SEP 23 1968

Columbia University in the City of New York

RUSSIAN INSTITUTE

MCVICKAR

622 WEST 113TH STREET

Date 9/20/68

To Professor Kissenger

Attached is a copy of the revised
draft of Professor Shulman's
Brookings paper

Marshall D. Shulman

Revision: Sept. 1968

Brookings project:
"Agenda for the Nation"

RELATIONS WITH THE SOVIET UNION

It is not easy to know what is essential and what
is not in our complex relations with the Soviet Union, or to
know how to act wisely when our knowledge on many points is
uncertain, or how to respond with a sense of proportion and
a due regard for our long-term interests. To begin with, it
is difficult to know how to approach the problem most usefully
in order to see it steadily and whole.

Perhaps one productive starting point for some
fresh thinking is to clarify the dual nature of the relation-
ship between the United States and the Soviet Union. That
this is not well enough understood is evident from the extreme
shifts of mood to which we have been subject in recent months,
and indeed from the many cycles of optimism and angry pessimism
which have possessed us in recent years as one side of the
relationship or the other has been in the forefront of our
attention.

The dual character of the relationship reflects
the fact that both conflicting and interdependent interests
are involved. Some difficulties stem from not knowing how to
define each set of interests, or in not being able to keep
both of them in mind at the same time.

-2-

Is the conflict essentially between two ideologies, two political systems, two military machines, two giant nation-states? Is it absolute, in the sense that the conflict can end only in the elimination of one or the other, as a state or as a system? As for the interdependency, does it imply a collaboration between the two giant states to maintain their dominant positions against all others, an acceptance of respective spheres of influence, a movement toward convergence?

I will venture a short answer to these questions now at the outset in order to make my own approach to the problem explicit.

Fundamentally, the conflict is best understood as a competition between the two pre-eminent Great Powers for relative military power and for political influence. This national rivalry is enormously complicated by differences in ideology and in the historical experiences of the two countries, but these two factors are not primary causes of the conflict. The principal importance of the Communist ideology today is that it deeply affects the Soviet perception of the world, and provides the dynamism for a party bureaucracy. This is a transitional factor which has been changing slowly over time.

The interdependent side of the relationship mainly reflects a common interest in avoiding nuclear war between the two states. Although this does not, at the present stage, imply common political interests or make military power irrelevant, it does impose some constraints on the conflict

side of the relationship, which can therefore best be described
as a _limited adversary relationship_. Both adjectives are
significant, and both must be part of any true perception of
our security interests.

In seeking to understand the balance between the
competitive and the collaborative aspects of the relationship
at any one time, it is not sufficient to deal with the two
states simply as unified entities. The beginning of wisdom
in the study of international affairs lies in understanding
foreign policies as resultants of divers pressures and
interests operating within each country. We know little enough
about how this works within our own society and less in the
case of the Soviet Union, but we have become aware of the
great importance of bureaucratic, party and professional
interest groups involved in the Soviet decision-making process.
Those involved in heavy industry, in military affairs, agri-
culture, technology and higher education, for example, all are
strongly represented in the upper levels of political power,
and have been articulate and forceful in representing their
respective interests. The balance between these interest groups
may change greatly from one issue to another, and indeed the
predisposition of any individual political leader may not be
a constant factor as he weighs conflicting considerations
and seeks to accomodate contradictory pressures, so that it
might be misleading to assume a simple and fixed identification
of factions within the Soviet leadership. It is useful, however,
to keep in mind the interplay of forces within the Soviet

-4-

system, and to be conscious, for example, of the role of those
who have a bureaucratic self-interest in dogmatic orthodoxy
and in the military rivalry, in pressing for higher levels of
competitive conflict.

This awareness prepares the way for one further
step in defining our approach to the problem. One productive
way of looking at the relationship between these two countries
is in terms of the constellation of forces and interests
within each system. The interplay of these forces on each
side is affected by the balance of forces on the other, with
the result that a reciprocal process of stimulation is sometimes
set in motion. For example, the claim of the professional
military groups for a share of the national budget is clearly
affected by the actions of similar groups on the other side,
and the guardians of dogma on one side provide fuel for the
watch-fires of the dogmatists on the other. The point here
is that an awareness of the interplay of forces bearing upon
the Soviet leadership can make us more sensitive to the way
our own actions influence the decision-making process on the
other side, and how the spiral of interaction between the two
countries works, whether upward or downward.

II

That spiral of interaction has worked again and
again over the years and helps to explain how we arrived at
our present situation. A definitive history of the Cold War
remains to be written, although a considerable body of

-5-

literature has appeared representing widely varying judgments
about its origins and subsequent course. To attempt to
resolve these issues here would require a separate volume,
but it is relevant to observe how often the history of this
relationship illustrates what Charles Yost has called "the
law of disproportionate response to miscalculated challenges."
In particular, it is useful preparation for our later
discussion of policy questions to observe how the policy of
containment went through major transformations as a result
of the process of interaction over the last twenty years.

While some level of conflict was probably inevitable
as the war-time alliance dissolved and the post-war adjustment
to new power relationships began, it is evident in retrospect
that the conflict was made more intractable than it needed to
have been by actions on both sides. This is not to exculpate
Stalinist Russia from responsibility for a brutal and callous
exercise of power, but to acknowledge some measure of respon-
sibility on the part of the United States for this exacerbation,
perhaps largely because of the inexperience of the American
people in international politics. Our war-time assumption that
a common alliance with the Soviet Union against Nazi Germany
meant a common acceptance of political goals, our failure to
anticipate the territorial questions which were inevitably
to arise in the aftermath of the war, and our rapid demobilization
and withdrawal from Europe, all these made us vulnerable to a
shock reaction when the Soviet Union asserted its claims to
Eastern and parts of Central Europe.

-6-

This claim by the Soviet Union came to be understood in the United States as a reflection of a policy of unlimited revolutionary expansionism. History does not yet make it clear whether this was an accurate perception, or whether Soviet intentions at that point were limited to the flow of power into territories to which Russian national ambitions had long aspired. The reaction of the United States, in any case, was expressed in the policy of containment. In its early form, the notion of containment rested upon the assumptions that the repair of the vacuum of power in Europe was a necessary precondition for a negotiated settlement, and that a check to the perceived Communist threat to Western Europe and the Eastern Mediterranean would buy time, during which the Soviet system and policies were expected to be modified substantially. On the whole, this seems to have been a reasonable response to the confrontation, once it had reached that stage, and it included constructive and generous assistance in the reconstruction of Western Europe, but in the course of the following years the guiding conception of containment evolved in several fundamental respects.

First, from an essentially territorial conception, containment tended to become an ideological crusade. Responding to the rhetoric of Soviet ideologues, perceiving Soviet expansion as revolutionary and unlimited in intent, deeply concerned about the risks of subversion, the United States blurred the issue between the actions of the Soviet state and the threat of "international communism." Partly as a result of a period of heightened inner tensions in American society, anti-communism became a central dogma of American purpose abroad.

-7-

Second, the military side of containment became more and more predominant. Political considerations were submerged in the overwhelming preoccupation with military force as the main instrumentality of policy. The high force goals for NATO, the rearmament of Germany, the steep ascent of United States military appropriations, all reflected the assumption that the primary problem was the danger of military attack, or at least that the threat of military attack was the major obstacle to political stability in the world, and especially in Western Europe. Although these measures were taken in response to a large and worrisome Soviet military cabability and uncertainty regarding Soviet intentions, in retrospect questions have been raised whether the response, because of its disproportion, weakened the political side of the alliance and unnecessarily stimulated further military response by the Soviet Union.

And third, the policy of containment was extended from Europe to Asia, particularly after the Korean War, and resulted in a network of military alliances against China as well as the Soviet Union. From an original effort to balance the Soviet ground forces in Europe, the doctrine was broadened geographically and blurred politically; in the name of preserving international order against what was seen as a Moscow-directed internationally-coordinated expansionist drive, the United States became involved in many former colonial areas in ways that were insensitive to local needs and unreflective of American political values.

As a consequence of these trends, the United States effort to contain communism, while it succeeded in removing

-8-

any temptation to Soviet military expansion, acquired a momentum of its own, which has served to obscure the American purpose. By and large, the United States continued from the end of the war to maintain a comfortable margin of superiority in strategic weapons and by virtue of its tendency toward over-reaction (the "bomber gap," the "missile gap"), it became the pace-setter in the strategic arms race. To many in the world, the United States increasingly appeared to be an imperialist power, not because it sought to establish an American hegemony, but because of its over-reliance on military force to contain a threat of communism.

Not that the communist threat was imaginary, but it was different in scale and nature from those reliable stereotypes which never failed to produce legislative appropriations. (What cause has been so successful in loosening the public purse-strings as anti-communism?) Perhaps it is inevitable in a democratic society that gross simplifications become necessary to galvanize a costly effort, but these simplifications tend to take on a life of their own.

It therefore becomes a necessary part of our task now to adjust our prevailing conceptions of the Soviet Union and the communist movement to the present reality. But before going on now to grapple with this central question of how to characterize Soviet policy as it is today, it is necessary to take into account a number of important factors of change in the international environment, which deeply affect the terms on which the two countries meet.

-9-

III

We find ourselves in a period in which many familiar
notions about international politics evoke a feeling of stale-
ness and irrelevance. The sense of some inchoate movement
toward new crystallizing ideas whose outlines are still unclear
is evident within societies as well as between them. The
political and social consequences of changes in technology --
weapons, communications, industrialization, and so on -- are
profoundly altering the context of Soviet-American relations.

What does national power mean today? In one sense,
the power of the United States and the Soviet Union is
pre-eminent among nations in terms of an unprecedented capacity
for destruction, including the power to destroy each other.
But by their qualitative increase in destructiveness, the new
weapons have introduced a discontinuity between force and
politics. They are so clearly disproportionate to situations
of less than truly vital significance that a separation has
become established between a plane of bi-polar strategic power
and a plane of multi-polar political action.

For the two super-powers, the principal consequence
of the new strategic weapons is that their continued existence
now depends upon each other's rationality. The balance of
mutual deterrence takes some getting used to, but we have been
learning to live with it. Experience has taught both the
United States and the Soviet Union a considerable measure of
sobriety, and in practice there have developed significant

-10-

tacit restraints which have introduced some degree of stability in their military competition, although the quest for superiority and new technological innovations constantly threaten to undermine that stability.

But the effect of this even tenuous stability at the level of strategic weapons has been to allow lower forms of violence to flourish with less constraint, and to release political forces whose manifestations we are witnessing in the ascendancy of nationalism, the fragmentation and blurring of alliances, and the decline of grand structural designs. Among the ambiguities of the various forms and levels of power, from uranium to geranium, it is increasingly difficult to apply any traditional balance of power conception as a regulating principle in international relations. The power of the United States and the Soviet Union to control these surging political forces is limited. Therefore, while their bilateral relations tend to remain preoccupied with the central question of the possibility of war, other aspects of their relationship depend increasingly upon how effectively each one can relate its interests to the political forces at work in the world.

The drift of European politics illustrates how profoundly domestic forces have become the principal source of political dynamism in the present period, and how relatively impervious to the influence of the major powers these forces are. Once the active theatre of the Cold War, and still the home of the most decisive territorial and political issue of

-11-

of that contest. -- Germany -- Europe teases the political prophets. The resurgence of various forms of nationalism in Europe, and the rejection of traditional values by a young generation in search of new values and goals, make industrial Europe, notwithstanding its surface of prosperous stability, an uncertain factor in the Soviet-American rivalry. Whether Europe will emerge as a new world power, and if so, with what inclination; whether new coalitions will emerge in the major West European countries, and if so, with what complexion; whether time will weave many strands of association between East and West Europe, interlacing a _de facto_ settlement of the war's unfinished business -- these are among the questions that shape the present form of competition between the Soviet Union and the United States in this still crucial industrial area.

It is also true among the less developed countries that domestic sources of change have increasingly narrowed the range of external influences in determining their role in international politics. In turn, the domestic preoccupations of the major powers have limited the resources which they are willing to make available to the modernization of the developing areas, and therefore has decelerated the pace of economic competition in these areas, with certain exceptions. However, innumerable potential sources of conflict abound in the former colonial areas, and the possibility of sparks igniting wherever the world interests of the two super-powers intersect in this fluid and explosive environment remains a major condition in the background of international politics.

-12-

The future course of Chinese developments will obviously be a significant factor influencing the ability of the United States and the Soviet Union to control their degree of involvement in these conflicts, as well as many other aspects of their relationship. Since this is the subject of another chapter, we will do no more than remind ourselves at this point that among the conditions in the international political environment which will affect the course of United States-Soviet relations, none may be more fateful nor more difficult to forecast than the future development of Chinese politics and power.

## IV

We come now to the question of how best to describe the main characteristics of Soviet policy in the present period, and to identify the essential problems in United States-Soviet relations.

In general terms, the Soviet leadership since Khrushchev has been cautious, pragmatic and heavily preoccupied with domestic and bloc problems; it has sought neither a major confrontation nor an all-out détente with the United States; it endeavors to take advantage of opportunities presented wherever there has been a decline of American influence and a widening of divisions within the Western alliance; it has been making a steady effort to improve the economic and military underpinning of Soviet national power; and its decisions appear to have been made by a collective leadership, responding in varying degrees to articulate pressures from

-13-

military and ideological interests within the party.

Deliberately eschewing the flair of the Khrushchev
style, with its swings from sharp challenge to spirit of
détente, the Soviet leadership moves ponderously in the
middle ground, experimenting cautiously, compromising
conflicting pressures. Its style of decision-making is a new
and important factor to take into account.

One other general point: through all its ups
and downs, Soviet policy has reflected a long-term trend
toward a further postponement of revolutionary action, in
favor of more traditional efforts to influence existing
governments in a direction favorable to Soviet state interests.
In so doing, it has shown a realistic responsiveness to the
fact that neither the advanced industrial nations nor the
less developed countries have shown much readiness for
communist-type revolutions. Therefore, although the ideological
goal of progress toward the ultimate world-wide victory of
communism remains a part of every hortatory speech or document,
it has in practice continued to recede as an operational
guide to policy. This fact has of course been a major element
in the Sino-Soviet dispute. Moreover, Soviet theorists have
not yet come to grips with the assumption underlying this
ideological goal that victorious communisms would automatically
coexist harmoniously.

To go now from the general to the specific, let us
begin with the military side of recent Soviet policy, which
has been uppermost in our public attention. This aspect of

-14-

Soviet policy has been more subject to tugs and hauls than
any other, with the domestic economic reforms running a close
second. As in the United States, the debate goes on at
several planes: at one level, between the civilians and
the professional military groups as a whole; at another,
within the military group, between the different services and
generations. And also as in the case of the United States,
the result often appears to be something of a "politician's
compromise."

Under Khrushchev the Soviet Union fundamentally
accepted the conception of nuclear deterrence, but it sought
inflated political advantage from its early tests of an
intercontinental missile, puffing up a myth about a "shift
in the balance of power." The consequences were the "missile
gap" issue in the 1960 American election campaign, and the
high first military budget of the Kennedy Administration in
1961, over-reacting to the uncertainty of what the Russians
were actually up to. The result was that the Soviet Union
was left farther behind in the strategic race than ever.
Then, sometime within the following few years, the Khrushchev
leadership made the decision to increase its rate of production
of intercontinental missiles, and to proceed to develop and
install some kind of an anti-ballistic missile system. These
decisions were continued in force by Khrushchev's successors,
who also supported a high level of military research and
development expenditure, approximately equal to that of the
United States. At the same time, the leadership reversed
earlier decisions which had the effect of reducing Soviet
conventional "theatre" forces, and gave greater attention to

-15-

the mobility and firepower of these forces, following the
demonstrated increase in United States local combat
capabilities since the war in Vietnam picked up. The Soviet
military budget has risen steadily since 1965, but the
political leadership has fought back pressures for a more
drastic increase in military allocations in an effort to
arrest a declining growth rate for the economy as a whole --
an effort which has since proved successful.

The decision to go ahead with an anti-ballistic
missile system particularly bore the marks of a compromise of
a hotly-contested issue. It was a partial concession to
pressure from one segment of the military community, it
corresponded to a folk-wisdom feeling about the defense of
Moscow, and it may have had some rationale based on defense
against possible attack from China or other third powers,
but in time the decision appears to have been weakened by a
growing realization of its ineffectiveness and its stimulating
effect upon the United States response.

However, as the additional numbers of intercontinental
missiles planned earlier began to make their appearance, as well
as such products of research and development as an orbital
missile, the question has been raised in the United States
whether the intention of the Soviet leadership is simply to
try to catch up, or whether it intends to try to achieve a
decisive superiority in strategic weapons, and to use this
superiority to make political gains.

This question is at the heart of the issue now being
debated as to what level of military strength is required for

-16-

the United States. According to numbers in the public domain at the present writing, the Soviet Union has almost doubled the number of intercontinental missiles it had a year ago, and now has approximately one thousand such missiles in place. This compares with about 1,700 for the United States, but of course numbers do not tell the whole story. This does not take into account important qualitative characteristics of the various weapons systems, which favor the United States more than the numbers alone would indicate. But the question remains about the intent behind the rapid Soviet rate of increase: does it reflect an aggressive intent, or is it simply an effort to catch up? And if the Soviet rate of increase continues, at what point would it begin to make a difference, either military or political?

The military side of this equation is dealt with in another essay in this volume; in sum, the important point is that a decisive military superiority -- that is, one which would enable either country to destroy the effective retaliatory capability of the other -- would seem to be a practical impossibility for either side, and especially for the Soviet Union, with its smaller economic and technological base. But this still leaves the political question: would the psychological effect of some measure of superiority be such that the Soviet leadership might be tempted to follow a more adventurous policy, or to accept higher risks in a crisis confrontation? Of course no one can answer this question with certainty, because it depends not upon hard numbers but on very subjective calculations in particular circumstances.

-17

But we do have to make the best educated guess we
can about this, because there are some serious risks in
either gross over- or under-estimation, although the margins
of time or of numbers are not fine. Any such guess is
necessarily dependent upon our impressions of the present
balance of pressures within the Soviet leadership, and the
possibility of changes in that balance. On the whole, the
present leadership has shown caution about the risk of war
and a deep concern about the effects upon the Soviet economy
of the further diversion of resources to military expenditures.
Before the Czechoslovakian episode began, the Soviet leadership
had fought out the issue of whether or not to enter into
discussions with the United States on a possible levelling
off of the strategic arms race, and agreement was reached at
least to enter into such discussions. Although the militant
and the military influences are clearly strongly represented,
they have not had their way except in the intra-bloc question
of Czechoslovakia, and it is not clear as of this writing
whether the effect of this exception will be to re-enforce
or to weaken these influences. While there can be no guarantee
against the possibility of a less moderate leadership in the
future, this prospect may depend at least in part upon whether
the actions of the United States appear either so irresolute
on the one hand or so bellicose on the other that the case
for Soviet militancy is made more plausible than it now is.

It should be mentioned that a complete account of
Soviet military policy would also have to take into consideration

-18-

[L]

a number of other important facets of the subject, including the military potential of Soviet space activities, the expansion of Soviet submarine and other naval forces, and the competence, mobility and firepower of the Soviet ground forces and their Warsaw Pact complements, as demonstrated in the occupation of Czechoslovakia. Space does not permit us here to go beyond the central question of the level of Soviet strategic capabilities, with one exception -- the political-military matter of "Wars of National Liberation," which will be discussed in the context of Soviet policies toward the developing areas. Let us turn now from military matters to some broad political aspects of current Soviet policy.

It would be a mistake to characterize recent Soviet relations with the United States with the word "détente," as so many of our European friends tend to do. While avoiding extremes of tension or détente with the United States, the Soviet Union has been energetically engaged in trying to gain advantages from the decline of American influence, especially in Europe and the Middle East. Direct bilateral relations with the United States have remained correct but not warm. Certain limited measures of cooperation with the United States (the Moscow-New York air link, the treaties on non-proliferation, consular representation, etc.) have served as regulators of the level of tension, but have been handled with reserve for a number of reasons. Too intimate a relationship with the United States would limit the opportunities for exploiting the "anti-imperialist" theme in various parts of the world; it would also leave the Soviet Union more vulnerable to Chinese charges

-19-

of collusion with the imperialists. Moreover, the Soviet perception of United States policy in Vietnam and elsewhere has raised serious doubts about American intentions: seen from Moscow, United States policy is increasingly dominated by a "military-industrial complex;" it is pushing the arms race to higher levels; and, it is increasingly prone to intervene militarily to arrest adverse (and inevitable) political trends. Of course the charge of "imperialism" is exploited propagandistically, but it also has genuine roots, so far as observers can judge, in the estimate on which Soviet policy is based. "Peaceful coexistence" is still the accepted political strategy, but its current inflection allows for a fairly high level of political struggle against "American imperialism" and "American monopoly-capitalism."

In practice, this has meant an increasingly active diplomatic effort in Western Europe, with the following apparent objectives: to encourage the reduction of United States influence in Europe, to isolate the Federal Republic of Germany from other European countries and particularly from the United States, to prevent the erosion of the Soviet position in Eastern Europe and especially in the German Democratic Republic, and to encourage political movements and coalitions within the European countries more favorably oriented toward the Soviet Union. Although Soviet military power is in the background of this effort, it is not a major lever, except in Eastern Europe, and the major keynote is the absence of threat, a differentiated détente applied with varying degrees of warmth to all countries except West Germany. While

-20-

the movement of Soviet and Warsaw Pact forces into Czechoslovakia weakened the climate of reduced tension in Europe which the Soviet Union had previously sought to encourage, it also served to sharpen Soviet minatory pressures on the Federal Republic of Germany, whose eastern policy was feared as contributing to the erosion of the Soviet position in Eastern Europe.

However, the main instrumentalities of Soviet policy toward Europe have been trade, technological cooperation and cultural relations. The political slogan of opposition to "capitalist monoplies" is primarily aimed at limiting the influence of American-based international corporations and the appeal of West German technology and credits in Eastern Europe. It may be worth reiterating at this point that the purpose of this effort is not the communization of Western Europe in any foreseeable future; it is mainly intended to devitalize NATO and to move industrial Europe further from the United States and thereby enhance the relative power position of the Soviet Union. Within this general purpose, the central issue is Germany. The Soviet Union has from time to time kept alive the possibility of encouraging neutralist trends in West Germany, but its main reliance has been on an unrelenting effort to isolate the Federal Republic by hammering away at the themes of "revanchism," "militarism," and "the revival of fascism." This approach has been sharpened in the recent past, as we have seen in the period following the occupation of Czechoslovakia, in a defensive reflex against the more flexible policy of the governing coalition in Bonn toward Eastern Europe, which the

-21-

Soviet Union feared might be accelerating trends toward autonomy in that area, and might serve to isolate and undermine the Communist regime in East Germany.

Another device which Soviet policy had been experimenting with in recent years to express its conviction that Western Europe should not be regarded as a United States sphere of interest is the proposal for a "European Security Conference." The primary purpose of the proposal was to emphasize the slogan of "Europe for the Europeans," which would serve to weaken the influence of the United States in European affairs, but since it also implied an encouragement of closer relations between East and West Europe, and would thereby increase the freedom of maneuver of the Eastern European states, the Soviet Union has tended to drop this device when it began to be concerned about the erosion of its position in Eastern Europe.

For the United States, this Soviet policy toward Europe raises the question: how successful is it likely to be? And to the extent that it is, how much does it matter? To venture a tentative answer to the second question first: if one visualizes the worst outcome as a Europe in which the major countries were governed by Popular Fronts, moving toward neutralism or degrees of pro-Soviet orientation, and in which the democratic and moderate elements in West German political life were demoralized and rendered ineffective, the prospect would be a serious one by almost any reasonable starting premise for American policy. This is not because it would frustrate an American hegemony over Western Europe, which is

-22-

not the American purpose, but because some reasonable degree
of cooperation between a stable and prosperous industrial
Europe and the United States is necessary for any progress
toward an international order within which democratic values
can survive.

However, in response to the first question it seems
fair to say that if European politics should continue to
drift in that direction, it is more likely to be a consequence
of American incapacity than of Soviet manipulation. The
rigidities of Soviet doctrine and policy have repeatedly
frustrated its effort to increase its influence in Western
Europe, and have severely limited the capacity of West European
Communist Parties to translate their large electoral support
into political influence. The irrepressible Soviet urge to
demonstrate its primacy among the ruling Communist Parties
has prevented a less sectarian broad-front appeal to Europe's
middle classes, while the youthful radicals of Europe's New
Left find little relevance in the sterile doctrines reiterated
by Soviet ideologues. Out of the flux of European political
life a new dynamism may emerge, but if so it is more likely to
exert a gravitational influence upon the Communist world than
to find its inspiration in the Soviet experience.

Another area where recent Soviet policy has sought
to challenge American influence has been in the Middle East
and the Mediterranean, where the Arab-Israeli tension has opened
opportunities for Soviet exploitation, and where the risk of
direct involvement has seemed low or at least controllable.
The potentialities of a policy of denial of the Arab crescent

-23-

to the West have attracted Soviet attention since 1955, but of late the possibility of achieving a positive sphere of influence in this area has made the Soviet Union willing to accept higher risks and higher costs. The lure of positive strategic advantages is strong because of the natural resources and especially the geographical centrality of the Arab crescent. The increase in Soviet maritime activity over the past decade has also stimulated Soviet interest in the Mediterranean, and the reopening of the Suez Canal has been a subject of particular interest to the Soviet Union, so that it might have available a more direct sea-route to the Indian Ocean, where the recession of British power has opened new opportunities to a Soviet naval presence.

Balanced against these tempting prospects, the risks of encouraging the higher tension which led to the Arab-Israeli war of 1967, had to be measured against an uncertain response from the United States, which was deeply distracted by Vietnam. Moreover, it may have appeared to the Soviet Union that political gains could be achieved without actual hostilities. But once fighting did erupt, what became significant was the Soviet readiness to involve itself, however cautiously and ambiguously, with some personnel and with an increased naval presence in the Mediterranean; and afterwards, its willingness to expend very large quantities of military supplies to recoup its damaged influence.

Here too these decisions bore the marks of a vigorous internal debate between military and ideological "hawks" on the one hand and cautious elements of the leadership

-24-

on the other, in which the continuing interplay between these
pressures broke into an open skirmish. A central issue in
the debate was what the costs would be in terms of the United
States response, either locally or in terms of generalized
tension, and it is reasonable to suppose that this issue also
played a critical part in the discussions that preceded the
decision to move troops into Czechoslovakia.

The Middle East appears to be a special case, because
of the inability of the United States to resolve the Arab-Israeli
dilemma, and is not representative of Soviet policy toward the
developing areas generally, except in the sense that it illustrates
the basic strategy of seeking to draw nationalist leaders of the
developing countries into a loose coalition against the West. On
the whole, Soviet influence tends to favor collaboration with
nationalist leaders rather than encouraging active revolutionary
movements in the underdeveloped countries. The disastrous end of
another experiment with weapons diplomacy in Indonesia, where arms
supplied by the Soviet Union were used to kill hundreds of thousands
of local communists, was among a string of disappointments which
deflated the optimism with which the Soviet Union began to show an
active interest in the former colonial areas a little more than a
decade ago. These disappointments contributed to a general mood in
the Soviet Union which shows some of the same weary preoccupation
with domestic problems and disinclination to devote resources to the
developing areas that is to be found today in the United States.

Until the Chinese became absorbed in their internal
factional conflicts, their militant challenge to Soviet policies
in the developing areas evoked at least a greater verbal
revolutionary militancy on the part of the Soviet Union. It

-25-

was in this context that Khrushchev talked quite menacingly about support for "Wars of National Liberation" in 1960 and 1961. One effect of this talk was that the United States began a great increase in its local war capabilities during the early years of the Kennedy Administration, prompted by the feeling that the active fight against communist expansionism was going to have to be waged in distant parts of the developing world, and that "counter-insurgency" was the necessary answer to "Wars of National Liberation." What was not well understood in this country at that time was that Khrushchev's speeches mainly expressed a lurch to the Left in the Sino-Soviet polemic exchanges. After the removal of Khrushchev in 1964 and the intensification of the war in Vietnam, the Soviet leadership followed the American example by building up its local war capabilities. It reactivated its naval infantry (somewhat similar to the United States Marines), improved the mobility and firepower of its ground forces, and greatly enlarged its logistical capabilities with more long-range planes, transport ships, submarines and helicopters. The declared Soviet purpose is to prevent or offset any future United States interventions as in Vietnam, but the ambiguity of Soviet intentions arises out of its continued declarations of support for "Wars of National Liberation." What this means in practice is hard to say, for the open-ended definition leaves the Soviet Union free to decide just when military, political or economic involvement in any local conflict situation fits this formulation.

-26-

As a matter of definition, any forces opposed to Soviet interests become "counter-revolutionary," and those whom the Soviet Union wishes to support become "National Liberation Forces." Given the prospect discussed earlier that many local conflict situations are likely to explode in former colonial areas during the coming decade, it is probable that the United States and the Soviet Union will find their relationship continuously roiled by some degree of involvement in these conflicts. Although the United States may be in a cautious mood after Vietnam and the Soviet Union has tended to be careful about direct involvements in such conflicts, the fact that both countries now have greatly increased local capabilities may lower the threshold of involvement, for capabilities have a way of begetting intentions.

Soviet relations with Eastern Europe and China belong somewhere in the twilight zone between Soviet foreign and domestic policy, for bloc problems tend in practice to be the primary responsibility of the Party rather than of the Foreign Ministry. (In a less direct way, this is true of all major foreign policy decisions.) As a consequence, ideological considerations tend to have greater weight in relations with the Communist bloc than in other foreign policy matters.

Although conditions vary greatly from one country to another in Eastern Europe, and would require individual analysis in any more detailed account, it may be ventured as a general proposition that the Soviet Union is involved in a fundamental

- 17 -

In any case we can be reasonably sure that in the underdeveloped world,
as in our own cities, if the inevitably increasing demands for participa-
tion in the process of development as well as in its benefits are not or
cannot be met for significant numbers of people in a substantial range of
countries, the prospects for continued improvement in aspects of the
international environment that will matter to us most over the rest of
this century are slim indeed. The potential resources of the low income
countries are likely, to be sure, to remain too small as they are today
to permit even high levels of frustration and disaffection there to pose
direct challenges to the physical security of the United States. But
the prospect of the division of the low income world into a series of
mutually hostile closed societies, socially and politically pathological,
with sharply restricted human access and interchange is a nightmare we
should be willing in our own interest to devote substantial effort and
resources to avoid, whether or not it touches our consciences as members
of the world community. Recent trends have fortunately not been in this
direction. We have been moving in the last decade away from and not toward
the world described by George Orwell in 1984. The troubles the low income
countries have been experiencing are ascribable more to their political
and economic difficulties in handling effectively greatly expanded demands
for participation than to increased attempts to suppress it. But with
a slowing of growth and development rather than an acceleration this trend
could easily be reversed.

## Relations Among Our Long-Run Interests

The complex interactions among our long-run security interests, our
interests in economic growth, and our interests in social and civic

- 18 -

development in the low income world should have begun to emerge from our
discussion of each of the three interests. First, we are increasingly
recognizing that short-run stability in certain country situations or an
anti-revolutionary bias of some traditional leadership groups may be incon-
sistent with the growth of a more stable world environment in the long run,
and that the latter, not the former, is our true interest. This recognition
changes not only our military assistance priorities but our economic
assistance ones as well. Actually if we look at the recent distribution
among countries of our economic aid resources we are not likely to find
that--apart from Vietnam, where our large economic aid program is closely
related to an American war effort--the altered appraisal of our security
interests suggested here as rational would change the actual distribution
of funds very much. Ten years ago our economic aid was rather heavily con-
centrated in countries around the periphery of the communist world believed
to be in danger through either aggression or subversion of falling into
the enemy camp, and a number of our major aid recipients were countries
which did not then look promising either economically or politically. The
pattern has changed in the last decade in two respects. In the first place
both Latin America and Africa, neither of which have been menaced really
seriously by widespread threats of incipient communist take-over, have
received a significantly larger share of both our attention and our resources.
In the second place several countries aid to which was justified primarily
on short term security grounds a decade ago and which did not look economically
or politically promising like South Korea, Taiwan, Pakistan, and Turkey,
have in the last few years exhibited both an extraordinary acceleration in
economic growth and a substantial extension of popular participation in the
modernization process.

- 19 -

But the fact that the change in the rationale here proposed would
perhaps result, Vietnam aside, in only limited changes in our inter-
country priorities of attention does not mean that the change is unimportant.
An alteration in our explicit rationale for doing the things we are now
doing would be most useful not only to resolve some of the doubts in our
own public and Congressional mind about the wisdom of our present course
of action, but also to alter the image held abroad of the objectives of
United States foreign policy. There are a few countries, most of them
rather small, where the cooler and more relaxed attitude here suggested
toward our short-run security interests and the greater emphasis on economic
and perhaps especially on social and civic development would alter both
our inter-country priorities and our intra-country program design. A few
such changes would be enough to persuade skeptics that alterations in our
foreign policy rationale were real and not merely rhetorical.

Clearly our long-run security interests in the low income world
redefined as suggested above give us much less sharp security priorities
among the underdeveloped countries than some of our earlier preoccupations.
If we are concerned to forestall the alienation of any large potential
nuclear power and to reduce the prospects on all three continents of a
generalized spread of inter-state conflict and intra-state violence, our
priorities will be guided much less than they once were by considerations
of geographic proximity, strategic zones, specific ideological orientation
between the left and the right, and even historical commitment and alliance.
If on the other hand we have some reason to believe that these longer run
and somewhat more generalized strategic interests will in fact be advanced
if a significant number of countries involving an important share of the
population of the low income world exhibit rapid economic growth and a

- 20 -

spread of effective popular participation, then our strategic priorities come into much greater harmony with criteria based on the prospects for economic and political development than has been the case in the past. It is impossible to prove to the satisfaction of a confirmed skeptic that this concurrence between our long-term strategic interests and widespread economic and political development exists. Indeed many historical instances of the failure of this relationship can be cited. Cuba was relatively prosperous when Castro took over, and while the Italian and German fascist aggressions followed severe economic depression, they were preceded by substantial histories of democratic development. Similar instances are bound to occur in the future whatever our posture.

What is nevertheless being asserted here is that on balance the prospects for a stable, orderly, and cooperative international environment in the underdeveloped world are very substantially better if the bulk of that world is prospering economically and exhibiting a widening range of civic participation than if it is economically stagnant and politically autocratic and repressive. This is partly because a leadership successfully coping with internal economic and political development problems is under less pressure to divert attention to foreign military adventure, and partly because there will be fewer groups in the population whose frustration with working through existing institutions threatens to explode into violent revolt.

With respect to the relation between our other two goals of accelerated economic growth and widened popular participation in all aspects of the development process, there have been cases in the past in which substantial economic growth as measured by the usual aggregate indicators has not brought with it much improvement in the quality of the life of the bulk of the population. Economic growth can at least for a time be focused on

- 21 -

a limited sector of the economy and benefit a narrow class of the popula-
tion, as has happened in several of the oil-rich countries. Indeed there
are many circumstances in which pursuit of the goals of equitable distri-
bution and widened participation in decision-making will slow the growth
of the economy as measured by the rate of expansion of aggregate GNP. These
conflicts between equity and productivity when they arise are fundamental
conflicts of values which must be resolved by the political process of
the host country. Outside expertise can help formulate the alternatives,
but the final choice is a domestic political responsibility.

But one conclusion is beyond serious question. In the very low income
countries, effective social and civic development is simply impossible in
the absence of vigorous economic growth. While improvements in the quality
of life of the average man involve much more than increases in his material
standards of living--education, the acquisition of new skills, increased
opportunities for social and economic mobility, an increased role in the
making of social decisions--all these things require resources beyond the
capacities of a subsistence economy. Nutrition, health, jobs, schools,
roads, communications, governmental services, can none of them be supplied
or equitably distributed at the levels of income and productivity character-
istic of the bulk of the low income countries. Continued and accelerated
economic growth is a sine qua non for the expanded range of goals which
it is here argued should characterize U.S. policy toward the low income
countries. But the economic growth objective must be pursued in the context
of greatly expanded U.S. and international attention to a widened spectrum
of mutual objectives relating to the requirements for broader effective
popular participation in all of its forms.

- 22 -

The Extent and Limits of U.S. Influence

Before the question of whether it should continue to be a major
thrust of U.S. foreign policy to help promote economic, social, and civic
development in the low income countries can be answered confidently in
the affirmative, two more questions must be posed. The preceding argument
has been concerned with our interests in this process. Even if it is
granted that those interests are substantial, there is first the question
of our capabilities to affect significantly the development of the low
income world, and second the question of the willingness of the peoples and
the governments of that world to work with us toward these ends.

With respect to economic growth, the record of the past decade or so
is conclusive. In the face of an unprecedented expansion of population
at a rate of between two and three percent per year, the less developed
countries on which we have acceptable information--and they constitute the
bulk of those in the free world--have achieved an average rate of growth
of per capita income in the neighborhood of two percent per year which is
better than the U.S. and most of the other presently developed countries
were able to sustain over comparable periods of their development history.

The very respectable overall average was as high as it was partly because
of a few remarkable success stories with sustained per capita growth rates
over five percent per year like Taiwan, South Korea, Thailand, Mexico,
Israel, and Peru. It is something of a puzzle as to why in the face of
this impressive record the impression is so widespread that the rate of
development has been disappointing. Some of the large countries like India
did not meet the ambitious targets they set for themselves, but even India
has grown much more rapidly since independence than ever before in its
history.

- 23 -

A significant fraction--a fifth to a sixth--of the investment throughout the less developed world which made this growth possible was financed by foreign aid supplied either bilaterally or via international institutions. In the countries where U.S. aid has been concentrated the fraction of investment financed by aid is significantly larger. In short, I know of no serious question being raised by anyone who has carefully studied the problem as to whether a contribution of resources from the developed countries as a group constituting a relatively light burden on their economies--less than one percent of their gross national products by the most liberal estimates--can make the critical difference between stagnation and growth in the majority of the low income countries. The contribution of capital assistance to investment can be roughly quantified, but at least of equal importance in its effect on growth is the contribution of technical assistance to the productivity of investment.

On our capabilities to help with social and civic development we must be more modest. The institutional forms with which we are familiar are in many cases not well suited to the circumstances of the low income countries. Beyond this many of our own social, political, and economic institutions are currently undergoing reexamination here at home.

Nonetheless our efforts in education, public administration, community development, local government, cooperatives, and the development of transportation and communication have already had important effects on the quality of life in a number of developing countries and could save much more significant effects if we cooperated more actively with recipient governments in pursuing these goals.

This leads directly into the second question as to whether the less developed countries will welcome a more active concern on our part with

- 24 -

other than the strictly economic problems of their development. They
certainly will not do so in most cases if they feel we are rigidly trying
to export institutional solutions which are not performing well within
our own society. On the other hand the peoples and even the governments
of many of the low income countries share our interests in social and civic
development so long as we do not presume to have all the answers as to
precisely how it is to be accomplished. The charter of Punta del Este
underlined the non-economic goals of development in Latin America with
relatively little controversy, and there is reason to believe that the
same extension of the development concept might be widely welcomed else-
where if we could convince our colleagues abroad that our interest was in
the substance of participatory activity and not in particular ideological
labels or institutional forms. We must be prepared to recognize that
sometimes these goals can be as effectively promoted in single party systems
as in multi-party ones, in formally socialist as well as capitalist states,
and that even some states which call themselves communist like Yugoslavia
and Czechoslovakia have pushed some distance in the directions to which we
are interested. The fact that we are now aware that we have some problems
of bringing about an adequate level of participation by some elements of
our own population should make our discussion of these problems with
foreigners easier rather than harder.

The Need for a Diversity of Country Strategies

It is important in concluding this discussion of the rationale for
our concern with the low income countries to underline the many dimensions
of the diversity among them. What makes it possible to discuss them at
all as a group is that they all share in one form or another a concern

- 25 -

which in most of them is of quite recent historical origin with the
modernization process, economic, social, political, and cultural. But
they differ so radically in so many fundamental ways that the effort to
design and legislate a common strategy for all is doomed to failure at the
outset. They range in size from mini-states like Guyana and Mauritius
with less than a million people each to a subcontinental state like India
with over half a billion. They include still predominantly subsistence
economies like Somalia and Paraguay and countries with thriving modern
industrial sectors like Brazil and Turkey. They include countries with
ample foreign exchange resources like Venezuela and Libya and countries
with chronic problems of foreign exchange earnings like Pakistan and Jordan.
Their policies defy any simple classification along a spectrum of left to
right or from dictatorship to democracy. There are countries with a strong
sense of national integrations, a common language, and a long democratic
tradition like Chile and countries like the Congo that are hardly yet
countries at all. There are some in which power is held narrowly by a
small elite like Liberia and Burma and others in which the regime is dedicated
to expanded popular participation like India and Tanzania. There
are those in which U.S. influence and advice is eagerly sought as in
contemporary Indonesia and others in which it is deeply suspect like
Cambodia. This is only an illustrative sampling of the range of country
variation that must be taken into account in the design of U.S. and international
policies to cooperate with local governments and institutions in
furthering the development goals of particular countries. This diversity
has profound implications for the organization and orchestration of the
various instruments of U.S. and international policy to which we now turn.

- 26 -

## II. The Various Policy Instruments and Their Coordination

### Four Requirements for Effectiveness

We have devoted this much attention to our foreign policy posture toward the low income countries because without agreement on this no organizational reshuffling, national or international, of our various policy instruments will be viable. If we can achieve widespread consensus on the underlying philosophy of our relations with the Third World, many different alternative organizational arrangements can be made to work, including among others a continuation of something essentially like our present aid and foreign policy structure. If the President and the nation conclude that the interests outlined above do not justify a level of effort and attention which would reverse the downward trend of the recent past, much of what follows is inapplicable. In this event we can maintain dwindling bilateral programs to support our few remaining specific security interests and discharge our commitments to places like South Korea, Vietnam, and parts of Latin America, and we can pay our conscience money in modest contributions to international organizations. But in what follows it is assumed that the more positive set of interests outlined above is accepted as valid and that the public and the Congress will provide whatever support is needed to implement this posture. One of the troubles with foreign aid is that some of its proponents have tried to be too clever in shaping their arguments to meet the presumed prejudices of some members of the Congress and of the public. Unless there is widespread acceptance of the case on its genuine merits, no organizational tricks or catchy labels will have any lasting effect.

Whatever specific instruments and organizational patterns are adopted, there are four general requirements which must be met.

- 27 -

First the President and the Secretary of State must take the lead in
explaining just what it is we are trying to do and in giving guidance as
to how we propose to do it to the whole foreign policy machinery of the
U.S. government.

Second we must mobilize the full range of the public and private,
domestic and foreign analytic and research resources to which we have access
to improve our understanding for each of the more important low income
countries with which we are dealing of the economic,social, political, and
psychological forces at work in the society, the critical obstacles to
effective modernization, and the alternative ways that outside human and
financial resources can be brought to bear in helping the country to deal
with those obstacles.

Third we must work out, in close cooperation with the host country
and hopefully also with other donors, both national and international, co-
ordinated country programs in which the role to be played by each major
instrument such as capital grants and loans, technical assistance in its
various forms, food for peace, cultural exchanges, information programs,
and military assistance where appropriate is specified, priorities estab-
lished, relations between the various external instruments and appropriate
host country activities determined and the consistency and effectiveness
of the whole joint strategy evaluated.

Fourth we must be prepared to adopt a realistic time perspective
recognizing in the organization, funding, and staffing of the program that
its effective horizon is not one or a few years but at least one or
two decades.

Stated thus in summary form these sound perhaps like somewhat bland
and toothless platitudes, though as I shall try to suggest, their full
acceptance would have very far-reaching practical consequences.

["acceptance would have any direct or indirect relationship with the Government.", "and traditional platforms, the latter a small try to supplement, that is, fill", "short time in summary form because there are some differences between", "two degrees.", "that the executive branch in not one or two years but at least every two years, and that the executive branch has the power to direct the executive branch to do so.", "Fourth we must be prepared to act as a realistic time perspective on the whole joint strategy events.", "State power in the whole country activities determined and the consistency and effectiveness of the whole country activities determined.", "State power in the whole country activities determined and the consistency and effectiveness of the whole country activities

- 28 -

Presidential Reformulation of National Policy

First the persuasive reformulation of foreign policy doctrine toward
the low income countries by the President, the Secretary of State, key
Congressional spokesmen, and public opinion leadership could have at least
two crucial operational implications. One is that in the absence of such
a reformulation the widespread demands for a new look at foreign aid may
be met by an unproductive and fretful fiddling with organization charts
and agency labels which will really not touch the heart of the problem. A
clear articulation of a strategy for the future could focus the push for
novelty where it belongs, and leave the government free to retain those of
the organizational patterns of the aid effort developed over the past seven
or eight years and which are substantially better than any of the proposed
alternatives. The principal virtue of many proposed alterations is an
appearance of change and a recognition of the unsatisfactory state of
present foreign aid doctrine.

Another implication follows from the fact that the various instruments
of our policy toward the low income countries other than aid, such as
diplomacy, commercial policy, cultural exchange programs, information
activities, and the Peace Corps have not in the past been designed with a
view to their potential contributions to modernization and especially to
its social and civic dimensions. The Food for Peace Program has been sub-
stantially reoriented in the last couple of years to focus it more on the
promotion of agricultural development abroad and less on surplus com-
modities disposal. This is a substantial step forward, but a still broader
consideration of its role in modernization is needed. These various
non-aid instruments have of course other purposes which must continue
to be served, but their potential contributions to economic growth

- 29 -

and especially to social and civic development have not yet been fully exploited in part because of a lack of articulation of doctrine and of policy direction from the top levels of government.

## Better Understanding of the Elements of Modernization

With respect to the second requirement for more probing applied research and analysis, the Agency for International Development has taken an important and unrecognized lead in the last seven years both within the federal establishment and with the academic world in deepening and broadening our understanding of the obstacles to economic growth, especially in the eight or ten countries where the bulk of our development assistance has been concentrated. Recognition of the major advances in the sophistication of our economic diagnoses in which AID has pioneered and the World Bank has played a role leads to the conclusion that this effort must be continued and reinforced. There is now urgent need for a parallel analytic effort, partly in foreign missions, partly throughout the foreign affairs agencies in Washington, and partly in the research community at home and abroad on the nature of and requirements for popular participation in social and civic development in the wide variety of cultures and political and social systems which confront us in the less developed countries. We need to devise through research techniques for measuring and evaluating progress in social and civic development which can gain the same degree of international acceptance that national product accounting already enjoys. The President's Scientific Advisory Committee issued a call in 1961 for a greatly expanded program of technical, economic, and social research on the development process. In spite of the notable progress which has been made in economic analysis, this recommendation has never for a variety of reasons been effectively implemented. Any reorganization must make provision for meeting this need.

- 30 -

Integrated Country Programming

Planners abroad and development analysts at home have become increasingly
aware of the interdependencies and pervasive interconnections among the
various elements, economic, technological, institutional, and social of the
modernization complex. It cannot be dealt with as a series of independent
parts which will somehow add up, but must be treated as an organic process
whose elements must be kept in balance if the whole inter-related system
is to function effectively. The main responsibility for seeing to it that
the pieces fit together, that transport is available when and where needed,
that skills match jobs, that institutions are ready when there are functions
for them to perform, that technical advice is at hand when farmers are
ready to use it, rests on the development agencies of the low income
countries. But country programming is also essential for those who con-
tribute resources and help from outside.

Integrated country programming was not applied successfully to the less
developed countries by U.S. agencies until the formation of AID in 1961.
Since then the country programming process has been greatly improved as
applied to the economic problems of the countries in which development
assistance has been concentrated, both within many of the field missions
in concert with host governments and in Washington. A comparable new inte-
grated country programming effort in collaboration with interested govern-
ments is now called for in the field of social and civic development. The
progress already made in designing with local planners country strategies
to take account of the relations between major economic sectors--between
agriculture, industry, and social overhead capital, between export promotion
and import substitutions, between development policy and fiscal and monetary
policy in particular country situations--is now seriously threatened by
some of the proposals to break up the AID Agency into separate functional

- 31 -

organizations dealing respectively with such areas as agriculture, educa-
tion, and health or into independent agencies concerned with technical
assistance, capital grants, and the promotion of private investment.

These proposals usually recognize the need for some coordination and
propose some kind of a special office in the White House or the State
Department to perform this function, but our experience with this way of
dealing with the problem has not been happy. Even in AID with its strong
organizational focus on the country program there has to date been wholly
inadequate progress in designing strategies which recognize the relations
between different kinds of technical assistance, between technical assist-
ance and capital development, between the promotion of participation and
the strengthening of institutions, between local units and central govern-
ment agencies, and indeed across the whole spectrum of the non-economic
elements of the modernization process. An organizational structure which
both permits and encourages this country programming process is critical.
in Washington but especially in missions in the field where the principal
contact with host country planners takes place. In field missions the
establishment of the country team has been a step in the right direction,
and in a few instances where enlightened ambassadors have devoted their
energies to making it work effectively it has had some good results. The
experiment which has been launched in the Latin American area of partially
integrating Washington AID personnel and the State Department regional
bureau around country units deserves careful study to see whether it can
be extended to other regions. In any case a movement from the present
position toward the dispersion and multiplication of separate agency inter-
ests in low income countries is certainly a movement in the wrong direction.
An interesting suggestion which deserves further study is that at least for

- 32 -

the low income countries the process of Congressional authorization and appropriation for the whole range of our foreign policy activities might be organized much more explicitly around regions or large countries rather than as at present around separate and somewhat unrelated functions.

This country programming requirement also has implications for the issue of the extent to which and the rate at which we should transfer our development assistance activities to international organizations, which is discussed later in this essay. The past structure of international organizations was sharply divided by functions--the IBRD and the regional banks for capital financing of projects, the U.N. development program for generalized technical assistance, FAO for agriculture, UNESCO for education and science, UNIDO for industry, UNCTAD and GATT for trade, the IMF for monetary policy. This was not well suited to recognizing and dealing with the interrelations among these activities in particular countries. The pervasive presence of these interconnections is currently forcing more consideration of them on the international agencies. The International Bank in particular has recently taken important steps both to undertake more integrated country analysis itself and to coordinate its activities with those of the other international agencies. The U.S. should strongly support the transformation of the IBRD from a project bank to an institution conceived with development strategy. But it will be some time at best before before the Bank or any other international institution will be equipped to take over completely the country programming process. There is a powerful case for the U.S. as the largest donor to continue to take the lead in emphasizing the systemic character of the modernization process in all its dimensions.

- 33 -

A Realistic Time Perspective

On the requirement of continuity and a longer time perspective in our policies toward the low income world, the record of our actual performance over the past twenty years has exhibited somewhat more consistency and persistence than would be suggested either by the exhausting annual process of Congressional presentation, review, authorization, and appropriation or by the drastic reorganizations and relabeling which we have felt it necessary to go through every few years. Top aid agency officials have estimated that as much as half of the time of the senior staff in Washington is devoted to the preparation, presentation, and defence of the AID program before a variety of Congressional committees including at its core the authorizing committees of the two Houses and the two appropriations committees, but usually involving in addition a substantial number of ad hoc inquiries, probes, and reviews by other units of the Congress. Much of this activity is useful and necessary to internal management as well as external support. But there is evidence that there is growing dissatisfaction with the annual review procedures among Congressmen themselves: it is hard to believe that if the Congress genuinely accepted the long run role of an aid program in U.S. foreign policy, more rational and efficient and less disruptive ways of insuring accountability to Congress and responsiveness to legislative direction could not be found, as they have been for military programs.

Uncertainties as to organizational continuity are perhaps even more disruptive of individual morale and effectiveness and of institutional learning than the tribulations of the annual review process. In the course of twenty years we have gone from ECA to TCA to FOA to MSA to ICA to DLF and finally to AID, to list only a few of the alphabetical labels attached

- 34 -

to the shifting organizational entities that have been involved in aid.
Any private business or domestic government agency which was subjected
to this degree of uncertainty and disruption through time would be unable
to perform its functions successfully. In view of these obstacles to the
conduct of what must inevitably be a long term and frequently slow-acting
program, it is indeed remarkable that development assistance has achieved
the results described earlier. The period of greatest effectiveness has
unquestionably been the last few years when the cumulative advantages of
seven years of a basically uninterrupted organizational structure could begin
to exhibit themselves. But major improvements in the quality of aid
administration could be accomplished if the federal government were to recog-
nize service in development agencies, national and international, as an
established career with a prospect for stability and advancement.

A number of conclusions follow from these considerations concerning
tim perspective. First, changes in the present organizational structure
should not be proposed solely to symbolize a new administration's determina-
tion to set out in fresh directions. Second, there should be a presumption
in any new organizational structure proposed that it will persist in broad
outline for at least a decade. Thirdly, the administration should enter
into serious consultation with the Congressional leadership on ways of
streamlining Congressional review and supervision of the operation which will
reduce the gross inefficiencies and impairment of organizational morale
implicit in the present arrangements. Whether this should involve a fresh
attempt to secure multi-year authorizations for parts of the program or
some other technique for improving on the present practice will have to be
determined in consultation with the Congressional leadership. Clearly no
changes of this sort can be brought about, or if brought about can be lasting

- 35 -

unless the fundamental philosophy adopted by the President for the program
as a whole is accepted by the Congress. Fourthly, the aid legislation
should be redrafted to remove the innumerable restrictive provisions and
limitations which have been added over the years, most of which are now
irrelevant to the purposes of the legislation and reduce sharply the effec-
tiveness of the fund appropriated.

The Balance Among the Instruments of AID Policy

The major foreign policy instruments we have been using during the six-
ties in dealing with the low income countries in addition to diplomacy are
(1) military assistance, which apart from Vietnam has recently declined
sharply from the level of around a billion dollars a year of the early
sixties, (2) development loans and grants both bilateral and through multi-
lateral organizations running somewhat over a billion dollars a year and
comprising three forms of capital assistance: capital for large projects,
assistance to broad sectors like agriculture and education, and program assist-
ance for general imports to support development programs as a whole, (3) food
aid averaging about 1.3 billion dollars a year, (4) technical assistance,
both bilateral and through international organizations, running between three
and four hundred million dollars a year, (5) supporting assistance to aid a
small number of countries believed to be directly menaced by communist
aggression or subversion running over half a billion a year, (6) trade and
other policies to promote and stabilize the export earnings of the less
developed countries, (7) governmental support and encouragement of private
investment and of the activities of other non-governmental organizations,
(8) a variety of programs with other objectives but having important effects on
development like the Peace Corps, cultural exchanges, and information programs.

Military Aid and Supporting Assistance

Military assistance, apart from our very extensive activities in

- 36 -

Vietnam which are now part of the regular defense budget, has been falling consistently over the years. The per cent of foreign aid described as utilized for essentially military purposes declined from 79 per cent in 1952 to 17 per cent in 1968. This is partly a change in language, since in the early fifties it was believed that Congress would support economic assistance only if it had a military rationale while today the reverse is probably nearer the truth. But it is perhaps more importantly a reflection of the changes in our perceptions of the national interest described earlier in this essay. If the diagnosis there given of the trend in our perceptions is accurate, the levels of military assistance may be expected to decline still further in the future. A shift from an interest in supporting one side in a conflict to reducing the general level of violence in the low income world suggests a greatly reduced logic for bilateral military assistance. Further the argument advanced by Senator Fulbright that aid . . inevitably sucks in as parties to disputes from which we should remain aloof, which probably has very little weight as applied to economic assistance, is a great deal more persuasive with reference to military assistance. Indeed the present mood of the Congress as expressed in the Conte-Long and Symington Amendments to the Foreign Assistance Act of 1967 is to direct that such leverage as our economic aid programs give us with recipient countries should be used to inhibit rather than to support the expansion of their military budgets. Whether these particular amendments prescribe what will turn out to be workable techniques for achieving the ends they seek, their objectives are certainly consonant with the foreign policy posture suggested earlier.

Ninety-five per cent of the 630 million dollars requested in the
President's fiscal '69 budget for supporting assistance was designed for

- 37 -

for four countries, Vietnam, Korea, Laos, and Thailand, with nearly half a billion planned for Vietnam alone. Apart from Vietnam, there may continue to be a case for the availability of relatively small amounts of money to be used in support of political objectives unrelated to development in low income countries, but if the appraisal of our altered strategic interests given earlier is correct this item should be minor in aid budgets over the next decade.

## Development Loans and Technical Assistance

Among the instruments available to promote our long run interests in the economic and social development process, three--development loans and grants, food aid, and technical assistance, including our contributions for these purposes to international organizations--involve substantial financial resource transfers from the U.S. government to the low income countries.

The remainder--support of private activities, trade and commercial policy, and the collection of other non-aid instruments--may involve indirect costs in American human and other resources but pose negligible direct burdens on the U.S. taxpayer through the federal budget. A key question is whether over the next decade we can pursue our national interests in the low income countries with present or reduced levels of resources allocated to aid.

The answer is clearly in the negative. U.S. and other developed country official economic aid rose rapidly during the late fifties. In calendar 1961 the total supplied by non-communist industrial countries as reported by the Development Assistance Committee of the Organization for European Cooperation and Development was a little over six billion dollars of which the U.S. share was 3.4 billion. Communist country aid added perhaps three hundred million more. From '61 through '67 the figures rose slightly in money terms, mainly because of increases in European contributions.

- 38 -

In terms of real resources they probably declined, partly because of persistent price increases in the supplying countries, and partly because the spread of the practice of tying aid to purchases in the contributing country reduced the opportunities of the recipient countries to buy in the cheapest market. Further, as we moved through the decade of the sixties the burden of payments of interest and amortization on past indebtedness mounted for many of the less developed countries, reducing sharply the net foreign resources available to them from new aid allocations. A tendency in the United States to stiffen terms on new aid loans threatened to cut in advance the value to them of future aid prospects. The drastic reductions in the U.S. aid appropriations in fiscal 1968 and fiscal 1969 and the rise in the share of this reduced total taken by Vietnam means that the aid resources at the disposal of countries other than Vietnam will be sharply reduced in 1969 and 1970.

The need for food aid in the period ahead is somewhat uncertain. An agricultural revolution is in progress in the cereal producing countries of Asia which is already yielding dramatic increases in productivity. The future needs for food aid depend on how the race between burgeoning agricultural productivity in the underdeveloped world and the rapidly swelling demand for foodstuffs there comes out. The course of demand depends partly on population growth and partly on the growth of non-agricultural output and incomes in the low income countries. Measures to inhibit population growth, to which we are now devoting greatly increased attention in our technical assistance activities and which are beginning to show real promise, will if successful permit an increasing share of the investment resources of the low income countries, supplemented by aid

- 39 -

to be devoted to raising standards of living rather than to preventing starvation for millions of additional people.

But whatever happens to the need for food aid, the need for capital assistance will certainly grow over the next decade as an increasing number of countries can use it productively. It is already clear that some countries like India are operating their existing industrial plant at substantially less than capacity because of shortages of foreign exchange with which to purchase the essential imports required to utilize it fully. Others are now capable of boosting their growth rates markedly if additional capital resources were obtainable to finance the purchase of plant and equipment. And still others, while not yet in a position to absorb productively large increases in capital resources, will develop additional absorptive capacity over the next decade. The World Bank has estimated that an additional three or four billion dollars of aid from all sources could now be productively employed by the less developed countries. For the U.S. to supply its fair share of this increase would require us to more than double our official capital aid, which would still leave our aid burden below one percent of our gross national product. And there is evidence that the total cost of the aid required to generate self-sustaining growth will be lower if it is applied in adequate amounts over a relatively short period than if it is stretched out in smaller dribbles over a longer time.

A few countries have been successful enough in their growth efforts to have already graduated from the list of recipients of capital assistance, and appear now to be able to sustain their economic growth without further

-40-

concessional aid. This group includes Taiwan, Iran, Israel, and Greece. Several others like Turkey and South Korea may be able, if they are given a last push of substantial help, to obtain independence from concessional aid within the next five years. Others, including some very large ones like India, Pakistan, and Brazil, which together account for about 40 per cent of the people of the less developed non-communist countries, have set the stage by launching over the past decade a pattern of growth which with adequate external help could be greatly accelerated during the seventies. But without substantial capital assistance continuing for a number of years they can probably not even sustain the developmental momentum they have achieved. This is either because though their savings have been growing rapidly, they will not be able for another decade or so to save enough to finance the necessary investment, or because the growth in their exports has not yet reached the point where they can pay for the level of imports that rapid growth requires. Others like Indonesia whose initiation of a serious developmental effort has been delayed by inadequate leadership and political turmoil appear now to be ready and eager to get started on serious development programs, but to do this will need levels of help they have not enjoyed in the past. Finally there are a number of others including several of the African countries that are so far behind that they will require further investments in human capital and in basic social and economic infrastructure before significant growth can even be started.

The main financial requirement for aid is likely to come in the near future from a relatively limited number of the larger countries in the middle group just described whose earlier development efforts

- 41 -

have brought them to a point where they are ready for a spurt of a decade or so of rapid growth. It is at this stage where substantial foreign capital resources are most critical. The evidence of our experience since 1950 is pretty conclusive that for countries in this group there is a minimum threshold of capital assistance below which they limp along without much per capita development. On the other hand, a level of capital assistance substantially above this threshold may, by activating unsuspected reserves of initiative, energy, and innovative ability within a country, produce a quite dramatic economic boom which may greatly shorten the period during which aid is required. Such a boom in turn may lay the groundwork for an extension of popular participation in the development process which could simply not occur in a more stagnant economy. Something like this appears to have happened in Taiwan, in South Korea, and to a limited extent in Pakistan, and could happen over the next decade in a number of other countries if aid levels were above the critical minimum threshold.

This suggests that if U.S. and other developed country resources for capital assistance are limited, the most efficient use of those resources is to concentrate them in relatively few countries and to try to do an adequate job in each. This is a policy the United States has been following for the last few years. Before the recent cuts in the U.S. aid budget we were already concentrating 80 percent of our development

- 42 -

loans in eight countries,--Pakistan, India, Korea, and Indonesia in Asia,;
Turkey in the Middle East, and Brazil, Chile, and Colombia in Latin America.
Aid to some of these countries, notably India, the largest, was already
well below an efficient level. There is no way in which our strategic,
economic, and social interests in the development of the low income countries
can be effectively advanced without a higher level of resource transfer
than was achieved in the mid-sixties, and this means a much higher level
than is implied by recent aid appropriations.

It is worth exploring a little bit further the relation between
development lending and some of the other less expensive instruments
listed at the beginning of this section. The principle of concentration
is much less applicable to technical assistance than to development loans.
Technical cooperation with host country efforts in agriculture, education,
health, population control, public and private administration, institution
building and participation can have important effects both in countries
which have not yet developed the absorptive capacity for large amounts of
capital such as many of those in Africa and in countries like Taiwan, Iran,
Greece, and Mexico which have become economically self-sustaining but
which still have, as indeed does the United States, problems of making
their economies and their institutions more responsive to the needs of
their people. But if capital assistance is not available at the times,
in the amounts, and in the places where it is critically needed in the
development process, the beneficial effects of many admirable technical
assistance activities can be frustrated or rapidly dissipated. For example,
improvements in educational technique are of little use if the economy
does not provide the resources to build schools and pay teachers or the
jobs in which those with newly acquired skills can put them to work;

Jobs in which those with newly acquired skills can find them to work:

does not provide the resources to build schools and pay teachers or the
improvements in educational techniques are of little use if the economy
aspiration activities can be frustrated or rapidly disseminated. For example,
development process, the beneficial effects of many administrative technical
in the amounts, and in the places where it is critically needed in the
their people. But if capital assistance is not available at the time,
their economies and their institutions more responsible to the needs of
which still have, as indeed does the United States, produce of making
Greece, and Mexico which have become economically self-sustaining but
capital such as many of those in Africa and in countries like Turkey, Iran,
which have not yet developed the administrative capacity for large amounts of
building and participation can have important effects both in countries
health, population control, public and private administration, institution
Technical cooperation with host country efforts in agriculture, education,
is much less applicable to technical assistance than to development loans,
instead at the beginning of this section. The principle of concentration
development lending and some of the other least expensive instruments
is much less applicable to technical assistance than to development loans,
which have not yet developed the administrative capacity for large amounts of
building and participation can have important effects both in countries
social and economic interests in the development of the low income countries
well below an efficient level. There is no way in which our strategy,
which is based on some of these countries, not only India, the largest, but already
Turkey in the Middle East, and Brazil, Chile, and Colombia in Latin America,
flows in least countries--Pakistan, India, Korea, and Indonesia in Asia,
and India is the only country in which we have already

than was achieved in the mid-sixties, and this means a much higher level
can be effectively advanced without a higher level of resource transfer
economic, and social interests in the development of the low income countries
well below an efficient level. There is no way in which our strategy,
which is based on some of these countries, not only India, the largest, but already
Turkey in the Middle East, and Brazil, Chile, and Colombia in Latin America,
flows in least countries--Pakistan, India, Korea, and Indonesia in Asia,
and India is the only country in which we have already

- 43 -

agricultural improvement is of no avail if urban incomes are not rising enough to permit city dwellers to buy more food; more efficient and more honest government administration does not help much if a country does not have the resources to finance programs for the government to administer.

## Private Resources for Development

It is sometimes suggested that if only we can find ways of stimulating a greatly increased flow of private capital investment into the underdeveloped countries, both by U.S. measures to make private capital export more attractive and by U.S. inducements to host governments to improve what is described as the investment climate, a good part of the burden of public aid appropriations could be avoided. But this misconstrues the relation between public development lending and private investment opportunity which both historically and analytically have more often been complements than substitutes. Private investment to supply local markets is not very attractive whatever the inducements or the political climate, in countries where purchasing power is very low or the supportive overhead facilities of transport, communication, evergy sources, and engineering services are nonexistent or primitive. The best stimulus to private foreign investment activity in an underdeveloped country is a period of sustained and vigorous growth in domestic per capita incomes, which in many cases requires injections of public capital to get it going. In addition to the economic reasons why at the takeoff stage of development substantial public capital flows are a necessary condition,--often a precondition,--for private investment activity, there are political reasons. Countries faced with severe shortages of capital and foreign exchange are likely to react to these difficulties by multiplying the governmental restrictions, controls, licensing, and

["by modifying the government's expenditures, controls, policies, and\nof capital and foreign exchange are likely to result in these difficulties.\nCountry A faces with severe economic\neffort. Country B faces a similar challenge. In both cases, there are political reasons.\nA necessary condition for a successful\nnonextractive primitive is that the political structure of the country\nis stable. In such a case, the government can provide public capital flows\nat the taking stage of development. Substantial public capital flows are:\n* of public capital to set up its own. In addition to the economic reasons\n  growth in domestic per capita income, which in many cases, requires interactions\n  of transport, communication, energy, sources, and engineering services are\n  where purchasing power is very low or the supportive environment facilities\n  attractive whenever the foundation of the political structure in the country\n  is strong. Substitutes. Private investment to supply local markets is not very\n  historical and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\n  And appropriations could be withdrawn. But this necessitates the relation\n  described as the investment climate: a good part of the burden of public\n  alternative and by U.S. inducements to host governments to improve what in\n  country X, both by U.S. measures to make private capital export more\n  a strategy increased the risk of private capital investment into the underdeveloped\n  countries, which both historically and analytically have more often been complements\n  between public development lending and private investment opportunity.\

- 44 -

regulation which are so frightening to the foreign private investor. The
climate for foreign private investment has been best where national
sensibilities have been soothed by the sense of confidence that results
from successful development efforts and an expansion of domestic industry
supported in part by foreign public resources.

All this does not mean that active policies by AID, the Treasury, the
Export-Import Bank, and other government departments to foster and promote
private capital flows to the less developed countries are not important.
Devices for more ingenious combinations of private entrepreneurial skills
with public resources to make their employment more attractive deserve
further study. As development proceeds it is frequently an expansion
of private capital flows that ultimately makes possible the graduation of
a country from the class of aid recipients. But in the lower income range
of countries these measures are very unlikely to be effective in the absence
of an adequate public development lending program.

Trade Policy

Finally the hope of avoiding the level of aid appropriations that I
have earlier suggested is unavoidable if we are to promote our development
objectives sometimes rests on the notion that where the central problem facing
an underdeveloped country in its development efforts is the acquisition
of sufficient foreign exchange for necessary imports, policies to promote
the export potential of the country may be a substitute for aid appro-
priations. Again there is no question that such policies are urgently
needed. The long run economic viability of any developing country, even
of some of the very large ones, is likely to be dependent on its exports
growing much more rapidly than its gross national product. Fortunately

- 45 -

the focus of attention in the underdeveloped world, which was very heavily
on domestic investment to produce substitutes for imports in the early
postwar period, has been shifting to export promotion, regional trade
agreements, and a search for foreign markets. This shift has been
signaled by the formation of the U.N. Conference on Trade and Development,
by the pressures from the low income countries for preferential treatment
of their manufactured exports in the developed countries, and by schemes
to stabilize the prices of the more traditional raw material exports.

Most of these pressures for trade expansion deserve our full support.
Our tariffs and those of the other developed countries on processed raw
materials and on light manufactures from the underdeveloped countries
are nominally often quite low, but our policies including a variety of
non-tariff restrictions have for a number of reasons been more protec-
tionist than appears from the tariff schedules. A strong case can be
made for acceding to a demand made by the less developed countries that
some preference be given in at least the timing of contemplated inter-
national tariff reductions to low income country manufactures, though
there are some technical problems of implementing this proposal. The
U.S. should certainly do what it can to encourage common market arrange-
ments like the Latin American free trade area among groups of under-
developed countries. Commodity price stabilization schemes may boomerang
unless accompanied by effective measures to prevent world supplies from
persistently exceeding world demands for products like coffee, cocoa, and
some of the metals, but we should support arrangements which combine
removing some of the effects of commodity price fluctuation with promotion
of the diversification of exports.

Important as all these trade measures are to the long run:viability

- 46 -

of the developing economies, no serious observer has suggested that they can
be an effective substitute over the next decade for capital assistance. With
the exception of oil and some of the minerals, the markets for the traditional
raw material exports of many of the underdeveloped countries cannot be expanded
enough to provide the foreign exchange they need for their rapid growth. This
means that their long run prospects for international balance depend on their
doing as Japan did, namely finding new products, many of them manufactures, in
which they can develop a comparative advantage. But this is a long process in
which substantial investments in capital goods, machinery, training and organiza-
tion, market knowledge, and in some cases imported raw materials must be made
many years in advance of the hoped-for payoff in foreign exchange earnings. Part
of the investment required to cover this period of reorienting economies to new
and different types of export performance must be made through foreign aid. So
once again we come to the broad conclusion that trade expansion, far from
making aid unnecessary, requires it as a handmaiden.

This review of balance among the instruments of aid policy is not intended
to suggest that if we appropriate adequate sums for the more expensive items of
capital assistance and technical cooperation the other dimensions of the problem
will take care of themselves. We need much more attention to private enterprise
promotion and trade expansion to further our interests in economic development
and much more concern than we have had with the social and civic dimensions of
all our policy instruments. And of course unless recipient governments take
the necessary self-help measures both to raise complementary domestic resources
and to make foreign resources fully effective, aid will not be productive.
What we are suggesting is that none of these things are substitutes, individually
or taken all together, for public economic aid, and that if the levels of such
aid are inadequate, the other tools are very unlikely to have the desired effects.
The Development Instruments and the Problem of Food and Population

To illustrate the systemic nature of the development process, the

- 47 -

interrelations among the aid instruments, and the importance of programming them jointly, it is perhaps worth looking briefly at what is required in a country like India to accomplish the relatively narrow objectives of what President Johnson has popularized as the war on hunger. The purpose here is stated to be the humanitarian one of the elimination of caloric deficiencies around the world and more broadly of achieving a physiologically adequate diet for the world's peoples. As has been explained above, I regard this as much too narrow a conception both of our moral obligations and of our national interests, but let us accept it for a moment as a goal in order to see what it requires. It is generally accepted that it requires both a dramatic expansion of food production in the low income countries and an accelerated effort to limit the expansion of population. Even these two proximate objectives are interdependent since an improvement in child nutrition will probably, by sharply reducing infant mortality, make parents more willing in the long run to limit the number of births.

But more broadly, neither the expansion of food production nor the improvement in nutrition is possible in India without greatly accelerated industrial production. The new agricultural technology on which increased food production depends requires very heavy industrial inputs. The new miracle seeds in wheat, rice, and coarse grains flourish only with heavy applications of fertilizer, with radical increases in irrigation calling for pumps, wells, piping, and other industrial products, and with extensive efforts in pest and weed control. All this takes mechanical equipment. The man who was formerly a subsistence farmer must now sell much of his output in order to buy the necessary industrial inputs. Unless incomes are rising rapidly in the non-agricultural parts of the economy, money demand for the new marketable surplus will not be adequate and the technological revolution in agriculture will be

-48-

brought to a halt. Put another way, people can eat better only if their
incomes are substantially higher, and their incomes will be higher only
if the entire economy and not just the agricultural sector is prospering.
These higher levels of exchange between urban and rural, industrial and
agricultural sectors in turn mean much heavier burdens on facilities for
transportation, communication, and other social overheads. In short all
parts of the economy must be growing in rough balance. But this requires
a rapid growth in imports not just of fertilizer and agricultural inputs
but of the whole range of things that a flourishing economy needs from abroad.
This in turn means that exports must grow, which in turn requires capital
investment in new export industries, training in new skills, improvements
in the effectiveness of all kinds of institutions, and a massive broadening
of participation in the development process. This reveals the fallacy of
the notion that even if we were interested only in the war on hunger we
could concentrate our attention solely on agricultural productivity and
population control. Development is a seamless web, and while it can take many
forms, isolated attention to one or two of its dimensions is unlikely to be
either efficient or productive.

## Relations with Other Donors: Bilateral and Multilateral Approaches

Two broad questions concerning the relations between U.S. activities in
the promotion of development and those of other countries have come up recur-
rently in the discussion of aid policy over the years and deserve a fresh
look here. The first has to do with the appropriate sharing of the burden
of development assistance among the more developed countries, and the second
relates to how far we and the other developed countries should conduct our
development programs bilaterally with the recipients and how far we should
channel our development lending and technical assistance activities through a
variety of kinds of international organizations. The two questions are

-49-

quite distinct though they are related and sometimes confused.

With regard to the first, it is sometimes suggested that the burden of aid on the U.S. budget could be reduced if other developed countries could be persuaded to carry an increased share of the aid load. In the light of the record of the last few years this suggestion is both grossly inequitable and practically unfeasible. According to the records of the Development Assistance Committee of OECD, which included Japan and the United States as well as virtually all the developed countries of Western Europe, the U.S. ranked tenth in 1967 in the share of its gross national product devoted to public and private development assistance, ranking behind France, the Netherlands, Portugal, West Germany, Britain, Belgium, Switzerland, Japan, and Australia in that order. Our ranking in official governmental aid as a percent of gross product was somewhat higher, but we were still well below many European countries such as France, Belgium, and the Netherlands. Since our real per capita income in the United States is roughly twice that of the average for all other members of DAC, the principle of ability to pay, enshrined in our own progressive income tax, would suggest that in equity our relative contribution should be larger, not smaller than that of the others. With a good deal more than half the income of the non-communist developed world, we had until 1967 been supplying publicly and privately only about half of the flow of resources to less developed countries. The sharp cuts in our fiscal 1968 and fiscal 1969 aid programs have undoubtedly reduced our share markedly below even the inequitable levels prevailing until 1967.

There is a strong case for larger contributions from most of the developed countries. Targets set by the United Nations, by DAC, and by the recent meeting of the United Nations Conference on Trade and Development

C

-50-

Senator Fulbright and others that we should move much more rapidly in the direction of turning over a major part of the administration of our development assistance to such organizations as the International Bank, the U.N. Development Program, and regional banks like the Inter-American Development Bank, and the newly established Asian and African Banks. This would leave for U.S. bilateral administration only those programs whose scale and character was dictated by immediate U.S. security and other special considerations.

A number of virtues are alleged for this proposal. If our interests have in fact shifted in the fashion described at the beginning of this essay toward ones which are less parochially national and more widely shared in the international community, the disadvantages to U.S. security interests of losing control are greatly reduced. It is argued that international administration would insulate us from involvement in domestic controversies in the low income countries and thus avoid undesirable U.S. entanglement with particular factions and pressure groups abroad. It is further argued that the application of self-help and other conditions to the granting of aid, which are necessary to make it productive and effective, would be much more acceptable to the recipient countries if imposed by international organizations rather than by national agencies suspected of having unrevealed political motives. Related to this is the suggestion that the U.S. image in the underdeveloped countries would be greatly improved if the U.S. presence abroad were less visible and if we gave this demonstration that we were prepared to forego the special uses of our own power and influence which bilateral aid arrangements give us. There are strong elements of validity in all these arguments which suggest that we should continue to give increasing resources and responsibility to international agencies and help them in any way we can to discharge their

- 51 -

have suggested as desirable something in the neighborhood of one percent
of gross national product in public and private resource contributions
from the developed to the underdeveloped countries. For the middle sixties
the DAC countries averaged about eight-tenths of a percent of GNP, with
official contributions representing half a percent, and with the U.S.
contributions significantly lower than these averages. In the face of this
record it is clearly unrealistic to expect other countries to increase
their contributions while we are cutting ours from the low levels of the
sixties. If on the other hand we reverse the recent trend and increase
our aid levels substantially, it would be quite reasonable for us to expect
additional contributions from other donors. Since gross national products
are growing through the developed world at a rate of four or five percent
a year, a constant percentage of gross national products would represent
an expanding flow of aid over time rather than the constant or shrinking
one which has characterized the sixties. Once we have reached our reasonable
share it might even be appropriate for the U.S. to make further increases
explicitly contingent upon matching contributions from others.

The question of the best international coordination and management
of these aid flows is more complex. We have been channeling a gradually
increasing fraction of our official aid through international agencies and
now furnish nearly 10 percent of our non-food aid this way. The OECD
countries (Western Europe, Canada, Japan) provide a larger share in this form
bringing the average for all OECD countries up to about 11 percent. With respect
to another 25 percent or so of economic and technical aid bilateral con-
tributions are coordinated to a greater or lesser degree through multi-
lateral consortia, consultations, and the like. It has been proposed by

-52-

responsibilities more effectively.

There are however some counter arguments which suggest that it
will be difficult and perhaps not wholly wise to move too rapidly or
radically in this direction. First I have explained above the basis for
my conviction that the allocation by all the developed countries of
substantially greater resources to the development process than have
been provided in the recent past is critical to the advancement of long
run U.S. moral and national interests. It seems unlikely first that the
U.S. public and the U.S. Congress will or should in the present state
of effectiveness of many of the international institutions be willing
to transfer to them the whole of the enlarged scale of resources required
to do the job. If we were content with limited or token programs, as I
suspect some of the advocates of largely international administration
would be, this objection would lose its force. But if we feel that
expanded levels of effort are required to promote both U.S. and inter-
national interests I suspect we will continue to have to mount bilateral
programs of some magnitude for some time to come.

A further consideration has to do with our relative contribution.
Because of our level of income which in the aggregate is roughly half that
of the free developed world but in per capita terms is twice that of the
average of the other developed countries, we should be supplying not half
of the aid resources being furnished the low income countries, but closer
to 60 or 70 per cent. If our contribution to international agencies
rises above the 30 to 40 per cent to which it has been limited in the
past their international character may be gravely compromised. If, because
of their regional and commercial interests in particular parts of the world
the other developed countries are unwilling, as they probably are, to
increase radically the share of their own development aid administered

-53-

through international institutions, which is already larger than ours,
this problem will be greatly exacerbated.

There are other considerations. If the U.S. were overwhelmingly
the dominant influence in international institutions, the alleged advantages
of multilateralization in both host country reciptivity to influence and
in improvements in the U.S. image would be open to very serious question.
In any case the U.S. image can be most effectively altered abroad not by
organizational and institutional rearrangements but by changes in the way
we in fact behave and the objectives we in fact pursue in foreign countries.
In fact to limit bilateral programs to those in which there is an obviously
dominant and narrow U.S. security or political interest would contribute
strongly to the further deterioration of our image.

It is sometimes argued that internationalization is desirable because
international organizations can handle aid more efficiently than U.S.
agencies. The record to date does not seem to bear out this contention.
The International Bank has a good reputation in the appraisal and manage-
ment of large capital projects, but the regional banks are too new to have
demonstrated the quality of their talents and the long standing U.N.
technical assistance program has not been as effective as a number of
bilateral ones including ours. Under the circumstances we can for the
time being probably mobilize American talents for technical assistance,
concentrate American capital where it will be most productive, influence
social and civic change most constructively, and have the best chance
of applying the volume of human and financial resources required effectively
to promote our interests in the modernization process by continuing sub-
stantial bilateral programs. At the same time we should redouble our
efforts to put these programs in a multilateral framework, both by

supporting and financing the expansion of international institutions
and by fuller participation in consortia, consultative arrangements, and
devices for international programming.

Can We Afford It?

If the long run interests outlined earlier are accepted as valid
and if it is agreed that to promote those interests effectively we would
need to allocate substantially larger human and financial resources to
the task than we have been doing for the past few years, perhaps roughly
doubling the level, the question remains as to whether in view of all
of our other domestic and international responsibilities we can afford it.

Let us dispose first of an argument that is widely used but that on
examination has very little weight that a larger aid program would pose
intolerable strains on our already dangerous balance of payments position.
We have so effectively tied aid to procurement in the United States that
the estimate is that this year more than 94 per cent of the expenditures
of our economic aid program will be made in this country. While some aid
shipments may replace export earnings we would otherwise enjoy, some untied
aid disbursements find their way back indirectly to U.S. purchases! What-
ever these incalculable offsets, it is most unlikely that the burden that
aid places on our balance of payments is currently very important. The
tying arrangements we and other countries have adopted have a significant
effect in reducing the efficiency of resource use, and it is to be hoped
that more fundamental solutions to our balance of payments difficulties
can be found.

The drain on our resources involved in aid levels up to as much
as twice as large as recent appropriations would be relatively small either
as a fraction of our national income or in comparison with other programs

-55-

in which the federal government is now engaged like defense and domestic
welfare. Our aid to European countries in 1949 at the peak of the Marshall
Plan was more than two per cent of our GNP for that year. The budget
proposed by the President for 1968-69 calls for a level of assistance
to the low income countries of only about one-half of one per cent of
GNP or about one-fifth of what Mr. Schultze estimates in his essay is the
current net cost of the Vietnam war. The maximum increases which have
been proposed in the U.S. contribution to bring our public and private
aid up to the target level of one per cent of GNP are two or three billion
dollars at the most. This compares with a projected annual increase of
our GNP or 50 or 60 billion dollars each year over the next few years or
35 to 40 billion dollars at constant prices, and with the projected
increase in federal tax revenues at existing rates which Mr. Schultze
estimates as rising from some 15 to some 18 billion dollars a year. A
glance at the magnitude of various other public programs proposed in this
volume makes it apparent that even a dramatically expanded aid program
would be one of the smaller ones. Since the low income world is so much
poorer than we are, the small cost to us will in many cases be vital.
to their economic and social modernization. We can certainly afford it.
Whether it is worth the limited cost and inconvenience it involves depends
on the value the United States places on the interests outlined at the
beginning of this essay.