# I. THE KEY QUESTION

As the United States seeks to define and achieve its purposes in the next decade or two, one fact of momentous meaning is strikingly clear. The very riches of the richest nation in the world -- not merely its capitaly, but its skills, machines and technicians -- are a powerful instrument for use in a global struggle which has economic as well as military phases.

Paradocically, this fact has not brought new strength, assurance or clarity to U.S. Policy. It might reasonably have been expected that the economic struggle would be the contest in which U.S. resources and facilities

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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, it indicates bewilderment or misconception about the basic aims of the program. The fundamental question is none of these but simply; what is an economic policy - any economic policy - for?

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. To inculcate this belief is the function of the massive totalitarian propaganda machines.

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While some of this public discussion reflects healthy public concern, they indicate bewilderment about the basic aims of foreign economic policy there is one question that is rarely if ever asked. Unfortunately, it is more critical than all the others. It is: <u>what is an economic policy -- any economic policy -- for ?</u>

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 <u>is</u> what a people <u>does</u>.

<u>A nation must be true to itself.</u> 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 <u>believe</u> 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
on our part would more than likely cause
could be inflicted with impunity and that the Chinese people would be grate-
ful for destruction of their communist masters. But the logic would not pre-
vail: 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

[Y]

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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
<u>critical decision</u> in the post-war years than U. S. resolve to stand fast in
<u>above all others!</u>
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 historically dedicated. It is to foster world-wide economic growth and development of all peoples, by all peoples, for all peoples. The obvious corollaries are that it must foster peace, individual opportunity and enterprise, the mutual help which is dictated by the interdependence of all nations. Only in terms of these purposes, nothing less, can we judge the prudent and constructive application of this policy to the conditions of the world and its nations today.

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 This is true although to some extent moral purpose as a guidepost is usually beyond capacity to achieve immediately.

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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

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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.

Everywhere one American tradition is taking root. It is that each generation should be more amply supplied than its fathers with the goods of our economic system and expects still more for its children. The setbacks in this progress have seemed to our people unnatural, even criminal interruptions in the normal course of events. Now this conception is applied increasingly to the world, not just to the national economy. At the same time 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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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 concept of the law of life, that today must be better than yesterday, but not nearly so good and 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 be briskly summarized or quickly gauged. But three particular facts need be noted.

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

[y]

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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

(Insert after first full paragraph)

The same conflict is found in the underdeveloped areas of Latin America, although not quite so blatantly expressed because national independence has long been recognized. But, regardless of political status, it is a fact that aspirations of the people necessarily outstrip production. The result is strong pressure for more rapid industrialization than can be operated by available managerial, engineering and labor skills, let along capital requirements. All these peoples are faced with what is an almost intolerable dilemma. Either they must make present sacrifices for future benefits, or grasp immediate gains at the cost of future development.

1950 to 1954, for example, was two times the rate of 1950-1954 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

although improved planning and the use of new techniques and sources of energy offer some prospect of overcoming the difficulties.

[y]

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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. At the same time, much of the ostensibly economic aid offered by the U.S. has been designed to strengthen the recipients militarily, without much consideration of its relation to the needs of the people.

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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,

(Insert after third paragraph)

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

U.S. 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 challenge of unequal rates of growth. It is true that in some areas, especially the underdeveloped, a rate which is below that of the most advanced nations may satisfy the needs of the people by proving to them that their hopes are in the process of fulfillment, but this will not be effective indefinitely as the gap widens. There also is the more direct challenge of the economic power of the U.S.S.R.

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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 a self-advertised source of supply for economic needs. And it proclaims itself a model for all nations seeking the swift, dramatic economic change so passionately coveted in these areas.

Here -- as almost everywhere in foreign economic policy -- the strictly
economic aspects of reality cannot be disengaged from the political and the
psychological. 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 Americas

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

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 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.

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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.

## IV. WHAT TO DO AND HOW TO DO IT

In working out an international economic and social strategy for the United States over the coming years, there are two basic questions which should govern each point. One is: how can we help other peoples realize those of their aspirations which contribute to the attainment of our own national purpose? The second is: how can we discourage policies and programs hostile or harmful to that purpose? In arriving at answers, nine preliminary assumptions have been accepted, and they underlie the specific proposals which will follow. These assumptions are:

(Revised 12/28/56)

# A. PRELIMINARY ASSUMPTIONS

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

2. A free society in its essence is a spiritual testament. Its core is a sense of the dignity of manhood; a conviction that every man should have the opportunity to realize to the full his potentialities for growth as a human being; and a faith that by thought and toil and patience men can develop and adjust institutions through which they can move toward an approximate realization of their aims.

A belief in the growth of the individual in the deepest human sense is thus fundamental in American society. The belief has a dual aspect: it encompasses an aspiration toward growth, and a conviction that it is achievable in significant measure.

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

4. U.S. foreign policy must be governed by a wise appraisal of the national interest. The appraisal of the national interest involves a conscious or unconscious choice of criteria by which to measure it. These criteria derive from American values. The moral component in American values is fundamental. It would be unrealistic to seek to assess the American national interest in terms which ignore American values, including the moral component.

5. It is in the U.S. national interest that the United States should take the lead in seeking to establish a just and workable international order, in which free societies may flourish. U.S. foreign policy should continue to build political arrangements which give effect to common interests among the United States, nations allied or associated with it, and the uncommitted areas, and which are designed to reduce the consequences of differences in interest, while taking realistic account of them. It would also be in the U.S. national interest that individual states within the Communist bloc should break away from it. (Cross-refer to Subpanel I).

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

7. Problems of foreign economic policy have to be appraised in reference to three contingencies: an indefinite prolongation of international tension and unrest; a possible eruption of general war; and the possible emergence of a period of peace in which modern man, free of major international tensions,

[y]

could concentrate his incalculable resources of science and organization
upon constructive purposes. Most Americans would probably estimate the
first as the most likely to be realized; while it is our objective as a nation
to prevent the second, and seek the third. Despite our expectations and
purposes, the uncertainties are so profound, and the consequences of mis-
calculation would be so serious, that we cannot base our policies on a
definite assumption that any one of these contingencies will be realized.
We must choose possible lines of action which would prepare us for all
three.

8. There are two large themes of U.S. foreign economic policy which are valid for all three contingencies; and make sense in terms of U.S. foreign policy and general economic and social policy. These themes are economic growth in which all participate on a just basis, and economic cohesion: economic growth within the United States, the nations allied or associated with it, and the uncommitted nations; and economic cohesion among these societies.

9. Particular import or trade or investment policies, and measures of economic aid or technical assistance, are most usefully considered as instruments to help achieve ends, and not as ends in themselves. They can be sensibly appraised only in reference to the purposes for which it may be proposed to use them.

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[y]

## What We Have Been Doing

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

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

The attempt to establish an international economic order, which began with the Bretton Woods agreements, sought to prevent repetition of the bitter experiences of the depression. So, besides looking toward postwar rehabilitation, this policy line was directed toward maintaining a steady growth of foreign trade and investment. There was provision to accommodate special national concerns with such problems as expansion of agricultural output or maintenance of farm incomes, protection of industries vital to national defense, curtailment of market fluctuations for primary commodities, promotion of economic development.

The goal was multilateral, non-discriminatory international trade. Quotas were to be minimized if not eliminated, tariffs lowered and made non-discriminatory, export subsidies and dumping abolished, convertibility of major currencies re-created and competitive exchange depreciation ruled out. Controls on capital were to be restricted to preventing speculative abuses. The free flow of private capital would be under rules which would safeguard the

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investor against unreasonable harassment and the borrowing country against exploitation. International public investment was designed to fill those needs which could not attract private capital.

In each major area were to be cooperative international institutions. Their charters scrupulously avoided interference with national sovereignty. The International Monetary Fund and the International Bank for Reconstruction and Development, negotiated at Bretton Woods in 1944, have been functioning for ten years. More elaborate steps, the International Trade Organization and the General Agreement on Tariffs and Trade (GATT), were not applied.

This line of foreign economic policy made constructive contributions, but it failed to meet the most urgent postwar problems. In part this was because the entire line was not pursued; in part, the failure can be laid to the fact that the policy was designed to prevent economic disasters of the 1930s, and had little effect on the actual economic problems of the 1940s and 50s.

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

-23-

to the Soviet bloc was organized, the Soviet bloc was organized.

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

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

Trade discrimination against the Soviet bloc involved no serious
differences of opinion within the United States, although it has
created certain problems in relations with some of our European
allies and with Japan. But British imperial preference aroused
considerable American suspicion and hostility. However, as the
first postwar decade wore on, less and less was heard about the
evils of the system's freedom from internal exchange controls
coupled with more or less common exchange restriction against the
outside world, especially the dollar world. Americans also
strongly positively supported, to the point of making it a cardinal
element in foreign policy, regional integration in Europe. This
was largely a by-product of the Marshall Plan, and although the
desirable area for integration in American eyes has fluctuated,

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[y]

the regional goal has remained constant whether in terms of the six members of the Schuman Plan Coal and Steel Community or the seventeen members of the Organization for European Economic Cooperation.

Another source of **opposition** to the non-discriminatory international order has come from domestic economic policies. The world of our earliest post-war foreign economic policy would have had no room for **quotas**, subsidies or dumping. Yet in order to avoid supporting the **importuning** entire world market of certain crops and accumulating even greater surpluses in government storage than we have, it was necessary to impose import quotas on commodities whose American price is kept higher than the world price. Along the same lines are the "peril point" amendments to reciprocal trade legislation, the broadening of tariff reduction escape clause criteria, import quotas to protect industries essential to national security, the entire "buy American" program and the failure to press the question of adherence to the Organization of Trade Cooperation to a vote during the 1956 session of Congress for lack of assured support.

Subsidies given to our ship builders and operators are based on needs of national defense, which was recognized in the condemnation of subsidies generally. But the requirement of foreign aid legislation that 50 percent of all government-financed cargoes must be carried in American flag vessels is scarcely reconciled with the earlier policy.

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

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The result of the attempt to further one international, peaceful economic order and at the same time meet emergencies by programs which were incompatible with such a goal has been the somewhat uneasy contradictions about which critics of American foreign economic policy complain. What is needed is a policy which can command the confidence of free and aspiring peoples not only in *this* where we are trying to go but how we are trying to get there. On the basis of such a policy, within which short-term or emergency measures are reconcileable with long-range goals, it will be possible in the coming years to direct the economic and social tools at our command toward attaining the principles to which the nation is committed.

## Setting the Goal and Winning Acceptance for It

In setting the goal of *American* foreign economic and social policy, the danger is that it is put too low and too *influential* near. The one which will most truly and successfully represent the American people is that which will enable them to enlarge the human values in their own philosophy. Faith in moral and spiritual progress, in the dignity of all human beings, in what used to be called the perfectability of *mankind* (although we are usually a bit more modest nowadays) are the principles which can command the support of a united nation. Our foreign policy exists to carry these values to a larger stage than even that of the whole United States. Only as Americans transcend their own boundaries will they develop enthusiasm for the policy and enlist the support of other peoples which is so essential to its success.

This would rule out certain fairly common conceptions of what foreign economic policy, especially, is or ought to be. One is that *influential* international programs should be judged by their effect on

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the domestic economy. This would make it simply an instrument for
furthering the national interest. It is not enough, even if the
segments of our society which hold these views based it upon a
broader view of the domestic economy than usually they do. For
when this is the limited idea of a foreign policy, it usually goes
to support one of two special pleas. In one group are those who
are preoccupied with the problems presented by financial stability
and high taxes. They are inclined to view *intergovernment* proposals
for action on the international scene in the light of their cost to
the taxpayer, their possible *adverse* weakening of any part of the
American economy and their returns in benefits to the United States
whether in terms of increased profits, new sources of raw materials
or expanded markets. This is a perfectly legitimate concern, of
course. The strength of the American economy is fundamental to any
policy, and never should be neglected. But the economy is within
this world, too, and cannot be considered, as some proponents of
this argument would have it, in a vacuum. This is more obvious in
the position of the other group, which relates the national interest
to a special interest of their own. These are the special pleaders
for a single industry, for example -- watches or tuna or textiles --
or perhaps for an interest which is linked to national security such
as shipping or machine tools or precision instruments.

This is taking considerable space to say what an international
economic and social policy should not be. But it will take even
more to say what it *should* be. It breaks down into a number of
steps. The next sections of this report outline them, but it should
perhaps be repeated here that in evaluating them, the nine preliminary
assumptions stated earlier must be kept in mind.

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# 1. Winning Domestic Support for Foreign Policy

This is a more difficult task than it would be if a domestic issue were at stake. In national problems -- taxes, agriculture, employment, social security, education, urban development, controls over industry or whatever -- the public has far more experience on which to base a judgment than when a foreign policy issue must be decided. At the same time the U.S. is in the unique position of assuming leadership in an endeavor to establish a just and workable international order based upon public acceptance at home as well as abroad. Public opinion can be enlisted for its support only if the public is adequately informed and the various segments of the public which can help through their organized institutions have the opportunity to participate effectively. Such institutions are churches, civic groups, trade and industrial associations, labor unions and so on.

Unanimity is not essential to success, which is just as well because it probably is impossible to attain. Within our government itself there are sources of conflict which are an integral part of our political system, and properly so. The President has primary responsibility in the field of foreign policy. His principal adviser is the Secretary of State, but many other agencies directly responsible to him are involved in the foreign policy issues with which this report is concerned, and they are oriented to domestic problems primarily. Treasury, Agriculture, Commerce and only a few of the obvious important ones. Then Congress has the task of implementation and criticism in large measure, and both Houses are likely to reflect currents of opinion deriving from particular economic or social interests.

-28-

Obviously no program is going to make the American public expert on such complicated international questions as European economic integration, GATT, the precise nature of aid to be extended to an industrial country like Japan, or the Indian experiment, the under-developed lands with all their infinite variety of special needs. That is why it is so important for the public to understand the objectives of these programs, their relation not only to the welfare of their own country but to the American principles and ideals which apply to all men everywhere.

The problem then is to establish the main themes of foreign economic and social policy understandable and acceptable to the American people in the same way that social security, public education, freedom of thought and religion, private ownership and management of industry and so on are part of the American tradition. Such main themes might well include:

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

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

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

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

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

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## 2. The Men for the Job

At the beginning of this report it was said that the riches of the U.S. were a powerful instrument for carrying out foreign policy. Of these riches, the greatest is people -- skilled, trained, resourceful men and women imbued with the American tradition, which makes these qualities invaluable to society. Other subpanel reports in this series deal with the maintenance and expansion of these qualities in our people. They are of vital concern here because U.S. foreign economic and social policy can be carried out only by the personnel of the programs undertaken to further it.

It is worth repeating that our nation and any nation's greatest capital is its people, greater than the sum of steel and oil, coal and water, transportation and machinery and all the rest of it. The American people have acquired a sense of values, a distribution of character and talents throughout the community, a fund of accumulated knowledge and skills which would enable them to contribute more than any other to the world-wide goals we seek. It is not only in our scientific and engineering advances that we find these values, but in talents and experience of organization for operation, for transmitting knowledge and skills, for planning and improvisation. In other reports, the importance of steadily broadening, invigorating and improving our educational and training system is explained in the broadest sense, so that we may continue to develop both the vast material and spiritual potentials. Our ability to do so rests in the last analysis upon our intellectual heritage and activity, upon the great tradition of the free, self-reliant mind. This tradition itself is one reflection of our belief in the dignity of the individual and the ultimate importance of affording him every opportunity for the fulfillment of his capacities. In short, when we seek to determine the ultimate source of our qualitative advantages

-30-

in this basic area, we come back to considerations which may be
deemed essentially spiritual and moral.

To translate this to the foreign economic and social field,
the coming years will call for the training of certain special
individuals. In government, we will need skilled cadres of
personnel who will be able to appreciate and understand the needs
of other nations and then apply technical skills ability to meet
meeting those needs. Equally well known trained men and women
will be required by the many educational, philanthropic and indus-
trial or commercial organizations which through their activities
abroad contribute much to the development of foreign economic and
social policy. Perhaps most important of all, is the transfer of
these skills to peoples who need them. A cardinal point in our
program should be the development of leaders, whom our government
and also of subordinates versed in governmental laws procedures,
industrial and agricultural techniques, teaching and so on.

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

### 3. A Stable and Growing American Economy.

for
Behind the men who do the job must be the strength/which the
U.S. economic system has become known in spite of dark predictions
of collapse. It is axiomatic that such strength cannot be maintained

-31-

statically. When it ceases to grow it begins to die. The American
economy represents almost half the economic active of the world
outside of the Soviet orbit. It does not need to maintain that
proportion, as others rise, but it must continue to expand or it
and the others will contract. The rest of the world, whether in
industrial or underdeveloped societies, appreciates the importance
of the U.S. as a market and a source of supply. In fact, it may be
said that they are more fully aware of their stake in a vigorous
and growing American economy than most Americans are of their
dependence upon similar activity throughout the free world. The
problems involved in maintaining the desired level of expansion are
being considered by other subpanels. They are merely mentioned here
as a fundamental factor in a successful U.S. international economic
policy.

4. The Underdeveloped Areas

Over the coming years, a great part of the earth's surface and
a substantial proportion of its people will be the concern of U.S.
foreign policy. There will be in the years which we now are con-
sidering the key question of how to remove the word "under" from
our description of them.

The magnitude of the area talked about so glibly as if it were
quite easy to develop all of it with a bit of money, machinery and
men poses the first problem. We are talking here of virtually
all of Asia not under Communist rule, most of Africa, most of Latin
America. So it might be well to start off by recognizing that no
amount of material and technical assistance which the U.S. can
supply would by itself raise the standard of living of these people
appreciably by 1975, or any other date one chooses to mention.

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What we can do, in cooperation with United Nations agencies and other countries motivated by the same principles as ourselves, is to furnish help to these areas in realizing their own potentials. Within this general limitation, there are a few other factors which must be considered in relation to each of the underdeveloped countries individually. These are the conditions under which U.S. assistance should be offered.

The first condition should be that our own government is satisfied that the country to be helped desires to move in the direction of our own ultimate goals. This requires a government which, whatever its present form, working toward the kind of economic and social development which will: (1) contribute to or at least not impede peaceful development elsewhere, (2) progress toward an economy which will foster individual opportunity for all the people, (3) resist aggression, (4) win the confidence of its own people that it can and will advance toward satisfying the popular aspirations of which we have spoken earlier in this report.

On the part of our own government and its representatives, there are certain requirements: (1) the firmness to direct our help into channels which fulfill that country's needs if perhaps the government prefers some more spectacular but less immediate gain, such as a steel mill in Ambon or an agricultural land which Indonesia would benefit a great deal more from an adequate water supply, (2) the recognition that what worked well in our country or even in another underdeveloped area does not necessarily apply everywhere, (3) understanding of our national purpose as the objective and not an immediate concession or alliance or even military base.

That comes close to exhausting the generalities which it is safe to apply to the problem of underdeveloped countries. In

-33-

working out the program for our Point Four assistance, these are
some of the contrasts which must be taken into consideration:

Some countries are potentially very rich in natural resources
for development along all economic fronts. Brazil and Rhodesia with
rich agricultural and mineral resources, potential power and great
possibilities for the development of transportation and communi-
cations obviously merit a different sort of aid program than a
nation like Libya with very meager resources in all these fields.

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

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

Some countries have government machinery already equipped and
trained to handle the programs which we would want to help. India
again and Iran, both of which inherited British-trained personnel,
are good examples among the recently independent; Turkey among
the older nations. At the other end of the scale are places like
Yemen with hardly any such training available.

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

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This is not the end of the variety of problems or peoples. One of the principles which should govern the type of assistance we give in any set of circumstances is that it should conform to the desires and aspirations of the country itself. It is useless to force upon anyone the sort of development we have had or think others ought to have. On the other hand, the expressed wishes of a people as they reach us through their own officials may be unworthy of support. An exaggerated, but actual example was a Burmese request for U.S. aid in building pagodas to house ceremonies planned for the 2500th anniversary of Buddha. This was followed by a <u>compromise</u> suggestion that U.S. assistance be turned to a sports center with a stadium to seat 80,000 spectators. The U.S. mission rejected both as politely as possible, pointing to the greater Burmese need for improved port facilities, railroads and low cost housing. The stadium, however, is being built by Russian technicians. There are more difficult decisions to make. It is easy for ambitious and well intentioned officials to want to move too fast, say in industrialization, and build steel mills or hydroelectric projects before there are the men to operate them, the industries to use them or the facilities to supply them. The course of U.S. policy obviously should be to discourage such projects in favor of those of more promise. The situation is complicated, as it is in Turkey, however, when the industrialization, carried out by the most Westernized of Middle Eastern countries, already has outstripped certain other sections of the economy. It then becomes sound policy to help to maintain these developments while bringing the rest of the economy up to that stage.

The amount of assistance which we have been giving to the
programs for underdeveloped areas is generally inadequate, and
not only that but below our capacity as well. Net American capital

investment in all of them put together has averaged about one billion
dollars a year, of which about half was private investment.

One of the aims of foreign economic policy should be to increase
that private investment in the flow of private capital. This is not to be done by
exhoration or appeals to patriotism, even if it should be supposed
that this would be a patriotic gesture. The problem is to make the
capital, which obviously could be used to good advantage in many
countries, both secure and capable of providing an adequate return
to the investor.

Private capital already is a notable feature of a good many
underdeveloped economies. Oil in the Middle East and Venezuela
are obvious examples. It even finds itself in much the same
dilemma as some government missions, as when Standard Oil built a
steel mill in Venezuela, not because it thought the investment
either warranted or desirable but because, as one official put it,
"if we didn't, somebody else would."

(expand private capital problems)

While there is no possibility of applying successfully blanket
programs to all the underdeveloped areas, the countries are not to
be approached in isolation from each other. There is sound reason
to administer aid programs on a regional basis, recognizing that
the differences within the regions are at least as great as between
them, usually greater. The advantages of the regional basis are
perhaps more readily understood by taking some specific examples --
India within the region of South Asia, Iran in the Middle East,
Venezuela in Latin America.

(develop each of these as practicable
from the papers and discussion.)

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## 5. Advanced Industrial Areas

In application of our foreign economic policy to the industrialized nations of Europe and to Japan, the greatest modification of the policy of a single non-discriminatory world economic order will be found. The goal of international order and growth still is there, but in the next decade or so we will advance toward it through cooperation between regions rather than within one large economic tent covering the world. *Economies of scale*

One of the problems needing a solution is not primarily economic, but the economic relationships of advanced industrial countries to the rest of the world will be governed by this factor. The political aspects of Europe's relations with the Middle East and North Africa and of Japan's relations with the sources of her raw materials and former markets are the concern of another subpanel. But in planning the strategy of American assistance to the economies of Europe and Japan, the ways in which the U.S. might help in working out constructive solutions are of importance.

The problem of Europe and Japan in obtaining raw materials for their industries is one that should concern us, not so much as we compete for the same resources as because it is to our interest that their supplies be maintained, and expanded as their growth requires. Europe's need for fuel is one of the chief reasons for our concern with peaceful solutions to Middle Eastern disputes and orderly political relationships between the oil-producing countries and 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.

(develop more on other raw materials)

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An even more important field of American action lies in the actions the U.S. can take itself to encourage a high level 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 negotiation of the International Trade Organization, and it is high time that the U.S. ratified it, went more fully into the work of GATT, extended reciprocal trade legislation for five years to eliminate the constant uncertainty over our policy and at the same time 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 the perilous resemblance to dumping and the damage 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 has sometimes seemed to be the motivation of disposal would have to be scrapped. The benefit to be derived from all this would be the encouragement to multilateral under which the free world always has been healthier economically than in an environment of bilateral agreements, restrictions and reprisals.

The convertibility of the principal currencies of the world would be a sound supporting measure for such trade. 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.

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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, hurting the market for American machinery not only on the Continent but elsewhere by strengthening Europe's exports into other markets. 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 to that 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.

In addition to these broad policies, there are two special problems concerning two of the most industrially advanced nations in the world -- Great Britain in the West and Japan in the East -- which demand the most serious attention from the moulders of U.S. economic policy.

III - Report

August 27, 1957

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.

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

III - Report

August 27, 1957

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.

~~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

III - Report

August 27, 1957

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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.

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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August 27, 1957

extraordinarily poor. We are predominantly white, while they are predominantly 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. Popularity is not the final measure -- but principle.

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August 27, 1957

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 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

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August 27, 1957

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 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 <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.

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.

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August 27, 1957

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 discontents
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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August 27, 1957

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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August 27, 1957

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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August 27, 1957

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.