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# U. S. INTERNATIONAL ECONOMIC AND SOCIAL OBJECTIVES AND STRATEGY

## I. THE KEY QUESTION

As the United States seeks to define and achieve its purposes in the next decade or two, one fact of momentous meaning is strikingly clear. Although a natural cause of envy abroad, the very riches of the richest nation on the world -- not merely its capital, but its skills, machines and technicians are a powerful instrument for achieving the international economic and social order which is the American goal.

Paradoxically, this fact has not brought new strength, assurance or clarity to U. S. policy. It might reasonably have been expected that an economic struggle would be one contest in which U. S. resources and faculties would be displayed most brilliantly. Instead, confusion has descended. Public debate seethes with questions -- sceptically stated, hesitantly answered -- about the whole of U. S. economic policy. Has military aid not been too sternly stressed? Has not economic assistance been fettered with too many political conditions -- arousing resentment and hostility? Or has it not been given too benevolently without firm conditions -- to be dissipated in graft and corruption? Is the U. S. not being subjected to political black-mail? And (inevitably) why are not more nations more grateful?

While some of this public discussion reflects healthy public concern, it indicates bewilderment or misconception about the basic aims of the program. The fundamental question is none of these but simply: what is an economic policy - any economic policy - *for*?

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The question is neither banal nor simple to answer. For it ultimately asks: to what world purpose is the United States dedicated? It is easy enough to say what this purpose is not --not aggrandizement, not philanthropy, not acquisition of globe-girdling military bases, not world-wide economic hegemony. To state what it is calls for examination of the sum of the nation's actions and the interpretation which responsible national leaders put upon those actions. Then the purpose to which the United States is dedicated is seen as: establishment of a world order which encourages the development of a free and creative society. This being the national aim, this is what an economic policy is for.

## II. ENDS AND MEANS: THE REPUBLIC -- FOR WHAT IT STANDS

As economic policy must serve and reflect foreign policy, so foreign policy must serve and reflect a nation, the beliefs and purposes of its people.

This is more than a moral injunction. It is a practical fact, a law of political life. It has been recognized and exploited even by tyrants. One of the plainest marks of 20th Century totalitarianism has been the dictator's recognition of this over-riding political imperative -- whatever the national act or purpose, the people must be induced to believe in its rightness. To inculcate this belief is the function of the massive totalitarian propaganda machines.

The implications are for all nations, including the United States. For example, ruthless logic, supported by miraculous political and military

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intelligence, might indicate that a surprise atomic attack on our part would remove the Communist menace forever. Or it might be demonstrated that use of our economic power might so starve the people of a smaller country that its rulers would be forced to adopt a policy line we favor. In neither case would the logic prevail; either act would be contrary to certain principles which our people hold. There are, in short, moral capabilities quite as stern and explicit as political capabilities; the limits of neither can be transgressed without pain or loss.

What matters more is that this imperative has an affirmative side. The United States not only shuns certain policies and practices in which it does not believe; it acts even when that entails great sacrifice and peril to support the principles in which it does believe.

It was in defense of such principles that the U. S. gave aid to Britain when she stood alone before the Nazi onslaught of 1940-41, organized the Berlin airlift in the blockade of 1948, undertook the defense of Korea in 1950. To be sure, there were valid military reasons in each case. But these were not the reasons which won the support of the people. The strategic value of England, Berlin and South Korea are plain enough but hardly would have sufficed to inspire the action taken. The nation put forth the great efforts demanded for one reason above all others; to give testimony to the principles it holds, to be true to them and itself.

So for U. S. foreign policy, and therefore for economic policy too, the decisive fact is this: the beliefs we most deeply hold do not cease to be

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relevant or binding at the shores of the Atlantic or the Pacific. The ultimate
values to which we are dedicated are not circumscribed by the continental
limits of the United States. Thus we can fail to act on these principles in
the wide world only at the cost of compromising our dedication to them, with
all that this implies within <u>our own</u> society.

We are increasingly aware on practical, political and economic levels,
of the constant inter-action of domestic and foreign policies. The domestic
farm problem is related to the disposal of surpluses overseas. The domestic
demands of specific industries can directly affect our tariff and trade policies.
The whole conduct of our society -- from the integrity of government to the
freedom of opportunity for all races -- directly affects our repute in all lands.

What these facts suggest is singularly and supremely true of the moral
values and national purposes to which we are committed. These values and
purposes are directly relevant to foreign policy -- and economic policy --
because they, and they alone, answer the question: what are these policies
for?

Fundamentally they are **for** a practical demonstration of the truth, to
which we hold, that man himself is the living thing of unique and transcendent
moment -- not the state, not society. We know man to be something more
than a creature of the natural forces that rust iron and ripen corn. We wish
him -- and his free destiny -- to be accordingly honored and served by the
political and economic environment in which he lives. All this, be it noted,
we believe of **man** -- not just of Americans: it applies with universal force

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and meaning to the rice-grower in Burma, the steelworker of the Ruhr, the miner of tin in Bolivia.

We cherish peace, as the climate of freedom. From the time when the Preamble to the Constitution dedicated the national spirit to "domestic tranquility," this has been true of our national life. And manifestly it is no less true -- it could not be less true -- or our world purpose.

We seek justice for all men -- occasionally with sad lack of success even in our own country, yet with a persistence and fervor that all but the implacably hostile must acknowledge. We do not _believe_ in the concept of second-class citizenship. And this directly translates into our testimony before the _world_ that we do not accept the notion of second-class _nations_.

We know that the institutional expression of freedom lies in diversity, not conformity. This, of course, is the essential nature of American society: its ultimate reliance on persuasion rather than force, its tolerance of dissent, its abhorrence of dictation. These same principles apply to a foreign policy: if true to the nation it serves, this policy cannot seek to make all nations in one image, or insist that responsible national conduct demands imitation of American conduct.

We have a quick and lively understanding of all that is implied in the _common weal_. We long ago learned that no favored part of our society could long enjoy prosperity and strength if great fractions or whole groups were left in want. And we have been -- more lately -- learning that this, like all our abiding principles, applies to our role in the world. We are _of_ the world -- its well-being or torment -- and the fate of no part of it leaves us untouched.

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It will be noted that every one of these principles has direct bearing upon foreign economic policy. For here lie the purposes of that policy.

Only by these purposes can the efficacy of the means be weighed and judged: the sense and aptness of a given policy at a given time and place.

All this is fundamental for one reason: there are few areas of public concern where ends and means must be more clearly distinguished.

There are few areas where ends and means have been more chronically confused

It is not sufficient, for example, to construe the end of foreign economic policy as the procurement of military-and-economic security against clear and present communist threat: in many instances, that threat may by no means be clear. It is not sufficient to imagine the end of economic policy to be the meeting of "emergencies" demanding instant Congressional action; in fact, the constant recourse to the cry of "emergency" for just this purpose has not only made the repeated appeal sound increasingly hollow, but also has obscured the full nature and purpose of sustained policy. Nor can the appeal for foreign economic aid be rested simply on the matter of U. S. dependence upon overseas markets or resources -- for a coherent economic policy, faithfully reflecting U. S. foreign policy, clearly must be concerned with innumerable areas not supplying strategic materials to this country.

Nor -- most critical, because most plausible, of all misconceptions -- can foreign economic policy be conceived to have as its end the simple fostering of economic progress. Again we are reminded of a truth equally relevant in both domestic and foreign affairs: neither productivity nor

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abundance are intrinsic goods in themselves. They are merely means to ends, and are not necessarily admirable. Economic progress as such is no automatic guarantor of the purposes to which U. S. policy is dedicated. We have seen the productive capacity of nations expanded enormously with no benefit whatever to their people or the world. The 20th century's two most conspicuous displays of dramatic economic progress -- made only through a ruthless exploitation of the people -- have been provided by pre-war Japan and Communist Russia. The achievement made neither country a good, or even peaceful, neighbor in the community of nations.

These considerations lead then to the conclusion that U. S. foreign economic policy should be directed toward fostering a world-wide economic growth and development which will improve the lot of all peoples, morally as well as materially. This means growth which contributes to peace and not to aggression, to the dignity of man and not his degradation, to individual opportunity and enterprise and not dictatorial or totalitarian oppression. It means, too, a reliance upon genuinely mutual help which is dictated by the interdependence of all nations.

### III. THE WORLD WE LIVE IN

To achieve the nation's goals, how shall U. S. foreign economic policy be devised? The profession of noble purpose manifestly is not enough. The policy we pursue must be rational in method, applicable and constructive in a world not as we would like it, but in the world as it is. The first requisite,

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then, of a sound U. S. foreign economic policy is its accurate assessment of
the world in which it must operate: the problems and opportunities that exist,
the elements of weakness and of strength in the world economic scene.

There is, in fact, unique strength today in the free world's economic
position. The American economy continues to prove, in history-making
measure, its immense productivity and its rare capacity to distribute, widely
and abundantly, the fruits of that production. Production everywhere in fact
is at record levels. So is the volume of international trade. The figures in the
Soviet orbit are not available but, in the free world, trade is at a level some
80% above the peak immediately before World War II. Not only Europe but also
Latin America have enjoyed a decade of economic growth unknown in their past
histories. And in both Europe and Latin America the trend toward wider
common markets and freer trading areas has reached new, perhaps decisive
momentum.

Everywhere one American tradition is taking root. It is that each
generation should be more amply supplied than its father's with the goods
of our economic system and expect still more for its children. The setbacks
to this progress have seemed to our people unnatural, even criminal interrup-
tions in the normal course of events. Now this conception is applied increas-
ingly by other peoples in the world to their own economies. At the same time
economic dilemmas, political problems and psychological obstacles -- the
whole shape and nature of our times -- produce a series of stubborn problems.
The most crucial are these:

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1. <u>The revolution of rising expectations.</u> This is a central fact of our times -- the assertion by all peoples of their right to a greater share of the world's goods. Two words evoke the essential spirit of this revolution in human aspirations: Growth and Industrialization. Everywhere, as never before in history, there flourishes the quite American notion that Growth is the law of life, that today must be better than yesterday, but not nearly so good as tomorrow. And almost everywhere -- especially in the great middle-area of the earth from the islands of the South Pacific to the deserts of North Africa -- there flames the conviction that the key to Growth is Industrialization.

The steel mill or the hydroelectric plant have become much more than functionally useful economic assets. They have become signs of national pride, and symbols of the hopes of peoples.

The sweeping impact of this revolution cannot be briskly summarized or quickly gauged. But three particular facts need be noted.

First: This popular temper of steeply rising human expectations is not confined only to underdeveloped areas. It is a world-wide appetite, evident in the advanced economy of Europe.

For even in Europe the surpassing of pre-World War II levels of productivity has not meant a slackening in the popular demand for better standards of living for whole classes in all nations. Rather, everywhere in Europe are signs of the "Americanization" of the European market: the innovation of American sales methods, the assertion of American-style consumer demands.

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Second: Such a world-wide phenomenon manifestly means that such an economic "program" as might have been conceived a few decades ago has little relevance today. The satisfaction of limited, short-term needs -- by aid, by loan, by gift -- is not the issue. What is at stake is the decision to be made by hundreds of millions of people as to the very way of life -- the economic system and the political institutions -- that they will choose in order to share more fully and more justly in the treasures of the earth and the labor of all mankind.

And third: In the crucial underdeveloped areas of the world, this revolution in mass demand sets up a sharp conflict of purpose. For -- from Indonesia and India to Algeria and Morocco -- the political compulsion is to achieve (and, when achieved, to assert) full and vigorous independence from the Western world. Yet the economic need is to acquire the capital and resources and skills -- essential to economic progress -- that can only come in large measure, from the Western world. This basic conflict accents plainly the difficulty of fulfilling any Western hope to receive political cooperation in return for economic assistance, for the more these nations strengthen themselves with our help and copy us, the more independent of us they will become.

The same conflict is found in the underdeveloped areas of Latin America, although not quite so blatantly expressed because national independence has long been recognized. But, regardless of political status, it is a

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fact that aspirations of the people necessarily outstrip production. The
result is strong pressure for more rapid industrialization than can be operated
by available managerial, engineering and labor skills, let alone capital
requirements. All these peoples are faced with what is an almost intangible
dilemma. Either they must make present sacrifices for future benefits, or
grasp immediate gains at the cost of future development.

For them it is not just a choice between raising levels of consumption
at once or sacrificing such present improvement for greater gains in the future,
although that is a hard decision. They also must choose whether to accept
foreign capital for rapid development, thereby swallowing some of the pure
pride of nationalism, or to insist that all foreign investment be subject to
that pride, which means that they will not get so much. Examples, by no
means extreme, are Venezuela and Brazil. Venezuela, which accepted foreign
capital under control of its owners, has achieved a wonderfully quick economic
advance. Brazil, which requires capital to be subject to Brazilian control,
has grown less spectacularly despite enormous resources. This dilemma is
one of the factors which complicates all the other problems raised by the
introduction of hope into the lives of hundreds of millions of people who for
countless centuries have been more or less satisfied with nothing because they
expected nothing.

2. The rising pressure of population. It is a rather harsh coincidence
of history that the revolution in popular expectations comes at a time -- in

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terms of population growth -- that makes fulfillment of *these* expectations
most difficult, although improved planning and the use of new techniques
and sources of energy offer some prospect of overcoming the difficulties.
Not only is the world population increasing: it is also increasing at a faster
rate all the time. The annual percentage increase from 1950 to 1954, for
example, was two times the rate of 1850-1900 and one-and-one-half times
the rate of 1900-1950. While this represents a sharp acceleration of a pattern
of growth going back 200 years, a startling change in regional differences
dates only from World War I. Since that time, underdeveloped nations have
been growing in population much faster than economically advanced countries,
although some of the latter -- the U. S. is one -- have approached their
rate in the last decade.

The social and political implications of this fact are as numerous as
they are serious, but a few need explicit notice.

First: Poorer countries find it more difficult than ever to raise per
capita income. If population grows by 2-3% a year, annual saving may have
to represent 10-15% of the gross national product just to maintain present
standards. This is running very fast to stay in the same place. But since
few underdeveloped countries can save more than that, there is inexorable
pressure on the government for inflationary policies to ease the economic pain
of the moment.

Second: This population pressure tends to widen the gap between
rich and poor countries. The wealthier ones have contributed to this result

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in two quite unrelated ways, both of which actually have more elements of
benefit than harm. One is by helping to control disease and reduce mortality
rates in underdeveloped nations. The other is by absorbing ever greater
amounts of their natural resources so that in 1950 the two-thirds of the world's
people in the less developed countries of the world consumed less than 5%
of the world's production of primary materials. Of course improved health
is a boon as well as making more mouths to feed and the export of raw
materials can be one of the most advantageous steps to economic progress,
as our own history proves, but the defects of these qualities must be taken
into consideration.

Third: These economic pressures inevitably have a political impact involving both drastic domestic action and, almost certainly, the exploitation of nationalist passions and their enlistment in foreign adventure. The case of Egypt is instructive. It is one of the three or four most crowded agrarian countries in the world; the mass of the people must spend more than half their income on food alone; and per capita food consumption has actually tended to fall over the last 20 years. The ruthless pressure of these facts contributes much to explaining the zealous and reckless course of Egyptian foreign policy, for it is easier to distract popular attention by startling foreign adventures than it is to satisfy popular needs.

3. The burden of world armaments. The economic implications of this burden are manifold and difficult to measure with any precision. They place

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a severe drain on facilities and materials. They threaten financial stability and make inflation hard to escape. They divert manpower, delaying both its training and its employment in the kind of labor vital to national growth.

A corollary problem is serious in its effects: the obscuring and confusion of the real economic needs of a nation by the claims of armament.

The economic needs of Israel, for example, are hugely complicated by the national resolve to maintain so great a defense force; and since this force obviously is not going to be dissolved, its size and cost -- as determined by military and political decisions -- become the inevitable premises in assessing Israel's economic "needs." In a quite different way, U. S. military policy obscures "pure" economic realities. For the absence of a European dollar shortage in recent years is essentially due to U. S. military expenditures overseas. Thus the withdrawal of U. S. troops stationed abroad, the curtailment of base-construction, or the termination of offshore procurement -- all military issues and decisions -- would quickly reveal economic weaknesses effectively hidden these last years. At the same time, much of the ostensibly economic aid offered by the U. S. has been designed to strengthen the recipients militarily, without much consideration of its relation to the needs of the people.

4. The increasing inter-dependence of all economic areas. However often repeated, this truth needs more than reiteration: some of its specific implications need to be clearly understood. Let two of these implications here suffice.

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First: The European economy has become far more heavily dependent upon the resources of the Middle East -- in precisely the years when the great West European powers and the Middle Eastern nations were becoming most bitterly estranged. Before World War II Europe drew less than one-fourth of its oil imports from the Middle East. By 1949, the figure had risen to 60%. Today the Middle East is expected to provide more than 80% of Europe's oil imports -- while, politically, it has been left as a vacuum.

Second: All advanced industrial economies -- Japan, Western Europe, the United States -- share a mounting concern over present and future supply of raw materials. Already U. S. capacity to produce is exceeded by its requirements for all metals except two -- magnesium and molybdenum. For the U. S., Europe and Japan alike, the coming years -- with increasing population and increasing productivity -- promise a growing domestic deficit in metals. By 1975, the U. S. will have to import at least 20% of total raw materials requirements and at least 55% of metals requirements.

The interdependence of the presently industrialized economies and their suppliers is obvious. Growth in the domestic economies of the U. S., Europe and Japan must rely upon growth in the underdeveloped areas; their best chance of progress is our continued economic expansion.

5. Special problems of advanced industrial economies. The U. S. has a vital stake in the economic and social progress of the well-developed as well as the underdeveloped nations. Our interest in their relations with

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the latter has been indicated; it is especially keen in the crisis of Middle
East oil which is so essential to Europe, the drain on French resources caused
by the difficulties in North Africa, Japan's special needs for new capital
and the general interplay of economic forces in the trade between the suppliers
and the users of raw materials. But there are also some internal problems of
industrialized countries which cannot be ignored. Some of them are:

(a) The perennial balance of payments problem between Europe and the U. S. Back of the recent satisfactory availability of dollars for European purchases in this country there lies a potential instability. While it is true that American imports have increased more than exports in the last few years, the real easing of the dollar shortage which was so acute for the first five years after the war has been due to the three factors of our own military expenditures abroad, our military aid to other countries and our non-military economic assistance programs. The three add up to more than one-third the total value of all U. S. exports.

(b) The special case of the United Kingdom. It has been impossible for Great Britain to maintain out of her present production the current levels of consumption by her people, the investment necessary to keep up her productive facilities, the armaments program she undertook and the manifold responsibilities of her position in the free world. The demands, exceeding her resources, have led to strong inflationary pressures and have kept her balance of payments position extremely precarious. While this state of affairs is not

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unique among the Western European nations, the key position of sterling in the world gives the United Kingdom a uniquely important place.

(c) The development of European regional organizations. In the development of programs such as the European Coal and Steel Community, the European Common Market or EURATOM there is a great opportunity for economic progress. Working toward a customs union, these programs might achieve a strengthening of the European economy which would be a force for good throughout the world. But this result depends upon just what course this development might follow. If it ends up simply diverting a considerable volume of existing trade from one area to another, the net benefit would be negligible and the damage might be considerable. But if it results in a situation which would create additional trade for Europe, the gains could be enormous. The interest of the U. S., therefore, lies in seeing that the progress is toward the trade-creating rather than the trade-diverting programs.

6. The challenge of unequal rates of growth. All of the economic problems indicated -- and their political consequences -- would be a substantial test of U. S. ingenuity in devising a world economic policy, even without the challenge of unequal rates of growth. It is true that in some areas, especially the underdeveloped, a rate which is below that of the most advanced nations may satisfy the needs of the people by proving to them that their hopes are in the process of fulfillment, but this will not be effective indefinitely as the gap widens, for they are not content to grow slowly, as the U. S. did.

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A more direct challenge is the economic power of the U.S.S.R. The economic growth rate of the Soviet Union for some years has been notably swifter than that of the West, including that of the U. S. It has been backed by a prodigious amount of annual investment in heavy industry. And its future continuance, Moscow hopes, may be assured by the current broad-scale and rigorous training of scientific and technological manpower.

The spectacle of this growth is, of course, subject to a number of serious qualifications. From a statistical viewpoint, the U.S.S.R. enjoyed the great advantage of starting its recent growth with great numbers of unemployed citizens and vast amounts of under-employed resources: as these become more fully engaged in the economy, the actual rate of growth will slacken. Even the growth rate achieved, of course, has been at the cost of severely low rates of consumption and much human misery. And -- it is relevant to emphasize -- U. S. economic growth in absolute rather than percentage terms annually continues to be conspicuously larger than that of the Soviet Union, so that the gap steadily widens *in our favor*. Nor is Russia the only area which has recently achieved a rate of growth faster than ours. This is true of Latin America, too, but the relatively greater rate does not begin to match the positively larger volume of U. S. expansion. With 6% of the world's population, the U. S. accounts for 45% of the world's production. Therefore, an annual increase of only 2% here is much more than an increase of twice as much in a country with a tenth of our production.

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Yet these economic truths must not obscure the political truth of the efficacy of the Soviet economic offensive. The Russian leaders are less interested in the economies of the underdeveloped countries than in their political alignment, as Nikita Khrushchev plainly indicated when he told a group of U.S. senators in late 1955: "we value trade least for economic reasons, and most for political reasons, as a means of promoting better relations between countries."

The USSR boasts a dual appeal to underdeveloped areas. It is a self-advertised source of supply for economic needs. And it proclaims itself a model for all nations seeking the swift, dramatic economic change so passionately coveted in these areas.

Here, as almost everywhere in foreign economic policy, the strictly economic aspects of reality cannot be disengaged from the political and the psychological. The fact is that -- for the underdeveloped countries of the Far East, Middle East and Africa -- any signs of Soviet inferiority to the United States are not necessarily liabilities. They can be political and psychological assets. They suggest that the USSR too, belongs -- or lately belonged -- to the "have not" nations.

Perhaps it is even more important that in this area of the world, the USSR is expressing coherently and plausibly in terms of nations rather than classes some of its own basic and repeated tenets -- the truths which *it* holds to be self-evident. These encourage the "proletarian" nations of the world to rise against the "capitalist" West.

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The Soviet Union has sought with some success to create an inter-national atmosphere in which the underdeveloped countries would look to Russia as mentor and supplier. It is for us to dissipate this atmosphere by our own truths in action. The fallacy of the Soviet argument is not hard to demonstrate. Not only has its growth been achieved by imposing what we would consider unbearable hardships on its own people (which might not appear so harsh to even poorer peoples), but it has ruthlessly exploited those who have come under its domination. The situation in the satellites it controls in Europe is ample evidence. These nations have achieved some substantial productive gains over the pre-war era, but the Soviet Union has been the beneficiary; the gains have not been translated into goods for the people of the satellites.

At the same time, there are countries, most notably India, which are maintaining and developing systems based on philosophies not entirely compatible either with ours or the Soviet's. The Indian experiment in freedom is compounded of the values which the people recognize. That it may provide a pattern for other newly independent nations is not so important as the fact that it embodies principles in which India as a whole believes and therefore offers the foundation upon which rests its progress toward the goals our foreign policy seeks to attain in the next decade or so.

This section of the report is necessarily only a summary of the world economic and social questions as they exist and as they will affect any U.S.

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programs to carry out a foreign policy. In some cases they will be ampli-
fied in the discussion which follows of what the economic and social pat-
tern of that foreign policy might be and how it might be implemented.

IV. WHAT WE HAVE TO BUILD WITH: BASIS OF A POLICY

In suggesting an international economic and social strategy for the
United States over the coming years, the subpanel which is making this re-
port agreed upon certain preliminary assumptions as valid and acceptable
premises to the specific proposals in the section which follows. These
assumptions derive from the agreement of the earlier sections, but may be
summarized here for greater clarity. They are:

1. The policies of the United States must make sense in terms of American values, the inarticulate objectives of the American people, and the historic tendencies of American society. These tendencies and values comprehend a belief in man and his possibilities, and a commitment to a free society.

2. United States foreign economic policy is an instrument of U.S. foreign policy. It is also a part of general U.S. economic and social policy. It must make sense in terms of both.

3. A free society in its essence is a spiritual testament. Its core is a sense of the dignity of man, a conviction that every individual should have the opportunity to realize to the full his potentialities for growth as a

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human being; and a faith that by thought and toil and patience men can de-
velop and adjust institutions through which they can move toward an approx-
imate realization of their aims.

4. This belief manifests itself in economic affairs, as in the other facets of American life. Economic growth, for society as a whole and for the individual, is an accepted objective of American thought and action. It has been a central theme in American history; it is explicitly or implicitly assumed in the prevailing attitudes of American businessmen, labor unions, farmers and professional groups; and it has the express endorsement of a succession of administrations, Republican and Democratic.

5. U.S. foreign policy must be governed by a wise appraisal of the national interest. The criteria by which to measure the national interest are compounded inextricably of the "practical" and the "idealistic." They derive from American values and traditions which have both moral and material components. Growth as we see it should be in the direction of the good life in all its aspects, not just things, not just dreams. So any appraisal of the national interests in terms of things alone is as unrealistic as one expressed in ideals alone. Therefore, it is in the U.S. national interest that the United States should take the lead in seeking to establish a just and workable international order, in which free societies may flourish. U.S. foreign policy should continue to build political arrangements which give effect to common interests among the free nations and which are designed to reduce the

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consequences of differences in interest, while taking realistic account of them. It would also be in the U.S. national interest that individual states within the Communist Bloc should break away from it.

6. Problems of foreign economic policy have to be appraised in reference to three contingencies: an indefinite prolongation of international tension and unrest; a possible eruption of general war; and the possible emergence of a period of peace in which modern man, free of major international tensions could concentrate his incalculable resources of science and organization upon constructive purposes. Most Americans would probably estimate the first as the most likely to be realized; while it is our objective as a nation to prevent the second, and seek the third. Despite our expectations and purposes, the uncertainties are so profound, and the consequences of miscalculation would be so serious, that we cannot base our policies on a definite assumption that any one of these contingencies will be realized. We must choose possible lines of action which would prepare us for all three.

7. Two large themes of U.S. foreign economic policy are valid for all three contingencies; and make sense in terms of U.S. foreign policy and general economic and social policy. These themes are economic growth in which all participate on a just basis, and economic cohesion. Economic growth within the United States, the nations allied or associated with it and the uncommitted nations obviously strengthens all of them for peace or

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war or the state of affairs in between. Economic cohesion among these
societies is equally important to make it possible for all the participants
to share in the advantages of growth. By harmonizing their separate ef-
forts, we can help prevent war and advance from cold war into real peace.

8. Most subjects generally regarded as objectives of foreign eco-
nomic policy -- particular import or trade or investment policies, measures
of economic aid or technical assistance, etc. -- are most usefully con-
sidered as instruments to achieve ends, not as ends in themselves. They
can be sensibly appraised only in reference to the purposes for which it
may be proposed to use them.

What We Have Been Doing

Obviously American foreign economic and social policy and practice
for the future, the period for which this report is primarily concerned, must
step forward from what is being done now, as well as from the world con-
ditions previously summarized.

Two major lines have been followed since World War II. One was
an economic counterpart of the United Nations effort to organize an orderly
international system based on equitable settlements of international prob-
lems without the use of force. The second was a series of emergency
measures to meet specific, usually unforeseen problems as they arose. The
two sometimes were in harmony, often they were not.

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The attempt to establish an international economic order, which began with the Bretton Woods agreements, sought primarily to prevent repetition of the bitter experiences of the depression. So, besides looking toward postwar rehabilitation, this policy line was directed to maintaining a steady growth of foreign trade and investment. There was some provision to accomodate special national concerns such as expansion of agricultural output or maintenance of farm incomes, protection of industries vital to national defense, curtailment of market fluctuations for primary commodities, promotion of our own economic development. But the goal was multilateral, non-discriminatory international trade. Quotas were to be minimized if not eliminated, tariffs lowered and made non-discriminatory, export subsidies and dumping abolished, convertibility of major currencies re-created and competitive exchange depreciation ruled out. Controls on capital were to be restricted to preventing speculative abuses. The free flow of private capital would be under rules to safeguard the investor against unreasonable harassment and the borrowing country against exploitation. International public investment was designed to fill those needs which could not attract private capital.

Cooperative international institutions were established in each major area. Their charters scrupulously avoided interference with national sovereignty.

The International Monetary Fund and the International Bank for Reconstruction and Development, negotiated at Bretton Woods in 1944, have been functioning

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for 10 years. More elaborate steps, however, such as the International Trade
Organization and the General Agreement on Tariffs and Trade (GATT), were not
applied.

This line of foreign economic policy made constructive contributions
but it failed to meet the most urgent postwar problems. In part this was be-
cause the full program was not put into effect but the failure also can be at-
tributed to the fact that the policy was designed to prevent economic disasters
of the 1930s, and had little relation to the actual economic problems which
arose in the 1940s and 1950s.

To fill the gap, a series of emergency measures seemed practical.
When UNRRA proved inadequate, American relief and bilateral loans were
made. When the International Monetary Fund could not restore sterling con-
vertibility, the $3.75 billion loan of the Anglo-American Financial Agreement,
1945, was attempted and failed. Then in 1947 came the Marshall Plan, the
European Recovery Program, which worked incredibly well; the hoped-for re-
sults were more than met in less time and at lower cost than anticipated. The
economic consequences of NATO rearmament, the Mutual Defense Assistance
Program, Mutual Security Program, and U.S. procurement of certain munitions
in Europe were profound. To hamper the growth of Soviet military strength, a
cooperative embargo against export of arms and strategic materials or equip-
ment to the Soviet Bloc was organized.

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Meanwhile it became clear that the United Nations specialized agencies and the International Bank were not enough to supplement the amount of private capital and technical assistance going to underdeveloped countries. New American initiatives to remedy this by strictly American aid were then taken in the form of President Truman's Point Four program of 1949 and the Act for International Development in 1950, supported by expansion of the United Nations program and the authority of the Export-Import Bank to make development loans. The Mutual Security Program and disposal of agricultural surpluses led to some development assistance on a bilateral basis, too.

In the course of meeting emergencies, these programs sometimes conflicted with the objective of a world-wide non-discriminatory economic order. This was especially true of the encouragement given to regionalism which tolerates and even fosters discrimination in trade and exchange policies.

The restrictions placed on trade with the Soviet Bloc involved no serious differences of opinion within the United States. However, it created major problems in relations with some of our European allies and with Japan, who felt themselves seriously hampered by this policy. At the same time British imperial preference aroused considerable American suspicion and hostility, which diminished as the first postwar decade came to an end. Americans then positively supported, to the point of making it a cardinal element in foreign policy, regional integration in Europe. This was largely a by-product

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of the Marshall Plan, and although the desirable area for integration in
American eyes has fluctuated, the regional goal has remained constant
whether in terms of the six members of the Schuman Plan Coal and Steel
Community or the 17 members of the Organization for European Economic
Cooperation. However good in themselves, barriers to Soviet trade, British
preference and regional programs hardly fit the ideal of a non-discriminatory
international order.

Another obstacle to such an order has been raised by domestic eco-
nomic policies. The world we hoped to create by our earliest postwar foreign
economic tactics would have had no room for quotas, subsidies or dumping.
Yet the United States has indulged in all three.

Import quotas were imposed on commodities whose American price
is kept higher than the world price by government supports, and on goods
made by industries essential to national defense. The agricultural quotas
were justified on the ground that without them, the U.S. taxpayer would
be subsidizing growers of wheat, cotton and other farm products all over
the world while the U.S. government would be accumulating in storage
even greater surpluses than it now has. Similar deviations from the ideal
of non-discriminatory international trade are the "peril point" amendments
to reciprocal tariff legislation, the broadening of escape clauses in tariff
reduction measures, the entire "buy American" program and the failure to

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press the question of adherence to the Organization of Trade Cooperation to a vote during the 1956 session of Congress for lack of assured support.

Subsidies to U.S. shipbuilders and operators are based on needs of national security, and this was recognized as inevitable even when the condemnation of subsidies generally was strongest. But the requirement of our foreign aid legislation that 50% of all government-financed cargoes must be carried in American flag vessels scarcely can be reconciled with the earlier postwar policy.

As to dumping, foreigners look upon us as engaging in this practice when we use export subsidies and other measures to get rid of some farm surpluses. Sometimes this actually has undermined the markets of friendly countries which were recipients of our aid under other programs.

The attempt to further a single international, peaceful economic order and at the same time meet emergencies by programs which were incompatible with such a goal led to the somewhat uneasy contradictions about which critics of American foreign economic policy complain. Nevertheless, elements in policies which we have pursued can be developed, with certain additions and amendments, into a program within which short-term or emergency measures are reconcilable with long-range goals. It is the purpose of the rest of this report to suggest how in the coming years we might direct the economic and social tools at our command toward making such a program work.

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V. WHAT TO DO AND HOW TO DO IT

The first task in any plan is to set the goal, which should be within
the capacity of the nation, attainable by using the instruments available
or foreseeable. Also it should be acceptable, even desirable to the public.
First of all, of course, it must commend itself to the American people as
likely to further the national aims. Then it should inspire in all free or
aspiring peoples confidence not only in where we are trying to go but in how
we are trying to get there.

In setting the goal of foreign economic and social policy, the danger
is that it will be put too low and too near, as it has been in certain fairly
common conceptions of what such policy, especially in its economic aspects,
ought to be. In the last decade it has been argued that our policy should be
mainly or solely to strengthen the U. S. economy, to expand economic growth
everywhere, to buy friends in the international market, to counter Soviet moves
or propaganda, to improve our military position. As has been indicated, this
report rejects all of these as basic aims. What is proposed is a greater
variety in policy and program than would be necessary if the recommended
policy were as simple as any of those listed. Because both the world situation
and our goals are complex, the specific suggestions offered here break down
into a number of steps, and they are outlined in the sections which follow.
It should perhaps be repeated that in evaluating them, the eight preliminary
assumptions stated earlier must be kept in mind.

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1. Winning Domestic Support for Foreign Policy

This is a more difficult task than it would be if a domestic issue were
at stake. In national problems--taxes, agriculture, employment, social
security, education, urban development, controls over industry or whatever --
the public has far more experience on which to base a judgment than when a
foreign policy issue must be decided. Yet American leadership can be
effective in establishing a just and workable international order only if the
policy enjoys public acceptance at home as well as abroad.

Unanimity even among Americans, is not essential to success, which
is just as well because it probably is impossible to attain. Within our
government itself there are sources of conflict which are an integral part of
our political system, and properly so. The various branches and departments
see the problems from their own different points of view. We reach agreement
through the pull and haul of their various drives.

Obviously, too, the American public never will become expert on such
complicated international questions as European economic integration, GATT,
the precise nature of aid to be extended to an industrial country like Japan,
the Indian experiment, the underdeveloped lands with all their infinite variety
of special needs. That is why it is so important for the public to understand
the objectives of these programs.

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The problem then is to establish the main themes of foreign economic and social policy in terms understandable and acceptable to the American people as social security, public education, freedom of thought and religion, private ownership and management of industry and so on were made part of the American tradition.

The techniques for getting this information before the public, neither darkly mysterious nor impossibly difficult, need not be detailed here. But it should be noted that they are successful only when there is a firmly held policy to explain, a continuity of principles and goals which are involved in each specific program. Then the public can participate in carrying out the policy through their organized institutions, and such participation will spread the information, too. Churches, civic groups, trade and industrial associations, labor unions and many other non-governmental institutions already have sought and taken a role in foreign economic and social policy. That they can do more is plain. Through them and the other channels to the minds of the people, these main themes could be expounded:

Why a foreign development program designed to expand the opportunities of all people to realize the capacities of the individual is in harmony with the traditional American beliefs and aims.

How such development contributes to the peaceful, orderly international community which is our goal. (This might undermine the widespread feeling that we ought to get friendship or admiration as our reward.)

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Why the programs should be geared to the needs and capacities of the receiving or borrowing countries, not to what may have been an American need or capacity in an earlier stage of development.

How it is possible to live peacefully and prosperously in a world which does not agree with every point of American organization or ideology.

Why our national purpose makes it imperative that our foreign economic and social policies extend beyond material benefits for our citizens or even military security for our country.

## 2. The Men for the Job

At the beginning of this report it was said that the riches of the U. S. were a powerful instrument for carrying out foreign policy. Of these riches, the greatest is people -- skilled, trained, resourceful men and women.

This is equally true elsewhere, for any nation's greatest capital is its people, greater than the sum of steel and oil, coal and water, transportation and machinery and all the rest of it. A cardinal point in U. S. foreign economic and social policy should be to help in the development of trained personnel in the countries where we have assistance programs. Their need is not only for scientists and engineers but for men with talents and experience of organization for operation, for transmitting knowledge and skills, for planning and improvisation. Eventually they will need such men drawn from their own citizenry, not loaned from another country. When they have enough

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of them, no doubt our aid programs will be ended, but mean while we have
our own problems in this field.

Other subpanel reports in this series deal with the importance of
steadily broadening, invigorating and improving our educational and training
system. It is of special concern in the operation of U. S. foreign economic
and social policy because the coming years will call for certain special
individuals. In government, we will need skilled personnel able to appreciate
and understand the needs of other nations and then to apply technical ability
to meeting those needs. Equally well trained men and women will be required
by the many educational, philanthropic and industrial or commercial organi-
zations which through their activities abroad contribute much to the develop-
ment of foreign economic and social policy. -Perhaps most important of all,
is the transfer of these skills to peoples who need them, so they themselves
will develop leaders, and also subordinates versed in governmental procedures,
industrial and agricultural techniques, teaching and so on.

This does not mean merely an army of specialists, even if the
specialists are assigned where their particular services are most needed. The
problems of other nations we help, especially in the underdeveloped areas of
the world, are at once too broad and too various to be solved by technical
specialists no matter how skilled in one narrow field. Here, just as in the
education of those who will have to grapple with domestic problems, emphasis
should be placed upon general education as the foundation for acquisition of a
technical specialty.

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3. A Stable and Growing American Economy

Behind the men who do the job must be the strength for which the U. S. economic system has become known in spite of dark predictions of collapse. The problems involved in maintaining the desired level of expansion are being considered by other subpanels. They are mentioned here as a fundamental factor in a successful U. S. international economic policy. The rest of the world, whether in industrial or underdeveloped societies, are more fully aware of their stake in a vigorous and growing American economy than most Americans are of their dependence upon similar activity throughout the free world.

However, the U. S. economy must be kept in perspective, and its key role should not be used to force judgment concerning our international programs solely by their effect on the domestic economy. This limited idea of a foreign policy usually goes to support one of two special pleas. In one group are those who are preoccupied with financial stability and high taxes. They are inclined to regard proposals for action on the international scene in the light of their cost to the taxpayer, their possible weakening of any part of the American economy and their returns in benefits to the United States whether in terms of increased profits, new sources of raw materials or expanded markets. This is a perfectly legitimate concern, of course. The strength of the American economy is fundamental to any policy, and should never

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be neglected. But the economy is within this world, too, and cannot be considered, as some proponents of this argument would have it, in a vacuum.

This is more obvious in the position of the other group, which relates the national interest to a special interest of their own, -- usually a single industry such as watches or tuna or textiles, shipping or machine tools or precisions instruments. The second of these groups, of course, have the added argument that they are speaking in the name of national security.

Both these segments of U. S. opinion, those with a general concern for a balanced budget and low levels of government expenditure and those with a particular concern for a given industry, tend to resist a foreign policy if its accomplishment implies economic measures which run counter to their strongly held views.

### 4. The Underdeveloped Areas

Over the coming years, a great part of the earth's surface and a substantial proportion of its people will be the concern of U. S. foreign policy because one of our vital interests is the removal of the word "under" from our description of them.

The very magnitude of the area --talked about so glibly as if it were quite easy to develop all of it with a bit of money, machinery and men -- poses the first problem. We are speaking here of virtually all of Asia not under communist rule, most of Africa, most of Latin America. So it might be well to

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start off by recognizing that no amount of material and technical assistance
which the U.S. can supply, even by expenditures of up to five billion dollars
annually, would *by itself* raise the standard of living of these people appreciably
by 1975, or any other date one chooses to mention.

What we can do, in cooperation with United Nations agencies and
other countries motivated by the same principles as ourselves, is to help these
areas realize their own potentials largely through their own efforts and mostly
with their own resources. Within this general limitation, there are certain
conditions under which U.S. assistance should be offered, and which must be
considered as we establish the basis of our cooperation with each of the under-
developed countries individually.

In criticism of American foreign economic policy, it has been fairly
common to argue that any economic assistance we supply should be given
"without strings attached." But in actual practice it is inconceivable that the
U.S. should not place conditions upon its extension of aid. Otherwise we
might well perpetuate rather than remove injustice, and should imply that we
have no interest in the political and social consequences of our own economic
policies. We should be saying that we believe a steel mill or irrigation pro-
ject or improved roads or any step toward increased productivity is our only goal.
(And even that would call for some conditions.) So U.S. policy should seek
to get rid of strings which hamper progress toward our objectives and retain or
devise strings which further such progress.

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Certainly specific types of political conditions are gratuitously offen-
sive. It is, for example, plainly impolitic to hold an annual public review in
Washington of the national conduct of a sovereign foreign power, to determine
whether (by the verdict of the U.S. Congress) that nation's behavior warrants
further economic assistance.

On the other hand, a "string" which ties both giving and receiving
country to common objectives in working out plans and programs for joint
action is plainly essential to the successful operation of American policy.
So, in all such joint action, we should satisfy ourselves that the country to
be helped desires to move in the direction of our own ultimate goals. Our help
then would go only to a government which, whatever its present form, is work-
ing toward the kind of economic and social development which will: (1) con-
tribute to or at least not impede peaceful development elsewhere, (2) progress
toward an economy fostering individual opportunity for all the people, (3)
resist aggression, (4) win the confidence of its own people that it can and
will advance toward satisfying the popular aspirations of which we have spoken
earlier in this report.

Some strings should be tied, too, to our own government and its repre-
sentatives. We should demand of them: (1) the firmness to direct our help
into channels which fulfill the receiving country's needs within the joint
program, even though its own government prefers some more spectacular but
less valuable project, such as a steel mill in an agricultural land which would

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benefit a great deal more from an adequate water supply, (2) the recognition
that what worked well in our country or even in another underdeveloped area
does not necessarily apply everywhere, (3) an understanding that our national
purpose, not an immediate concession or alliance or even military base, is
the objective.

The amount of assistance which we have been giving to the programs
for underdeveloped areas is generally inadequate. Furthermore, it is well
below our capacity. Net American capital investment in all of them put to-
gether has averaged about one billion dollars a year, of which about half was
private investment.

This is not much, even when it is admitted that there is a fairly low
limit on the amount underdeveloped countries can absorb usefully. The tend-
ency to lump all American foreign assistance -- military and civilian, techni-
cal and capital, emergency relief and long-range development -- often obscures
the fact that most of our governmental expenditures have gone for military and
emergency programs.

For straight economic growth, a country like England could make good
use of a billion dollars worth of steel, oil and machine tools. A country like
Indonesia might have virtually no benefit from such things; it might be hard
to spend twenty millions there beneficially. Before she can employ a vast
capital outlay, Indonesia needs people and institutions to improve what she
now has -- farms, crafts, schools, health facilities and so on. So it may be

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that the best assistance we could give would be personnel to teach agricultural
experts, teachers, health officers.

In general, such aids to education and health as well as to public
works are a governmental responsibility, often shared especially in education
and health by private foundations. But the development of agricultural, com-
mercial and industrial enterprises is the field in which, under our system,
private capital takes the initiative, although it may well be in partnership with
government as has been the case with housing in the United States, to take
just one example among many which might be cited. Railroads in the past
and peaceful uses of atomic energy in the present are others.

One great obstacle to a greater flow of capital overseas is the tempt-
ing prospects of profitable employment at home. Others are the fear of nation-
alization or even confiscation and a distrust of foreign regulation including
currency restrictions. Yet private investment can make much more important
contributions to development in line with American policy than it does,
although under present conditions it is not likely to do so. To increase the
flow of American capital, therefore, these suggestions are offered:

(a) Encouragement to investors by offering tax incentives. This is
not a new proposal and has met with notable apathy in Congress, among the
public and even among business leaders. However, a program linked with a
more widely understood and specific American foreign economic policy might
show results.

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(b) Government guarantees for certain types of overseas investment.

Such guarantees now are provided for shipbuilding and have been given to various domestic industries in the past. This would be especially helpful in encouraging capital to enter areas of doubtful political stability.

(d) Better use of outmoded American equipment. Factories obsolete in the U.S. because the machinery uses a larger labor force than newer models might be exported profitably. An obsolete tire plant, for example, which would be scrapped here because it requires ten times as many men as the latest machinery, could be a boon in Burma where labor is still plentiful and cheap.

(d) Greater cooperation of public and private capital. This often is met by the cry of "socialism" but in fact it seldom has deterred American capital when the possibilities of profit were demonstrated.

These four measures are urged rather than mere exhortation or appeals to patriotism, even if it should be supposed that foreign investment is a patriotic gesture. The problem is to make the capital useful to the country where it goes to work, secure and capable of providing an adequate profit to the investor. That it can be done is proved by the presence of many American companies in underdeveloped areas and the continuing flow of capital even if it is not as much as it might be and a large share of it represented by oil in the Middle East and Venezuela.

This discussion of capital, of conditions under which we should extend aid and the size of the area to be aided comes close to exhausting the

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generalities which it is safe to apply to problems of underdeveloped countries.
In working out a U.S. economic policy in relation to them, these are some of
the contrasts which must be taken into consideration:

Some countries are potentially very rich in natural resources for
development along all economic fronts. Brazil and Rhodesia with huge agri-
cultural and mineral resources, potential power and great possibilities for
transportation and communications obviously need a very different develop-
ment program than does a nation like Libya with very meager resources in all
these fields.

Some countries have a long established independence, while others
were freed from colonial status only the other day. Turkey and most of the
Latin American countries are in the first group. Indonesia, Burma, various
former African colonies are in the second.

Some countries are under severe population pressure, so great that it
requires a very large expansion of economic activity just to maintain the
already low standards prevailing, and a colossal effort (which a few are able
to make even so) to advance. In this category are India and Indonesia. Other
countries actually have too few people to develop their potentials, even of
agricultural production. Iraq is one; Brazil and Venezuela are others.

Some countries have government machinery already equipped and trained
to handle the programs which we would want to help. India again and Iraq,
both of which have British-trained civil services, are good examples among the

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recently independent; Turkey among the older nations. At the other end of the scale are places like Yemen with hardly any trained administrative personnel at all.

Finally, there are some countries which contribute to the military defenses of the free world, and some which do not and would not. Turkey is an outstanding example of the first group, India of the second.

This is not the end of the variety of problems or peoples. But they are enough to point up the principle that the type of assistance we give in any set of circumstances should conform to the desires and aspirations of the country itself. It would be useless to try to force upon anyone the sort of development we have had or think others ought to have. On the other hand, the expressed wishes of a people as they reach us through their own officials may be unworthy of support. It is easy for ambitious and well-intentioned officials to want to move too fast, say in industrialization, and build steel mills or hydro-electric plants without having men to operate them, industries to use them or facilities to supply them. U.S. policy obviously should discourage such projects in favor of more promising ones. Port facilities, improved railroads, increased farm production may be better targets for the particular country, may even be necessary for the success of the more popular enterprise.

The unique nature of each country's needs and capacities should not encourage a policy which would ignore their relationships to each other. The

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U.S. should consider them individually but not in isolation. Administration of aid programs especially on a regional basis is sound policy, recognizing that the differences within regions are at least as great as between them, usually greater. The advantages of a regional approach, combined with individual treatment, are perhaps more readily understood by taking some specific examples -- India within the region of South Asia, Iran in the Middle East, Venezuela in Latin America.

## A. INDIA

India contains as many people as all the rest of the lands we describe as underdeveloped put together -- 317,000,000. The country lies astride the great trade route between East and West. In some ways it enjoys a leadership in Asian affairs which one would have expected a non-communist China to exercise. For all these reasons, India offers an exceptional challenge to American policy.

What this report discussed earlier as the revolution of rising expectations has been sensational in India. A dozen years ago, the vast majority of the Indian people expected no more than they had, which was nothing. Today their aspirations are high and their accomplishments impressive. But it seems to be true that the economic growth they have experienced is due less to industrialization than to a remarkable community program which requires little outside help but draws together the resources and skills of each village for self-improvement.

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While this has hardly satisfied the aspiration of the people -- fortunately for progress no gains can do this -- it is significant that the country has developed a high degree of economic planning and carried out most of the plans against great odds. Population pressure has been one of the obstacles. Training for Indian technicians of all kinds has been another, met in part by increased facilities through public and private assistance for study in Europe and the United States. Even the burden of armaments has pressed upon India, despite a firmly held position of neutrality as between the communist and the free worlds. When the U.S. embarked upon a program of military aid to Pakistan, meant to bolster defenses against Soviet menaces, India felt compelled to invest one hundred million dollars in arms rather than in development. The weapons could have been obtained for nothing in Russia, but India preferred to remain completely uncommitted, buying the equipment in England at considerable sacrifice of treasured economic projects.

In the resolutely uncommitted stand of India, Americans often find much to protest. Those who are not for us are against us, it is said, and so we should cut off aid to India unless her representatives vote our way in the United Nations or the U.S. becomes demonstrably popular or some other substantial tokens of gratitude are forthcoming. Indians have their complaints about the U.S. too. Inevitably Americans are not very popular because we are very rich and like all the peoples of underdeveloped lands they are very poor; we are mostly white and they are mostly colored; they think we patronize