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# U. S. INTERNATIONAL ECONOMIC AND SOCIAL OBJECTIVES AND STRATEGY
## I. THE KEY QUESTION

As the United States seeks to define and to defend its purposes at this mid-twentieth century, two facts of momentous meaning are strikingly clear. One: the richest nation in the world obviously possesses one instrument of huge force to serve its ends, namely its riches -- not merely its capital, but its skills, its machines, its technicians. And two: in this world divided against itself, the global struggle has shifted -- for at least a long moment in the history of our times -- from the military to the economic arena.

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

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While some of this public discussion reflects healthy public concern, there is one question that is rarely if ever asked. Unfortunately, it is more critical than all the others. It is: what is an economic policy -- any economic policy -- for?

The question is neither banal nor simple to answer. For it ultimately asks: to what world purpose is the United States dedicated? It is not aggrandizement. It is not philanthropy. It is something more than globe-girdling military bases. It is surely not world-wide economic hegemony. What is it?

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

An economic policy must serve and reflect a foreign policy. A foreign policy must serve and reflect a nation, its people, its beliefs and its purposes. A people is what a people does.

**A nation must be true to itself.** This is more than a moral injunction. It is a practical fact, a law of political life. It has been recognized -- and exploited -- even by the tyrant. One of the plainest marks of 20th century totalitarianism has been the dictator's recognition of this over-riding political imperative -- whatever the national act or the purpose, the people must be induced to **believe** in its rightness. Thus, too, it is inconceivable that the rulers of the Soviet Union should, for whatever reason of seeming expediency, renounce communism as such: they can do no more than change the definitions of some tenets or their immediate applications.

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The implications apply to all nations -- including the United States. Ruthless logic, supported by miraculous political and military intelligence, might, for example, clearly indicate that a surprise atomic attack on Peking could be inflicted with impunity and that the Chinese people would be grateful for destruction of their communist masters. But the logic would not prevail: the very act would be offensive to certain principles to which the people hold. A less extravagant and more pertinent speculation: it might be satisfactorily demonstrated that U. S. policy could effectively bring about the starvation of millions of Poles, in turn setting all Eastern Europe aflame against the Soviet Union. As a policy, the act is not worth debating: the United States simply would not do it. Or, if it attempted such a policy, it would undoubtedly fail to see it through. There are, in short, moral capabilities quite as stern and explicit as political capabilities; and the limits of neither can be transgressed without pain or loss.

What matters critically is that there is, to all of this, an affirmative side. The nation true to itself must not only shun certain policies and practices in which it does not believe: it must dedicate itself to what it does believe. The act of omission can be quite as grievous as the act of commission.

This, too, is not merely a moral injunction, but a pertinent political truth. To test it, one need only imagine the political and psychological implications -- for the United States itself -- if Great Britain had been left to fall before the Nazi onslaught in 1940-41; or if U. S. forces had been ordered to

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retreat from blockaded Berlin in 1948. In the latter case, most clearly, the
<u>military</u> values at stake were dubious at best. Yet there has been no more
critical decision in the post-war years than U. S. resolve to stand fast in
Berlin. It was imperative to do so, and for one reason: to give testimony to
the principles we hold, to be true to them, to be true to ourselves.

The issue -- let it be emphasized -- is not simply a matter of choice
between good and bad, decency or indecency, generosity or greed. Isolated
political -- or economic -- decisions rarely fall perfectly into such categories.
The point is that a nation must live by its abiding beliefs -- or change its very
nature, indeed corrupt itself, by abdicating these beliefs and the duties they
enjoin.

For U. S. foreign policy -- and economic policy -- the decisive fact
is this: <u>the beliefs we most deeply hold do not cease to be relevant or</u>
<u>binding at the shores of the Atlantic or the Pacific.</u> The ultimate values to
which we are dedicated are not circumscribed by the continental limits of the
United States. Thus we can fail to <u>apply</u> these principles in the wide world --
only at the cost of compromising our dedication to them, with all that this
implies within <u>our own</u> society.

We are increasingly aware on practical, political and economic levels,
of the constant inter-action of domestic and foreign policies. We know that
the domestic farm problem is related to the matter of dumping surpluses
overseas. We know that the domestic demands of specific industries can
directly affect our tariff and trade policies. We know that the whole conduct

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of our society -- from the integrity of government to the freedom of opportunity for all races -- directly affects our repute in all lands.

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

The proof is seen in the most cherished of these values -- and their application to all the world.

We hold man himself to be the living thing of unique and transcendent moment -- not the state, not society. We know man to be something more than a creature of the natural forces that rust iron and ripen corn. And we wish him -- and his free destiny -- to be accordingly honored and served by the political and economic environment in which he lives. All this, be it noted, we believe of man -- not just of Americans: it applies with universal force and meaning to the rice-grower in Burma, the steelworker of the Ruhr, the miner of tin in Bolivia.

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

We seek justice for all men -- occasionally with sad lack of success even in our own country, yet with a persistence and fervor that all but the

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implacably hostile must acknowledge. We do not *believe* in the concept of
second-class citizenship. And this directly translates into our testimony
before the *world* that we do not accept the notion of second-class *nations*.

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

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

It will be noted that *every one* of these principles has direct bearing
upon foreign economic policy. For here lie the *purposes* of that policy. And
only by these purposes can the efficacy of the *means* be weighed and judged:
the sense and aptness of a given policy at a given time and place.

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

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

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

Nor -- most critical, because most plausible, of all misconceptions -- can foreign economic policy be conceived to have as its _end_ the simple fostering of economic progress. For again we are reminded of a truth equally relevant in the areas of both domestic and foreign affairs: neither productivity nor abundance are intrinsic goods in themselves. They are merely _means_ to ends that must be defined in terms both more precise and more profound.

Economic progress as such is no automatic guarantor of the purposes to which U. S. policy is dedicated. To cite a small example: in the post-war vicissitudes of Italian communism, it has been notable that communist strength has often _increased_ in the more _prosperous_ areas of Italy, while often

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lagging in the most impoverished provinces. To cite a more spectacular instance: the 20th Century's two most conspicuous displays of dramatic economic progress have been provided by militarist Japan and communist Russia -- but the achievement made neither country a notably good, or even peaceful, neighbor in the community of nations.

What, then, is foreign economic policy *for*?

It serves as a singularly powerful instrument of U. S. foreign policy, serving in turn the beliefs and purposes to which the American people are historically dedicated. This, nothing less, is its validation. These purposes dictate the necessity for such a policy. They define its intent. And hence by these purposes, and nothing less, can there be judged the prudent and constructive application of this policy to the conditions of the world and its nations today.

### III. THE WORLD WE LIVE IN

To attest to our faith in free man, to promote peace, to foster justice, to enhance the common weal of all nations -- to these ruling ends, how shall U. S. foreign economic policy be devised?

The profession of noble purpose manifestly is not enough. The policy we seek must not only be true to its moral source and meaning. It must also be rational in method, applicable and constructive in a world not as we would like it, but in the world as it is. For the nation that proclaims moral purpose beyond its capacity to serve practically merely arrogates to itself a dignity

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it does not deserve. This is no more than pompous moralizing. It does not heal or unite peoples: it offends and alienates. It confuses difficult duty with bland sentimentality. And it mocks and corrupts the very moral purposes to which it pays such empty homage.

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

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

Impressive though it is, this strength must be deployed at a time and in a situation of singular difficulty and complexity. Economic dilemmas, political problems, and psychological obstacles -- the whole shape and nature of our times -- produces a series of stubborn problems. The most crucial are these:

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**The revolution of rising expectations.** This is a central fact of our times -- the assertion by all peoples of their right to a greater share of the world's goods. Two words evoke the essential spirit of this revolution in human aspirations: Growth and Industrialization. Everywhere, as never before in history, there flourishes the quite American notion that Growth is the law of life, that today must be better than yesterday, but not nearly so good as tomorrow. And almost everywhere -- especially in the great middle-area of the earth from the islands of the south Pacific to the deserts of North Africa -- there flames the conviction that the key to Growth is Industrialization. The steel mill or the hydroelectric plant have become much more than functional, useful economic assets. They have become signs of national pride, and symbols of the hopes of peoples.

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

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

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

Second: such a world-wide phenomenon manifestly means that such an economic "program" as might have been conceived a few decades ago has

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little relevance today. The satisfaction of limited, short-term needs -- by aid, by loan, by gift -- is not the issue. What is at stake is the decision to be made by hundreds of millions of people as to the very way of life -- the economic system and the political institutions -- that they will choose in order to share more fully and more justly in the treasures of the earth and the labor of all mankind.

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

**The rising pressure of population.** It is a rather harsh coincidence of history that the revolution in popular expectations comes at a time -- in terms of population growth -- that makes fulfillment of these expectations most difficult. Not only is the world population increasing: it is also increasing at a faster rate all the time. The annual percentage increase from 1950 to 1954, for example, was two times the rate of 1850-1900 and one-and-one-half times the rate of 1900-1950. While this represents a sharp acceleration of a pattern of growth going back 200 years, a startling change

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in *regional* differences dates only from World War I. Since that time, underdeveloped nations have been growing in population much *faster* than economically; advanced countries.

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

First: poorer countries are finding it more difficult than ever to raise per capita income. If population grows at a rate of 2-3% per year, annual savings may have to represent 10-15% of the gross national product just to maintain present per capita income. Since few underdeveloped areas can achieve a saving rate in excess of that, there is inexorable pressure on the government for inflationary policies, to ease the economic pain of the moment.

Second: this population pressure strongly tends to widen the gap between rich and poor countries. The wealthier countries have contributed to this result in two quite unrelated ways: by helping to control disease and reduce mortality rates in underdeveloped nations -- while at the same time absorbing an ever greater amount of their natural resources. In 1950, two-thirds of the world's people, in the less developed countries of the world, consumed less than 5% of the world's production of primary materials.

And third: these economic pressures inevitably have a political impact involving both drastic domestic action and, almost certainly, the exploitation of nationalist passions and their enlistment in foreign adventure. The case of Egypt is instructive. It is one of the three or four most crowded agrarian countries in the world; the mass of the people must spend more than half their

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income on food alone; and per capita food consumption has actually tended to fall over the last 20 years. The ruthless pressure of these facts contributes much to explaining the zealous and reckless course of Egyptian foreign policy.

**The burden of world armaments.** The economic implications of this burden are manifold and, indeed, difficult even to measure with any precision. They place a severe drain on facilities and materials. They threaten financial stability and make inflation hard to escape. They divert manpower, delaying both its training and its employment in the kind of labor vital to national growth.

A corollary problem is serious in its effects: the obscuring and confusion of the real economic needs of a nation by the claims of armament. The economic needs of Israel, for example, are hugely complicated by the national resolve to maintain so great a defense force; and since this force obviously is not going to be dissolved, its size and cost -- as determined by military and political decisions -- become the inevitable premises in assessing Israel's economic "needs". In a quite different way, U. S. military policy obscures "pure" economic realities. For the absence of a European dollar-shortage in recent years is essentially due to U. S. military expenditures overseas. Thus the withdrawal of U. S. troops stationed abroad, the curtailment of base-construction, or the termination of offshore procurement -- all military issues and decisions -- would quickly reveal economic weaknesses effectively hidden these last years.

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

**First:** the European economy has become far more heavily dependent upon the resources of the Middle East -- in precisely the years when the great West European powers and the Middle Eastern nations were becoming most bitterly estranged. Before World War II Europe drew less than one-fourth of its oil imports from the Middle East. By 1949, the figure had risen to 60%.

Today the Middle East is expected to provide more than 80% of Europe's oil imports -- while, politically, it has been left as a vacuum.

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

By 1975, the U. S. will have to import at least 20% of total raw materials requirements and at least 55% of metals requirements.

**The growth of Soviet economic power -- and its challenge.** All of the economic problems indicated -- and their political consequences -- would be a substantial test of U. S. ingenuity in devising a world economic policy, even without the direct challenge of the economic power of the U.S.S.R.

Now, with that challenge, the full measure of the seriousness of the business at hand becomes clear.

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The economic growth rate of the Soviet Union has been notably swifter
than that of the West, including that of the U. S. It has been backed by a
prodigious amount of annual investment in heavy industry. And its future
continuance, Moscow hopes, maybe assured by the current broad-scale and
rigorous training of scientific and technological manpower.

The spectacle of this growth is, of course, subject to a number of
serious qualifications. From a statistical viewpoint, the U.S.S.R. enjoyed
the great advantage of starting its recent growth with great numbers of un-
employed citizens and vast amounts of under-employed resources: as these
become more fully engaged in the economy, the actual rate of growth will
slacken. Even the growth rate achieved, of course, has been at the cost of
severely low rates of consumption. And -- it is relevant to emphasize --
U. S. economic growth, in absolute rather than percentage terms, annually
continues to be conspicuously larger than that of the Soviet Union.

Yet these economic truths must not obscure the _political_ truth of the efficacy of the Soviet economic offensive. For the U.S.S.R. boasts a _dual_ appeal to the underdeveloped areas of the world. It is self-advertised source of supply for economic needs. And it proclaims itself a model for all nations seeking the swift, dramatic economic change so passionately coveted in these areas.

Here -- as almost everywhere in foreign economic policy -- the strictly
economic aspects of reality cannot be disengaged from the political and the
psychological. For the fact is that -- with the underdeveloped countries of

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the Far East, the Middle East and Africa -- any signs of Soviet economic inferiority to the United States are not necessary liabilities. They can be political and psychological assets. They suggest that the U.S.S.R., too, belongs -- or until lately belonged -- to the "have not" nations. If the Soviet Union has not scaled the technological heights of the American economy, it has nonetheless shown how swiftly and dramatically a "have not" economy can develop. And thus there stirs in these areas a certain inarticulate, sentimental sense of comradeship with the Soviet experience -- and a wish to emulate it -- such as cannot easily be evoked by the loftier, more awesome U. S. achievement.

And perhaps most important of all: in this area of the world, the U.S.S.R. is finding an area in which to express, coherently and at least plausibly, some of its own basic and repeated tenets - the truths which *it* holds to be self-evident.

Thus, the present Soviet strategy goes back to fundamentals laid down by Lenin: "Capitalism has grown into a world system of colonial oppression and financial strangulation of the overwhelming majority of the population of the world by a handful of 'advanced' countries...The world has become divided into a handful of usurer states and a vast majority of debtor states."

Translating that into more elementary political language, Nikita Khrushchev explained to a group of U. S. Senators in late 1955: "We value trade least for economic reasons, and most for political reasons, as a means of promoting better relations between...countries."

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The implications of this for the U. S. are striking.

The Soviet Union has devised foreign economic policy that aptly and precisely serves its political ends.

It has been able to translate its _domestic_ creed into _international_ terms. The struggle of social classes can be expressed in terms of the world's nations. The "proletarian" nations of the world must rise.

It has -- in this sense -- been _true to itself_. It has found, and it is systematically applying, an economic policy at once reflecting and serving its ultimate purposes as a nation.

The United States cannot do less.

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IV. THE WORK WE MUST DO

The most crucial aspects of U. S. economic policy are not those most commonly debated -- namely, the specific economic techniques and tactics of the moment. Infinitely more important is popular and official understanding of the national purposes that these concrete policies must serve -- and the spirit in which they must be applied to fulfill those ends.

The immediate practical elements in such a policy can be briefly stated. They will include the following:

(1) **Liberalization of U. S. trade policy.** This is essential not merely in terms of its direct economic benefit in fostering multilateral trade -- but no less as clear testimony by the U. S. to its awareness of its own role in the common wealth of free nations. In specific terms, it will entail such decisions as: participation in OTC, fuller implementation of GATT, extension of the Reciprocal Trade Agreements, and continuing modification of our tariff laws and classifications.

(2) **Continued advocacy of convertibility.** This, of course, serves the same cause of keeping the trade channels of the world free and full. It specifically calls for strengthening the resources of the IMF, arrangement for its systematic use for stabilization or standby credits, and coordination of the work of the IMF and OTC.

(3) **Increased regional economic cooperation.** This entails -- in Europe -- sustained U. S. support of the European Payments Union and the European Coal and Steel Community, and encouragement of the developing European

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customs union and free trade zone. It means -- through the U. N. -- steady and increased support of the various regional activities of its economic commissions. It means -- throughout the world -- constructive cooperation with all such regional instruments as the Organization of American States, the Caribbean Commission, the Colombo Plan.

(4) Increased supply of capital to under-developed areas. Over recent years the United States has been making a net contribution of about $1 billion to these capital requirements. Approximately half of this has been private investment -- largely by U. S. oil and mining companies, and only in a few small countries. While arbitrary statistical estimates vary considerably, a conservative estimate is that these areas can immediately and usefully put to work at least an additional $1 billion a year. While it is surely sound to encourage private investment to supply the greatest possible percentage of this sum, the possibilities here should not be exaggerated: with the current prosperity, U. S. and Canadian industry itself offers too attractive a market for investment, leaving relatively little to seek more remote and more hazardous opportunities. The critical importance of this can be seen in comparison of the rate of industrial development in communist and non-communist countries. Investing only some 5-7% of their total product, nations like India and Pakistan and Indonesia are hardly able to keep national income growing as fast as population -- while the investment rate in the industrializing communist countries is more than double this. If these countries cannot find outside capital on reasonable terms, their political leaders will see themselves

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confronted with a clear choice -- freedom or industrialization. It would be, of course, a spectacular irony if the free and industrialized Western society in effect left the rest of the world to believe that they must make such a fateful choice.

(5) Extension of all economic policies into longer-term commitments.

Any major policies geared to the calendar year ignore the realities and the problems of national economic growth. No major U. S. corporation can confine its plans for the future to but a single year's anticipated operations. It is therefore singularly short-sighted for U. S. policy to expect the struggling economies of whole nations to be put, in any serious measure, on a year-to-year contingency basis with respect to U. S. economic assistance. And until the machinery of U. S. economic policy is geared to long-term action, the serious purposes of that policy will never near fulfillment.

All the above are substantial issues. Yet their mere enumeration makes two facts clear. One: no such practices will be adopted -- nor could they be justified -- without full appreciation of the ends they must serve. And two: the full effect of even such policies as there will be crucially affected by the attitudes -- the spirit and the intelligence -- that govern their application.

More crucial, then, than any specific program of the U. S. Legislature or Executive is the measure of understanding -- and the clarity of the moral commitment -- displayed by both the American people and their government. This understanding, in turn, must encompass two things: awareness

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of our principles -- and alertness to the realities of the world in which they
are to be applied.

Specifically, this dictates a number of things.

I. We must be aware of the immense range and variety of national
economic problems throughout the free world.

These variations dictate one of the plainest requisites of any realis-
tic policy: it must shun glib generalizations and uncompromising formulas
-- and address itself to the problems as they exist. This entails not only
recognizing the variety of strictly economic issues, but also perceiving the
related political, military and psychological factors that make each national
situation almost unique.

There are a vast number of distinctions to be observed beyond that
of "advanced" vs. "underdeveloped" economies. There are countries like
India and Indonesia suffering heavy population pressure -- and there are
countries like several Latin American nations suffering a serious shortage
of manpower. There are countries of great economic potentiality like Brazil
or Rhodesia -- and countries of meager potentiality like Libya. There are
countries where aid programs can count upon relatively efficient performance
by trained government personnel, as in India -- and then are countries, like
many in Africa, where even the elements of orderly government are not yet
mastered. Even among the newly independent countries, there are those of
India or Indonesia, politically hostile to the slightest signs of "colonialist"
policy -- and there are others, like Malaya and the Gold Coast, wanting and

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continuing special ties with the British Commonwealth. In military terms, there are those countries like Korea or Formosa or Spain that demand particular concern from U. S. strategists -- and there are other nations, from India to Guatemala, where U. S. national interest has nothing directly to do with military collaboration.

Thus, a highly simplified world economic policy is no more possible than a highly simplified foreign policy. And patient awareness of the complexity and variety of problems to be met will be a virtue of immense practical value. Without such patient perception, no economic policy will make sense, for it will be designed for a world that does not exist.

II. **We must -- for all our pre-occupation with the critical underdeveloped areas -- be no less constructively concerned with the problems of the most industrially advanced nations.**

The increasingly excited concern for the retarded economies of Asia and Africa can signify a healthy public awakening -- if it does not distract attention wholly from the economic problems of advanced nations who, among other things, happen to be the most vital political allies of the United States. The costly impact of the struggle in North Africa upon the French economy, for example, is sufficient reminder that the free world as a whole cannot be strengthened by a solution of African problems bringing French bankruptcy.

The fact is that two of the most industrially advanced nations in the world -- Great Britain in the West and Japan in the East -- confront problems demanding the most serious attention by U. S. economic policy.

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A. **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.

B. **Japan.** While Japan's industrial and mining production has reached a level almost twice as high as its pre-war peak, its trade lags considerably below pre-war volume. This has become particularly critical at a time when the need for imports has sharply increased, with the wartime loss of territories and resources and with steadily mounting consumer demand. At the same time, the pattern of Japanese trade has drastically changed, with the United States assuming the key role -- accounting for almost one third of Japanese imports and more than one fourth of her exports. With her important industrial complex and abundance of cheap labor, Japan's economic machine is heavily dependent on the earning of dollars for essential American purchases. Yet Japan faces a chronic shortage of capital, a stubborn trade deficit with the U. S., and the mounting opposition of U. S. industries to Japanese

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competition in the American market. At the same time, the great potential of Japanese trade with Southeast Asia cannot be developed without the Japanese shortage of dollars being overcome. The several ways in which the U. S. can help -- in the liberality of its trade policy, in helping the Japanese to diversify their exports to the U. S., in encouraging the flow of capital -- these will determine the future world role of Asia's greatest industrial power.

To the U. S., the economic health of Britain in the West and Japan in the East can decisively affect the course of history on two continents. And U. S. conduct, therefore, will be not merely a measure of American prudence in purely economic affairs: it will reflect whether or not the United States is truly fulfilling its role of leadership in the free world -- whether it is, in short, being true to itself and its purposes in the world.

### III. We must perceive -- and be prepared to cope with -- the widely ramifying political and social consequences of economic assistance in any under-developed 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, the economic aid programs of the past indicate the deep changes in society, culture and politics that can be set in motion. These programs have launched farm credit systems in Japan, Korea and Formosa; have initiated development schemes that will eventually affect more than half a million Indian villages; have made possible a development plan for Southern Italy that could do for that

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area 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 -- to understand
and to partake of the revolution in mankind's rising expectations. And the
very operation of such 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. And
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".
The question is whether such interference will generate dislocation and dis-
order in the society -- or healthy, sustained growth.

IV. We must, no less, be aware of the limitations of economic aid --
especially in earning public appreciation.

There is no purpose more remote from a disciplined and intelligent
U. S. economic policy than the earning of 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 well liked by the citizens of these countries;
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

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extraordinarily poor. We are predominantly white, while they are predomi-
nantly colored. We are identified with the West and "colonialism", while
they know no more detested enemy than the forces they call "colonial". The
cumulative impact of these points of contrast and conflict cannot be nullified
by any economic policy, however expansive or generous.

The seeking of 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 degrading
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 political leaders
in these countries -- were they to perform public acts of homage to U. S.
benevolence -- would only impair their own power to lead and to govern.

In short, the ultimate purposes of U. S. policy -- moral and political
-- should be too firmly grounded in _the American conscience_ and in _the
American consensus_ to need to be fed or fortified by public acclaim. Popular-
ity is not the final measure -- but principle.

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V. We must -- in practical application of principle -- assess prudently the 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.

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 the actual extension of foreign aid, a realistic policy must operate on the basis of an order of priorities. The criteria governing the giving aid are necessarily mixed and changing: economic need, military danger, political instability, the potential for growth, the political capacity to administer aid, the psychological significance of the giving of aid 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

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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 because it was an area where we would effectively choose to encourage Soviet commitments and the spending of Soviet resources. For 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 sills are brought to bear.

VI. We can 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 beyone 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

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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 railroad construction were more serious
Burmese needs. Today, however, the 80,000-seat stadium is being completed
in Rangoon by <u>Russian</u> technicians, to become shortly a spectacular monu-
ment, in the eyes of citizens of Rangoon, to the Soviet system. The U. S.
decision on such undertakings should, at least, weigh such quite non-
economic consequences.

The whole world-outlook of Asian and African leaders and govern-
ments 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 thier 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 <u>can</u> do something about is the admittedly
lesser matter of their own national progress and, particularly, <u>the dramatic</u>
<u>and visible</u> signs of such progress. Thus arises the almost passionate
desire in these areas for what has been called "conspicuous industrial-
ization". 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.

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

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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 discontinuities
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 process 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 far transcending the strictly economic, so too, do the *consequences*
of industrialization ramify through all society.

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VIII. **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 testimony.

Here, in effect, is the answer to the debate over the wisdom or unwisdom of attaching "conditions" to economic aid.

There are certainly specific types of political conditions that are gratuitously offensive. It is, for example, plainly impolitic to hold an annual public review in Washington of the national conduct of a sovereign foreign power, to determine whether (by the verdict of the U. S. Congress) that nation's behavior warrants further economic assistance. And this is only one more reason for placing U. S. economic policy on a long-term operating basis.

But -- in the deepest sense -- it is inconceivable that the United States *not*, in effect, place conditions upon its extension of aid. For our interest 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 for 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

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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.

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 --

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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.