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them or regard them as inferior. They are impatient of our fears of Soviet aggression and infiltration, and resentful of our military aid to Pakistan. It is worth stressing, therefore, that these mutual antagonisms really have nothing to do with our extension of economic aid nor their acceptance of it. It is a program of joint action in which the interests of both nations are advanced.

In essentials India meets the criteria mentioned in this report as qualifying for U.S. economic assistance. The government has set economic development as a primary goal and has won the confidence of the people that it can and will make progress, however slowly, toward meeting the new, higher expectations for better living. It is a development, furthermore, which is defined in terms of Indian values and aspirations, and it is within their own estimates of what they can achieve. It does not impede progress in other countries, but seeks to preserve a genuine national independence, peaceful international attitudes and domestic institutions resting upon the authentic consent of the Indian people. Although many Americans are critical of the State ownership of industry, the Indian system cannot be said to bar advancement for the individual.

The importance of the regional approach can be seen in the interplay of forces throughout Asia as the result of U.S. policy in relation to India and to other nations. One such reaction followed U.S. military aid to Pakistan. But equally important, and more desirable, is the interest of other countries

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in following an Indian pattern suitable to them when it proves successful, sometimes with American help. Then, too, economic progress in India is bound to have beneficial repercussions elsewhere. This is as true as the danger that, should the Indian experiment fail, the rest of South Asia would follow India into communism. Certainly this great area would be lost to the free world.

India may be considered at one end of the Far East economic spectrum with Japan at the other. In a purely material sense, the Japanese end is the more important to Southeast Asia. For that reason, it may be included in this section on underdeveloped countries although Japan is by far the most highly industrialized country in the whole area. It is possible that her productive powers might aid the development of all the others, but such a program needs U.S. encouragement. The suggestion that such encouragement be provided has met the criticism that it would endorse the old Japanese Imperial drive for a "co-prosperity sphere." Of course, there is nothing wrong with prosperity; the objection to the pre-war Japanese concept was that it would provide prosperity only for Japan and was based on naked aggression and force.

The tools which Japan can bring to a genuinely mutual effort are many. Her industrial and mining production has reached a level almost twice as high as its pre-war peak, despite the loss of a substantial part of her one-time resources. Her labor supply is both cheap and versatile. Her industrial

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managers and technicians are thoroughly competent and unusually flexible in adapting themselves to varying local conditions, rather more so than their American counterparts. Both workers and managers, furthermore, are relatively plentiful -- the labor force increasing by about 70,000 a year and enough technical and managerial talent to serve in other countries.

At the same time Japanese foreign trade is below the pre-war level, although in the last three years her exports have increased remarkably. The pattern of that trade has changed, too, with the U.S. assuming a key role, accounting for almost one-third of Japanese imports and more than one-fourth of her exports. Japan is heavily dependent on the earning of dollars for essential American purchases. She also faces a chronic shortage of capital, which has become worse since the war because Japan needs a really large new investment to replace obsolescent plants and provide new machinery to employ the increasing labor force.

Balancing these assets and liabilities, it is apparent that Japan could play a leading role in the economic development of all Southeast Asia. She could supply industrial equipment, transportation and communications equipment and capital goods generally in considerable quantities. She could take in payment food and fuel, metals and fibers. Along with the capital goods, she could send technicians to train people in their use.

But of course, Japan is not the only source of such goods, and in this sort of trade the regions of the world cut across each other. Japan, for

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example, might be a supplier to Latin America as well as Asia. But Western Europe also needs markets in the underdeveloped countries for the mutual benefit of all, and Japan's entry into the field should be in addition to and not as replacement for their trade.

What then should be the direction of U.S. foreign economic policy in this area? Suggested measures include liberalizing our own trade policy to help Japan diversify exports to the U.S. and encouraging the flow of the all-important capital to Japan. While the country does not encourage direct foreign investment in basic industries when that involves foreign participation, there are slim possibilities that she might tap the securities market in the U.S. A more likely source of capital would be the International Bank or the Export-Import Bank.

Obviously, then, the factors which should govern U.S. economic policy in the Far East are in part those of the individual nations, in part those of the regions and in part those of a world-wide trade pattern.

## B. IRAN

If one examines any particular country in the Middle East, its own special needs and capacities merge into the problems of the entire region. For in the Middle East it is pre-eminently true that economic instruments have a political effect and the politics of a nation guide its economics.

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Without reviewing the turbulent history of the region in the last gene-
ration or so, or even the ups and downs in a single country, Iran, it may be
possible to suggest a line of policy which will serve American objectives.

Iran has emerged from a series of violent swings of the pendulum, many
of them touched off by competing British and Russian interests, into a state of
relative stability during the last three years. The key figure in that stability
is the Shah, who dominates the scene albeit precariously because he has won
the support of the army and the confidence of the people that he will lead them
to achieve some of their aspirations. His government fulfills the criteria for
our support on this latter ground and because the alternative to him probably
is the objectionable (to us) coalition which put Mossadegh in power.

The assets of Iran in carrying out a program of economic growth are
several. First, of course, oil. Then there is a fairly ample supply of engi-
neers and top technical people, more in fact than can be served by the avail-
able men in the lesser ranks such as foremen. An increasing private business
community is adding men of ability to the economic scene.

On the other side are the latent forces which would upset the present
government if possible, the still insistent ambitions of Russia, the occasional
pressure from British interests which tend to push the country into undertakings
that strain Iranian economy for the benefit of British suppliers. Also there is
the lack of concepts of sound, ethical management in the business community
mentioned above and the scarcity of personnel to carry out reforms at the grass
roots in farming, crafts, teaching and health.

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U.S. foreign economic policy, therefore, should be directed toward bolstering the strengths of Iran and helping overcome the weaknesses. This would involve little in the way of capital investment and much in patience, ingenuity and tolerance. In a country where the danger of violence is ever present, the first concern is an accepted, well-established government. One way to help the Shah achieve this is to help him demonstrate that he is capable of giving schools or farm implements or a better water supply to the people, opportunities in government to trained youths, adequate protection to businessmen. Any help the U.S. provides to meet these goals should avoid the appearance of coming from foreigners but should be the expression of their own government's policies. The difficult problem for the U.S. is to find personnel capable of supplying the advice and training, which would be the chief elements of our assistance, in terms of Iran's own needs and customs.

To a great extent, the Middle East can be affected by the development of Iran. But regional advances or retreats will be of even greater influence upon Iran. And the whole area is of vital importance to the economies of Europe and through them of our own.

In the Middle East, too, there may be said to be two ends to the spectrum. If Iran is one, Turkey is the other. Here is a country with a longer tradition of independence than any other in the region. Furthermore, it started on its career of economic growth earlier. It has reached a stage where it can absorb a great deal more economic assistance than any other in the Middle

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East except Israel. The over-riding importance of politics is not so evident.

The goal of U.S. economic policy in Turkey, therefore, should be to expand the benefits of her industrialization. Increased productivity and the greater domestic market which goes with it is the chief need, a spreading of opportunities. The U.S. has already assisted Turkish industrialization to a point where many experts thought it was proceeding too rapidly. The next step is to finish half-completed projects rather than start new ones. At the same time we can help build up the managerial and technical staffs which will boost Turkey to the next rung of the economic ladder, an expanding market through expanding productivity of the people. This caution against over-expansion is one of the most difficult tasks in carrying out a foreign economic policy. The leaders of a government such as Turkey's are quite sure that they know what is best for their people, and it does not mean a collapse of policy to agree to let them have their head at times against the judgment of American advisers.

C. VENEZUELA

(to come)

In establishing foreign aid programs for all underdeveloped countries, the U.S. should follow the procedure indicated in these three examples. The principles guiding each case may be summed up as follows:

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The form of the assistance given should be determined by the actual needs which appear in a country's own program of self-help. If such a program reveals critical bottlenecks in capital or technical skills which can be utilized effectively and supplied appropriately from outside, the U.S. should undertake to help supply the capital or technicians. The U.S. also should be able to offer reasonable assurance of continuing assistance over a time sufficient to carry out the program, ideally when the country is able to operate it on its own. Failing this, terminal dates should be set on the basis of plans to achieve interim objectives. There might be a series of plans with a series of terminal dates. The advantage would be keeping the plans realistic and facilitating adjustments as they may be necessary.

The rate at which outside capital and skills may be supplied should be held to that which the recipient country can absorb usefully and that which the United States can supply. On this latter point, it should be kept in mind that the U.S. has greater capacity to supply equipment than personnel -- machine tools or a refinery more easily than people with technical skills who also are gifted in teaching, capable of understanding the beliefs and problems of strangers, able to adapt to strange conditions of life.

## 5. Advanced Industrial Areas

In approaching the problems of economic growth in the most industrialized part of the world outside the United States, Western Europe, the most

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striking fact perhaps is that solutions here as in the Middle East (but for very different reasons) are as much and probably more political than economic.

At the very beginning of any study of the factors in future expansion of the economies of these countries, it becomes apparent that any significant growth must employ the raw material resources of Asia and Africa. (In the same way, it has been suggested that the continued upward curve of U.S. productivity is impossible to imagine without access to the resources of the rest of the Western Hemisphere.) The oil of the Middle East has been the latest, most burning issue. But the end of British, Dutch and French colonial empires poses a new situation in which the raw materials so essential to Europe are at stake. So far as this is a problem of U.S. economic policy at all, it obviously is to our interest to see that the economic connection between Europe and the suppliers of raw materials is maintained regardless of political changes. In the long-run, too, it is to the benefit of both.

The political aspects are the concern of another subpanel in this series, but it might be noted here that Europe's need for fuel is an important factor in our concern with peaceful solutions to Middle Eastern disputes and friendly political relationships between the oil-producing countries on the one hand and England and France on the other. Not so much to free them from Arab sources but to lay the foundations for their continued growth, we should encourage them to develop peaceful uses of atomic energy and help them to develop alternative sources of fuel -- oil shales, tar sands and so on -- as well

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as prospecting for oil reserves in other parts of the world and perhaps utilizing coal more efficiently.

An even more important direction for American policy is the encourage-
ment of multilateral international trade. It is possible for us to remove some
obstacles and adopt some stimulating measures. Both would bring our policy
more in line with our position in the world economy and our aspirations for a
growing and developing international order.

A great deal of effort went into negotiating the International Trade
Organization, and it is high time that the U.S. ratified it. This country also
should enter more fully into the work of GATT, extend reciprocal trade legisla-
tion for five years (to eliminate the constant uncertainty over our policy) and
remove many of the restrictions which have been imposed in nearly each re-
enactment of the law. Disposal of agricultural surpluses should be handled
so as to avoid any perilous resemblance to dumping and so as to prevent dam-
age to the economies of nations which we are trying to build up. Surpluses
might be used as a constructive element in foreign economic policy, but the
philosophy of "sell regardless" which sometimes has seemed to be the moti-
vation of disposal would have to be scrapped. The benefit to be derived from
all this would be increased multilateral trade which the free world always has
found healthier economically than an environment of bilateral agreements, re-
strictions and reprisals.

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The convertibility of the principal currencies of the world would be a sound supporting measure. This is a sufficiently valuable tool of international trade to warrant another all-out attack on the problem. Ratification of the International Trade Organization, especially if accompanied by coordination of its work with that of an enlarged International Monetary Fund, would contribute much in this direction.

Less dependent upon American legislation, and therefore perhaps easier to arrange, would be American encouragement of European developments in the direction of freer trade within a common market. It has been argued that the European common market and EURATOM would reduce the volume of trade in certain goods between the U.S. and Europe, diminishing the market for American machinery not only on the continent but elsewhere as Europe's exports grow. The reasons why the Europeans want to get themselves within a common market, it is said, are just those which should lead the U.S. to oppose it. The answer is that since the chief obstacle to even greater U.S. sales in Europe is the scarcity of dollars, our exports would scarcely suffer very soon, and in the long-run a stronger Europe would be to our advantage economically as well as politically. Our concern with this development should be to see that it really is "trade-creating" rather than "trade-diverting."

Of course it is not only as between industrially advanced countries that the benefits of free multilateral trade are to be encouraged. One feature of the program outlined here that should be studied is the application of these practices to other areas of the world.

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Another factor in European economic growth which deserves the attention of the U.S. is the shifts in manpower. As the European peoples reach toward some of their own increased expectations, the industries of Europe face the need for the sort of productive multiplication which has taken place in the U.S. The result is profound alterations in the demands of labor and complex new difficulties for management. While it is probable that there is no U.S. action which could be helpful in resolving the labor question, since most European workers are organized politically as ours are not, there might be significant contributions which we could make to easing managerial troubles. Training programs for industrial managers are virtually unknown in Europe, and U.S. help in organizing them would be valuable.

In addition to these broad policies, there is a special problem concerning one of the most industrially advanced nations in the world which demands the most serious attention from the molders of U.S. economic policy. Great Britain has suffered, for more than two years now, from chronic weakness in her balance of payments. Her troubles in the Middle East have helped to worsen the situation. The essential fact is that British rate of production has been grievously insufficient to meet the demand upon national resources from a combination of sources: the current levels of consumption, the rates of investment, the armament program, and her costly responsibilities within the North Atlantic alliance. In striving to ease this strain, Britain has cut back its commitments in the area most immediately affecting U.S. policy and strength -- its military obligations. There is no plainer present example of the direct relationship between a foreign nation's economic health and its specifically military value to U.S. strategy.

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## VI. CONCLUSIONS

For the sake of clarity and at the risk of some repetition, this report concludes with a statement of the imperatives which, it is believed, should govern the formulation and operation of U.S. economic and social policy.

These imperatives -- more than specific loans or grants, agreements on trade, technical missions or any of the other instruments of policy -- will determine over the next decade or so the true efficacy of American efforts.

> We must perceive -- and be prepared to cope with -- the widely ramifying political and social consequences of economic assistance in any underdeveloped nation.

Just as political and psychological factors must be weighed in pre-determining the form and size of economic assistance, so must we be aware of the full consequences of this assistance. Already, although 80% of so-called U.S. aid funds have been for military purposes and only 20% for genuine development, deep changes in society, culture and politics have been set in motion. Our programs have launched farm credit systems in Japan, Korea and Formosa; have initiated self-help schemes that will eventually affect more than half a million Indian villages; have made possible a development plan for Southern Italy that could do there what TVA did for the southern U.S. At the same time, U.S. aid has made it possible for uncounted thousands to read, to write. These measures have speeded the revolution in mankind's rising

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expectations. The very operation of the programs in many countries has fostered, for the first time, the nucleus of a kind of middle-class -- teachers and managers, army officers and bureaucrats.

It is well to appreciate, in such concrete terms, the unseen potential for good or harm in the social changes wrought by economic aid.

It is pertinent, in this respect, to note how shallow is the notion that such programs do not or should not "interfere" in the lives of other nations. The issue is not whether or not there should and will be such interference but whether it will generate dislocation and disorder in the society -- or healthy, sustained growth.

_We must, no less, be aware of the limitations of cooperation for economic development -- especially in earning public appreciation._

No purpose should be more remote from a disciplined and intelligent U.S. economic policy than earning a publicly displayed gratitude. Our concern for the economic well-being of India or Indonesia or Nigeria has nothing to do with a wish to be thanked by the citizens of these countries or be liked by them; if this _were_ our purpose, the opponents of foreign economic aid would be perfectly correct in denouncing it as frivolous and futile. Conservatively, for the better part of another century, Americans probably will _not_ be popular in any such area. We shall be extraordinarily rich, while they are extraordinarily poor. We are identified with the West and "colonialism," while they

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know no more detested enemy than the forces they call "colonial." The
cumulative impact of these points of contrast and conflict cannot be nulli-
fied by any economic policy, however expansive or generous.

The demand for gratitude, moreover, instantly implies a distortion
of our principles and, quite possibly, the defeat of our purposes. If our
ruling principles are -- as they should be -- the fulfillment of the role of
moral and political leadership that we have assumed, it would be both de-
grading and frivolous to seek that fulfillment in an impoverished people's
display of gratitude. More concretely: the strengthening of responsible
political leadership in these areas is a primary U.S. objective. But polit-
ical leaders -- were they to perform public acts of homage to U.S. benevo-
lence -- would only *impair* their own power to lead and to govern.

In short, the ultimate purposes of U.S. policy should be the con-
viction among the peoples of those countries that their best interests --
material and moral -- are served by cooperation with the U.S. Popularity
is not the final measure -- but principle.

_We must_ -- _in practical application of principle_ -- _assess prudently_
 Resources which we _ourselves_ can bring to bear.

There is no more effective way to discredit the most honorable moral
principle than to make, in its name, claims or commitments which cannot be
fulfilled. In foreign economic policy -- as in all politics -- zeal alone is
not enough, nor high intent.

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Practically, this means two things.

First: No foreign economic policy or its claims can (or need) obscure the fact that the maintenance of a strong and growing American economy is fundamental to all else. This economy alone represents almost one-half the economic activity of the non-communist world. Its strength is not vital merely to the people of the United States: it is the indispensable shield of the whole free world.

Second: In our actual contributions to economic growth abroad, a realistic policy must operate on the basis of an order of priorities. The criteria are necessarily mixed and changing: economic need, military danger, political instability, the potential for growth, the political capacity to administer funds, the psychological significance of the specific program at a certain moment -- all these and other factors must be continually appraised and reappraised. But one fact is constantly true: not all situations can possibly be of equal moment and urgency.

In terms of competition with Soviet economic strategy, this means that a rational U.S. policy would never attempt to match or surpass every Soviet gesture. On the contrary, it would -- on the basis of its list of priorities -- determine precisely where the need for action is greatest and where this action can be most constructive. At the same time, it would almost certainly conclude that the Soviet economic offensive should be left unopposed on certain terrain -- either because it was lost or valueless ground for U.S. policy, or possibly

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because it was an area where we would effectively *choose* to encourage Soviet commitments and the spending of Soviet resources. Surely a little further strain on Soviet economic capacity -- added to the already conflicting claims of Soviet consumption, Soviet heavy industry, and the Soviet satellites -- is not to be discouraged.

In short, the magnitude of the U.S. effort will be important. But at least equally important will be the intelligent deployment of whatever resources and capital and skills are brought to bear.

*We must appraise "need" wisely not in exclusively economic terms -- but no less in political and psychological terms.*

Even from a strictly economic viewpoint, "need" is not an absolute or even primary criterion in the apportioning of economic assistance. For pure "need" may be greatest in an economy which, by its very constitution, can put economic assistance to relatively little use.

But beyond this -- if economic policy is properly to serve total U.S. foreign policy -- attention must be paid to *felt* needs. For what a foreign people or government *thinks* its wants are -- in this wider context -- as worthy of consideration as what economic experts may declare it *should* want. To take a rather extreme example: a few years ago Burma's Prime Minister U Nu, asked for U.S. aid in financing for Rangoon a large sports center of 80,000 capacity. Not surprisingly, American economists insisted that low cost housing and rail-road construction were more serious Burmese needs. Today, however, the

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80,000-seat stadium is being completed in Rangoon by Russian technicians, to become shortly a spectacular monument, in the eyes of citizens of Rangoon, to the Soviet system. The U.S. decision on such undertakings should, at least, weight such quite non-economic consequences.

The whole world-outlook of Asian and African leaders and governments must here be taken into careful account. These leaders reasonably concede that the whole issue of war or peace -- and not the development or adornment of their own countries -- is the over-riding issue of the world. But they also deeply feel that this greater issue lies beyond their power seriously to affect. What they _can_ do something about is the admittedly lesser matter of their own national progress and, particularly, _the dramatic and visible_ signs of such progress. Thus arises the almost passionate desire in these areas for what has been called "conspicuous industrialization." And in a world of such feeling, the steel mill or the hydro-electric dam assumes more than strictly economic importance: it has national and patriotic meaning.

There is another aspect to the political phase of foreign economic policy. This is its relevancy to the three possible global alternatives of which mention was made earlier -- shooting war, real peace or the continuation of the cold war. It is submitted that the recommendations in this report are valid no matter which of the three eventuates. They tend to diminish the threat of war. They promote positive peace. They would strengthen the free world during the cold war for whatever may befall.

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We must at the same time know that even the most economically sound program of industrialization may not ease tensions and problems -- but sharpen them.

Here rises the clearest evidence that no strictly economic criterion can suffice to govern and direct U.S. foreign economic policy.

The social and political problems that industrialization can provoke come in two distinct forms.

First: It generally creates widespread dislocations and discontinues throughout a society. It demands a new and unfamiliar organization of the labor force -- and imposes the authority of a new managerial class. This latter class, in the early stages of industrialization, is likely to be inept and even brutal. Throughout society, the transition from agricultural to industrial labor is difficult; and the whole process of accumulating the capital resources for rapid industrialization imposes, almost inevitably, drastic curtailment in consumption.

Second: The progress of industrialization does not satisfy, but rather quickens, the appetite for broader and faster economic progress. The instance of the tiny Sheikdom of Kuwait is notorious; thanks to oil probably the richest country in the world, its 200,000 citizens are more active and demanding -- both economically and politically -- than ever in their history. The revolution of rising expectations, in short, is a steadily self-propelling one.

As the cry of "industrialization" -- echoed by hundreds of millions across the great middle-area of the earth -- is inspired by a complex of motives

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far transcending the strictly economic, so too, do the consequences of industri-
alization ramify through all society.

FINALLY: We must remember clearly the purposes to which our policy
is dedicated -- the beliefs of our nation to which it is designed to give testi-
mony.

Here, in effect, is the answer to the debate over the wisdom or un-
wisdom of attaching "conditions" to economic aid. In the deepest sense, it is
inconceivable that the United States should not, in effect, do so. For our in-
terest and our purpose is not simply accelerating productivity or building steel
mills or re-channeling rivers or raising per capita income or boosting per-acre
farm output. Our purpose -- like our duty -- is far more than this.

Our duty to act in the world is prescribed by the abiding beliefs we hold
as a people. Precisely for this reason, we cannot abdicate those beliefs by
being indifferent to the political and social consequences of our own economic
policies. The words "peace" and "justice" and "common weal" we hold to be
as relevant in world affairs as in domestic affairs. If we did not believe so,
our sense of responsibility would end at our own national frontiers.

Whatever national borders we cross, we must carry moral baggage with
us. We are ready to declare it -- openly and clearly. We are not, however,
prepared to surrender it. This is the privilege that we claim, in return for the
responsibility that we accept.

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What does this explicitly mean to all other nations? It means simply that our world purpose is an extension of our national purpose. And that world purpose is _to promote an economic climate where freedom can grow and be strong_.

That definition charts the kind of middle-ground on which we stand between extreme policies. We are _not_ "unconditionally" indifferent to the political and social results of our actions: on the contrary, the rightness of those results is the sum of the moral purpose in all we do. Yet we also surely do _not_ insist that the image of this or any foreign nation or society imitate our own. For such insistence, too, would deny our own national values -- our own pride in the right of diversity and dissent.

Finally, we do not devise policies or assume responsibilities simply to make life easier -- either for ourselves or for those we would help. We know, in fact, that our deeds may sometimes compound problems and that, for other nations, progress can be painful. We do what we believe, ultimately, because we cannot ignore a revolution in human hopes that we, as a nation, have done so much to inspire. We cannot be an "open" society -- closed to the world. We live, instead, with the knowledge that the destiny of the most distant nation is, ultimately, our own. We know that it is the history of our times that all peoples partake of one another. And we must live with that knowledge -- with honor.

Only thus can this nation be true to itself. And only true to itself can it pursue policies -- clearly conceived and honorably dedicated -- that may long endure.