For the

AGENCY FOR INTERNATIONAL DEVELOPMENT

PRESS

INFORMATION STAFF

AID-67-137

For Release: 12:00 Noon, Monday, December 4, 1967

ADDRESS BY THE HONORABLE WILLIAM S. GAUD, ADMINISTRATOR
AGENCY FOR INTERNATIONAL DEVELOPMENT, DEPARTMENT OF STATE
BEFORE THE

ECONOMIC CLUB OF DETROIT
VETERANS MEMORIAL BUILDING, CIVIC CENTER
DETROIT, MICHIGAN
DECEMBER 4, 1967

Contact: (202) DU 3-7544
Montanari

Department of State
WASHINGTON, D.C. 20523

It is a pleasure to be in Detroit and to be with the Economic Club. This
city has contributed a great deal to the economic and social development of the
United States. And this forum has a national reputation for attracting and
involving the leaders of Detroit. It is a privilege to appear before you.

I propose to talk to you today not about foreign aid in general, nor about
military assistance, but about that part of our foreign aid program which is
designed to promote economic and social development in the emerging nations.
And let me make no bones about it: I want to enlist your active support for this
part of our program. Foreign aid today badly needs domestic help.

I

Twenty years ago, the then senior Senator from Michigan, Arthur Vandenberg, led the bipartisan effort for adoption of the Marshall Plan.

Senator Vandenberg said it was in "the clear self-interest of the United States" to help in the rebuilding of Europe.

The Marshall Plan put economic starch into our commitment to
European security. It represented, in effect, a peace-time extension of our
war-time alliance. Everyone will agree, I am sure, that it was both very much
in our interest and highly successful.

Today, the Old World no longer needs our aid. But as President
Eisenhower put it in 1957, "new forces and new nations stir and strive across
the earth, with power to bring ... great good or great evil to the free world..."

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These nations do need our aid. President Eisenhower declared in this same speech that "one-third of all mankind" was in need of "at least a spark of hope, the hope of progress." That is still true.

Today, there is a real possibility that this hope for progress will not be realized. The Decade of Development is in danger of becoming the Decade of Disappointment.

The Congress has not yet passed a foreign aid appropriation bill for the fiscal year which began last July 1. It will probably do so within the next week or ten days. When it does, there is every likelihood that it will be the smallest aid bill ever. In the opinion of the President, in the opinion of the Secretary of State and in my own opinion it will be too small to serve our interests adequately. For example:

- We will have to reduce sharply our programs in India, in Pakistan and in Africa.

- We will not be able to carry out our part of the plans made last spring at the Punta del Este Conference to increase efforts in agriculture, education and health under the Alliance for Progress.

- We will have to short-change our security-oriented and military aid programs in East Asia and elsewhere.

This decline in the fortunes of foreign aid is not a phenomenon which

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has come upon us over night. President George Woods of the World Bank
has repeatedly stated that the needs of the developing world for outside
assistance are not being met. Yet, while our gross national product has
increased nearly 150 per cent over the past 15 years, the share of our gross
national product which we are devoting to foreign aid has shrunk by roughly
50 per cent. In short, as we have been able to afford more, we have done
less.

There is a tendency to blame the difficulties of foreign aid on the
Congress. Or, if one looks beyond the Congress, to blame them on Vietnam,
summer violence in our cities, the budget deficit, the tax bill or our balance
of payments situation.

These are easy explanations, but I think the real explanation lies
elsewhere. In my view, it lies with the American people. Too few Americans
understand the purposes of the foreign aid program and how it serves their
interests. Too many are asking: what has this got to do with us? How does
this help the United States? Why should we have foreign aid?

Misinformation about foreign aid may be partly responsible for this
confusion and uncertainty. Some misinformation about a program as varied
and as complex as this is inevitable. But I feel that our primary problem
arises from a lack of understanding of two very simple and very basic
propositions. First, development aid does work. Second, it is not a wooly-

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headed give-away. It is a program which definitely and concretely serves
our interests.

It is these two propositions which I want to talk about today.

II

First, however, let me say a few words as to why the developing nations
need help.

The development of our own country took many years. It was supported by considerable outside capital and investment. It was our good fortune that England, Germany, the Netherlands and other European powers invested heavily in this country.

Loans were made first to state and local governments; later, increasingly, to private industry. Shortly after 1800, we had foreign obligations of $75 million. By 1843 the total was $225 million. At the start of this century, it was $3.3 billion.

British capital helped develop our railroads. The Erie and Ohio
Canals were both financed in considerable part with European money.

Until the turn of the present century our development proceeded at a relatively slow pace. We had time to develop slowly. Nothing in the world moved as fast then as it does today. The world was larger, less inter-dependent; the expectations of both men and nations were more modest; and

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they were more patient about realizing them. The United States could afford
to wait for its foreign exchange earnings to increase to the point where they
could finance loans from abroad. We were under no pressure to move faster.

None of this is true of today's world. The emerging nations of the
20th century are under pressure to grow at a much faster rate than that at
which we grew in the 18th and 19th centuries.

One source of this new pressure is internal. It comes from surging
birth rates. When Europe and this country were developing we desperately
needed people to operate new industries and to expand markets for agriculture
and manufacturing. Population growth stimulated progress. Today, in the
backward countries, high birth rates hobble development. In many, agricul-
ture is inadequate to feed their people. And there is not enough industry to
employ them. Scarce resources must be used for food aid and to modernize
agriculture.

In the United States and Europe, development preceded population
growth. In today's developing world, the sequence has been reversed. This
change in timing is an unlucky fact of history. The modern world has no
choice but to cope with it.

Demand for progress in the new nations also arises from outside factors.
The people of the less developed nations now know what goes on in the developed

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world. Communities which have stood still for centuries are determined to change. Backward, pastoral ways are no longer tolerated. More and more of the governments of the new nations feel this pressure. More and more of them are responding with development programs.

In sum, the developing world is no longer content with inadequate diets, illiteracy, disease and lack of opportunity. They want to change, and they want and need to change fast.

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III

Now for the first of my two propositions - namely, that development aid
can and does work.

What is development aid? It consists primarily of two things: development loans and technical assistance. Development loans are dollar loans made on concessionary terms to nations with inadequate foreign exchange resources. They are made for specific purposes: to cover the costs of specific projects, or to cover the imports of specific commodities and raw materials. They must be spent in the United States. Indeed better than 88 per cent of all foreign aid funds spent by the Agency for International Development are spent in the United States for U.S. goods, products and services.

Technical assistance is the present day equivalent of President Truman's Point IV program. Its purpose is to help the developing nations acquire the trained manpower and institutions they need to develop their economies, achieve necessary social reforms and build viable social and political institutions. We rely heavily upon American universities, cooperatives, savings and loan institutions and labor unions and on other private concerns to carry out these technical assistance programs.

Last week we celebrated the end of our program of economic aid to Iran.
From now on, Iran will look to its own resources - and to conventional lending
sources - to finance its further growth.

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There is a temptation to explain this success with one word - oil. And it is true that Iran is lucky in its geology. Oil revenues have been essential to Iran's progress. But the important thing has been the use Iran had made of its oil revenue. Three-fourths of it has been applied to development - much of it to the land reform which the Shah calls the "white revolution" to distinguish it from "red" revolutions in other countries. Between 1952 and 1966, nearly $3 billion in Iranian funds went into development - about five times the total of United States economic aid.

But money by itself - no matter where it comes from - will not alone do the job of development. Development involves painful choices - sacrifices. It takes courage and toughness to exact them - leaders with a sure sense of direction, with the will and political strength to make development policies stick. It also takes people who are willing to respond to such leadership. All of these Iran has had. The Shah and his people have proven their commitment to the task of development.

Iran is agricultural. Nearly four-fifths of its people are rural. Farming accounts for almost one-third of the gross national product. The country's effort has focused on agriculture. Nearly one-quarter of the funds spent under the current development plan have been used to bring additional land into production; to assist farmers in buying fertilizer, pesticides and equipment; and for irrigation, electrification and community development.

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Most important, land that used to be closely held is now widely dis-
tributed. A new class of small farm-owners has emerged. Their interest
in the land is a vital incentive. As would be expected, their output has jumped:
rice, sugar, tea and cotton crops have all doubled in the past ten years. At
the same time their purchasing power has gone up. The "white revolution" has
given 14 million Iranians a direct stake in agricultural progress and thereby
engaged them in the national effort to develop their nation.

Industry has also grown. Production is up 88 per cent over 1956 -
exports by more than a third. The gross national product has increased by
$1.8 billion since 1962.

Development has worked in Iran because of Iran's own efforts. We
helped - yes - by supporting the government and its programs when help was
needed most. Since 1952 our aid to Iran - part of it in loans and part of it in
grants - has totaled $605 million. Significantly, only $37 million of this -
roughly 6 per cent - was extended in the last five years. In short, Iran's
reliance on outside assistance has been decreasing steadily for a number of
years. Iran has now reached the end of economic aid - or the beginning of
self-sufficiency. Put it either way you like. To the United States and to other
developed nations, this also means that Iran now offers important opportunities
both for investment and for export trade.

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Iran is not the only country where we have concluded development aid.
Taiwan and Greece are two more. And steady, substantial progress is being
made in a number of other countries where the necessary will and resources
are at work.

In Korea in the late 1950's and early '60's, aid did little more than
keep the Korean economy barely afloat. A raging inflation, shortsighted
fiscal, monetary and economic policies and ineffective leadership all but
dissipated our help.

Then, in the early 1960's a new government with pride and a sense of
nationhood set out to stabilize the Korean economy. Tight ceilings limited
credit, government deficits, the use of foreign exchange, and the incurring
of foreign commercial debt. United States aid was conditioned on the per-
formance of these and other stabilization and reform measures.

It worked. Inflation abated. Investment became attractive. Domestic
savings - vital to development - began to grow. Manufacturing flourished.
Exports jumped - from $20 to $30 million yearly in the 1950's to $250 million
last year. Today, American and other foreign investors are being attracted
to Korea. Korea is on its way. Internal leadership and drive, complemented by
outside assistance, are making a success of Korea's development program.

Many factors go to make up a successful development effort. Few, in
my view, are more significant than an active, growing, driving private sector.

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In some underdeveloped countries there has been ideological resistance to giving the private sector its head. In some, private enterprise is linked with colonialism or imperialism.

But in recent years, as the leaders of developing nations have had to face up to the tough problems of raising production and organizing regional and national economies, more and more of them have come to realize the importance of private initiative and private enterprise. Today, most of the nations high on the growth lists display vigorous and growing private sectors.

On Taiwan, remarkable growth has directly paralleled the change in the economy from one mainly controlled by government, to one that consists mostly of private enterprise. In India, in the past, there was considerable doctrinaire hostility to private enterprise. Today, an industry key to Indian progress - fertilizer production - has been opened up to private enterprise. In Colombia, Korea, Mexico, Pakistan, Thailand and other countries where economies are moving ahead, much of the push comes from the private sector.

We are convinced that no country can develop except through its own efforts - through what we call self-help. The question thus arises of what we can do to induce or persuade a country to take the self-help measures that will move it along the path of progress. We use our influence to promote sound development policies and the sensible use of a country's own resources. In fact, however, only one-sixth of all investment in the developing countries comes from the outside. The rest is self-financed.

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Our contribution to any one country's development effort is relatively small, and thus our influence - or leverage - is limited. Nevertheless, we can and do link development aid with specific economic policies, administrative measures and social reforms.

This process works. Indeed, it often works because the very self-help measures we are supporting need outside financial support if they are to succeed.

For example, in Pakistan several years ago, shortages of foreign exchange meant that industrial raw materials were chronically scarce. As a result, manufacturing plants were under-used, production was low, prices high. In 1964, after much encouragement from us, the Pakistan Government lifted import controls. They did this with our assurance that we would provide a large part of our assistance in the form of scarce industrial commodities and raw materials. Thus, supplies of key materials would increase without draining away precious foreign exchange. The controls went off, supplies increased, production went up and prices went down.

Pakistan market forces and free enterprise got more play. Outside aid both encouraged and made possible the specific policy reform we had been urging.

The developing world does not consist exclusively of Pakistans and Koreas. Not all the new nations have the trained manpower and institutions to make good use of development aid. Not all can mobilize enough capital of their own to carry out a development program. Not all have the political strength

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to insist on unpopular self-help measures. And not all are sophisticated enough
to handle relations with aid donors who make policy reforms a condition of aid.

This shortage of qualified candidates for development explains why our
development aid is concentrated in only a few countries. In the current fiscal
year, about four-fifths of A.I.D.'s development loans will go to just seven
countries: Brazil, Chile, Colombia, India, Korea, Pakistan, and Turkey.

We do, as you know, have aid programs in many more countries than these.
Some of them, such as our programs in Vietnam, the Dominican Republic, and
the Congo, are security oriented. They have their roots in political considerations.
Others are in countries which have not yet progressed enough to support a broad
development program. In these countries our programs are modest in size.
They consist primarily of technical assistance, chiefly in the fields of agriculture,
education and health. Here, our interest is in training individuals, creating
institutions and building infrastructure against the day when these new nations can
undertake more ambitious development programs.

But almost all of the dozen or so countries which have been receiving
large amounts of development assistance over the past several years have made
appreciable progress. Their growth rates are high. Their ability to sustain these
rates is substantial and improving. About half the group have considerably
reduced their dependence on outside assistance. A few, as I have mentioned, have
dispensed with concessional aid altogether.

All in all, this is an impressive record of performance. Development
aid can work. It is working now in many parts of this restless world.

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IV

Now for my second proposition: That it is in our national interest to carry on a foreign aid program aimed at development.

Our interests in the world, as well as the objectives of our aid program, have changed greatly since the days of the Marshall Plan - and also since the early days of the Cold War when our aid program was preponderantly security-oriented and extended military assistance. Many people fail to recognize these differences. They judge the new by the standards of the old. As a result, they often expect the wrong things from today's aid program and are dissatisfied when their expectations are not realized.

The earlier programs which helped to re-build Europe - and which built up the defenses of Greece, Turkey, Taiwan and Korea - had deep fears behind them. Fear for the future of the Western Alliance, fear of Communist aggression, fear that the cold war would go against us. The Western Alliance was designed to contain the causes of our fear. The aid programs which supported that Alliance clearly served the national interest. The connection between our assistance program and our interests abroad was crystal clear.

Today, many of the fears of the early Cold War have waned, and the tie between our foreign aid and our foreign policy is more complex.

There is a second key difference between foreign aid 20 years ago and today. It is in our relations with the nations which receive our assistance.

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In the aftermath of the war, much of our aid program was an extension of wartime relations with intimate allies. Aid went largely to old friends - to nations with whom Americans felt strong common bonds. In 1948, when Senator Vandenberg introduced the European Recovery Program in the Senate, he pointed out that Europe was "the stock which has largely made America." As he put it, the Marshall Plan was essential because "western civilization" depended on European independence.

Today, outside Latin America, the nations receiving development aid from the United States are not, by and large, this country's old friends. They are our new neighbors. Many are new to nationhood. They have emerged from the wave of decolonization which, since the war, has more than doubled the number of sovereign states. In the past, most of their people had little to do with the United States. Our present relations with them lack the historical ties and political and military intimacy that supported the Western Alliance after the war. In short, where fear for our security helped to motivate aid we are now less afraid. Where we gave aid to old friends, we now help new nations. Where aid supported key alliances, it is now extended outside the old defense framework.

These differences are grounded in changes in the world - and in changes in our interests in the world. The focus of United States foreign policy has widened since the years immediately following World War II. The challenges to that policy have also changed. But today's challenges are no less real, no

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less compelling than the challenge of fifteen and twenty years ago.

The dominant interest of the nations of more than half the free world
has switched in recent years - from traditional political goals to development.
National progress now overshadows all other goals in the less developed
world. This drive for national progress has become a paramount fact of world
affairs. Nothing is more characteristic of the world today - nothing will do
more to shape the world tomorrow - than the determination of the new
nations to realize goals which are still far beyond their reach.

How can a strong program to assist development serve our national
interests in today's world?

First, let me say that Americans should disabuse themselves of the
notion that the purpose of such a program is to win friends, earn gratitude
or gain votes in the United Nations. Development aid is a poor tool for the
attainment of any of these goals. Development aid serves our foreign policy
in ways which go far beyond these.

The critical fact for our relations with the developing nations is that
their new goals are beyond their reach. They cannot attain them alone.
They need help, and they look to us and other developed nations to provide it.

To conduct meaningful relations with the backward half of the world,
the United States must recognize the urgency of its need for progress. As

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a major power, we have the strength to force our way on issues that concern us. But political relations involve more than the threat of force; our own sensibilities tend to curb the use of force. So long as national progress is the overwhelming concern of the new nations, we must work with them to achieve their goals. Our aid programs offer a way to meet both our national interests in the world and the aspirations of the developing nations.

Foreign aid is also right. As citizens of the richest and most powerful nation on earth, it would be wrong for us to shrug our shoulders at the conditions in which the people of the developing countries now live.

Finally, development is necessary for the achievement of a stable peace. The underdeveloped nations are dependent and vulnerable; their weakness leads to instability in the world; their increased independence can help to keep the peace. Aid for development will not guarantee stability or peace. But when we neglect development, we invite instability and collisions between nations.

In neglecting development, we also encourage unrest, racism and hostility within the new nations. The target, inevitably, is the developed half of the world. When we neglect development, we jeopardize the possibility of peace.

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V

To conclude: in half the world, there is tremendous and unprecedented pressure for development. There has never been anything like it. We do not have pat solutions to all the problems this pressure raises. Indeed, the main response must come from the emerging nations themselves. But we can play an important role, and we have already done so. We have made key contributions to development success in some countries, and we have promising work underway in many others. Development aid does work.

Development aid does not meet all the foreign policy objectives of the United States. Indeed, day-to-day, our assistance efforts can raise problems -- while we are meeting problems that run from decade-to-decade.

But for the rest of this century, the phenomena of development will be a large part of the raw material of American foreign relations. This is certain. We must accept it. It means that foreign aid for development will be integral to our foreign policy, and essential to our interests.

Twenty years ago, when the United States ended the war, we did not enter the world in order to police it or to expand our influence, or even to play Santa Claus and give away our share. The new compactness of the world put us in the world and has kept us in it. There is no getting out. Our size and wealth endow us with a large role on this planet. We cannot hide from our own dimensions and power.

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These, it seems to me, are facts of life - just as the drive for development is a fact of life. Are we now to ignore these facts, turn our backs on the world and tell other nations to solve their problems without our help?

Could we do this even if we wished? Do we care about international stability, about peace, about the kind of world we will leave to our children?

These questions answer themselves. The choice is clear. It lies between investing in international stability and surrendering to the frustrations of living in a difficult and imperfect world.

I urge you to make your choice and - having made it - see that your counsel is heard.

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