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March 14, 1958

- 1 -

**McCABE:** Well at this point I'm just weeping for Milt because I've been through this same experience with our report. Everybody starts out on the most complimentary vein and then before we get through we don't know the report. When I read it I thought it was quite thrilling and, at the same time, I recognize the things that Lester brought up, that the public reaction to this is going to be quite strong in certain areas. I think that it might be well if you gave a draft of this to Howard Peterson who was Chairman of the CED report on foreign trade because he carries a lot of scars from the public reaction to that report. I was thrilled with what Chuck said here because I think I subscribe to almost everything he says about it. I think we in this report could be just a little bit less philosophical and give it a little more hands and feet as Adolf suggested.
I do subscribe to what Chuck said about these barriers that they build up against American capital, American aid. I've had a number of experiences with that in not only business but in government and I think that's one of the hardest things that we have to break down -- these barriers they build up to American capital and American know-how and American assistance.
And I just don't know quite how we overcome that. I think that we help to create some of the negatives that are in their minds because I question whether American corporations always follow the best policy in putting capital in these countries. I've gone all-out for a partnership arrangement in each one of these countries and I wonder if this report for the public consumption we couldn't emphasize that a little more ... the partnership concept because the results sometimes are most encouraging and I do think

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March 14, 1958

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McCabe:

that we ought to in some way point out in this report what these barriers
are and how they work against the development of the country. I wonder
too if in the early pages of this report we couldn't again refer a little more
to the American struggle to get where it has; we've been through wars and
struggle of every possible kind and description and I think it's some times
overlooked by our own people as well as the people abroad. We didn't
do this all alone; we had to have British capital; we had to have scientific
brains from abroad; we had to have all kinds of help (still do) to get where
we have. I think that in the early pages there if we could just play down
a bit the philosophical and just relate a little more about the American
struggle I think it would be most helpful. I talked only a few days ago to
the Eisenhower exchange fellows and they as you know are the young
potential leaders in the underdeveloped countries. And the thing that they
want above everything else is facts and ideas as to what makes private
enterprise tick in this country and then they keep asking you this question
"What can I do about this when I go back?" A fellow from India who is
in charge of maintenance of Indian railways asked this question ... the
fellow who goes back to Greece ... the fellow from Egypt from a finance
department there. OK The thing that they seem to want to know more than
anything else is what makes private enterprise tick and what can we do
about it when we go back home. I don't know to what extent we ought to
mention in this report the International Bank and how it operates and the

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March 14, 1958

McCabe:

other, I call it subsidiary, which they created. (Mr. McCabe requested
recording be stopped for moment.)

The opportunity of the International Bank, Export Import Bank --
they have just a tremendous opportunity. This new organization that has
been set up that Gardner heads, International Finance Co., they have a great
opportunity ... (Recording off for moment again)

WILDE: I dislike to criticize the banks and the other institutions so much as I would prefer to criticize the Congress and people of the U.S. for expecting these people to make a profit. That's what they're up against. The Export Import Bank gets money from the Treasury, pays back to the Treasury and Exim Bank (?) doesn't want to be in the position of a losing banker because the Congress will rise up and say how stupid can these people be. We ought to say that here, in the proper language, that the policy of the Congress toward these instruments isn't broad enough, instead of criticizing them for something that it's hard for them to overcome.

NAR: In support of Congress, I think Congress has been too lenient on banks and has been more bold on the Ex-Im Bank in the last few years ... the policy on interest rates would rival anything in Wall Street, and making money hand over fist. Y

KATZ: This goes back to the description of Teddy Roosevelt's trust-busting
campaign -- on the one hand you must trample them under the foot and on the
other hand, not so fast.

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March 14, 1958

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**McCabe:** I think we could say something about the desirability of our being a little bolder.

**NAR:** Well I think that the putting the blame where it belongs ...
I agree with Frazar that it is really basically the American people and the
they haven't got time to
Congress, the Administration .. meanwhile let's get shown to get these
instruments started.

**VOICE:** If they had proceeded ..... and shown economic results
the Congress would have been waving their hands and saying "these stupid
people we sent over."

**NAR:** But maybe now that these have been so successful they
can now move forward with more confidence.

**VOICE:** I think we ought to stipulate that whatever we do someday
someone will wave his hands and say "what stupid people" -- we should
take that for granted.

**McCabe:** The next thing that bothered me in the report was the
build-up of Russia. I think psychologically that's wrong to build up Russia
-- I don't see, if this document is going to go all over the world as it will,
why did we build up a so-called competitor. Maybe we want to create fear
in the minds of the American public but I just don't see any sense in building
up. You don't do it in other activities of life and I don't see why here you
would want to build up.

**NAR:** Could you cast it in the light of you strive on competition?

**McCabe:** I'm just not sold on what the Russians are doing in any

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March 214, 1958

<u>McCabe:</u> - 5 -

particular. I think they're effective with the Sputnik, one thing here and one thing there, but I just don't see any reason for building up this system that they have. I was annoyed because I just didn't think that we had any reason to build up what they're doing. I was just a little surprised too -- I got a little feeling through the report that we were de-emphasizing the economic side just a little bit. My feeling is that we can't do very much about helping them socially or any other way until we begin to help them economically. They

I do feel very strongly about including something on these barriers that they raise and I think we ought to tell them from our own experience that we raised them and what it cost us.

<u>NAR:</u> That's very helpful and I must say I'm very excited and I think Milt feels the same way from the note he just gave me that the group here wants to move out on to a bolder approach to this, with more imagination in the whole thing. I think it's terrific.

<u>McCabe:</u> This group represents probably 1 per cent of the thinking an of the American public on this. We certainly are not internationally minded nation. All you have to do is hear the debates in Congress ... its growing. I think it's important to be bold in this.

<u>NAR:</u> Well if we're going to survive we'd better get to be internationally minded and bold.

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March 14, 1958

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McKEON:

Before I comment on the report, I'd like to go into a parenthesis
about the discussion of the report. I missed the opening remarks but three
of the speakers, when they had finished making a list of the things that
should be omitted remarked that we should omit the philosophical parts.
I would like to tack on to what Mr. McCabe has said that it seems to me
he has made a very philosophical series of comments, and the sense in
which he is avoiding philosophy is not clear, but that kind of philosophy
I should like to omit also.

But returning to the report -- when I read it, I made the resolve
that when I spoke about it I should not give one of these "I liked it, BUT."
It seems to me it is an admirable report and any change that should appear
in it should accentuate precisely the quality it has achieved and therefore
I should like to begin by saying what I liked about the report. It is an
economic analysis but it's an economic analysis in which the economic is
related to the social, the political and the moral and the framework that is
established seems to me to be a very viable one, one which would permit
us to put the economic discussion in a context and treat it therefore in
genuinely economic terms. And the result is that I think that what emerges
are three things: (1) A view of what the *unk* world order that is emerging
should be, (2) Specific recommendations for the *imme* datte, and (3) The
formulation of these in a connected way which takes its connection not
from a series of doctrines or dogmas but institutional arrangements and
therefore *k* all of my remarks have to do with the desirability of focusing

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March 14, 1958

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McKeon:

the
on these three. In other words, if we could do anything to make world
order that is emerging clearer in as long-term a fashion as possible, this
would assist the discussion and this is one of our chief objectives.

But this must be connected with an immediate problem which would give
our view a concreteness and provide for the beginning -- or the building --
of institutions that would have continuing function. With this as a preface
let me go into what seemed to me to be the problems that are involved. In
other words, I think that the economic foundation is clearly stated. I
remember in some of the earlier drafts, the interplay between economic
growth and economic cohesion, two dimensions of growth out of which
the political the social and the moral could emerge. I found only one
remnant of this toward the end. But the machinery is still there.

From this there is the need to consider the political aspect which has
been treated more than adequately in the comments and emerging from this
the moral vision that is implicit even in the economic terms but could be
made even more explicit as they emerge. But this is probably a field
which Subpanel VII should learn to manipulate more adequately than it has
in relation to the other six subpanels. What would that mean ... a
recognition of this four-fold division, in terms of what we have been talking
about? We talked about the aspirations, the revolution that is involved,
in the possibility of realizing aspirations and go on and then recognize
that these aspirations and wants are in their very nature infinite in their
require

character and therefore some recognition not only that they will go on

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March 16, 1958

- 3 -

McKeon:

indefinitely but they need limitation. When you talk about wants and
aspirations you are talking about "felt needs" that are expressing themselves.
They are expressing themselves with respect to objectives and It seems to me
that the political and the moral are precisely ways in which you change from
aspirations to objectives and the limitations that are brought in when one deals
with objectives take two very concrete forms. That is, it is not merely a
question of how much material production is desirable but there is also the
question of what some philosophers refer to as maximizing the ends, that is
to say, getting them into a relation to each other which is a viable one and
in terms of which one can establish priorities. And a second dimension,
namely a distribution of ends, a recognition that the economic cohesiveness
that we spoke of is part of a world emerging in which the objectives of one
people cannot be considered in isolation. So that, if you like, there are
three intellectual processes that ought to go into the discussion. One, the
process of deliberation by which one achieves ends, and here the ends are
given. Second, the process of consideration by which a viable life for the
individual and the community *are an end in themselves* emerge, the ancients used
to call this wisdom and it's quite different from a deliberation. And third,
a new sense of responsibility concerning the ways in which ends must be
set up among individuals in one community in relating one community to
another community. From this, if *I* have not been almost the last speaker,
I would have wanted to go on to the world vision, but I think that has been
taken care of -- I think Chuck Percy stated it in the terms that would be

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March 18, 1958

McKeon:

proper for this report and therefore to illustrate the diversity of the philosophic approach I would like to concentrate rather on what the implications would be at the other end of the scale. That is, what is it in the immediate present that this would focus on, and take the three audiences or the three regions of action that the report itself deals with, namely, the American people, the Soviet competition and the recipients. How will the report be received by the American people? The climate has changed somewhat since early discussion -- the early drafts of the report -- it would seem to me that in the present discussions of foreign aid, the two dominant considerations of the American people seem to be talking about is the need of tax reduction and a recognition that no audit has ever been made in our foreign aid and that there has been a good deal of boondoggling with the result that particularly in the light of some of the discussion in the daily press the objective that the reader may have formed would be the complete cessation. This is one way in which we can save several billion dollars, we're accomplishing no good because of the boondoggling. I was in Washington when the Congressional committee raised the question of the audit. (That was Representative O'Hara with whom I discussed the question.) What O'Hara had in mind I think -- it never appeared in the press -- was to try to get the agency to indicate the order of grandeur of the ineffectiveness, even to say 1 per cent, 5 per cent, but not 90 per cent of the aid has not been used well. But I should think that for the American audience what the report must do is to recognize the climate of opinion and see what we can do if not to make it a more rational one, that

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March 14, 1958

- 5 -

McKeon:

that is, it would seem to me that the report presents the rational things, but
also one which would be intelligible as good economics, as essential
politics and as our moral attitude <u>axi</u>matically to the world. Second, with
respect to Soviet effort, I think that what Mr. McCabe said is some thing
we should take into account. That is, we should not build it up but we
ought to consider within the framework of political and economic competition
what it operates on, if it is a borrowed plan, if it was our idea which the
Russians have taken over, then if they do have two bases that we don't
have perfected -- three really: the kind of use that they can make of their
surpluses, the kind of appeal that they can make as an example of an
economy which has gone rapidly from a feudal to a capitalistic production,
and third, one that has not been mentioned directly in the Russian part,
one of the difficulties I think, in spite of the trained personnel that we now
put in this field is that the motivations that we can give are not the same as
the motivations that the Soviet technician has. I was in India for three mos.
a short time ago and at one of the universities we were near the plant of
Cal-Tech, and Burma-Shell. Very few of the personnel, although they were
all trained for foreign service, were in a frame of mind which avoided looking
at this as a hardship post out of which as soon as possible they would be
transferred to something easier. At another of the universities we were near
some Soviet technicians -- they were better off than they would be at home.
This was a place that they were asked; they were aimed at it; they were
ready to be there; they could think easily of spending the rest of their lives

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March 14, 1958

- 6 -

McKeon:

there. And I should imagine that the way in which one can deal with this
is not to pass it by so much as to point out the elements that enter into
this. This can be made, in other words, a strength in our contracts.

Finally with respect to the recipient nations -- one of the difficulties
in the administration of not only foreign aid but also of investments has been
that when it is on the official level one has a series of inhibitive principles,
the government cannot interfer with the internal affairs of the government,
and therefore I should be inclined to think that what Chuck Percy said,
namely, that this is one place where we can point out the absurdity of some
of the operations within the country, if we also join that with what seems to
me to be the other side of the picture, the recognition of the values that we
are appealing; in other words, an inefficient group, a group that has not had
the Protestant doctrine of hard work rubbed into themselves, is also a group
which has a moral, religious, cultural tradition in which among other things
they think they are fearful of values. This double adjustment I think could
come in when we talk about the immediate impact of this on the communities
to whom the aid is given. A final brief point, since I don't think it
is a problem of this panel but I think probably it is our subpanel that should
take it up, I think we are quite correct in talking about the human person,
human dignity. I don't think, however, that we can reduce it to a doctrine.
In fact, in the period of the American development we have had human dignity
in two senses -- a common recognition of the importance of the human person,
a recognition that the maximization of the potentialities of the individual is

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March 14, 1958

- 7 -

McKeon:

part of our objective but a recognition that within the framework in which
we strive to achieve human dignity there is diversity. And this diversity is
at once the means by which the individual achieves his freedom and advances
the common conception of what human dignity involves. If we can get that
dimension in I think that we can then come back to the question of our com-
petition with the Soviets, namely, in much that they are doing this dimension
is missing.

NAR request that Mr. McKeon jot down some of these thoughts.

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March 14, 1958

- 1 -

GORDON:

I'm afraid I'm going to introduce a rather sour note with respect to roughly half of this document which I do without being timorous about it because I know a lot about the process of gestation it has gone through and I know that you were slightly disingenuous in the beginning in saying this was all Milt's draft, it's only the second half that is Milt's draft, the second half seems to have room for improvement but basically to have cohesion and logic and order and structure; and the first half I'm afraid doesn't seem to me to have any of those virtues. I think a number of people here have said a little less philosophy. My quarrel with what is called philosophy in the first part is that I think it's bad philosophy; I think that there is in fact in pages 1-14 bad economics, bad history, bad philosophy, bad politics, bad logic and bad writing. I don't want to be wholly destructive. I don't think the ideas are in the right order; the ideas are partly not formed and they don't really fit the second half. I think that the constructive solution to this is perfectly simple and that is, as suggested by somebody before, that Milt take this first half and produce not a revision of it but a substitute introduction to the second half much in their terms he did this morning orally which I think really fits together with the second half. This question of the relationship -- basic relationship -- between national policy and foreign economic policy, between foreign policy generally and foreign economic policy, all this kind of thing, I think. It's simply very badly presented as it stands now and I really think that we would all be much better off if Milt were to take this and write the first half properly. I think it can

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March 14, 1958

- 2 -

Gordon:

be done in much less space. Now with respect to the second half, it
seems to me that one thing emerges quite clearly from the contributions
around the table and that is the objective of having both a longer-run
perspective of objectives and a linked set of recommendations with
respect to immediate action. I think this is perfectly feasible and can
be done without a vast amount of labor. The question as to what some
of these longer range things should be, I think there would clearly be
differences of opinion on. I don't agree for example with Cleveland about
the virtues of international, multilateral organization for a lot of these
things. I think what was said about the red-tape in the IFC is to a very
considerable extent characteristic of any international organization and
indeed although I agree that in fact the U.N. special projects thing was
adopted in order to forestall something larger which we didn't like,
I think we were quite right in not liking the something larger which was
the SUNFED as it was in fact put forward.

I could comment and will when it is appropriate on the various
details that have been suggested but I think at this point we are supposed
to be dealing only with basic framework. On one of the specific points
which have been mentioned -- the Russian point -- we've had views on
both sides. Mr. Potofsky suggests that we may underrate their capabilities
in this thing; Mr. McCabe suggests that we are building them up too much.
I think we must face the facts this is what they have done is a set of facts
and they have done a great deal, much more than any of us I think 10 years

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March 14, 1958

Gordon:

ago or 20 years ago would have given them credit for. This does pose a
very serious set of problems for us. I think that's the best way to put it.
To state the facts, perfectly coolly, and state the kinds of problems that
this creates. I agree entirely with Mr. Potofsky's point that if we don't
maintain our own growth adequately they will catch up. The point in time
at which they caught up most with us was the 1930's when we stood still
and went backwards, whereas they were moving ahead very painfully and
with all kinds of immoral methods, but nonetheless moving ahead.

NAR: But as Frasar points out, they don't have to catch up and do what they may want to do in the international field and disrupt present procedures, you might say.

GORDON: They can concentrate their resources; they have been
imitating us rather effectively and in some respects, the imitation is now
superior to the original product. This is particularly true with the trading
of technical personnel, the kinds of incentives and the other points, that
have been made here. I don't think we can hide these facts; I do think
they can impose on us certain consequences for our policies. It seems
to me we ought to recognize them and state them. But not pessimistically.
This is a challenge we can respond to. I have certain personal prejudices.
I suppose all of us do. With all due respects to Harlan who may have
invented the phrase, I myself feel that the phrase, "the revolution of
rising expectations" has been worked to death by now and I'd rather see

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March 14, 1958

(Gordon)

- 4 -

it omitted here, not merely because I've read it so often, but because
it seems to me that it employs something that really cuts across some
of the problems which have been talked about here. When Harlan
says we can physically meet the rising expectations, I would just
disagree ... (end of tape)

(beginning of new tape) I think, as Milt says in an earlier
point, the important thing is the revolution of attitudes. The con-
viction that it is no longer necessary to be in the same condition
the people have been in for a long time, that something can be done
about it, that part, I think is admirable; it is a fact that we recognize.
It is also a fact, and this is where the phrase bothers me, and I think
to some extent the first section of this as written gives encouragement
to this, and this I don't like, that there is a feeling in many circles
and one sees this often in the UN, that there is an inherent obligation
of the rich to take care of the poor on the principle of Christian brother-
hood, in the sense of sharing the wealth right now. At one point there
is a statement in here that no country is satisfied with its share of the
world's total. If this is so, we're going to have wars be cause they
can't all increase their shares. They may increase the amounts; they
will increase the amounts, but I don't think that we're dedicated to a
proposition of global equality. I don't think the population situation
permits that in any foreseeable time -- whether it's two hundred years,

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March 14, 1958

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(Gordon)

one hundred years, fifty years or twenty-five years -- but I don't think that this is essential. What is essential is the sense of progress and a combination of economic progress with the political, social, fundamentals that have been talked about here. These are the things that I think we can encourage in limited amounts. I would like, myself, to see more stress on the -- and this, I think, fits in with what a lot of other people have said -- fact that most of the jobs have to be done by the people themselves. Somewhere in here there is a statement that it's a dilemma that they don't want association with the West because the previous colonial associations, yet the West is the only place they can look to for most of the capital, most of the skill that they need. It just isn't so. The only place they can look to for most of the capital is inside and what the West is is a very important part, but only a margin. I think we ought to maintain a perspective on this point.

I'm sorry to have been so vigorous with respect to the first half of the document, especially the first quarter, but as I say, if you went through in the sense of a pargraph by paragraph process, I'd be glad to supply it.

NAR: Could you give us perhaps a little bit more clarity on the basis for the vigor on the first part just so that we could get focus on just what you had in mind? I know that you would like to sort of

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March 14, 1958

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(Gordon)

sponge from the record but what would you put in its place?

GORDON: What I would put in its place?

NAR: I know you identified yourself with Milt's opening remarks.

GORDON: Obviously some of the basic facts which are contained in this first half, the facts of what has happened in world trade, the relations of interdependence, the change of this kind, the facts that have been suggested by four of the elements of our own group and the shift to our having a possible foreign policy, one of the things that I dislike here is a thing that would just make bad history -- a statement that we didn't have any foreign economic policy. I would argue on the contrary to the extent that we didn't have any foreign policy in the nineteenth century; it was almost entirely economic. There was freedom of the seas, there was an Open Door in China, it was cleaning the Barbary pirates out of the Mediterranean, you can go back and forth in 1800; these were all things that were designed to keep the world open to American traders and investments. So let's get history straight.

NAR: Well, this is the kind of thing, I think, helps us to get to it that we had in mind, when you come to it.

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March 14, 1958

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(Gordon)

GORDON: Right. There is a tendency also in the early section here -- the earlier section, really, this occurs on pages 1a and 2, -- to identify aid with the whole of our economic foreign policy. Later on, this is balanced up, but in this first section, the whole emphasis is on aid as the whole economic foreign policy. That just seems to me wrong. There is this very delicate problem which I think has to be handled somehow -- I don't think it's handled successfully here -- of the sense of responsibility toward a world community. This, I think, is an idea with real substance. As written here, I think it could easily be read as the sort of Myrdal thesis, if you will, I have three or four passages marked where it seems to be doing this. On page 4, for example, we say, "...we long ago learned that no favored part of our nation could long enjoy prosperity and strength if great fractions or whole groups were left in want.....we have been -- more lately -- led to realize that this applies to the world as well." Well, yes, in part, but it seems to me the possible implications of the draft are a kind of grandiose public charitable institution without limit. Dean Rusk, I think it was, said before, if we're talking about supplying two billion people in the world with consumer goods, we've had them; the possible root within the country, this thing that Myrdal calls integration -- social integration,

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March 14, 1958

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(Gordon)

political integration -- we all feel a sense of responsibility that no part of the country should be left in want. This I don't think can be literally applied to the world community without creating false expectations abroad, false hopes abroad, and implying around the policy that I don't think is a really workable line of policy.

Those are samples -- some of that economics is more a matter of technical detail which I can give Henry or Milton a note on if you'd like that. I'm a little troubled about some of the smugness here. Look on page 9 for example. "Until the late eighteenth century the inevitability of this social order (this is sort of a feudal hierarchical order) was unchallenged."...Then the philosophers of the American Revolution proclaimed the doctrine of political equality and of the inalienable right of all men to life, liberty and happiness." Happiness, it says, and not the pursuit of happiness, which is a bad error, or even happiness of pursuit. This makes us be inventors -- the inventors of this philosophical notion. This is really taking too much credit.

I'd much rather see comments on American history from the point of view that someone suggested before of what we had to go through then just claiming rather arrogantly this invention of this particular idea which now is spreading throughout the world. We made a great contribution that I think we should be proud of, but I don't think we

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March 14, 1958

(Gordon)

can claim prior patent on the philosophy.

On page 9, "the concept of equality and progress was soon extended to the economic field. It was not a far step from the assertion of political equality to the doctrine that political equality was meaningless without economic well-being." Well, I don't know what a "far step" is. If we're talking about linear, it wasn't, but if we're talking decades, it was a far step. Indeed, the economic philosophy in this country in the nineteenth century, it was a laisser-faire philosophy, simply rejected this idea. Again, I don't see why we should invite unnecessary criticism by writing bad intellectual history which I think is the case with that particular phrase we have. It was a very hard step, indeed, and I don't think it's been taken wholly even by ourselves. This is a point which will probably come up in other panel discussions.

Then we have this assertion by all peoples of their right to a greater share of the world's goods. Well, this is nonsense. If all peoples have a right to a greater share, I think one can see the ... Yes, yes, all we have to point out is that they can get more goods and that's different from a larger share of those goods.

Do you want me to go on this way?

NAR: I think you've given a very good feel of your reactions.

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March 14, 1958

(Gordon)

This is the kind of frank discussion that's going to lead to the type
of thing we want to see here.

GORDON: On the analysis, where I think this is bad economics -- and I think this is really a point of substance -- there's a heading here about the precarious position of our industrial allies, which means mostly Europe and to a lesser extent Japan.

Outside a discussion of facts there, I think this is a very questionable one. Some remarks have been made about the state of Europe, some controversy about it -- I think Europe is so much better than it was a decade ago -- certainly there is no resemblance. There again, I think that the notion of the tendency toward the dollar-shortage and so on is an important notion and part of the essential background.

But to give the impression that all of our industrial allies are just teetering on the brink of economic disaster all the time from which we have to keep rescuing them and pushing them back, this seems to me just a misreading of the facts. I think we've done much better in this post-war development or at least half-approach to a workable system than that would suggest. Europe is really doing remarkably well and Japan has been doing rather better than the text here would say.

Tape Transcription

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March 14, 1958

- 1 -

MAY

I have a lot of specific comments on specific sections. I think some of it is erroneous figurewise, thoughtwise and analysis-wise, and so forth, but I don't think that's important. I think those can be fixed up without any difficulty.

I agree with Linc in this sense that I think that a discussion here today in Milt's introduction would be extremely helpful. Compliments that have been given to what he said around the table are infinitely better than anything we have yet committed to the paper. I really think there is no comparison, and I think it does need sharpening.

Now, I will make about two remarks on general trend. I think it's all been said here, that these things are implicit. It seems to me that these are important points.

I really think that the depths of our analysis which has been mentioned is that our foreign policy has drastically changed over the last twenty years and our foreign economic policy has not changed in a comparable fashion and while it changed in quality, and feeling in certain points, it hasn't been made consistent with our foreign policy and it ought to be made so. And I think that our

Tape Transcription

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March 14, 1958

- 2 -

(May)

analysis of this issue ought to be sharp and that what we follow it
up with in terms of substantive suggestions ought to be drawn and
kept in the consistent framework with what we say our foreign
policy is and I think that that as a thread would help us a lot.

Secondly, I think that I agree with the statements that we
ought to be bolder in terms of stating some long-term means in
this framework of fitting it in with our foreign policy objectives and
I think that we can separate this from what is practical immediately
in this kind of a story. And I think in that boldness, we ought to
express a lot of confidence. In terms of the economic competition,
this is where we do have a very considerable force. I think, as
Harlan said, the qualifications of how you can apply it and the
institutional difficulties are very real and ought to be recognized
but I think that on that basis, I don't think that the guts of the Soviet
competition is except selectively, which is plenty big enough and
important here and here to be important, but I think this is a field
in which we have tremendous advantages and we ought to say so,
but they're only advantages if we marshal ourselves to use them.
I think that in talking about these weapons, these tools that we have,
I think still this has been said several times. I think that the whole
private activity abroadside has been very greatly understated

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March 14, 1958

(May)

- 3 -

has been deprecated both in size, has been made much smaller than
it is and not nearly enough has been made to what kind of an
instrument it is, what it has done to date and how it can be made
a lot more better.

That's all I have to say.

[L.C]

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March 14, 1958

- 1 -

P. M.

HICKEY:

At no time have been the able to put down a case with sufficient
strength to get this kind of, let's say, commitment, this kind of
directional thing with the American people, and it seems to me the
issue is one which we mentioned at different times during our
discussions; that this international U. S. economic objective piece
would be written with a great deal of focus on a continuing, deepening
strong program of the U.S. which Dr. Katz, I think, has called, this
"new international orientation for world economic affairs" on the part
of the American people. I believe that if we can get that challenge,
if you want to call it, written very strongly for that central focus,
that it would get a great deal of support in the U.S. and it could
be written in terms which would not have this unfortunate imperialistic
ring which I think we have avoided in this report. Then, I read that
we have to look at issues and I'm not convinced that we should write
off this threat of, let's say, the competition that a Communist
oriented world policy. I think the American people realize that it's
happening, perhaps we have a public opinion forming now which
gives recognition to the economic assistance and the penetration
of the Communist dominated countries so that we ought to
just move away from that and say we can't use some of these issues.

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March 14, 1958

(Hickey)

- 2 -

Another issue, of course, COMEEX coming up is the relationship
of our international economics to our old recession, depressions --
that tightening situation -- and then again, this is something that
reaches this opinion pressure that I want to get back of this report.
I think the issues have to be sharpened. Then beyond that, I'm
very eager to pick up what several of the speakers have pointed to --
this need for a kind of inventive marriage of the governmental and
the non-governmental, including business, the private philanthropies,
the foundations, that kind of let's say, the instruments through which
we can work and then, the writing of programs with a certain in-
ventiveness Adolf Berle talked about, the devices -- I think under
that you could mix them with, for instance, an emphasis on high-
level manpower. I certainly agree with Dean Rusk that we always
have to think of this country by country and I'd even say more than
that, almost institution by institution. So much good work is going
on, I would rather settle on some examples for instance, of how high-
level people can be exchanged for an administrative kind of thing;
there's some very good work there; how certain business organizations
are making available people through contracts. When I was in Iran,
I was tremendously impressed with the contract type of thing, and
something about the initiative of the country in finding these people
through contacts gives the prestige and value that you don't always
get if you come in from another type of recruitment policy so that I

(Hickey)

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March 14, 1958

really feel as though we have in this report a great need for sharpness
and as I listen to all contributions, yes, I would like to have them
all in if we could have a book, but I'm very eager for this report
to have something ... which will reach, I feel, a very eager
segment of opinion at the present time. I'm just convinced of
that.

And there's one other point that I really hope we wouldn't
attempt to say too much to people outside. If we try to say the
things within our own country that would not appear to be chauvinistic
or imperialistic, we certainly cannot be advisory to other governments
from their relationships to us.

NAR: Well, I think that's a very sound point and on your
point of the marriage of these various forces, it seems to me to
have them and have them at least work together in their relationship,
they've got to have a common purpose and objective and one of the
things that confused me in working in this field in the government
three years ago was the fact of the wide divergence of the point of
view and objectives as to what we were doing. Some don't believe
It has
we should be doing this anyhow. That's no role in our national
pictures as far as our international relations are concerned so all
of the things we said here, we've got to have some point that we
agree on in this report that there is a purpose and that these have
a part in the achievement of that purpose.

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March 14, 1958

JOSEPHS

- 1 -

Just a word to supplement what Jake Potofsky said about the
Russians. It's a question of the choice -- it's a thing, Milt, that
you and I were in -- they use a certain amount of chrome; it's a
question of what they use the chrome for -- do you harden steel
with it or do you put it on a frame of an automobile. There is a
capacity here and perhaps you get a little bit lulled by some of
the statistics that get used over and over again about how long
it takes to get a pair of shoes, and so forth and so on. In other
words, maybe the capacity is there.

But what I have in mind here is to say the same thing that
everyone else has said and more sincerely, if possible, on what I
thought was the brilliance of the report. It would seem to me
that it might be worth while to get in a summary in the beginning of
this thing almost in the language which you used for the introduction
of this, in which you can -- to use one of Dr. Teller's expressions --
be cleaned of anything else. We have a clean bomb out of this
introduction in which it isn't stultified by all of the saving qualifications
which you are bound to have to get in. So that somebody gets the
argument perfectly clear in the beginning in very strong phrases
and the phrases were the ones you used and

[2]

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(Josephs)

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March 14, 1958

they're also in here and it starts them thinking. Because I go back --
and this is the same thing, I think, as at other meetings -- that the
purpose of these meetings is not to develop a philosophy that will
the rhythm of which we will march for the next hundred years, but it
is to get people thinking and produce perhaps a little bit of action.
If you could just do those two things, that would be wonderful, so
that the freshness of having a document written by one person is a
very highly desirable thing. It ought to be clear. I warn you against
putting in all of the extremely interesting suggestions that come from
the others around the table here which are fascinating philosophical
ideas, but work them in if you can, but don't lose the central theme
that you have here, that we've got to have a twentieth century economic
-- an
doctrine in the international economic doctrine.

I would add -- and I think that goes along with the statements
that have been made about the desire to have some arms and legs and
feet on this -- the along that line, I would think that the idea of, for
instance, encouraging what Chuck Spofford spoke of, the economic
investment is a desirable thing. I would think that you would have to
expand a little bit further what occurs on page 44, a discussion of the
injury to certain groups. Let's be practical about this. I happened to
be with a very public spirited individual yesterday who is in the textile

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March 14, 1958

(Josephs)

- 3 -

business. He wanted to believe in letting the Japanese economy grow,
but he, after all, had some responsibilities for the textile business.

So he was hung on that thing. Well, for goodness sakes, let's be
practical about it. Let's say that the fellow who gets really badly
hurt is going to get some advantages and the person he was talking
to was a figure there in Washington, said, well, give us a proposal.

Let us work on it now. Perhaps that idea of suggesting that people
who are being injured ought to come forward with some proposals or
we ought to make some general ones in regard to tax alleviation, but
it might be emphasized a little bit more because that is going to be
the only way in which you will get rid of a minority opposition which
eventually, if we had to live with the rest of the world, we're going
to have to do, so give them a little bit more an expanse on the
escape of that.

One other rather small thing, but it occurs in a number of
different ways is to be sure that there is a relationship with the
other reports that are going to come out. That has been mentioned
two or three times but we do mention, for instance, the question of
the farm surpluses, on page 23, without noting the fact that some-
where in another part of the forest, we're really going to object rather
seriously to the extent that we are hoisting on other people who are

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March 14, 1958

(Josephs)

- 4 -

subsidized with farm products at a dumped price so that I think that
that kind of thing ought to be taken a look at. The idea of the re-
arrangement would seem to me was good but I think you could take
care of that wholly if you follow the idea of what I call an naked,
clean summary.

KATZ:

XXXXX: On that one, WH do you feel it has to come at the
beginning or could you put that in, or would you rather have it at
the beginning?

JOSEPHS: My own view is tell them what you're going to say, then you say it, then you tell them what you have to say.

Get it in the beginning because most people -- and this isn't aimed at the entire newspaper press -- but below the very few people at the top they really don't read much more than the summary. It's a very small group that will read the whole report.

PTOFOSKY: Dr. Katz, may I mention a couple of small items of criticism. On page 2, we say, "The United States for nearly a decade possessed an atomic monopoly and the power to impose its hegemony on the world and to end the Communist menace once and for all." If it is true, and I doubt the wisdom of stating it and I think it's dangerous, I would leave that part out.

On page 14, we speak about the rate of growth between 1900 and 1950 and then we go in to prognostication of what may happen

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(Josephs)

- 5 Q-

a hundred or two hundred years from now. We've got enough problems to decide within the next twenty or thirty years, why get ourselves excited about what's going to happen in a hundred or two hundred years from now?

two

KATZ: This particular approach rests on the assumptions:
the first assumption is that this is a hell of an important problem; the
second assumption is that everyone will make every possible excuse
avoiding facing it. Therefore, it's worth hitting this just a little bit
harder because you can't go on avoiding it.

POTOFSKY: The statistics are interesting enough, but the
furniture maker (?) may say, well, what are you fellows worried about
two hundred years from now.

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March 14, 1958

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## BERLE

I'm quite philosophical about fixing up the first quarter
but it does seem to me that we could put back some of the earlier
stuff that I believe -- I wasn't on the committee, but I do know
Professor Gardner and I have an idea of some of the things that
he talked about and probably also talked about with Cleveland.

the

It seems to me that we could not only make general
recommendations we've had but think along the lines of two facets
of thinking: a) Immediate, and b) if we don't want to commit to them,
then make them projects for other government studies. This would
follow Dean Rusk's line.

Now, immediately: Whether Europe is teetering on the brink
or not, I don't know. There is no question about it that we've got
three or four problems and our next right now is the international
credit-currency and the system represented by the sterling bloc which
is getting rather awfully thin margin and if that does not pick up,
the money ... will break down here so that we're pretty close to that,
I would guess, from the stuff that comes across my desk and the British
... to see if a very undistinguished member of the opposition is thinking
of the next government as well as ...

I think we ought to say that some immediate work ought to be
done on enlarging the base of the free world of the international

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(Berle)

- 2 -

currency-credit systems. That means, in practice, some handling
with the current British initiative -- there may be better ways of doing
it.

VOICE: May I interrupt to say that you're not addressing
yourself to the British to the exclusion of the Continent, are you?

BERLE: I was going to begin by broadening that and second,
I think that could be broadened out possibly through the machinery of
the international current Monetary Fund or using any one of the ... (15?)
bases by which we have already found a method of working with (?)
I guess that might be Navy. I'm not saying anything about Brazil and
a few other places but my point is that the running here is beginning
to get to rather thin base. I imagine that Mr. Spofford will know more
about that in a few days, I think, than I do because they probably have been
thinking about it too.

Second is that I think we ought to do something that I think
we should have done ten years ago and we might justify getting work
done on it now and that is coordinate the programs of private investment
requiring technical assistance. There's no reason in the world why an
American company developing abroad shouldn't let some central agency
know about it so that technical assistance can likewise be made to
assist in or at least get the geometric progression (?) on that. It's a

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March 14, 1958

simple thing -- the ... companies just bought iron deposits in Brazil. We have a technical aid program going there and part of the necessity of getting one thing going at least two hundred miles or thereabouts by railroad and what I'm trying to say is if we put three or four of these things together, you will get perhaps four or five times the effect -- anyhow, a larger factor will result. That could have been done a long time ago .. and I don't think we should be spending billions of money but using the money you've got.

NAR: There's a new concept, though.

BERLE: This isn't to undertake to say that you control private investments since you know what's going on and how to put them up. This follows Mr. ______ idea that there's a lot more done than we know and that there'd be a lot more than that if we'd only tied it up together in a half dozen places. These are things that could be done now.

And the third, I think, though I do not know, that we should be considering the handling of a few key commodities stabilization plans. For one thing, on agricultural products, I don't think you have any alternative in view of the action Congress took yesterday. You will have those surpluses if you're going to work with other countries unless you want to ______ dumping business. I don't undertake to say here what the key commodities would be but some of them will be agricultural, some of them will be the kind like copper, perhaps, I'm not committed to that. Now, so far for the immediate which means

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(Berle)

- 4 -

that we are dealing not in the mere generalities of foreign aid --
let's have some more and reciprocity tariff assessments, let's
keep it going, but we're also leaving a few immediate problems
for people who are asking where did it go and what should we do.

Now, second, on the long-range -- and because these are
probably out of the range of political possibility, probably we
ought to talk about it in terms of the studies which we would like
to make looking toward action, something of that kind, and I
imagine that the panel has a better list than I do. I only listed
three. They would be the paddling (?) of the large, permanent
market pools in key commodities, and there I'm frank to say that
I'm thinking along the lines of the communities like the European
Coal Community. I think in Subpanel II, some of us think that
those are not accidents or diplomatic manoeuverings. They are
responses to pressure ... and second, the extent, as the
Europeans have already done in certain key manufactures. I am by
no means sure that that makes ... pointed things out like textiles,
for example. As to both, their relation eventually to your currency
funds. We know now that at least internationally, currency is
gold
based on/... around production and the exchanges. That's what it's
all about. The gold is ... rather than revalued and sooner or later,
we'll have to meet that because the British is endeavoring to meet it
now in London ... and I have a strong suspicion that we ought to be

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(Berle)

- 5 -

getting our ideas in line.

And finally, I think that one thing ... I don't know. I'm thinking on a longrange. What Dr. Teller said is unanswerable as to the scientific progress, and what was also said, -- I think Dr. Teller said it although it may have been someone else -- is that we ought to be having a central organized pool of science and technique somewhere within the free world so that you have again the combined thrust to the whole thing.

Now those, I would think, added to the report, would give it the drive it needs ... I've merely suggested that because I know that the panel has been through some of this, describing some ...

NAR: You've got the argument for the dimensions of thinking in a very imaginative way.

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- 1 -

XXXX RUSK

May I just mention one point because someone around the an
table may have some idea on the subject. I think that Harlan
Cleveland made a very good point about the necessity for some
changes in institutions if these people do what they themselves
say that they want to do. But institution-changing or building is
extremely difficult in a political relationship. The International
Bank is in a somewhat better position to work at this than a
government agency. I think that a private foundation is in a
little better position still, but this is not for ordinary reading,
and not because of political intervention but because of the
capacity on the other side to invoke politics to resist it. The brutal
bargaining power that exists in this general field of philanthropy has
been greatly underestimated. The mere fact that you're willing to
take the next plane home overcomes many objections to ...

VOICE: And you have no constituency...

RUSK: Is there any possibility that as a part of our investment
of public funds there could be set up a public corporation, even
physically removed from which Washington, headquarters in Boston,
for that matter, or in San Francisco, which could use grant investment,
a great flexibility of techniques, against which the people in Washington
would be protected so that they might use something on the range of

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(Rusk)

March 14, 1958

$100 million a year with all the flexibility and leverage of what is on the face of it and in fact could become a non-political facet of operation.

I just throw this out because we're trying to find some way of marrying up the advantages of the small, non-political efforts with the scale of funds that would be needed to do what Harlan Cleveland was talking about on a more substantial scale.

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March 14, 1958

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MR. ROCKEFELLER:

Just a word as to where we are now ...

There is a need for a clearer determination by this group of
national purpose as it relates to the international scene, particularly
in this area of the social. I think we all agree that the social
needs to be brought in as well as the economic. You can't really
separate it and if we talk just economic without social, it makes
it more materialistic than we mean to be in terms of our objectives.
That was the point of the discussion.

I think next we have a problem here in terms of conceptual
framework -- the question of purpose, foreign policy, and then,
international economic and social objectives and policy into focus,
and in a way, perhaps, that would help frame all the material which
is here into a sharper focus and give clearer meaning to people as
they go through it. As we discussed this, we all felt that this is
one of the problems -- that we have all these programs and we
discuss them but it isn't clear just how they support foreign policy,
just what their relationship is, just what we're trying to accomplish,
and too much emphasis in getting appropriations through Congress
is put on the negative aspect .. obviously a very effective way of
winning friends and influencing people. As we go through it and

(Mr. Rockefeller)

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March 14, 1958

discuss it, coming to the latter part, there is a much clearer program of recommendations in the field of reciprocal trade agreements and the legislative aspect of it than there is on the developmental aspect, both in terms of structure and institution relating to the achievements of some of these objectives outside the trade area. Perhaps we can focus on those as well and get the figure, to boot, which will be helpful to Milt and people.

I think that just about covers the broad comments that I'd like to make. Perhaps if Milt would then take over and give you his thinking, the background, and then we can go to the subject itself.

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March 14, 1958

HICKEY:

I really should pass at this point because most of the comments
that I wanted to make have been covered and when we come back to specifics
I do want to catch up with what are contradictions in this draft. For instance,
the necessarily pessimistic challenge which I think ought to be very strong
sort of writes itself off with kind of a measure of discouragement, for
instance a statement like, "It is a reality that economic movement of the
twentieth century is more freighted with inevitable disappointment, more
destined ..."

And then we do go back -- in a way a wonderful outline is
down in this document with the development of the outline -- for instance
a statement like, "Economic processes might be translated into institutions
compatible with freedom, justice and common welfare ..." You see you
talk about the need for institutions and then when you really come into the
policy recommendations and you try and put your building together you are
up against very real problems. I do feel that I want to emphasize the need
for a bit more attention to the place of social and cultural change ...

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March 14, 1958

(Hickey)

- 2 -

the necessity perhaps mutilaterally to give great weight and attention
to let's say, the good things in the social six institutions; that is,
as the old ways yield to the new, that you don't have a kind of
disruptive thing that tears in to particularly these nations coming
on the scene. I think that this is one of the fears internationally
that you destroy cultural values of other people. This is a very
western point of view all through this and I think we have to be
very careful that we are not seeming to attack cultural values as
motivations of other people and I think the multilateral influence
in this and the institutions multilaterally can help. Someone mentioned
the importance of law and the need for international institutions to be
helped on that kind of thing; then there was one other point that
Dr. Teller mentioned, and I felt a lack of this -- the recognition
of the tremendous impact of scientific invention and technological
change in the matter of economic progress; that is, raw materials,
but didn't we recognize that this great contribution to which we
looked to science and technology -- what kind of institutions will
help us share that? I think this document should give recognition
to that.

NAR: I think I should say that Margaret, Jack and I spent
a couple of months on the same subject together.

III Report

March 14, 1958

PERCY: Because Jack and I have disagreed so many times before
in this panel I would like to say that I don't think we ought to build post
offices. What we ought to do is have new uniforms for all postal delivery
people twice a year from now on.

My comments, I'd like to just confine to one particular area and
that is what our objective is in this report. Are we trying, as I think we are,
to present a series of proposals that will be reasonably politically practical
at this day and age and time? Or, are we attempting to draw up something
that will be bold, imaginative and because of this, somewhat shocking?
My only criticism of the paper is that I don't think it will make enough
people unhappy. I think they will sigh with relief when some of the great
friends in the protection camp read it. I think they are getting off terribly
easy. And I would like to see us in just some few modifications here, take
a little longer look and perhaps a little more bold look at what could be
done and what should be done ten or fifteen years from now, not just to get
by in 1958.

First, from the standpoint of the United States, I think we ought to
take a look at what in the text would happen if over the next ten years we
removed all tariffs from all manufactured products. I think that it could be
done in a simple paragraph. Right today, of all of our billions of imports
only a couple of billion are on manufactured goods. It's a fraction of our
total economy today and if you took off all tariffs today, it only affects
some 250,000 employees against 4 1/2 million affected by exports. But if

- 2 -

PERCY continued

we took a gradual approach and said what would happen ten years from now
if all tariff by then had gradually been removed and we had made all these
adjustments for the textile and other industries -- if we don't do it, who
else is going to take that long look at it? And perhaps if we do a modest
program today toward that end, it would not seem out of perspective. I
think also we ought to do a little of what Tom McCabe did in his report
by being a little specific about forecasts. No one will hold us to them,
but I would like to see if we really had a policy that encouraged imports
and exports, what our export business could amount to, ten or fifteen from
now. I think we would be surprised to find that if we are talking about a
40, 50 or 60 billion dollar export market, ten years from now from the
United States, we might find that this kind of a market and that taxes on it
would support some of the objectives of Panel III. But if we are limiting'
ourselves to a shrinking export market from this country and look back
as a heyday after the war and say, "We'll never get back to that again,"
then we are limiting ourselves to 170 million people and the thing that I am
fearful of is, and I think we should point with pride and concern to the
fact, that the productive capacity of this country is growing at such an
astronomical rate -- the potential now, if we encourage capital investment--
we are going to wonder where these goods can go. And our rate of consump-
tion in this country won't be as high as our rate of production. Maybe that
is our problem right today.

- 3 -

PERCY continued

In the aid side, I also think --

ROCKEFELLER: I think that we ought to see what the reaction of the
group is to approaching this thing on this kind of a really bold look ahead
with these speculating possibilities. The point here is pretty interesting.

VOICE: Chuck not only raises a good point. These are the considerations I have in mind. In the first place, I was thinking of John P. Jones -- you say to him, "Look, Jones, this may be bad for you; you may lose your buggy (?) business. But I want you to know that in ten years a lot of other people are really going to be flourishing." That won't won't be persuasive to John P. Jones. His reaction will be: "Why in the hell should I pay for all this?" The second thing is that it seems ok to me that perhaps the best way to get your long-term and short-term sound here is to get a frame of reference. Take for instance, if I were on charter duty and if this friend came up from the textile business and said, "This is a mess for me," I'd like to be able to say, "Look, let's begin by accepting the fact that we have a foreign policy and a security policy and a policy of sustaining growth in the economy in a world-wide economic program." Let's start with that. You come up with any specific point for helping me that you want to provided that your specific plan for helping you is consistent with and will promote this over-all program and won't be a device to stop the over-all program. This is the theme I was trying to get to.

For instance, if he said, "Well, for heavens sake, you are practically taking my position." I can take that for you pay him .... If he says, "The way

- 4 -

PERCY continued

to protect me is to stop the whole business." I'd say, "Now you've got
it all wrong." It struck me that this is a hopeful way to get at it.

Statistical demonstrations that we are going to get better and better!

What I was hoping that this report would do is come around to this in a
larger context. The theme is, really, in moral terms, fulfillment of human
personality in a context of a steadily growing American economy in a
larger context of an expanding world economy. That is the place where
I would like to see that expression.

When it comes down to the trade agreements thing, I just have
the feeling that the whole frame of analysis has been cockeyed ever since
we started. Of course, we started in 1934 when the objective was a
short-run adjustment. We've got to get a new frame of reference. If you
can get it, then I think you can get a lot of other things done as well.

PERCY: Well, I think the common market, you see, is taking a
much longer view than we are here. I don't think now that we could aim
this at the protectionists in any way and attempt to ease their pains other
than specifically saying if there is real harm done, it should be rectified.
I've argued with these people for years now. You just never change them.
They are emotionally not rational in their arguments. I think we have got
to skip that group other than to say, equity will prevail. When someone is
really harmed -- but look way ahead.

- 5 -

VOICE: I think we agree. I wasn't meaning these arguments as protagonist. I'm beaming at the guy on the Senate finance committee on the foreign relations committee who says to me, "Look, I agree with you but what am I going to do with these fellows." I think you are right but it is just a question of how much of it we can try to get in. At one point we had in here something about European common market and the fact is that the very existence of that market is going to require us to operate in an entirely different way. Some of the things are omitted just out of the basic reason that we could not have a document over 65 pages long. I would agree in principle with everything you've said.

PERCY: I think we could probably strengthen a few of the areas in favor of a freer policy and I think we need a little romance in the report, a few gimmicks to hang on to. A statement that the American eagle on the dollar could be a homing pigeon because once we bring these imports in and pay them, there is no place they can spend a dollar eventually but here. Here we are in one end of our policy spending hundreds of millions of dollars to develop the St. Lawrence seaway -- you're all dressed up and no place to go -- you are gliding doing that because not a thirteen billion-- we don't need this St. Lawrence seaway for that little trade. We need it for a 40 or 50 billion dollar export and import business in this country. And we are investing heavily on one side but not preparing for it in the other. I do think that we should put some place in here that productive capacity of the country and what our markets are going to be. And I think also when we get into the mix aid sections, it might be timely to put in

- 6 -

here that we made a bold and challenging investment in Europe on the
basis that a strong Europe would pay dividends. We've dealt with the
military end of it, let's look economically. Let's look right today.
It has been said and believed for years that when we sneeze, Europe gets
a cold. Apparently, this is a lot of nonsense. We've got a very
severe cold and they haven't had their first sniffle. Europe is very strong
today, as of when I came back this last month. I never saw so much
spending and optimism, particularly in countries like France. Statistically,
they are doing extremely well throughout the February this year. I think that
their ability to withstand -- the companies in this country today, their
export business is holding up. The reports yesterday at the B.A.C.
meeting in Washington, exports are holding up quite well and this is one
of the things that is continuing employment today when the domestic
economy is down. And this is the very thing that we invested for.
And on the aid part of it, I wonder if again we are challenging enough and
whether if we shouldn't take a look and at least see what would happen if
we made a bolder investment than we are talking about if we have the
capacity to service it with trained technical people.

One other comment, I wonder if we shouldn't be a little rougher
on foreign countries and a little more realistic in appraising the direction
that they are going. This has a vital effect on the way we invest over there.
I think we ought to challenge the nationalistic tendency of the countries
which we can recognize and appreciate politically, but which when it is
manifested, we almost give credence to the fact that if they've got a

- 7 -

steel plant this is the measure of success. And it is very uneconomical
from their them to do and to try to do some of the things they are now
doing. Self-sufficiency in this regard is something that many of them
can not achieve and they will hurt their over-all program if they try to.

ROCKEFELLER: You can get a wonderful book of ______ Marine (?)
on this subject who is very interesting on nationalism, the dangers, etc.

PERCY: Then a last comment on their fear of foreign capital.

Really, you'd think -- it is not so much our lack of desire to invest, it is the impediment to investment of private capital abroad. They make it so difficult. We could take two illustrations. Germany, which is encouraging it and with free freedom allows you to do so; and Japan which resists every conceivable attempt to invest capital which they desperately need.

When capital is invested, technical assistance will flow. I think we ought to criticize this policy that make investments so unattractive.

ROCKEFELLER: I must say that I think Chuck is really opening this
in a way that gives us quite a lot to think about. We can look on a broader
horizon here, even though we don't take a position, and say what the
possibilities would be in these broader terms. I think that is a very
constructive contribution.

Copy

March 14, 1958

Re III Report

Nelson:

Some sentences in this draft relating to Trade Agreements go too
far in terms of advocating legislation. (Involved is RBF tax exemption.)
I have submitted to the staff suggested modifications of the language.
(Attached.)

This is essentially an RBF problem, rather than a panel problem
but a decision on this would dull slightly the panel's statement.

Do you want me to discuss this at the present meeting or to
save this for a policy committee meeting?

John E. Lockwood

III - Report

February 21, 1958

- 57 -

In this connection, we must take account not only of the economic consequences of American trade policy but also its psychological effect.

The psychological consequences of protectionist policies upon the attitudes of other countries could be as serious as the strictly economic consequences, and in an immediate sense even more serious.

This is not to say that we should disregard the problems of specific industries or specific localities within the United States which might be adversely affected by a rise of import competition or by price changes in the world markets. It is to insist that we must find solutions to these problems which harmonize with and reinforce our general national policy and strategy, rather than so-called "solutions" which undermine or frustrate our general policy and strategy.

In our judgment, it is not enough merely to hold the line which, during the past few years, has been repeatedly eroded by protectionist exceptions.

On the contrary, we must push forward.

Our main instrument for tariff reduction is our reciprocal trade agreements program, carried forward in accordance with the Trade Agreements Act. We believe that this Act ~~should be renewed for a long-term period by~~ represents basically sound United States policy which should continue for a long term period, ~~the present Congress.~~ We also believe that the mere renewal of the President's authority is not enough.

Since the Trade Agreements Act was first passed in 1934, vast changes have occurred in the position of the United States in the world. The Act has not been adjusted to take account of these changes. On the contrary, as we

III - Report

February 21, 1958

- 58 -

have said, there has been a tendency to erode it by protectionist exceptions
and minor changes which have moved in a direction contrary to American
needs and American purposes.

In accordance with these views, we propose that:

1. The present Congress should renew the Trade Agreements Act and the President's authority to reduce tariffs.

Should be made long term US policy
This policy should be established

The extension should be for a long enough period to give stability to
international relations.
our trade policy.

2. The purposes of the Trade Agreements Act and the standards for its interpretation and administration should be revised to bring them into accord with the major objectives of our national policy.

The Trade Agreements Act was passed in the depths of the Great Depression of the 1930's. Its stated purpose was to expand American exports, and that purpose was interpreted in the short-run and immediate sense appropriate to the conditions of 1934. The problem now, as we have seen, is to create a trade and payments system which will underpin our foreign policy, our national security strategy and the maintenance of our economic growth upon an adequate base of raw material supplies. This does not mean that our purposes no longer include the maintenance and increase of American exports. The promotion of exports remains and should remain one of the purposes of our trade policy, but it must be pursued in a long-range and fundamental sense, by creating the means of payment for our exports through sound import policies.

III - Report

February 21, 1958

- 59 -

As matters stand, the President has no authority to reduce tariffs for the purpose of assuring the means of payment for our exports, increasing imports of materials needed for our national defense, strengthening the economic basis of our alliances, accelerating the economic growth of the free world, countering the Soviet trade offensive, or raising American levels of consumption.

United States trade policy

The Trade Agreements Act should be revised to include these and other objectives of contemporary United States foreign policy among the criteria to guide Presidential action.

3. The "escape clause" and "peril point" provisions of the Trade Agreements Act should be modified to remove the present exclusive pre-occupation with injury to specific segments of industry.

Under the present administration of these provisions, increases in tariffs have been recommended in some cases simply because imports enjoyed a larger share of a growing American market, even though American producers suffered no losses in employment, profits or sales. Tariff increases have also been recommended in circumstances where imports caused losses in only one subdivision of one import-competing segment of an industry (even though the American producers could avoid serious injury by shifting the emphasis in their production to other products). This is like trying to judge a balance sheet by looking exclusively at one or two items on the liability side. We must appraise our tariff policy and its administration as we do a balance sheet: as a whole. We must not be precluded from following a course dictated by

III - Report

February 21, 1958

- 60 -

our larger interests merely because it may involve elements of loss at
particular points. The criteria for the "peril point" and the "escape clause"
should be broadened to include consideration of the effects of the withdrawal
of tariff reductions upon American consumers, American exporters, our
relations with the supplying countries and the accomplishment of the other
aims of our foreign policy and national security policy.

Where particular elements of loss may occur, we should bear in mind
that increased imports make increased exports possible and also contribute
supplies needed for the general growth of the economy. Nevertheless, this
does not warrant us in ignoring the actual problems of those who may suffer
loss. These problems can and should be handled in a more specific and
sensible way. This question is considered in the following paragraph.

4. If injury to particular industries or localities should occur from a
rise in imports due to tariff reduction, we should deal directly with this
injury by temporary government aid to help producers, workers and communities
adjust to a more efficient pattern of production.

With this recommendation, we return to the point already made. That
is, the problems of specific industries or localities which may be adversely
affected by a rise of imports due to tariff reduction should be dealt with,
but in ways which harmonize with and reinforce our general national policy
and strategy rather than in ways which undermine or frustrate it.

We believe that constructive ways of meeting such cases can be
worked out, through transitional programs of adjustment aid. Such aid could

III - Report

February 21, 1958

- 61 -

come from federal, state or municipal sources. The purpose would be to assist the producer, the employees, and the communities to carry through a transition to other forms of production or work more in keeping with con-temporary conditions and to do so in a manner consistent with steady pro-gress toward our major national objectives. Such temporary and transitional aid could take many forms: technical assistance to businesses and communi-ties; moving allowances, retraining services, or expanded unemployment compensation for employees; in some cases, if effect of a tariff reduction upon a particular business may fairly be judged to be comparable in impact to a taking of property for public purposes in an eminent domain proceeding, direct compensation payments might be considered. If such forms of assist-ance are well conceived and well administered their cost would be far less than the burden upon our national life and our national economy caused by our present tariff policies.

5. We should eliminate the abuse of the test of "defense essentiality" as a basis for import restrictions.

A recent amendment to the Trade Agreements Act requires the President to withdraw or refrain from making tariff concessions which injure an industry considered important to our national security. As interpreted, this amend-ment has the same basic defect as the "peril point" provision, in that it requires the President to base his judgment upon one item in the balance sheet of national interests instead of the balance sheet considered as a whole. In

III - Report

February 21, 1958

- 62 -

certain cases, actions are being taken in the name of "defense" which ignore
the actual military alternatives for which we are currently preparing. The Act
should be amended to enable the President to take account of the effects of
tariff reduction upon the national security, but to do so in accordance with our
general national security policy and strategy. In this general national security
policy, as we have already pointed out, emphasis must be given to the maximum
growth of our economy as a whole, the assurance of essential raw material
imports, the vigor of our key industrial allies, and the stability of the free
world and the uncommitted areas.

B. <u>Machinery of Administration for Multilateral Trade and Payments Policy</u>

The improvements in our trade policy should be accompanied and sup-
ported by improvements in the machinery for administration. To this end, we
recommend:

1. <u>Adherence by the United States to the Organization for Trade Cooperation.</u>

A bill authorizing American participation in the Organization for Trade
Cooperation is pending in Congress. We recommend that this bill be passed.
US adherence to the OTC

The establishment of such an organization will provide the machinery, now
lacking but sorely needed, to increase the effectiveness and usefulness of the
General Agreement on Trade and Tariffs.

- 63 -

2. The establishment of cooperation between the Internal Monetary Fund in the financial field and the Organization for Trade Cooperation in the trade field.

Even in the narrowest terms, it seems clear to us that American interests have gained and stand to gain much more from the existence of such international machinery than any possible losses which their use might involve.

In larger terms, they represent additional means to give effect to the policy of economic cooperation which corresponds, in economic terms, to our policies of collective security and mutual support through international organizations and alliances.

### C. <u>European Regional Organization in Relation to Multilateral Trade</u>

To date, there has been every reason to believe that developments such as the European Coal and Steel Community, the European Common Market, and Euratom are essentially in accord with American political and security purposes and interests. They have been supported by the United States government, and we are glad to add our voice to the widespread popular concurrence in this support. A possible question could be raised as to whether these regional developments might not turn into an attempt at a kind of European autarchy, in which the European soft currency countries might be organized against the dollar world. This question is in some respects comparable in economic terms to a question which has sometimes been raised on the political side: whether a regionally organized Europe might become a possible neutralist third force.

III - Report

February 21, 1958

- 64 -

We do not believe this risk will be serious, if the United States of America itself pursues sound policies of multilateral trade. If we should pursue the wrong policies, if we should retreat into protectionism, we could frighten the European countries into autarchic positions in a panicky effort to protect themselves. On the other hand, if we pursue sound and far-sighted policies to promote multilateral trade and investment, there is every reason to believe that these European regional developments will go forward, economically as well as politically, in accordance with the general interests of the free world and the United States. The requirements for negotiating trade and tariff arrangements with the new European Economic Community during the next five years are a strong additional reason for a long-term extension of the Trade Agreements legislation, with adequate and soundly-based Presidential negotiating authority.

III - Report

March 14, 1958

RUSK: Mr. Chairman, I apologize for being late. I apologize on behalf of New York Central. I thought this was an excellent report and the more I got to the conclusions and recommendations, the more enthusiastic I found myself with it. I am not going to take time to say what there is about it that I thoroughly liked but will just point to two or three things which I think we might possibly improve.

I did get the feeling that the report read in its present sequence was unnecessarily discouraging both to people here at home and particularly to our friends abroad. We start with a statement of the challenge rather than a statement of our strengths and purposes. There are enormous strengths. We almost as an after thought say, "Well, it isn't quite as bad as that. We do have some strengths, too." And I think that we ought to be very careful that we not diminish the prestige and the confidence of people abroad in what we are trying to do and our ability to do it. And we might reverse the order of some of the presentations with that in view.

It also might help to try without smugness or anything of that sort to put in a couple of paragraphs about what the American experience suggests, what it has meant to us at least, not dealing with rising expectations. We are a nation that has had a long history of rising expectation. I don't think it is unfair for us to say that one of the ways you deal with it is through hard work. All of us have had the experience of going through Asian countries and seeing masses of idle people in a city where each idle person would pick up one piece of trash and throw it in the nearest bin, the city would be clean.

- 2 -

Even the business of trying to give things away is weary. You are constantly trying, frustrated because of days lost with so many holidays -- just take off, you see. I think that it is appropriate for us to say that one of the ways you produce is work. And it is not too bad for us to tell that to people who have a habit of idleness, through no particular thought of their own, but nevertheless manpower not being used. In that sort of catalogue you could make reference to the necessity for saving through investment but that is something that could be said very easily and simply but we might also want to emphasize the role of entrepreneurial initiative and decision making as a part of this process of production. I do think this is a point at which some of these countries would be willing to listen and give some careful thought to because they are discovering that it isn't easy to manage a national economy even in a relatively small country by the concentration of decisions at the cabinet level. They are seeking for ways to distribute the process of decision making downward so that more people could get on with the job without waiting weeks or months for some decision to come from upstairs. One of the great strengths I think of the private enterprise system is that the decision making process is right down to the grass roots all over the society. I don't think that we have to say that you can't be socialists in order to make this point because they can delegate too, if they would concentrate on it and try to work out ways for doing it. We should put in a point somewhere that the American notion of dealing with rising expectations is not to take from those who have and distribute to those who haven't but to build up from the bottom and

[LC3]

-3-

increase production so that those who haven't have more than they had before.

If we somehow spread the notion that there is a pipeline between American production and the rising expectations in consumer needs and services of a couple of billion people we are sunk. This is not the way that you do it, draining off the surplus resources and production of this country to provide day by day consumer needs in other countries. I thoroughly agree with what John Gardiner has said on that point.

If this report should become public before the domestic economy report, I do think that some reference ought to be made to the great importance of keeping our own productive system going in order to play our role in the international economic scene. We might deal with that in the domestic report if it should appear first. It may also be useful to recognize a little bit more the importance of sociological factors which are a fact in massive revolutions in some of these countries. Such factors as the family system and its impact. A man who is occupying a public office, for example, in loyalty to his family must use that public office for the advantage of his family. The problem of incentives, incentives which are not harnessed to production. There may be some philosophical questions among people who are ......

End of Reel 1

III - Report

March 14, 1958

- 4 -

RUSK continued

...who are now being asked to look at nature as something with which you compete, from which you manipulate and control instead of emerging yourself with, and that sort of question. Whether it would be useful to include some reference to a new machinery for establishing greater security for investment, I don't know whether as a part of a pay off ... I think you could get the

VOICE: Burmese, the Indians and other like that to agree that there should be an international claims tribunal of some sort.

VOICE: I think we could go further. In anticipating what Chuck has been talking about I think we could point out, and I think we could in a couple of paragraphs, that in the tradition of every single society including all of the important ones: a moral tradition, a sociological tradition. There is deeply a notion of the sanctity of contacts. We've just got to build on that. Even in the Muslim areas, Muslims abide by their stipulations as one of the most ancient of their maxims.

ROCKEFELLER: It is easier to achieve that on a bilateral basis and than a multilateral basis than for us to try to tell each nation how ...

RUSK: One could say that the invention of the contract has had a greater influence on the human race than almost any other single invention.

TELLER: I think that you are emphasizing those inventions which had a long time to work out and show their advantage. Merely because an invention is new it may appear terribly important.

RUSK: Because of the time limits of some of these issues in Washington, I wonder if it wouldn't be well for us to make it quite clear toward the end of the report that we believe that grass roots opinion in this country is prepared for the

- 5 -

RUSK continued

necessary action which political leaders seem to be rather timid about taking.
I do think that in some of these questions the country is ready for more than
the players that are being subjected to such anxiety amongst them these
extol
days. If we could extol our leaders in the executive and legislative
branch to get on with it a little bit, it might help.

ROCKEFELLER: Might extol them in their own words -- in that day's
conference when they all --

VOICE: Praise them for doing the things they haven't
yet done but are about to do.

VOICE: I would quarrel with Dean to this extent. I think that if
people at large would take an interest -- I think this is in the area where we
have in this country a minority government. The majority either have no interest
in it or it is too new and they don't understand it. They do nothing. The people
who come down to Washington who oppose a certain power extension or economic
aid -- what I call a minority government.

RUSK: I would fully agree with that. I think that the political problem
in Washington is a marginal question; it is not general opinion. I agree with
you.

VOICE: You are coming close to a question of presidential leadership.
I'm talking about the organization of the American political system.

RUSK: We are going to make different parts. I do want to say something
about the population question. I think it would be disastrous, for example,

- 6 -

to link economic aid with population control.

VOICE: Actually, there are two points of view of that. In the early part
there is a very passive, kind of defeatest -- very bad -- and then later --
two difference versions.

-1-

III - Report (3/5/58 draft)

3/14/58 Meeting Comments

GENERAL COMMENTS


BERLE:

Report needs more hands and feet. Point up a little of the mechanisms -- trade agreements and foreign aid. Problem of whether or not we pick up load of free world finance in some cooperative arrangement as sterling area did. (See attached transcription of Berle's outline.)

MAY:

Report needs sharpening. Changing our foreign economic policy to make it consistent with our foreign policy should be framework to keep in mind when substantive suggestions are drawn.

Long-term aim should be stated boldly and with confidence.

State our tremendous advantages -- if marshalled -- in economic competition. Private activity understated and deprecated in size accomplishments, and potential.

Objectives cannot be sold as costless.

TELLER:

Revolution of rising expectations most important problem of next ten or 15 years.

Hands and feet one necessary improvement in report -- even if stated for only next year or two.

Scientific advances can lessen need for raw materials, and can enable more efficient use of resources.

International cooperation an obvious necessity in fields of meteorology (observational material scarce -- weather control) and oceanography (exploring continental shales for mineral resources brings up international problems). Joint government efforts essential. Private enterprise cannot do job alone. Fields in which positive action possible, as with IGY, and cooperation should be encouraged.

Tariff reductions gradually over ten year period, with intermediary planned steps. Allies with whom we can cooperate essential.

-2-

III - Report (3/5/58)

3/14/58 Meeting Comments

GENERAL COMMENTS

ANNA ROSENBERG

It is an excellent report. It deals with the picture in a very broad and enlightened way but when it comes to the recommendations it lacks the breadth and vision that the first part has.

F. HARBISON

Gave statement (see transcription of tape) re need for our thinking in terms of investment in high-level strategic human resources to develop productive capacities of underdeveloped areas. Recommends assessing needs, resources at our disposal (government, private industry and foundations) and priorities of problems.

HARLAN CLEVELAND

1/22/58 draft includes things this one omits: more hands and feet; talked about "over a period of ten years moving toward the elimination of tariffs;" International Development Authority.

Feels purpose stated in this draft of doing something about rising expectations is stability, whereas it should be growth. Are we really against neutralism? for genuine national independence? against grants as inherently wasteful? Limiting factor is the institution-building problem. Use of our economic strength (economic aid and trade policy) is best tool in institution-building. Our problem is to get along with the "next government." Present draft is bilateral; we should endorse multilateral recommendation. Mention spirit of hard work inherent in private enterprise. Feels U.S. limited by lack of people trained for foreign service. This draft does not rise as far as its recommendations are concerned to problem it describes.

-3-

III - Report (3/5/58)

3/14/58 Meeting Comments

GENERAL COMMENTS

CHARLES SPOFFORD

In this report or another one, in general terms update concepts and
institutions and attitudes of underdeveloped countries and ourselves toward
incidents of interdependence. Interdependence of twentieth century running
afoul of nineteenth century concepts. Need for an international legal order.

LESTER GRANGER

Goes along with everything in report, but from standpoin t of a
dissenters finds two points that could be attacked:

(1) In the statement of the challenge, and our uncertainty in approach to issues of foreign policy, this reflects uncertainty in our approach to domestic issues. Questions our having an unquestioned and generally accepted belief in dignity of man as prerequisite of liberty. We pay lip service to it but there are many divergencies at point of application. Point to fact that this uncertainty dogs us in our approach to overseas problems and interests.

(2) Economic growth in underdeveloped areas stimulates psycho-
logical satisfactions and sense of physical well-being. Psychological
satisfaction feeds nationalism. Nationalism lets itself pull strings --
manipulating politically. Political manipulation impairs economic growth.
Work up a little more need for being aware of necessity for negotiating with
political leadership skillfully and consistently.

- 4 -

III - Report (march 5, 1958 draft)

3/14/58 Meeting Comments

GENERAL COMMENTS
---

McKeon:

Admirable report. Economic foundation clearly stated, but only one
remnant in this draft of interplay between economic growth and economic cohesion,
two dimensions of growth out of which the political, social and moral could emerge.

Rising expectations are infinite, but they need limitation. Amount of
material production must be considered in terms of total needed, with priorities
established. Objectives of one people cannot be considered in isolation.

Report presents for American audience good economics, essential politics
and our moral attitude too toward the world.

Re Soviet effort, we should not build it up but consider it within framework
of political and economic competition, and consider if it is a plan borrowed from us.
Russians have bases we do not have: use of their surpluses, appeal as an economy
which has gone rapidly from feudal to capitalistic production, and different
motivations of their technicians, who are better off abroad than at home.

RUSK:

Excellent report. Enthusiastic about conclusions and recommendations.
Points which might possibly be improved.

(1) Report now unnecessarily discouraging to people in U.S. and particularly our friends abroad -- opens with statement of the challenge rather than a statement of our strengths and purposes. Might reverse the order of some of the presentations with this in view.

(2) Might try to put in a couple of paragraphs re dealing with rising
expectations through hard work. Reference could be made to the necessity for
saving through investment. (3) Might emphasize role of entrepreneurial initiative
and decision-making as part of process of production (some of these countries
are discovering that it isn't easy to manage a national economy by concentrating
decisions at cabinet level). A great strength of private enterprise system is that
decision-making process is right down to the grass roots all over the society.

(4) Point up that American notion of dealing with rising expectations is not to take from those who have and distribute to those who haven't, but to increase production.

Possibility of public corporation in Boston or San Francisco, for example,
which could use grant investment in underdeveloped areas.

- 5 -

III - Report (3/5/58)

3/14/58 Meeting Comments

GENERAL COMMENTS


(RUSK, continued)

Agrees with John Gardner re wrong approach of draining off our surplus
resources and production to provide day by day consumer needs in other countries.
If III published before IV, reference should be made to importance of keeping our
productive system going in order to play our role in the international economic
scene.

May be useful to recognize a little bit more importance of sociological
factors in some of these countries, i.e., nepotism, incentives not harnessed
to production, people now learning to compete with nature, importance of
sanctity of contracts.

Grass roots opinion in U.S. ready for political action which political
leaders are timid about taking.

Disastrous to link economic aid to population control.

-6-

GENERAL COMMENTS

CHARLES PERCY

Report should be bold, imaginative and because of this somewhat
shocking. Take a bold look at what could and should be done ten or fifteen
years from now.

Paragraph re effect if in next ten years all tariffs from manufactured
products were removed. Be a little specific about forecasts, i.e., expanding
export market and productive capacity; and take a look at what would happen
if we made a bolder investment, provided we have capacity to serve it with
trained technical people. Strengthen sections favoring a freer policy.
Romance in the report, i.e., St. Lawrence Seaway development needed not
for $13 billion trade but for a $40 or $50 billion export-import business.
Perhaps challenge nationalistic tendency to do things like build steel plants,
which are uneconomical; and impediments by countries such as Japan to our
investments of private capital.

THOMAS MCCABE

Report quite thrilling. However, feels public reaction will be quite
strong in certain areas. Subscribes to Percy's remarks. Give report more
hands and feet.

One of hardest things to break down is barriers -- to American capital,
know-how, assistance. Point out what barriers are, and how they work against
the development of the country. Questions whether American corporations
always follow best policy in putting capital in countries. For partnership
arrangements, which perhaps could be emphasized in report.

In early pages refer a little more to the American struggles, sometimes
overlooked by our own people and people abroad.

Feels report builds up Russia too much.

Important to be bold in report.

-7-

III - Report (3/5/58)

3/14/58 Meeting Comments

GENERAL COMMENTS
---

MILTON KATZ
---

Problem is to relate foreign economic policy to foreign policy and to domestic economic policy -- and in so doing translate emotions into a concrete operating code. 3 targets: relations with (1) advanced industrial society (Europe and Japan), which has been central preoccupation in many ways of our foreign policy since World War II. Economic underpinning must be a valid trade and payments policy to make our foreign policy re Europe and Japan really work.

(2) underdeveloped areas -- South Asia, Africa and Latin America -- where it is deeply in our interest that measurable progress is made toward their own goals in their own terms, providing that progress encompasses conditions essential to U.S. (genuine national independence with political institutions resting on consent of their people, with peaceful international attitudes, and basic respect for human personality). Economic instruments to bring this about are economic aid, technical assistance, coordinated private investment and philanthropic endeavors.

(3) domestic economic growth of the U. S. Consensus in the free
world is importance of a healthy U. S. economy. One point brought out in
report is our need for raw materials.

Nineteenth century world order (with colonialism and gold standard) must be reconstituted, with one element of its economic underpinning general growth producing raw materials which U.S. economy can use and can give underdeveloped areas means to buy what they need to diversify their own economies.

Problem is to work out ways in which foreign economic policy takes
into account political realities -- in U. S. and externally -- and harmonizes
objectives of foreign policy and economic policy.

Those hurt by removing tariffs could be helped in any way short of
measures inconsistent with goals of foreign policy.

- 8 -

III - Report (3/5/58 draft)

3/14/58 Meeting Comments

GENERAL COMMENTS


JOSEPHS:

Begin with summary-synopsis of report. Do not lose theme that we must have twentieth century economic doctrine. Domestically we have moved from laissez-faire economics, but internationally we have not.

Make clear that we have to be merciful with those in U.S. hurt by revision of foreign economic policy.

Let's not fall into moat of uncertainty -- cite examples "... such as ..."

HICKEY:

Parts too discouraging.

Perhaps more attention to social and cultural changes in underdeveloped areas -- as old ways give way to new, cultural values of these peoples should not be destroyed. Multilateral arrangements can help avoid our seeming to attack cultural values.

Recognition that scientific and technical advances need statement of means to spread.

Need for inventive marriage of government. Private enterprise and philanthropic institutions.

WILDE:

Important to mention candidly long-range foreign policy. Emergence of foreign policy is result of World War II.

Perhaps we could set off problem with more definiteness -- action.

POTOFSKY:

Brilliant document. Re-examine Communist Challenge section. Will we stay ahead of them? Will they outproduce us? (We have drawbacks -- recessions, unemployment, strike -- which we should do something about so as to avoid recessions and unemployment.)

- 9 -

GENERAL COMMENTS


GORDON:

Favors bilateral to multilateral arrangements.

Believes Russian competition should be stated as a challenge to
which we can respond.

Dislikes phrase: "revolution of rising expectations."

Questions increase by countries in their *shares* (vs. amount) of
wealth. Seeks sense of progress -- economic, social, political --
essential thing to encourage and that most of job will have to be
done by these countries themselves.

Believes we did have foreign economic policy in nineteenth century.

Likes idea of sense of responsibility toward a world community,
with better development in text.

Feels it wrong to identify aid exclusively with foreign policy.

We should not give impression that we are constantly rescuing our
industrial allies -- Europe doing remarkably well.

Tape Transcription

III - Meeting

March 14, 1958

- 1 -

**CLEVELAND:** My reading of this paper is, to a considerable extent, affected by reading of previous drafts. The immediately previous draft, the one that Dick Gardner wrote, was a lot longer but it had a lot more of the hands and feet that have been called for on both sides of the table here. While agreeing that it is better to have paper that is 65 pages long than 100 and some, I think Milt that you accomplished it partly by amputation of the hands and feet. I think that Mr. Percy has put his finger on this central problem that I had with this draft which is that I don't think it yet rises as far as its recommendations are concerned to the problem that it describes. I think that it doesn't pass the Henry Kissinger test of whether we are a status quo power or not. I think too many of the specific recommendations are still in the status quo power framework. We don't ... the Gardner draft talked about "over a period of ten years moving toward the elimination of tariffs" ... this doesn't. The Gardner draft at least was up to date with March 1951, wasn't it, a report Partners and in Progress -- whereas the International Development Authority has been amputated in this draft. And so on.

Maybe the way to accomplish this is by the longer look -- by saying what if ten or fifteen years from now ... the line that Mr. Percy has suggested.

I have a number of specific problems about the analysis which I won't go into very long, except to ask a series of questions and then leave some marginal notes on this for Milt. Are for really for stability? Is this really

III - Meeting

March 14, 1958

- 2 -

Cleveland:

the key word in our lexicon? It is made the key word, I think, in the
draft. There are two or three places where the purpose of doing something
about the rising expectations is to achieve stability and I think really that
our trouble with respect to the underdeveloped areas, and the reason that
we have been insufficiently competitive with rather brilliant adaptations
of Leninism on this same subject 30 - 35 years ago, is precisely that we
have been for stability and that this didn't describe adequately to us or
as
to anybody else what we really want to try to accomplish in this dynamic
revolutionary, rapidly-changing society as we are confronted with in the
underdeveloped areas. Are we really against neutralism as it says? Are
we really for genuine national independence? Are we really against grants
as inherently wasteful, like it says? Are we really prepared -- I have a
somewhat different problem with the communist section than Mr. Potofsky
-- I think we give the communists too much credit for investing their
present policies ... we invested their present policies and then we kind of
stood aside while they started in on them. I think we should take a little
more credit for their carbon copy. I'm not as impressed with the drawbacks
of democracy -- I don't think we should make too much of it.

Are we -- again the status quo thing -- are we really still in love
with terminal dates, Milt. You and I were in love with terminal dates back
in the Marshall Plan, but haven't we really gotten past the business of ...

(Mr. Katz comment "I think we should get back.")

III - Meeting

March 14, 1958

- 3 -

Cleveland:

Well that's a point in principle which we can argue about.

Coming now to the really general question of what are one or two
hopefully constructive comments. The essential analysis is contained in
here and might be helped by a clean version, a little Hughes hyperbole
survives here. Essentially the fact is that physically we can deal with
the problem of rising expectations, whether in a reasonable way or not
I don't know because I don't think they are very reasonable but we can do.
The issue that is in doubt is whether we can do institutionally, organiza-
tionally. And from this, at least in my own thinking, can stem all of the
essential recommendations or moves forward from the place where we find
ourselves rooted. Because the limiting factor is where we are going
it is
institutionally — the institution-building problem. Economic aid just so
happens to be the best tool we've got, or more broadly to include the
trade policy as well, the use of our economic strength. It also just so
happens very fortunately for us that economic strength is precisely what
we've got, more than any other one thing. It is the basis of course of
military power, but it's also the basis of the implementation of many of
the policies which will be discussed in other Subpanel reports. This is
really very fortunate for us, and the only unfortunate thing is that
we're not girded for the task at this point. So economic aid and trade
policy are both tools. Tools for what? They are tools it seems to me primarily
for the accomplishment of changes which in an earlier day we probably would

[LC]

III - Meeting

March 14, 1958

- 4 -

Cleveland:

have called the "domestic policies of other countries." In other words
at least within this room but not in the report, they are tools for inter-
vention. In that frame, it seems to me, that gets you on the tariff problem,
for example, away from the sort of thing represented on page 44 by saying
"We must appraise our tariff policy and its administration as we do a
balance sheet, as a whole." This is a lot too narrow. It isn't our
tariff policy that we have to appraise as a whole; we have to use our
tariff policy in balance with a good many other factors in our total policy
-- it seems to me that is more the frame.

I would be inclined to go at least as far as the Gardner draft did
in questioning the principle of reciprocity in our reciprocal trade. This
gets you a little bit into a contradiction between the purposes of influencing
current opinion and discussion on trade policy and the projection ten years
from now because if somebody is going to try to get the reciprocal trade
agreements continued for three or five years it maybe isn't awfully helpful
to say that maybe reciprocity isn't such a hot idea anyway anymore. Maybe
it confuses public opinion. I'm not at all sure it is a good idea. I think
we probably outgrew it several years ago and haven't yet been caught
up to the fact. Certainly it would seem to me we should come back to
some form of moving toward the elimination of the tariff as a .. which means
in practice, although it doesn't need to be said this way, to manage
discrimination against us -- currency and trade discrimination against us,

III - Meeting

March 14, 1958

- 5 -

to the extent required and in the ways required for our national purposes.
On the economic aid side, thinking of it as a tool of intervention, as a
tool of helping countries to build the institutions that will make it possible
for us to live with them as a country, in that frame it seems to me you can
get into the use of loans, revolving funds, local currency repayment. In
the draft, local currency repayment comes out only once and as a kind of
subordinate clause to grants. I don't think we ought to give people the
idea that local currency repayment loans are the same thing as grants.

from a
From some points of view they are; strictly financial points of view some
of them may well be. But from the political point of view in this country
they represent a major change and if the assumption is correct in the draft
that our economic aid will tend to build up over the years then obviously
a re-investment of our earnings, as it were, from this investment, at the
public level, makes perfectly good sense. No point in getting it back into
the treasury if you are just going to re-appropriate it out anyway, so you
might as well get it back in local currency and re-invest it without going
through the conversion into dollars. This gets you into the
use of economic aid as a tool in this way for the accomplishment of
institutional purposes related to our own interests. Makes it perfectly
clear that this is a long-term business and I think gets you out of the terminal
dates business. Obviously from an administrative point of view here and there
you're going to say that we'll do this for 3 years and see how it looks. But
that's different from making terminal dates, elevating them into a policy,
as I think is done in the draft. I think that this way of looking at it makes

III - Meeting

March 14, 1958

- 6 -

Cleveland:

very important what John Gardner said about the importance of allying
yourself with the internal elements. To put it another way, our problem
in so many parts of the world today is not as it used to be in diplomacy
to get along with the government that exists but to get along with the
next government. In these monarchies in the Middle East -- they're
just not going to be there very much longer and what are we doing to
make sure that we are going to get along with the next government.
Well economic aid is one of our best tools for associating ourselves
with Arab nationalism in a constructive way.

And finally I think that the use of economic aid as a tool of
institution-building makes it perfectly clear that for certain purposes
and in a good many kinds of countries, and for certain kinds of institutions
an international framework (world bank has already proved this in its limited
way) just makes a lot more sense. You set down -- you and several others
of those present -- set down the reasons for this seven years ago and they
are still valid ... they have come to be even more valid as we have proceeded
with our bilateral way. The whole thrust of this draft at present is bilateral
and the one real reference to multilateral is anencomium, limited encomium
at least for the special fund that has just been set up in the U.N. which
was a pretty marginal effort and mostly the result of the U.S. government's
continuing unwillingness to do anything real in this field. It's a sop to
avoid going any farther. It seems to me really that we should at least
endorse what Nelson Rockefeller recommended in March 1951 and that even

III - Meeting

March 14, 1958

Cleveland:

a senator from Oklahoma is now recommending. Finally, I'd like to put in
an additional plug along the lines of Dean Rusk's statement on getting a little
more into the draft about how society does something about its expectations.
I was struck on a recent trip to Africa: a U.S.I.S. film that was being much
criticized, a film about how the Negroes are doing and showing that some of
them are doing very well indeed economically. Exception was being widely
taken to this film on the ground that there was nothing in the film that showed
how they got that way, nothing in the film about hard work. Specifically this
was one of the things that one British mining manager said about it. Nothing
about hard work in it ... it shows the furs. And I think a little of that kind
of moralizing, a little of the sense of infusion of enterprise -- spirit of
enterprise into the world -- this is one of the main contributions that our
technical assistance people make. This is one of the forms of private
enterprise that isn't really mentioned in the report which may be the most
important kind. The private enterprise under contract with the government
using government money and doing a public investment job in effect BUT
moving in there not only with money but with the kind of spirit that has
built this economy here.

one

And just/other comment -- I think we should strengthen the part that
talks about people, Americans, being the limiting factor. We don't know
very much yet about how to build institutions .. we're not very good at it
and we're certainly not trained for it and we've just got an awful lot of

- 8 -

III - Meeting

March 14, 1958

**Cleveland:**

both doctrinal homework and self-education to do before we are really up
to the job that we have to do even if Congress tomorrow were to double
or triple the amount of money available and set up the kinds of operating
institutions that are appropriate for the task. This would turn out then to
be the limiting factor and I think it should be brought up and made into a
kind of section in the report even more strongly.

These are my reactions.

**NAR:** I think on that last one, it's pretty hard to prove. This limitation
in people, in their ability to do this work. If you leave out the military
aspects of economic aid and bring it down to 600 or 900 million or whatever
it is after they have been taken out. I know one of our companies spends
abroad
that amount/every year, just one company-- well they had no problem
developing manpower for that because they've trained over 20 years to
prepare themselves. If we had the long-range objectives you're talking
a sense of
about and prepared ourselves for these things as a nation with/clear/purpose
there is no problem about training people to prepare them for it if that's what
we're after.

**Cleveland:** Now actually we have a very large careerservice abroad
of people who regard themselves as in an overseas career without any
legislative justification for this.

**NAR:** Yes, and they have no tenure either and the State Department's

III - Meeting

March 14, 1958

- 9 -

**NAR** (continued) attitude here is that two years is perhaps long enough
for them to be in service and that it is better to turn them over after that.
That's the kind of thing that just undermines any real solidity in terms of
developing manpower. Well, I think those are very provocative and
helpful thoughts.

Tape Transcription

III Meeting
March 14, 1958

-1-

BERLE:

I have very little to say. I agree with the analysis and the
very brilliant presentation which Mr. Katz made. I wouldn't change
a word. Our problem, I think, is giving it a little more hands and
feet ... I think you take the same view that many of us do that the
nineteenth century is not coming back and it will have to be a very
high process of organization which substitutes for that combination
of empire colonialism for that of its time. So I have only one
statement to make -- I'd like to put in a powerful plug for pointing
up a little of the mechanisms because I think that it will require
more ... methods than we have had so far. Two things, that is,
... trade agreements and foreign aid which will be mobilized later ...

NAR: I think that relates very much to what Milt said about
reconstituting world order. To me, that is the thing that I miss a
little bit in here is what is our plan for reconstituting the world
order. We really have got to anticipate to a certain degree, Subpanel I
in the Introduction.

BERLE: ...I think you really have to be thinking of things --
thinking of every American company that is investing ... foreign aid
and assistance so that it gets to the geometric grade in politics.

(Berle)

- 2 -

III Meeting

March 14, 1958

And finally, sooner or later, you're going to have to get to the
problem of whether we do or do not pick up the load of a free
world finance in some cooperative arrangement ... sterling area.
That, irrespective of what Subpanel I decides you're going to need
it anyway, I think. ... but that doesn't conflict with anything that
you say.

MR. COWLES: I'm in complete agreement with what Adolf
says.

Tape Transcription

III - Meeting

March 14, 1958

POTOFSKY

- 1 -

I joined with those who stated that this is a brilliant document and it is. On the whole, it is penetrating, it is really wonderful stuff ... but that isn't what you want to hear. You want to hear some criticism.

My criticism, and this is the guts of the thing, is that I think that the section of communist challenge should be reexamined very carefully. It makes certain assumptions here which are true -- we are ahead of the communists, especially with one exception in the sciences, but are we sure that that's going to remain so? The communists have not got the drawbacks that we have of a democracy and supposing the communists will because of the tensions of the lessening in the cold war, will direct without any fuss their economy to a kind of production that they will surprise us as they have surprised us in the sciences. What then? All that you say at the present time that we are ahead -- it takes us to make a shirt -- it takes them 24 days, or whatever it is to make a shirt -- well, that's all right for the present. But when they will get into making shirts, they may outdo us, or they may do just as well. Now, we have certain other drawbacks. We've got recessions, we've got unemployment, we have strikes, which they haven't got. They've got full employment. Now, in the light of these things, suppose we have a recession lasting for a long time and there is no guarantee

[LC]

III - Meeting

March 14, 1958

- 2 -

(Potofsky)

unless you really do something and not talk about building post offices, what then?

I think that with all due regard, Professor Katz, I think this needs to be looked at from the other side of the picture, that certain things may happen and they may outproduce us. What is it that we can do? I think we can do something about it positively by maintaining full employment and emphasizing that, by avoiding slumps and recessions and depressions and all that goes with it, and I think that that is important. That is one phase and the other is what Nelson referred to that we are very familiar with the underdeveloped countries and what to do about it. We have the partners-in-progress report but my feeling is that pages 66 and 68 ought to be a little more subtle. I think we are spelling it out a little too crudely, if I may use that word. I think the part dealing with private investments and tax laws and all the other protective things that private industry is entitled to and there is no question about it and we can do it by legislation, but let's not spell it out so clearly. I think a little rephrasing will do the job, if I may suggest that.

Now that's the guts of my criticism with respect to the Communist Challenge which I think we ought to look at from another angle altogether. The angle that it may happen -- that they may outproduce us and we ought to be prepared and I think Dean made

[L.C]

III - Meeting

March 14, 1958

(Potofsky)

- 3 -

the point that we should keep our own productive machinery going so that we can continue to take care of ourselves and take care of the underdeveloped countries. As is, India is building factories in ______ and they're building factories in India. As is, the ______ is marching in in the underdeveloped countries and capturing the minds of the people while we are fussing around, and they will be more effected because they are building up their surpluses and they are going to use those surpluses as they see fit politically, either to go ahead and give it to their own people by increasing their living standards, or give it to the underdeveloped countries which will be spreading their tentacles still further. So I think that that calls for a reexamination.

NAR: I felt here that to develop their economic strength was a threat to us. Development of their economic strength to use it for the benefit of their own people is no threat to us -- it's a wonderful thing -- it's only because of the purpose they have and what we feel they may use it for.

POTOFSKY: Well, we have no objection to their increasing their living standards. Right now, we are three or four times ahead and in some cases, twenty times ahead. I raise no objection. I am looking at it from the long point of view and to make this cohesive with respect to our contribution to the underdeveloped countries, we have to be in a position, not only with the raw materials but also

III - Meeting

March 14, 1958

(Potofsky)

- 4 -

with the spiritual and moral influence and that's why I make the
point about pages 66 and 68 where I think that that could be
strengthened and I think that this thing ought to be revised with a
view of realistically facing the future and you cannot be sure that
the Soviet Union will not do certain things, like we were three to
five years ago about Sputnik. Nobody believed that their educational
system was better than ours and lo and behold, we were surprised.

Now, we may be surprised in many other things because they proceed
on a five-year plan and they haven't got a loss of unemployment, loss
of time, they haven't got all the other problems that we may have and
don't forget that they are also operating from a level where they have
75% of the people who were illiterate and the standard of living was
very, very low and lo and behold, they have built roads, electrified,
and they brought in the mechanization and spread out, and they have
done tremendous things as is, already for their people.

Tape Transcription

III Meeting

March 14, 1958

**KATZ:** It might be most helpful if I began with what seems to be the guts of the whole thing and we can work out from there. As I see it, the problem is to put foreign economic policy in relation to foreign policy and in relation to domestic economic policy and, in doing that, to translate your emotions of relationship into concrete operating code. Now as I see it there are three main targets of national foreign policy and national economic policy which should be pursued by foreign economic policy ... The first target has to do with our relations with what this report speaks of as the advanced industrial society -- I could almost say quite simply our relations with Europe and Japan. We have clearly defined foreign policies in relation to Europe and Japan. They have been the central preoccupation in many ways of our national foreign policy ever since World War II. There is foreign policy with respect to Europe which is reflected in arrangements like NATO; there is foreign policy with respect to Japan which is reflected not merely merely in our treaty with Japan but with our whole concern about how you develop a stable East Asiatic picture around Japan. The task is to have economic underpinning. In relation to Europe and Japan the economic underpinning for any foreign policy is a balance of trade and payments policy and the guts of a sound relationship with Japan and Europe in terms of trade payments and investments is the American import policy. This report stresses -- and it should be revised to stress it a little more -- the tremendous importance of investment. However far you go with investment the time will come when somebody who is investing will want to be paid.

III - Meeting

March 14, 1958

- 2 -

KATZ:

He will want to be paid either his interest or have his capital returned and that won't happen unless the U.S. is willing to take some goods and services either directly from the place where we invested or indirectly. So that as I see it, the whole section in here on trade agreements policy and the related parts of this report represent the indispensable economic instrument to make our foreign policy with respect to Europe and Japan really work.

Now the second objective of our foreign policy which has to do with what are usually described as the underdeveloped areas or the lesser developed areas. Here again to describe that geographically I would talk of it as our policy with respect to South Asia, Africa and Latin America. Here again it is necessary to make clear what our national foreign policy objectives are. At the risk of anticipating what ought to be covered in subpanel I and in the Overall Report. This report is concentrated in this connection on trying to make clear on what the objectives of the U.S. with respect to the underdeveloped areas are. It assumes, as you'll see, that it is deeply in the interest of the U.S. that the underdeveloped areas should make measureable progress toward their own goals in their own terms, provided that their progress encompasses the three or four conditions which are essential from the point of view of the U.S. The first is that they get where they are going in terms which include genuine national independence on their own. This means independence from colonialism and it also means independence from communism. The second is that they get where they are going on the basis

- 3-

III - Meeting

March 14, 1958

KATZ:

of political institutions which in their own form and in their own terms
rests on the consent of their people. That's kind of long-winded. You
might ask why don't I say by "democratic institutions" -- I think we
avoided that largely because the term democratic institutions to a good
many Americans would imply that they have to set it up just the way America
or England or Switzerland sets up its democratic institutions. What we were
trying to get at is that they must be arrangements which would merely rest
on the consent of their people in their terms.

The third thing -- perhaps I should have mentioned first -- is
that they get where they are going in terms that encompass peaceful
international attitudes.

And the fourth is that they get where they are going in terms that
encompass basic respect for human personality. The premise is that they
are going to go in the direction in which they are going -- regardless.
Whether we like it or not that's the way they are going to go because
that's what they have determined they want to have and it's terribly
important for us to see that they go for what they're going to go after and
anyway in these terms rather than in others. Now when you look for an
instrument to help you bring that about the key instruments are those which
of economic aid and technical assistance and coordinated private investment
and philanthropic endeavors. So you see, on those two fronts
foreign economic policy appears as a set of instruments designed to

III - Meeting

March 14, 1958

- 4 -

KATZ:

accomplished objectives which are fundamentally political objectives -- political in the sense that they have to do with the foreign policy of the U.S.

Now then the third target to be achieved by foreign economic policy-- where it seems to me the objective can be called economic rather than political -- this has to do with the relationship of foreign economic policy to the domestic economic growth of the U.S. itself. Here I want to digress for a minute to point out that the report tries to point out that in our concern about a vigorous, stably-growing American economy we have an objective which is the common concern of our domestic economic policy and of our foreign policy because, as the report tries to demonstrate, and as anyone who has dealt with these things knows, there are very few things on which it is easier to get a consensus in the free world than that it is very important for the American economy to stay healthy, to go on growing vigorously. Statistically you can express it by saying that we represent 15 per cent of the world's exports, 20 per cent of the world's imports -- or is it the other way around -- I forget -- but the point is that if you have half of the economic activity of the world outside the Soviet communist orbit, if you go down, that's bad; if you go up, that's good. You can develop that further of course. Your domestic economy in the last analysis is the goose that lays the eggs of defense and the whole network of international security depends on an economic foundation for producing the armament and 50 per cent of that economic foundation is again the American economy.

III - Meeting

March 14, 1958

- 5 -

KATZ:

Now just as the American economy is absolutely essential to the effective accomplishment of any effective foreign policy, so a sound foreign policy -- and more particularly a sound foreign economic policy -- is essential if we are to be able to go on growing in the domestic economy. Now the report, partly for the purposes of simplicity, picks out one most obvious point at which to bring this out and that is the point of raw materials. You have as your starting point the report of the President's Materials Policy Commission which reported in 1951 -- the report refers to some of their essential data and carries it forward to the key figures, for instance, saying that if we grow at the present rate (this doesn't allow for increased production which may be required by wars) by 1975 we will have to import, it is estimated, 55 per cent of our requirements of metal ores and something like 90 per cent of our general raw material requirements. This can only be done -- As these ores, these metals, can only be gotten where they can be found in various parts of the world and you can't get raw material production increased in any significant measure in Asia or Africa or Latin America or any place else, except as part of a general healthy, balanced economic growth in those parts of the world. You come here to a sensitive point of course because in the nineteenth century background and in the whole setting of raw materials exploitation on which there is to my mind at any rate a semi-psychopathic in the minds attitudes/of many people, -- some of the recent actions in the U.N. General Assembly I think would bring that out. Here I think we can go back to our political premises which are assumed in here, stated in here. I hope

III - Meeting

March 14, 1958

- 6 -

KATZ:

they will be consistent with what is going to come up in Subpanel I.
The political premise at thispoint to which I want to refer is this --
in the nineteenth century you had a world order that more or less worked
for 30 or 40 years, which in the history of mankind and the species on the
face of this planet is a long time to have any world order work for that
long. That was an arrangement which included many elements, one of
which was colonialism and the other of which was the gold standard
-- indeed the whole position of Western Europe in general and Britain
in particular in economic tenets. That is gone but what we have to do is
to reconstitute the world order to replace the old colonial world order.
And in reconstituting that kind of ______ again you have to have an
economic underpinning for it and one element of this economic underpinning
is the general growth which here coming back to the American economy
produces raw materials which we can use. For the countries which produce
the raw materials, it gives them the means to buy what they need to
diversify their own economies in the ways in which they want to diversify
it. So to sum up, you have these three targets of your foreign and domestic
policy. You've got your foreign policy with respect to Europe and Japan
where the key economic instrument is trade policy with all of its ramifi-
cations. You've got the foreign policy of the U.S. with respect to South
Asia, Africa and Latin America where the key economic instrument is
economic aid, technical assistance and investment. You've

III - Meeting

March 14, 1958

- 7 -

got the American concern with the continuing growth of the American
economy which in turn has all kinds of foreign policy implications.
And at one obvious point at which you can deal concretely it is clear
that we can't go on, as this report says, representing 40 per cent of the
world's economy and 50 per cent of the free world's economy with 6 per
cent of the population and a small part of its land, unless raw materials
continue to get produced in this world, and continue to get fed into the
processes of production. These are the three targets of your policy --
the problem is to work them out in ways that take into account the
internal political realities of the U.S., the external political realities
of the attitudes of other people, and in a way in which the foreign policy
objectives and the economic objectives can be harmonized. Throughout
I have spoken of foreign economic policy as an instrument to be examined.
That's the way we think of it. And the report then goes on to consider the
different instruments of foreign economic policy -- I'm referring to economic
aid, I'm referring to technical assistance. The report here goes into an
emphasis on the quality manpower, and the whole question of how private
talent in anything can be harnessed, in part through philanthropic endeavors,
and very largely through the process of private investment. I think I should
stop here.

Tape Transcription

III - Meeting

March 14, 1958

SPOFFORD

Nelson, I have't anything to add to Milt's analysis which I think is very valid, and I found myself reacting a little bit to what Adolf said and find some way to develop the specifics and the recommendations which has some difficulty in general in a report of this sort.

There's just one general point I would like to mention and perhaps it relates to another panel report more closely than this one. I think this report spells out beautifully the earmarks of the world we live in, the economic world that builds the case for the interdependence on the lines of the discussion we just had. It's a twentieth century world, and nineteenth century economic world, it's true; we all agree. I'd like to see whether in this report or another one, perhaps the problem developed of updating the concepts, I'm talking now about concepts and institutions, perhaps not just in legal terms but in general, and the attitudes of the underdeveloped countries and ourselves toward the incidents of interdependence. The last few years have shown a number of dramatic cases where the nineteenth century, where the interdependence of the twentieth century is running afoul of the nineteenth century concepts, unqualified sovereignty privileges of unrestrained nationalism, which is increasingly

III - Meeting

March 14, 1958

(Spofford) - 2 -

getting us into jams and which I don't think we thought through
or worked our way out of yet. I don't know that that comes under
the economic plane but I think somewhere along here something
of the sort that Milt has been working on, another context ought
to be worked in. You have it on page 62.

KATZ: I think it should be beefed up and I can do it here
and I think we should put in a couple of pages to emphasize
that.

BERLE: You can see we need an international legal order
of some kind which people can work from.

SPOFFORD: Well, something to substitute for the order
by saying that in the nineteenth century it worked and now it
isn't working.

BERLE: I think it belongs in here.

SPOFFORD: I believe it's relevant. Perhaps you can work
it in, and I think...

KATZ: I think we can put in it; sure.

Tape Transcription

III - Meeting

March 14, 1958

- 1 -

WILDE

I wonder, Nelson, whether in a prologue or any other part
of it, it would be appropriate to mention candidly this matter of
long-range foreign policy. If this ... depression, or whatever
we're in -- in one sense, this is the worst time, and in another
sense, it's vital to press forward. We know of the chaos that
is going on in Washington. We might also mention again ...
so many people could get the reason for our isolation, the reason
for our negative attitude is that we never had a foreign policy ...
until after World War II. We never had any foreign policy ...

NAR: Well, that I think is a very interesting point -- one,
whether the group agrees and two, whether it is something that
might be brought out here as one of the factors which causes some
of our confusion. Would anyone just like to speak about the point
to whether they agree that has been the situation -- that we did not
have a permanent foreign policy until after the Second World War,
and secondly, that it is a contributing factor to the difficulty in meeting
some of the questions we are faced with today.

WILDE: I would generally agree that the emergence of a
foreign policy is the result of World War II. How much we have
had since World War II is another story, but we did have the

(Wilde)

- 2 -

III - Meeting
March 14, 1958

vague outlines of it. In that case, a discussion won't hurt. It
was primarily defensive and primarily related to our own task, but that's
about all.

NAR: What you're saying, Frazar, relates very importantly
to this world leadership that this country loves to talk about without
positive long-range objectives to be effective. I think that's a very
useful point to consider in here. Frazar, any other comments? Dean?

RUSK: I have nothing to consider at this time.

Tape Transcription

III - Meeting

March 14, 1958

TELLER

- 1 -

First of all, I very fully agree that the ... and I have the feeling that probably this problem which you have summarized around the revolution of rising expectations is the most important problem of the next ten or 15 years. And also that the one improvement that we could wish for is for hands and feet even if it is done, to my mind, disregarding our long-range objective of ten or 15 years and try to state what we should do in the next one or two years. I would like to see more ... if possible.

I would like to make one slightly technical ... which is that we need not have not complete consequence(?) for the writing of the proposal as means for the background. I realize that there is this very serious question of a long period. I am saying that in many of the discussions about raw materials, there has not been quite enough thought given to the fact that with a small application of scientific thought, that the raw material situation may change. It has been so in the case of Holland who has now become self-sufficient though it has not been. It may become so in connection with oil in the sense that with one or two more technical improvements, the ... production may be sufficient to take over the main ... of our oil. It may be so in connection with atomic energy which of course has some connection with oil and perhaps, there is very little doubt that we don't need to rely on others for a long time to

(Teller)

- 2 -

III - Meeting

March 14, 1958

come if we use our own resources. You have mentioned the most
important points of metals but even in metals... we have plenty of
it but we don't have the other ... Furthermore, ... a lot of other
materials, I would say there was this possibility, entirely new
methods of mining of which I should mention one because it's close
to my heart and it sounds fantastic but I feel fairly positive that it
will come if we work for it and that is, we have now a very power-
ful nuclear explosive which when cleaned up will be xxxxxx
useable for ... in such a way that it can result in ... mining or ...
in an entirely new way. We are beginning to work in a somewhat
realistic manner and therefore, when you look ahead in 1970 and
1975 and say, what are we going to need to export from abroad,
...

I would just like to say that we need not be quite sure
that this is a difficulty which we ... and then we need more consultation
on the new scientific approach might help even in our own country...

NAR: This is tremendously interesting because psychologically
if the underdeveloped countries who are led to believe by nationalism
and propaganda from other areas of the world that they're being
exploited in their raw materials, and we're completely dependent
on them, and so forth, if it could be indicated here that if they
want to take advantage of these assets which may be unused in their

(Teller)

- 3 -

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March 14, 1958

country before they no longer become assets, that they better get
rolling on them, it might put an entirely new approach to the
problem from their point of view, that we may no longer need these
things and that they may lose the chance to get in on something
which gives them the chance to buy the machinery and equipment
and the knowledge that they need. We might have an interesting
twist on it that might be very useful.

The other thing that I'd like to ask Edward is would it be
indicated in here that the question of rising expectations poses a
tremendous problem but that perhaps due to this revolution in
science, or accelerated revolution, that for the first time in
history we have the capabilities to meet these rising expectations
and that therefore, if intelligently used, it may be one of the
greatest and most exciting periods the world has ever known.

TELLER:

I have no doubt of it.

NAR: I didn't feel quite in here that that side of it was as
clear as the problem side. Because if one takes it apart, it is
really terrific, and coming from us, it could have constructive
effects.

Tape Transcription

III - Meeting

March 14, 1958

- 1 -

GARDNER:

I hate to bring this up after that little burst of optimism on
your part -- I think that we ought to be a little wary of the insatiability
of these rising expectations. On page 49, there is some reference
to this and at the bottom of page 48, : "These rising expectations
will produce political instability unless there is a sufficient
to
prospect of economic growth be given to the people of these
countries hope that their aspirations will be realized in some
reasonable degree."

On top of page 50, "It should be the policy of the United
States to seek to assist the underdeveloped countries toward
achieving a sufficient measure of economic development to give
their people confidence that their aspirations will be met in reasonable
measure."

We next state in here that these rising expectations are
fundamentally subject to reason and the governing of reason. I
don't mean that quite as discouragingly as it sounds. I'd like
to get the comments of others on this but it has to be recognized
and it is touched on very briefly in one passage here on pages 12
and 13 that there are really two aspects of the rising expectations --
on the one side, a growing awareness on the part of at least

(Gardner)

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March 14, 1958

segments of these people that they may expect more. On the other
side, a vastly increased awareness on the part of leaders that you
can rise to power by the manipulation of aspirations and this may
be a more important revolution than the other -- and this is the
real problem as far as governing these expectations and
in other words, I don't think we should hook ourselves to any
formula that assumes that these expectations can be reasonably
satisfied. Now, you can say, what's wrong with instability of
but
expectations if what they want is a good line, etc., that the
problem really is that they will not have achieved their
economic expectations without achieving a degree of political
maturity, stability or some kind of order and some level of
education which will undergird a mature economy and I'd
be inclined to say that we might as well say right out here that
maturing is a painful, slow business but there isn't any alternative
and that these societies which are seeking some kind of economic
advancement must also recognize that this is part of the stew and
that they're going to have to throw into it their own efforts for
political and social maturing and that if they don't achieve it, it
will all be wasted. Does that seem possible to say? Milt?

KATZ: I think in some ways that could be touched on but
fundamental as that may be, we can't go around and make promises

(Gardner)

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March 14, 1958

to other people. We can't outpromise __________ as you refer to,
and we can't outpromise the Communists, and these suffer from
one fundamental thing -- if we make a promise, and we feel that
we've got to go through with it, but they make their promises and
then when they get into position, they bop anyone on the head who
takes the trouble to remind them of it. So this isn't a competition
we can safely get in to. What this rests on is an assumption. It
may be right; it may be wrong, but I think it's a valid assumption
the
for purposes of practical world of political discussion judgment
and that is, if you give these people a sane sense of momentum,
a certain sense of moving forward, that in fact, this will give them
the psychological satisfactions which they need to be willing to
make the effort to keep going within the framework that I described
before -- independence, peace, respect to personality -- and not
to be prepared to be high-pressured and move off the track to some-
thing else. Now, I think probably __________ in a reasonable measure,
given a sufficient sense of momentum. You need some other form of
words. I think, incidentally, that caution is to some extent required
for some of our own countrymen who agreed enthusiastically... I mean,
the subconscious notion that you see people suffering that the solution
is to get their standard of living up to that of Boston, Massachusetts,

(Gardner)

- 4 -

III - Meeting

March 14, 1958

is an easy one to make.

GARDNER: I think that what I would really like to see in our foreign policy would be an attitude toward this which would ally us with the people in the country who not only want this sense of forward movement but recognize that along with it must go some kind of stability and maturity and there would be all kinds of those who would want it at any cost, there would be adventures, and so forth, but there would be a good many who would say if we're going to keep this, if it's going to be solid, it has to have a firm basis, and that is obviously what the United States expects it just to do and this seems to me that that is possible.

KATZ: This is something that I hope when we reach it, Linc Gordon and Harlan Cleveland and others who have thought about it a great deal... I just want to point out two things in the report which are attempts to fit this in slightly different ways. One is on the thing that we call the problem of particular application. If you will look on page 55, there is an attempt in this report to touch on what you talked about, I think. There may be countries within the economic development, however badly ... and however desirable from the point of view of American ... which depend far more on the nature of the internal politician than economic aid and from technical assistance/outside. In other words, you've just got to get out of your heads that you've got now/a panacea which solves in your hands

[LC]

(Gardner)

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III - Meeting

March 14,1958

everything. To get ... you say, you just won't work ... you're
going to do something quite different. Your problem is political.
The other thing which I'd like to deal with has to do with the
terms and conditions which were suggested as necessary for
a really valid program. That part of this draft I think, needs
of beefing up our beefing up but what we have to bring out is the
importance of working through arrangements which have terminal
periods, just the way the Indian pioneer planned... Here, you're
hitching on to another psychological impulse with these countries
which is probable. Well, that's the desire to be independent.
What you're saying is that you want to give them enough momentum
to that at a given point, they can carry on under their own steam
and no longer have to fuss with ours.

NAR: But isn't that completely unrealistic? What nation
is going to be able to carry on under its own steam?

KATZ: Well, we can. The phrases you find in what we
redraft will be, "without extraordinary outside assistance." This
is a phrase we borrowed from the phrase we used in the Marshall
Plan days. You spend your time explaining you've got an independent
world and nobody can get along without anybody else. At the same
time, you don't want to give the impression that economic aid is

[c]

Gardner)

- 6 -

III - Meeting

March 14, 1958

something which goes on forever and ever so that what you're saying
is that this is the kind of boost where from that point on you carry on
without "extraordinary outside assistance" meaning within the normal
channels and expressions of interdependence and not this special one.
And to come back now to the way that human beings feel, which is
them a
what I'm trying to talk about, if you give the sense of momentum
and give them a sense that in their own terms they can get to the
point that from that point on we can look the American in the eye
as equals and no longer have to turn to them as dependents, I think
that psychologically this is as close as you can come ...

NAR: It seems to me ... you can't be ... with a thing that
economic aid goes on and on for ever, but on the other hand, I don't
think they have any means of becoming completely independent.
Therefore, arent we really in a political realm here as distinct from
an economic, as John has told you? Really, over in Dean Rusk's
panel and haven't we got to think of how does this country, not
through economic cooperation alone, but through political concept,
help these people develop the kind of structure and stability. It
can't be done within their borders alone. How do we develop thoughts
and concepts for working with them in political fields
through, say, regional groups where it doesn't become a bilateral

[c]

(Gardner)

- 7 -

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March 14, 1958

or unilateral imposition; it becomes a multilateral effort in a
political field to try and develop structurally which through
those structures, you can help them follow the course politically
which they need, which we couldn't do alone. Adolf and I proved
this problem during the war in Latin America and many of the
problems were political and we couldn't say it by the United States
alone but by having a conference and at the conference, getting the
people to agree to these things multilaterally and deciding on them
even thought we might have some slight influence in the course of
discussion and the action, still they were able to save their face
by agreed political decisions that affected their internal educational
decision, etc., through regional groupings of nations which I think
opens up another avenue and maybe Dean will talk a little on that.
I think this is a very realistic phase of our problem and that we can
neither say that get into this box that economic aid has got to go on
forever and ever. I think we can get away from economic aid as a
term and think of it in terms of international cooperation and their
many multi-facet phases to their cooperation.