclude ocean-transportation costs.
2 Fish.
• Major agriculture in addition to wheat were cotton, coarse grains, tallow, wool, and fertilizer in descend-
ing order of importance.
YUGOSLAV CONSUMPTION
Wheat
[Thousands of metric tons]

Wheat and rye
1954-55
1955-56
1956-57
Beginning stocks (July).
Domestic distribution.
Imports....
Total...
109
19
142
255
474
180
1,114
1,083
1 1,555
1, 478
1,576
1,877
Consumption...
1,459
1, 434
1,600
Exports...
0
0
0
Ending stocks (June 30)…--
19
142
277
Total.
1, 478
1,576
1,877
1 Imports from the U. S. S. R. expected to total 470,000 tons.
94413-57--99
1556
YUGOSLAVIA
Cotton: 1
Stocks.
Domestic deliveries..
Imports....
Consumption------
Exports..
Closing stocks.
Cotton imports:
United States……….
Egypt.
Turkey.
Greece.
U. S. 8. R……….
Brazil.
Burma.
Other.....
Total...
¹ Includes staple fiber as well as raw cotton.
Cotton
[Tons]

U. 8. Oper-
Yugoslavations Mis-
1955-56
forecast,
1956-57
sions, Yugo-
slavia
forecast,
1956-57
9, 951
1,800
21, 429
21, 429
52, 846
43, 168
2,000
51, 416
2,000
47,600
50,059
46,700
0
0
0
21, 429
24, 786
24, 329
20, 216
34, 416
32,000
4. 104
4,000
2,600
1, 363
2,000
2,000
4,285
2,000
2,000
5, 597
5. 485
1,054
580
3,000
3,000
42, 684
45, 416
41, 600
VIEWS OF PRIVATE AMERICAN CITIZENS ABROAD
ON THE FOREIGN AID PROGRAM
A SUMMARY
MARCH 1957
1557
PREFACE
By Theodore Francis Green, Chairman, Special Committee To
Study the Foreign Aid Program
The Senate on July 11, 1956, passed Senate Resolution 285, creating
the Special Committee To Study the Foreign Aid Program. The
Senate instructed this special committee to make-
exhaustive studies of the extent to which foreign assistance
by the United States Government serves, can be made to serve,
or does not serve, the national interest, to the end that such
studies and recommendations based thereon may be avail-
able to the Senate in considering foreign aid policies for the
future.
In the conduct of its study the special committee was instructed
by the Senate to make-
full use
*** of the experience, knowledge, and advice of
private organizations, schools, institutions, and individuals.
The special committee felt that private American citizens living
and working abroad who have experienced the opportunity to observe
foreign assistance programs in the recipient countries could contribute
valuably to its work. To this end the cooperation of business and
other organizations with substantial overseas interests was elicited.
The special committee requested some 50 business concerns, news-
reporting agencies, and religious and other organizations to transmit
to their American overseas personnel a questionnaire prepared by the
staff on the effectiveness of the foreign aid program. About half
were able to assist. This study is a summary analysis of the responses
received from some 30 organizations and to the more than 250 of their
representatives abroad who responded to the questionnaires.
I am sure the special committee would want particularly to express
its thanks to Mrs. A. Kristian Jensen, wife of Dr. A. Kristian Jensen,
a missionary who died before completing his response to the question-
naire. Mrs. Jensen was gracious enough to prepare a summary of
Dr. Jensen's notes and forward it to the special committee.
I should like to note that I am greatly impressed by the breadth
and the perception of the views expressed by the private American
citizens whose comments are summarized in this study. They have
advanced numerous ideas with respect to the aid programs which I am
sure the special committee will want to consider most carefully.
This study was prepared for the committee by Dr. James S. Sweet
of the Legislative Reference Service, of the Library of Congress. It
is printed for the use of the Special Committee To Study the Foreign
Aid Program, and does not necessarily reflect the views of the special
committee or of any of its members.
1559
CONTENTS
Preface__
I. Introduction.
II. How the aid programs serve the United States interest..
III. Underlying reasons for foreign aid_
IV. Impact of aid programs.
V. Effect of aid programs upon relations with recipient nations_
VI. Local criticisms..
VII. Need for better understanding of programs.
VIII. United Nations and other agencies__.
IX. Soviet bloc aid__
X. Types of programs.
XI. Conditions of aid….
XII. Administration...
XIII. Personnel____
XIV. Summary---
Appendix: Questionnaire..
!
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1
I
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1563
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1566
1567
1569
1570
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1575
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1577
1579
J
1581
1561
VIEWS OF PRIVATE AMERICAN CITIZENS ABROAD
ON THE FOREIGN AID PROGRAM
I. INTRODUCTION
This study is based upon responses to a questionnaire which was
distributed to United States citizens residing in nations receiving
United States foreign aid.¹ A copy of the questionnaire is appended.
The questionnaire was distributed through the head offices of
United States business corporations and six news-gathering agencies,
missionary groups, and social agencies which maintain representatives
abroad. It was stipulated that the respondents must be citizens of the
United States.
Responses are necessarily concentrated in areas in which United
States corporations, missionary societies, and other agencies maintain
representatives.
Among the countries from which reports were received, or with
which correspondents were familiar, are:
Great Britain, France, Portugal, Spain, Belgium, the Netherlands,
Federal Republic of Germany, Denmark, Norway, Italy, Austria, and
Greece.
Liberia, Morocco, Tunisia, Egypt, Israel, Jordan, Lebanon, Turkey,
Iraq, Iran, Afghanistan, Pakistan, India, Burma, British Malaya,
Australia, Indonesia, Thailand, Hong Kong, Taiwan, the Philip-
pines, Japan, the Ryukyus, and Korea.
Mexico, Guatemala, Honduras, Costa Rica, Nicaragua, Panama,
Colombia, Cuba, Haiti, Dominican Republic, Jamaica, Venezuela,
Brazil, Peru, Ecuador, Paraguay, Uruguay, Argentina, and Chile.
II. HOW THE AID PROGRAMS SERVE THE UNITED STATES INTEREST
Although many correspondents express doubts concerning various
aspects of the programs, there is a high degree of agreement among
them concerning the objectives of United States aid and the value
of the programs in advancing them. Virtually all state that past pro-
grams have been useful from the point of view of United States in-
terests. A few state they have not only been useful, but that they have
been an "essential" or "vital" component of the United States policy.
Of the critics, one says that the programs have been useful but
hardly necessary. Another said-
I have yet to hear a favorable comment about the United States aid programs
from other than Government personnel involved in the program or those who
stand to profit by it.
1 All comments contained in this study are those of United States citizens in foreign
countries who responded to the questionnaire or comments made by officials in the head
offices of organizations which circulated the questionnaire. The Legislative Reference
Service has attempted to present an impartial summary of the range of opinion represented
in responses given to the questionnaire.
1563
1564
FOREIGN AID PROGRAM
One respondent, a missionary, remarks that there is too much em-
phasis placed upon the advancement of United States self-interest,
but most of the other observers place a high value on this objective.
The proper objectives of aid programs are seen variously as:
1. Increasing the military defense potentialities of the coun-
tries in question.
2. Increasing their economic potentialities.
3. Encouraging various political, economic, and social atti-
tudes which it is assumed will make for the development of free
societies.
4. The creation of foreign markets and sources of supply for
the United States.
5. Development of better trade relations as a means of easing
international tensions.
6. Fulfillment of a moral obligation to help less fortunate
peoples.
7. Creation of good will.
In general, strong stress is placed upon the belief that the aid pro-
grams protect the interests of the United States by building up free-
world economic and military defenses against world communism.
Encouragement of economically viable societies is seen as making less
likely the spread of communism among deprived and discontented
populations.
III. UNDERLYING REASONS FOR FOREIGN AID
Virtually all the respondents express the belief that the United
States must help maintain free world defenses against the Communist
bloc. Particular areas such as Korea, Japan, Denmark, and Germany
are represented as presenting special problems of military assistance.
In some cases, the problem is seen as assisting a strategically impor-
tant country to maintain defense forces beyond its ordinary budg-
etary capacity. In others, it is understood as making other nations
aware of the need for a greater defense effort.
Correspondents in Latin American countries stated that military
assistance programs there almost invariably create personal good will,
but their strategic importance is questioned by several critics. A
number of critics in various parts of the world favor putting relatively
more emphasis on economic as compared to military programs.
The principal problem in current economic aid programs is seen as
the necessity-
to assist backward nations to adjust to the 20th century in such a manner as not
to fall easy prey to totalitarian designs.
Correspondents testify to the growing desire of various so-called
underdeveloped nations to obtain for themselves the benefits of modern
science and technology. The underdeveloped potentialities of several
richly endowed areas are pointed out.
It is noted that danger exists that the present broad gap in living
standards between developed and underdeveloped areas, rather
than lessening, might even increase. General opinion in Egypt, for
example, is that the per capita earnings of individuals have decreased
during the past year. In Thailand-
the per-acre rice yield has been declining over 50 years and now stands at one-
third the level of the yield in such countries as Japan.
FOREIGN AID PROGRAM
1565
The urgent public demand for economic progress in Asia is repre-
sented as constituting a potentially dangerous phenomenon.
The masses of India will not long be satisfied with their present lot.
It is reported that the Indian Government must fulfill in large measure
its promises for higher living standards or the masses will seek alter-
natives.
Other comments are:
We are dubious that the ruling party can, without foreign economic aid and
technical assistance, effectively and at sufficiently rapid pace implement its own
programs for higher living standards.
The fast and seemingly easiest path—
remarks another observer in southeast Asia-
is socialism with its tour de force approach of upgrading their country at the
expense of their citizens and/or citizens of neighboring countries. The other
path is via the democratic means of development, as demonstrated in the United
States leading to prosperity and high living standards of the citizen and his
country.
The underdeveloped countries have a tendency to take the first path because
it appears simpler and requires less capital. In addition to this, both paths seem
to lead to the same result.
It is not in the national interest of the United States to have even one country
choose the path of the type of socialism which the Soviet Union is advocating.
IV. IMPACT OF AID PROGRAMS
Judging by the replies, there has been a considerable variation in the
economic and political impact of past aid programs. This is attributed
by some correspondents to the fact that certain areas have received rela-
tively small amounts of aid, while others have received massive
amounts.
Some point out that observed programs, notably in the field of tech-
nical assistance, require a long time to produce noticeable results.
Others observe that programs in certain countries have apparently
achieved little in an economic or political sense or in advancing United
States interests. In some cases this is ascribed to lack of cooperation
by the host government in carrying out programs. In others it is
ascribed to unimaginative, bureaucratic administration.
A very large number of correspondents think that programs should
be producing some psychological impact, as well as having discernible
high-level economic and political results. A frequent comment is that
United States aid programs in certain countries are virtually unknown
to the general public.
In Western Europe, the impact of past and present aid efforts is
considered to have been great. United States aid to Great Britain
is said to have cut in half the time it otherwise would have required
to reactivate the shattered British industrial plant. An "astounding
economic recovery” in France is traced to Marshall plan and other
aid. "Had it not been for United States assistance, the Italian econ-
omy would have collapsed." United States aid to Germany was the
"salvation of a defeated nation." _Other equally striking results are
reported in Norway, Greece, and Turkey.
In other areas, United States aid is also considered to have played a
vital role. The reports indicate that without it there might have been
Communist revolutions in Iran and the Philippines. This Nation's
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FOREIGN AID PROGRAM
assistance is regarded as having contributed significantly to economic
development in Egypt and India, but political considerations have
prevented public recognition of the fact. Aid to Korea is termed
crucial, constituting the lifeblood of the economy. American postwar
aid is credited with preventing general starvation in Japan. United
States programs have had a particularly heavy impact in the Ryukus,
which have developed a standard of living much higher than that of
other Far Eastern areas.
Aid is not felt by some correspondents in Latin America to have had
much impact. In certain areas, however, namely Guatemala, Costa
Rica, Panama, Colombia, and Chile, it is felt that definite progress
has been made.
The impact is easier to measure in desperately poor countries like Haiti where
even a slight increase in agricultural productivity is immediately noticeable-
one observer states-
than in a more fortunate country like Uruguay.
V. EFFECT OF AID PROGRAMS UPON RELATIONS WITH RECIPIENT NATIONS
There is disagreement over the effect of the various programs on re-
lations between the United States and recipient countries. Some
regard the programs as being directly responsible for improved rela-
tions. Others see the donor-recipient relationship as being the cause
of irritation and bad feelings. A significant number of correspond-
ents regard the provision of military or economic assistance as only
one factor, and a minor factor, in the establishment of good relations.
It is pointed out by various correspondents that aid should not be
used to "buy friends," but as a means of helping to build a free world
community on a sound economic, political, and military basis.
Favorable comment
United States assistance is regarded as having exerted a strong in-
fluence in maintaining good relations with Great Britain, Spain, Ger-
many, Belgium, Italy, and Norway. Relations are reported to be
excellent with Turkey, which regards the United States as a partner
rather than as a benefactor in an undertaking which is essential to
the welfare of both.
Relations in Thailand, the Philippines, South Korea, and Japan
have been improved through aid. Thailand and the Philippines are
perhaps "the most United States oriented countries in southeast Asia."
South Korea is a land where the residents demonstrate against the
departure of United States troops.
Relationships between the United States and Latin America are
considered to have been bettered, particularly in the field of military
cooperation.
Unfavorable comment
Some critics see United States aid efforts as generating little appre-
ciation. People now have a tendency to take them for granted.
Others say that aid programs create irritation:
Clearly, the French do not like us because we helped them. In fact, by having
aid programs, we perhaps made more enemies. *** With every friend you
win, you gain an enemy.
FOREIGN AID PROGRAM
1567
Past programs are not felt by correspondents on the spot to have
improved relations with Egypt and India. "The foreign aid program
to Egypt has been extensively criticized in that country," it is reported.
"It obviously did not deter Egypt from her headlong gravitation to
the Communist countries." The people of India are reported to show
more appreciation for small-scale Soviet aid contributions than for
large-scale United States loans and gifts.
In Japan, aid programs have not helped as much as the public
believes "We are taken for suckers."
United States aid is termed by another respondent as constituting
"a type of intervention in favor of the political party in power and
against the 'outs.'" Inevitably, such intervention would worsen
relations.
While some observers see improvement in relations and some others
see none, a number of correspondents remarked that factors other than
aid were involved in the creation of good or bad relations.
Friends appreciate help but neutrals do not. Although aid usually
helps in establishing good relations, the aid programs alone cannot
solve all problems between the United States and the host countries.
Several respondents blame bad relations on such factors as "dumping"
of unwanted United States surpluses and establishment of import
quotas on economically important products.
No program offered by any country that was not geared to Egypt's present
policy of aggressive self-defense and nationalism could improve relations—
states a correspondent in Egypt. An observer in Israel remarks that-
the aid programs have at least mitigated effects of some other State Department
policies.
The most important factor in German-United States relations is seen
as the general international situation.
VI. LOCAL CRITICISMS
A large number of criticisms are reported which have been made
by local nationals concerning aid programs. In some cases these are
regarded by respondents as resulting from a lack of public informa-
tion or from willful attempts by pro-Communist elements to spread
untruths regarding United States efforts. In other cases public criti-
cisms are regarded as having a more justifiable or understandable basis.
"In reading the comments on the United States aid program in the
local Thai and Chinese press," it is reported, "it becomes apparent that
the welter of misinformation and deliberate distortion is monumen-
tal." As an example of such misinformation, local nationals are in-
formed that farmers are being sent to the United States, not to learn
new techniques, but because cheap agricultural labor is needed. It is
claimed that the United States is trying to steal Brazilian thorium
in order to build up its atomic superiority. Hostile newspapers claim
that the United States is raising poisoned cattle and poultry under
aid programs and that United States administrators are spies and
saboteurs.
Some factors which are cited as requiring consideration in judg-
ing such criticisms were:
1. A growing tide of nationalism in various ex-colonial countries,
making it politically undesirable to appear overly friendly with the
West.
1568
FOREIGN AID PROGRAM
2. The habit acquired during struggles for independence in such
countries of denouncing the West.
3. The desire for peace following direct or indirect involvement
in World War II and political or military campaigns against former
rulers.
4. The disinclination of formerly powerful nations to accept the
appearance of dependence upon others.
5. An apparent belief in some allied nations that they can engage in
financially unrealistic or irresponsible programs and the United States
can be depended upon to "bail them out.'
""
6. The possibility that the above factors may lend themselves to
Communist exploitation.
Some local criticisms as reported by the correspondents are to the
effect that the United States is attempting to use aid programs to
keep recipient areas in a position of economic or political inferiority
or to force them to support military or political objectives which are
principally of value to the United States. These criticisms are pre-
sented in various forms, such as the allegation that the United States
desires to "colonize" Europe and the rest of the world; military bases
are for the protection of the United States alone; the United States
is only interested in opposing Russian and Chinese Communists and
does not sufficiently appreciate the ordinary problems of government;
our interest in other countries is only aroused by crises; and accept-
ance of United States aid means being drawn into unwanted wars.
Citizens of some underdeveloped areas feel that United States pro-
grams have overemphasized agricultural development and under-
emphasized industrial development. It is suspected that United States
businessmen wish to hinder the growth of local industrial capacity
because an increase in manufacturing potential would result in loss
of foreign markets.
Some resentment is voiced at the alleged desire of United States
administrators to select aid projects without sufficient consultation
with the host government; too many projects represent the whims
of United States aid personnel.
Frequently local business people and educated citizens feel that the aid pro-
grams are directed to problems of little importance to their respective countries.
Occasional comments are heard that United States administrators
are overbearing and patronizing. They are too inclined to be
moralistic:
Countries with new and often corrupt governments resent our high moral
pretensions.
Many reports of Latin American reactions indicate a feeling that
Latin America has been neglected in the allocation of aid funds. Simi-
lar comments were received from the Philippines and Liberia. The
United States, the complaint of some local inhabitants goes, is more
interested in helping people who are erstwhile enemies than in assisting
proven friends.
Certain comments pertain to particular national political or defense
problems, such as:
Some Germans feel that the United States is sending them second-
rate military hardware. They want the latest modern weapons, in-
cluding atomic weapons. Italians complain that in allocating offshore
procurement funds the United States discriminates against firms
FOREIGN AID PROGRAM
1569
whose workers belong to the General Confederation of Labor. De-
fense assistance to Pakistan is regarded in India as help for a potential
enemy. If the United States wants Japan to absorb surplus commodi-
ties, it should not require that 50 percent of United States aid goods be
carried in United States flag ships. Airplanes supplied Japan are
difficult for the shortlegged Japanese pilots to fly.
VII. NEED FOR BETTER UNDERSTANDING OF PROGRAMS
A very large number of respondents believe that the absence of ap-
preciation of aid programs is due to a lack of publicity within the
beneficiary country. As a result, the friendly actions of the United
States are ignored, while anti-United States or Communist-inspired
propaganda spreads an erroneous impression of our actions and
intentions.
"It is not enough to do the right thing," said one observer. "It is
important also to give the appearance of doing good."
Another undesirable result of the lack of public understanding is
that despotic politicians may take credit for progress in the way of
roads, hospitals, and electrification projects made possible by the
program.
Several people remark that the lack of public information gives the
impression of a desire to keep United States aid activity secret. "It
seems we're afraid even to whisper about it," one correspondent wrote.
Opinion is divided as to how better public relations might be en-
couraged. Some critics feel that any program that is undertaken
must avoid the appearance of an all-out propaganda effort. "We
shouldn't shout," it is remarked, or use "cheap and unprincipled
propaganda."
Since the man in the street resents propaganda, one recommendation
is that an effort should be made to reach him through his own national
associations and information media. Officials and responsible organs
of the press should be tactfully persuaded to inform the public accu-
rately of what the United States has done and intends to do. One
critic would make enforced governmental publicity a precondition of
aid.
In contrast to such indirect methods, a number of other critics feel
that a more determined use should be made of direct information
efforts.
The United States has an organization, USIS, which exists and should be de-
veloped into an effective information disseminating propaganda organization—
says an American resident in Thailand. Other comments are that
information staffs in all United States agencies should be increased and
given more administrative freedom (which it is asserted they do not
have); that larger and more extensive use of photographic displays
and literature should be made; and that the Voice of America broad-
casts to Latin America in Spanish should be revived.
The Voice-
said a news correspondent-
was the best means ever devised for giving Latin Americans, among other things,
an idea of what the United States is doing.
There are suggestions that before the United States can adequately
publicize and gain acceptance for aid programs abroad, it must first
1570
FOREIGN AID PROGRAM
reach some consensus on the aims and general desirability of such
programs.
A correspondent in India comments that congressional debates on
foreign aid legislation are fully reported in the local press. The gen-
eral impression created is that the United States begrudges such
assistance.
The achievement of greater unanimity within this country-
states one home office summary—
through an understanding of the motivating force behind the programs, would
inevitably contribute to their success overseas.
United States residents abroad, several correspondents said, are not
sufficiently informed of the programs. "As we say in the field of
salesmanship," went one comment, "Sell your own people first.""
"If aid programs are doing something," wrote a correspondent in
Brazil, "Americans should know about it." A correspondent in
Thailand suggests that the local USIS circulate a monthly informa-
tion bulletin to United States residents in that country.

VIII. UNITED NATIONS AND OTHER AGENCIES
Most comment regarding United Nations technical assistance pro-
grams is favorable. However, there are several strong dissents indi-
cating suspicion that socialistic and internationalist, anti-nationalistic
sentiment exists among the personnel of international organizations.
Remarks critical of bureaucratic procedures also are made.
The belief in some countries that United States aid represents a
new form of political or economic intervention, it is reported, makes
United Nations aid appear more attractive. United Nations aid is
not used as a weapon to carry out other United Nations objectives.
As an example, says a correspondent in Israel, despite adverse
United Nations votes on Israel, there have been no threats made to
withdraw United Nations technical assistance personnel, nor was a
single United Nations worker evacuated during the Suez crisis.
Critical comments were received regarding wasteful overlapping
between United Nations and United States technical aid programs
in the field. Abilities of United Nations personnel are questioned by
several correspondents. Bickering and frustration among the local
personnel are seen as hindering the effectiveness of one United Nations
program-"All the participants do is sit around and quarrel."
Humanitarian-type United Nations programs get numerous favor-
able mentions. The World Health Organization and United Nations
Children's International Emergency Fund (UNICEF) are fre-
quently commended. The activities of the United Nations Educa-
tional, Scientific, and Cultural Organization are well received. The
Intergovernmental Committee for European Migration and United
Nations Korea Reconstruction Agency are praised.
Among private agencies, the Rockefeller Foundation is mentioned
as being "well conceived and well directed, also very well accepted."
The Foundation is credited with excellent results in the field of public
health in Jamaica, Colombia, and Mexico. The Cooperative for Amer-
ican Remittances to Everywhere (CARE) receives strong approval
wherever it operates. The Near East Foundation and Jewish Joint
Distribution Committee are also favorably received.
FOREIGN AID PROGRAM
1571
IX. SOVIET BLOC AID
The majority of respondents report that they are unaware of any
Soviet aid programs in their area. However, there are sufficient com-
ments to indicate a widespread Soviet effort, and there is strong aware-
ness of Soviet programs in particular areas.
The general Soviet approach to foreign aid is reported to be "busi-
nesslike." Soviet aid is given on a barter or loan, not a gift, basis.
Other nations are treated as partners in a joint enterprise.
The Russians are inclined to "drive a bargain." At the same time,
their prices are low. Varying comments are made regarding the
quality of Soviet goods; Russian machinery is said to be of poor
quality, but Eastern European products are reportedly of high quality.
Soviet economic programs have been particularly effective in agri-
cultural countries because they have offered a market for local sur-
pluses. At the same time, Soviet willingness to relieve such countries
of surpluses makes them increasingly vulnerable to Soviet pressures.
The Soviet bloc reportedly gets a high propaganda value from its
aid efforts. The Soviets associate themselves with quickly achieved
and highly visible projects, such as the provision of aircraft, motor
vehicles, and machines, and the construction of sports stadiums.
Ability of Soviet personnel to speak the local language creates favor-
able local comment. Much is made out of mere promises.
It is possible, however-
one critic states-
that if and when the Russians ever approach in extent and variety the United
States aid programs * * * they may become subject to the same type of criticism
which has been leveled at us.
Soviet scholarship and visit offers are reported in various non-
European areas (North Africa, the Caribbean, South America). Only
one respondent mentioned knowing anyone who had accepted such
an offer, an architect who found the Russian architecture "horrible"
but received an impressive welcome.
Isolated instances of pro-Soviet propaganda activity also are re-
ported to be evident in local industrial expositions, labor unions,
newspapers, and motion pictures.
A few respondents state that Russian aid, if offered, would not be
accepted. Several nations do not maintain diplomatic relations with
the Union of Soviet Socialist Republics.
The principal Soviet aid efforts are reported in Afghanistan, India,
and the Middle East. Soviet bloc aid offers are also reported in South-
east Asia and Latin America.
Afghanistan is one area in which Soviet aid is reported to have
scored a quick propaganda success:
From our observations of the Russians in Afghanistan-
reports the head office of one concern—
we have the impression that their programs have greater impact in obtaining
immediate, favorable reaction than do ours. *** They seem to accomplish this
by selecting more dramatic types of assistance and by delivering an obvious
result faster.
Correspondents in India report that the Russian agreement to build
a steel plant received widespread favorable publicity whereas United
States efforts were largely ignored. "They consider the steel plant
94413-57—100
1572
FOREIGN AID PROGRAM
as something permanent," said one respondent, "while our aid is
mainly transitory." The Russians, the report states, have offered to
perform this task for a very reasonable sum.
The Chinese Communist Government is reported to be negotiating
aid agreements with Cambodia and Laos, but results are so far not evi-
dent. Tempting Chinese Communist trade offers are reported from
Japan and the Ryukyus. Communist offers of assistance to riot
victims in Hong Kong brought little response. A Russian barter deal
with Burma ended up with Burma the loser.
Soviet aid programs in Syria and Egypt are reportedly very effec-
tive in increasing Soviet prestige and influence throughout the Arab
world and possibly in other parts of Asia. In addition to direct mili-
tary aid, Soviet and satellite agencies are aggressively bidding, at low
prices, on projects in the Middle East.
Isolated instances of Russian activity in Latin America are men-
tioned. In Chile, the Russians have provided instruments for uni-
versity laboratories. It is anticipated that a Russian offer to assist
Mexico in surveying and developing natural resources, made at a
recent Mexico City geological conference, will be politely refused.
Consistent resistance is made to Soviet efforts to gain any type of an
entry into Peru.
X. TYPES OF PROGRAMS
It is felt by a few American residents in foreign countries that
economic-type programs, particularly technical assistance programs,
should be divorced in the public mind from military programs.
Many respondents state that they possessed little direct knowledge
of the military programs, but that such programs appeared to be ful-
filling a useful purpose. Some said that without them, certain areas
might be in Communist or otherwise unfriendly hands today. A
few individuals question the desirability of military programs in
areas such as Latin America where there did not appear to be a direct
Communist military threat. In Thailand arms aid is felt to enhance
the power of politicians. Others favor more emphasis on economic
programs than at present exists. Arms aid, say a few individuals,
encourages a country to live beyond its means. A possible bad effect
on the soldiers of recipient nations is seen; they may become accus-
tomed to higher than usual standards of living which their countries
cannot support without United States aid.
Other comments are:
A correspondent thought that North Atlantic Treaty Organization
forces should be provided with European-made fighters specifically
designed for European needs, while another stated that poor quality
aircraft were being supplied by British manufacturers. The prospect
of aid, it is said, also leads to procrastination in ordering a nation's
own military equipment.
United States planners are not projecting their programs into a
future "which could quite conceivably see the withdrawal of the Ger-
man Federal Republic from NATO." A suggested remedy is a bilat-
eral treaty arrangement with Western Germany.
Lack of trained technicians to take over expensive United States
equipment in such countries as Portugal, Spain, Italy, and Greece,
may lead to heavy losses. "Spain, in particular is, in my opinion and
FOREIGN AID PROGRAM
1573
the opinion of many I have talked to, unlikely to be able to keep in
operating condition the great quantity of electronic equipment they
are now receiving as military aid. A lot of it may deteriorate in
warehouses.'
""
A strong defense is made of past economic aid programs, particu-
larly the Marshall plan aid given to Europe following World War II.
"If we had not done what was done," one European correspondent
said, "we would today be in the throes of the worst depression the
world has known since the Dark Ages." Economic aid is generally
credited with having rebuilt British and Western European industry
and creating a viable European economy.
There are many comments, however, to the effect that large-scale
economic assistance is no longer needed in Europe. Such programs
as are necessary are needed principally in newly independent, under-
developed areas in Africa and Asia.
Greatest approval is expressed for technical assistance programs.
Such programs, it is felt, did not produce fast results, but might be
expected to have far-reaching future effects if properly conducted.
While past programs of massive economic aid received strong en-
dorsement, correspondents were less enthusiastic about current de-
velopment programs. Wherever they seem to impinge on fields nor-
mally regarded in the United States as the rightful sphere of private
enterprise, they are criticized.
Road building is frequently mentioned as a desirable type of de-
velopment program. Farmers' market access roads are considered
useful projects. One correspondent, however, feels that technical
assistance in the field of agriculture is more useful to farmers than
roads.
Several observers praised United States aid in building hydro-
electric projects; one United States resident abroad criticizes expendi-
ture of United States funds on a state-directed electrification scheme.
Many respondents, while willing to concede that development pro-
grams are useful and necessary, feel that private enterprise should be
encouraged to handle them. United States aid to state-directed indus-
tries such as railroads, mines, and public utilities was particularly
criticized.
A number of respondents feel that a program of "trade, not aid,"
was the best means of handling the problem of economic assistance.
Another means of assisting foreign economic development proposed
is encouraging foreign investment. Investment guaranties and
income-tax concessions on foreign investments are mentioned as desir-
able means of stimulating United States business enterprise abroad.
Particular gratification is expressed over the fact that during the
past year some of the deposits of foreign currency held in the name
of the United States Government as a result of sales of surplus com-
modities made under Public Laws 402 and 480 had been placed in
United States branch banks abroad.
We feel very strongly-
wrote the head office of one banking corporation—
that this practice of placing American Government money in American banks
located abroad should be continued and expanded in every way possible, because
we have many American firms endeavoring to borrow foreign currency funds
1574
FOREIGN AID PROGRAM
from us and whom we are unable to accommodate, and anything that can be
done to give American banks additional deposits abroad will help all American
business abroad.
Efforts of Government-affiliated banking institutions such as the
Export-Import Bank and International Bank in financing local devel-
opment programs are mentioned with approval.
Most of the praise of economic-type programs is reserved for tech-
nical assistance, educational-type programs designed to increase the
technical capabilities of a nation rather than to have an immediate
massive economic impact. Comments were received on the following
types of programs:
1. Agricultural development, irrigation, land reclamation, stimula-
tion of fertilizer production, improvement of stock breeds, land re-
settlement, and training in up-to-date techniques. Fear that the
United States may be contributing through its agricultural programs
to the problem of world surpluses is expressed by one correspondent.
2. Public health education and disease control programs. Anti-
malarial campaigns are frequently singled out for praise. Extension
of modern sanitary knowledge into rural areas is felt to be a worthy
objective.
3. Education in administrative and industrial techniques. Im-
provements in business and public administration and productivity
training programs are praised by correspondents. The importance is
stressed of generating within recipient countries the technical capac-
ity to carry on with their own development.
Correspondents frequently feel that bringing students to the United
States for special training courses is by far the best way to create
friends.
I know of no instance where a Brazilian boy or girl has lived in the United
States for 2 to 4 years and has not come back sold on our way of life and our
technical superiority—
wrote a Latin American respondent. This comment is matched by
others from all over the world.
It is argued that bringing foreign students to the United States
would be far less expensive than maintaining United States aid per-
sonnel and their families in foreign countries. Competitive scholar-
ship programs for foreign students and grants based on personal
ability, not on membership in favored social groups are proposed.
Scholarship aid for refugee students is particularly recommended.
Humanitarian-type programs, such as provision of surplus United
States commodities for refugees, received general praise:
The program demonstrates a concern for *** people as individuals in con-
trast with Government-to-Government economic aid programs whose impact
and worth is generally beyond the comprehension of the population in the coun-
tries concerned.
Some observers think that the utilization of voluntary agencies is an
excellent means by which the Government can carry on an aid program
without getting involved in operations.
Sale of surplus United States commodities in foreign markets,
which is also used as a means of financing part of the aid programs,
is felt to have helped keep down food prices in certain areas. One
critic, however, argues that such "dumping" on noncompetitive terms,
"runs counter to everything the United States has been preaching to
the rest of the world."

FOREIGN AID PROGRAM
1575
XI. CONDITIONS OF AID
Opinion is divided on the desirability of stressing various condi-
tions for the allocation of United States aid funds.
Some observers feel that too much emphasis is placed upon aid with
so-called strings attached. Others feel that if the United States is
frank about the objectives it desires to achieve by programs, it will
win more respect.
Suspicion that the United States has some ulterior motive connected
with its offers of aid is cited by some correspondents as a cause of
poor relations. Preconditions attached to aid constitute in the eyes
of other peoples a limitation upon their sovereignty.
"Our help seems to deviate frequently toward an attempt to influ-
ence political, economic, and social thinking," said a respondent in
Latin America. Another observer said that he understood a pro-
posed technical assistance agreement with the United States was re-
jected because the conditions imposed by Washington were considered
too strict.
Other respondents stressed that the United States should not abdi-
cate its right to supervise the expenditure of funds.
The receiving nation might not like our candor, it is observed, but
it would respect our determination to establish programs on a prac-
tical basis and to pursue our own national interest: "There should be
very clear conditions, and these are generally appreciated by the
worthy."
The following were suggested as desirable conditions:
1. The United States must have final authority in selecting projects.
Every consideration should be given to the desires of recipients, but I feel
strongly that the givers have a responsibility to see that the assets donated are
used to the best interests of the people
wrote a missionary.
Give and take is quite essential to good will. *** Sometimes the donor must
be firm in insisting that the relief be used along definitely proven lines.
2. The recipient should desire to associate itself politically with the
United States and the free world:
I would eliminate all large-scale aid programs until the recipient showed her
real desire of closer ties and greater cooperation with the United States and her
allied democracies.
3. The host government should put up part of the funds and make a
real effort to establish the program on a genuinely mutual basis. It
should help develop the necessary talents to carry on programs as
soon as possible without United States assistance.
4. Programs should help develop an atmosphere congenial to the
operation of free business enterprise. Socialistic programs and gov-
ernment-operated businesses should not be assisted with United States
funds.
5. Programs should not harm United States business interests.
United States aid funds should be further restricted to assure that
more contracts under aid programs will go to United States firms.
A certain amount of aid goods should be shipped in United States
bottoms.
6. Aid programs should be used as a means of encouraging Euro-
pean or Latin American economic integration.
!
1576
FOREIGN AID PROGRAM
XII. ADMINISTRATION
A number of comments were received indicating that the adminis-
tration of United States aid programs has been good, considering
the problems involved. Lack of instances of profiteering in the dis-
tribution of aid goods is noted by overseas representatives of one
corporation as a clear indication of efficient administration.
Some observers feel that some duplication and waste have existed,
but that this has been an inevitable consequence of haste and in-
experience.
There are many favorable comments on the administration of indi-
vidual programs. The administration of Turkish aid was regarded
as thoroughly efficient, and tactfully accomplished. The programs
in Taiwan and Indonesia are praised. With a small amount of money
and political difficulties, the Indonesian mission is facing up well.
Personnel in Taiwan know the country, its people, and problems well.
Programs in Costa Rica and the Amazon Valley are commended
for success in obtaining increasing cooperation from the host govern-
ments. The Inter-American Highway is praised for the high quality
of its privately contracted United States engineering staff, although
the construction of the Inter-American Highway is not a part of the
aid program.
Others felt that administration needed improving in certain areas.
Commonly expressed complaints are that:
1. Too much emphasis is placed upon headquarters paper work:
People can't be reached from a desk or passing airplane. * * *
It appears
to the outsider that the ICA mission is much larger than is justified. ***
I feel the men in the rural education program have spent too much time around
the [headquarters] office *** Too much money is spent on putting on a big
show in the capital. * ** A large part of the administrative expense is at-
tributed to people who contribute little directly to the programs.
2. Too much effort is being expended on surveys and research:
They should be able to go back and find the files full of surveys already made.
Before they can get down to doing a constructive job, it is time for them to go
home.
The result of lavish United States aid efforts on a fund-matching
basis is that sometimes the United States portion of the expenditure
goes toward plans; the local government is too impoverished or in-
different to put the plans into effect. United States administrators
should ask the heads of departments of foreign governments to define
the problem, one correspondent wrote. "Then, let the foreign govern-
ment set up the organization to work on the problem." Too many
foreign governments were letting the United States do all the work.
3. Administrators try to judge local conditions by inapplicable
United States criteria. United States concepts of expenditure appear
fantastic to citizens of impoverished countries:
People said anyone could produce milk and plow and make terraces if they
could do so with absolute disregard for costs.
The United States belief in pump priming and fast obsolescence is
contrasted with the belief in some Oriental countries with a large labor
surplus in patching things up.
A child-care demonstration center in a Middle Eastern country is
cited as an example of poor judgment of local needs and facilities. It
was designed for people with access to modern plumbing and elec-
FOREIGN AID PROGRAM
1577
tricity. None of these fixtures was in operation because of an inade-
quate local water and electrical supply. Nothing useful could have
been learned from them because the people they were intended to help
did not have running water or electricity.
4. Presence of large and highly visible United States aid organiza-
tions is a source of local irritation. Other nations resent the implica-
tion that they require the assistance and supervision of large numbers
of foreigners.
5. United States aid staffs are addicted to various bureaucratic
vices. Procedure is too formalized and unimaginative. Personnel
indulge in paper-shuffling, buck-passing, and the improvisation of
unnecessary tasks. This was a recurring complaint.
6. There is not enough field work. There were many comments
from all over the world on this point. This opinion is also reflected
in numerous instances of praise for individual field workers, some-
times accompanied by blanket condemnation of their colleagues in
administrative headquarters.
7. There is not enough follow-up, particularly to insure that the
United States is getting its money's worth from local contractors.
8. Field workers should concentrate on training nationals of recip-
ient countries to work out problems for themselves instead of trying in
a paternalistic fashion to work out all the details for them.
9. Constant changing of personnel disrupts projects and creates a
bad opinion of United States sincerity and intentions.
In one instance, criticism was made of a contract which had been
awarded to a concern which had bid $20 million for a fertilizer plant
rather than to another concern which had bid $19 million.
Several correspondents suggest that more use might be made of the
advice of longtime United States residents of the area concerned :
A joint advisory committee of local businessmen, point 4 administrators, and
United States Embassy officials should be made obligatory. Such a body would
be of inestimable help in drawing up realistic programs.
XIII. PERSONNEL
Many correspondents remark upon the importance of good person-
to-person relations in recipient areas. Friendship for the United
States, it is said, is often reflected in appreciation of a capable individ-
ual. United States citizens working and living within the social and
business community demonstrate on a day-to-day basis the values and
effectiveness of the American way of life.
A very common comment is that personnel are not sufficiently pre-
pared by temperament or education to perform their tasks.
Some comment indicates that too many United States employees
regard residence in a foreign country as a paid holiday. They "seem
to take their assignment here as an extended vacation at the expense of
the United States," wrote a respondent in Israel.
A correspondent in India objected to statements to the effect that
"I am no missionary. If they want me to work in this country, they
must pay me well to do it." The respondent, a missionary, stated,
"I have often wished that these who have come had not come."
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Other comments, however, are commendatory.
The ICA personnel have been of the very highest, and we have only the finest
appreciation for them-
states a missionary correspondent in the Philippines.
Those who have served in the military advisory capacity have also been very
fine men.
Another respondent, a foreign correspondent, reports—
Most of the Americans I've met, and know, working with our aid programs, have
been fine ambassadors for the United States. All of them have been devoted
and hard working.
Numerous other comments reinforce the impression that certain
Government employees are more appreciated as individuals than they
might be as anonymous members of a bureaucracy. Administrators
of programs in Israel, Lebanon, Iraq, Costa Rica, Thailand, and Co-
lombia, for instance, are specifically praised. Most of the praise is
given top-level administrators. Several respondents state that they
felt the lower ranks might be thinned out considerably.
The recurrent criticism of bureaucracy appearing in replies from
all over the world indicates a general distrust of bureaucrats as tax
consumers and a dislike of government-administered operations.
Several supposed characteristics of United States aid personnel are
singled out as being particularly annoying to local residents:
1. That they are too extravagant. As a result of their extravagance,
the cost of such items as local housing and the wages of local servants
is driven up. This generates ill will and the impression that the
United States is enormously rich and can afford to spend large sums of
money.
[Contrasted with such comments is the occasional remark that So-
viet personnel, in areas in which there are Soviet aid programs, work
at the same wages and live at the same level as local nationals. "New
countries prefer an obvious infiltrator who is often invisible by identi-
fication with native life," wrote a respondent in the Far East, "to the
American Government workers with contempt for foreign standards
of living."]
2. That they are ignorant of local customs and unable to speak the
local language.
A concomitant of this lack of knowledge and understanding may be
a positive determination to have nothing to do with the local resi-
dents.
It is remarked that United States employees are also conspicu-
ously lacking in knowledge of the tactics and philosophy of the Com-
munist movement. Thus they do not understand what they are
combating.
Many correspondents state that, before being given an overseas
assignment, a United States employee should be given an indoctrina-
tion course of at least several months' duration. Preferably he should
speak the local language and have had previous experience in the area.
in which he was to function.
One suggestion is that United States citizens with long foreign
residence who have retired on adequate pensions and desire to con-
tinue working would make highly acceptable personnel.
3. That they engage in black-market operations. This particularly
causes ill will.
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1579
One respondent points out that the wives of personnel might exert
as much influence as their husbands in influencing foreign attitudes
toward this country. In areas where women are slowly achieving a
measure of emancipation, foreign women scrutinize American wives
with amazement and often learn more about the United States from
them than from their husbands.
Several suggestions are made as to how better type personnel might
be engaged. Several persons thought that the normal 2-year tour
of duty was too short. The programs should be put upon a more
permanent, professionally oriented basis.
More Government use of private firms and university personnel
on a contractual basis is suggested. It was recommended that means
be found to assure university instructors on foreign assignments that
they would not lose job tenure or promotion opportunities by absent-
ing themselves from their institutions. Policies which would en-
courage technicians and managers to enter private business abroad
are seen as having beneficial effects.
Instead of improving the quality of personnel, several observers
wrote, the lower grade workers should be eliminated and local nationals
be hired in their places. In some cases better results might be ob-
tained if aid recipients were brought to the United States for courses
in productivity techniques. If they were well trained, they would be
much better prepared to pass on their knowledge than United States
workers with language difficulties and lack of rapport with the recip-
ients.
XIV. SUMMARY
Most correspondents are in agreement on the purposes of the pro-
grams and their success. Past military and economic aid programs
are held by virtually all to have succeeded in defending the free
world against aggression from the Communist bloc and in building up
a strong free-world economy capable of resisting aggression. Some
respondents feel that increased foreign economic development would
be useful in establishing peaceful relationships with the rest of the
world and in helping develop reciprocally valuable trade. Some feel
that the United States has a moral duty to help other less fortunate
peoples.
Past United States aid efforts are seen to have had a varying eco-
nomic impact. Areas such as Europe, which had received massive
amounts of aid, had been affected to a much greater extent than areas
such as Latin America, where aid efforts had been more modest.
In addition to the economic impact, aid efforts also have psychologi-
cal and political impact, but to a lesser degree. In many areas, the
local populace is entirely ignorant that the United States is assisting
them at all. A commonly made comment is that United States aid is
failing to reach the "man in the street" in any discernible way.
There is a difference of opinion regarding the effect which aid pro-
grams have upon United States relations with recipient countries. It
is felt that aid has had a beneficial effect on relations in such countries
as Germany, Italy, Turkey, and Korea. It has not improved relations
in Egypt or India. Good relations are felt by other observers to de-
pend upon many factors other than aid.
A large number of observers feel that United States aid programs
are not adequately publicized. Before they could be properly publi-
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FOREIGN AID PROGRAM
cized, it is suggested the United States would have to reach some
consensus of opinion regarding their desirability. So long as the
United States is not "sold" on aid programs, it would be difficult to
sell others.
Military programs are widely endorsed. A few respondents, how-
ever, feel that there should be more emphasis in the future on economic-
type programs.
While past development programs are praised, some correspondents
feel that many of the goals of such programs might better be handled
by private enterprise. It is suggested that special attention be given
to American business interests abroad.
Technical assistance programs are widely praised.
A number of respondents think that the best possible type of pro-
gram from a public relations standpoint would be establishment of
scholarships or government-sponsored courses in the United States.
United Nations humanitarian and refugee programs also receive
generally favorable mention.
There is evidence of increased Soviet aid efforts in Asia, the Middle
East, and Latin America.
Correspondents all over the world criticize the administration of
aid programs. Varying comments are made regarding personnel.
Administrative personnel in general were widely criticized. There is
praise, however, for top-level administrative personnel. It is widely
felt that good personal relations have been established on a high gov-
ernmental and industrial level. Fieldworkers are also generally
praised as having done good work. The principal criticism is that
there are not enough of them.
APPENDIX
QUESTIONNAIRE
SPECIAL COMMITTEE TO STUDY THE FOREIGN AID PROGRAM
THE VIEWS AND RECOMMENDATIONS OF AMERICANS RESIDING ABROAD WITH REGARD
TO UNITED STATES FOREIGN ASSISTANCE PROGRAMS
The Special Senate Committee on Foreign Aid Programs requests your views
and recommendations with respect to the extent to which United States foreign
aid programs serve, do not serve, or can be made to serve the national interest.
As an American working abroad you have had an opportunity to view at first-
hand the operations of United States foreign assistance programs. Your com-
ments with respect to any or all of the questions listed below will be valuable in
the formulation of national policy and much appreciated by the committee.
The scope of the examination being conducted by the committee is contained
in section 3 of Senate Resolution 285 which is appended to this questionnaire.
In the light of the range of experience of Americans residing abroad and the
varied problems in different areas, this questionnaire consists of questions
designed to be sufficiently broad in scope to permit expression of opinions and
recommendations by all respondents. You may answer any or all of the ques-
tions listed. If you prefer to put your reply in the form of a letter or memo-
randum, please feel free to do so. Your comments and recommendations will be
treated as confidential and no statements which may be published will be identi-
fied as to source.
1. In what country or countries have you observed United States aid pro-
grams in operation?
2. With what types of aid programs (military, economic, technical) are you
familiar?
3. What do you understand to be the objectives of the United States in supply-
ing aid to the country in which you reside?
4. Do you believe these objectives are necessary and useful, from the point
of view of the interests of the United States?
5. In your estimation, in what fashion and how effectively do the aid pro-
grams serve the interests of the United States in the country in which you
reside?
6. In your estimation, have the aid programs had a significant impact on the
economic progress of the country in which you reside? On its capacity for
defense? In what fashion has it affected economic progress and defense ca-
pacity?
7. In your estimation, what has been the effect of the aid programs on overall
relations between the country in which you reside and the United States?
8. What is your opinion of the manner in which the United States aid programs,
military and other, have been administered in the country in which you reside?
9. Can you list specific examples of effective, economical administration? Of
the opposite?
10. What comments, critical and otherwise, of the United States aid programs
have come to your attention and what significance do you attach to these
comments?
11. Are you aware of the existence of aid programs of the United Nations, other
international organizations or countries other than the United States (notably
the Soviet Union) in the country of your residence? If so, what comments con-
cerning these other programs have come to your attention and what is your reac-
tion to those comments?
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FOREIGN AID PROGRAM

12. In your
aid program
rsonal opinion what, if anything, is wrong with the United States
the country in which you reside? What is right with it?
13. What cages, if any, would you make in the size and nature of these aid
programs in thcountry in which you reside in order that they may better serve
the national interests of the United States?
14. Any additional comments?
Your replies should be sent to your home office or to the Honorable Walter F.
George, chairman, Committee on Foreign Relations, United States Senate, Wash-
ington, D. C., in accordance with instructions from your home office.
Company or organization_
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UNIVERSITY OF MICHIGAN
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