Paradoxes of Foreign Aid
Pachter, Henry
When the Roman Empire had grown old and tired it began to rely, for the defense of its ramparts, less and less on the prowess of its citizens; instead, it paid subsidia to its minor allies, and...
...ward countries...
...9 Eugene Staley, The Future of Underdeveloped Countries, (Harpers, New York, 1954), points out that the grantor nation even may become a captive of the grantee's form of government and social structure...
...Commission on Foreign Economic Policy: "Report to the President," Washington, 1954...
...The commonlyheard lament19 that underdeveloped countries are hewers of wood and drawers of water, and that the "terms of trade" are constantly against them, is no more true than a similar complaint made by the American farmer...
...6 Gunnar Myrdal, An International Economy, (Harpers, 1956), gives the best exposition of this viewpoint...
...2 U.S...
...c) American: the Import-Export Bank...
...Rubber, it is true, lost ground after a short boom because the synthetic substitute turned out to be better in many respects...
...since to a pre-capitalist mind misery is the fault of misers, the sacrifice is not even accepted as bona fide...
...Treasury than the present system of competitive donation, while on the other hand the USSR could be challenged to match American dollars with an equal ruble amount under the rules of an impartial accountancy system...
...but wheat, sugar, tobacco and cotton farmers prospered under the shelter of the American price support program and American-sponsored cartels...
...Capitalistic notions of sound banking practice also create unnecessary confusion over the nature of foreign aid...
...4 National Planning Association, quoted by Business Week, April 6, 1957...
...it tends to make the recipient government into a debtor of the donor country, and it may subordinate development needs to other considerations...
...The Special Fund itself does not invest money either...
...but instead of gratitude the U.S...
...14 It is axiomatic with Western writers that India must succeed even though unaligned...
...An advantage recognized by all would be a universal sharing of responsibility...
...The unjustly famous book by Lederer and Burdick also condemns "big projects," though the authors clearly don't know what they mean by such a term...
...Technical Assistance itself does not invest money...
...It is essential to separate this "social overhead" from profitable investments...
...12 John A. Williams, Economic Stability in a Changing World, (Oxford University Press, 1953...
...17 Felipe Pazos, "Economic Development and Final Stability," Staff Papers IMF, October, 1953...
...the amount of intra-empire aid is unknown...
...and that decision could not be made before the propagandist, Khrushchev, had firmly asserted his power against the Pervukhins and other opposite numbers of Eugene Black...
...The mighty no longer dare offend the meek...
...Small nations are tied by government grants and loans no less than by old-fashioned colonialism or financial penetration...
...1 John Strachey in his new book End of Empire also uses this argument, although he actually finds the final amount insignificant in comparison with total accumulation from domestic resources...
...ment of a country's resources away from the defense-economic desires of an alliance, to projects more germane to the real needs of the population...
...International solidarity is the duty of those who are more advanced...
...Asia, Africa and Latin America now are receiving a larger share of the Russian as well as the American and international aid program...
...On the other hand, it must be admitted that the economics of foreign aid present bookkeeping problems which invite fraudulent entries on both sides of the ledger...
...but the greater burden lies on the shoulders of those who must catch up...
...11 In the cold-war competition of subsidies to underdeveloped countries, the Russians clearly have the operational advantage of long-range planning, flexibility and quick decisions...
...When "Atoms-for-Peace" was offered with a control device against military use of the donated materials, Krishna Menon cried "collective imperialism...
...It clearly was not a business proposition to begin with...
...exports, providing jobs for approximately half a million Americans.4 Nearly ten billion dollars' worth of surplus goods have been disposed through various aid programs, some of them of a military nature...
...18 Ragnar Nurkse, "Reflections on India's Development Plan," Quarterly Journal of Economics, May, 1957...
...10 Eisenhower now uses the term "dollar diplomacy" in a new sense—the use of economic pressure for political purposes...
...The point that one country often has different priorities from another, and for reasons not always intelligible to that other, is forcefully made by Max F. Millikan and W. W. Rostov in A Proposal: Key to an Effective Foreign Policy, (Harpers, New York, 1957...
...There is hope in modern technology...
...The principle of universal participation was first realized in the United Nations Technical Assistance Administration...
...the Children's Emergency Fund...
...they wish to raise the living standard of the masses...
...To some extent in Iraq, which had a development plan even before the Kassem coup, and under the exceptional conditions of Kuweit, the income has been converted into native capital...
...but the projects it sponsors in this way show that it has a better understanding of the mentality and requirements of the new countries...
...These facilities are called the infra-structure of an economy...
...11 C. N. Vakil and P. R. Brahmanand, Planning for an Expanding Economy, Bombay, 1956...
...our aid, consequently, consists of half measures and often fails either to meet the more fundamental needs of the beneficiaries or to enlist their enthusiasm and imagination...
...All this and a modern army plus luxuries such as jet planes, while there is need first of all for home and school construction, the development of domestic consumer markets, promotion of a national capital market and above all an agrarian revolution 20 Grants-in-aid, Technical Assistance and credit facilities should be used, not to superimpose a modern steel mill on an otherwise primitive economy but to create the conditions of a less primitive economy...
...If supplementary aid is desired, it should preferably be given through international agencies or the World Bank 2 1 Participation of other industrial countries is bound to increase...
...Thus, the first investment of the new International Finance Corporation, (an affiliate of the World Bank, launched in 1956 especially for the purpose of channeling private capital into private enterprise overseas) was a loan to the electro-works Siemens of West Berlin for expansion of its facilities in Brazil...
...They wish to equip themselves with the most modern machinery and infra-structure facilities...
...The technocrats in the United Nations economic staff honestly believe that such a pool would enable them to promote regional plans for the greatest benefit of the needy masses, overriding the national prestige projects which get first consideration under the present arrangements of bilateral aid...
...Point Four experts took some time to find out that India does not need tractors but millions of simple iron plows...
...Moreover, since it is their wish to emphasize their independence, and the big powers encourage them to stay out of blocs, they are likely to fall back on protective policies which make it even harder for us to help them...
...2) The massive investment in infra-structure and basic industries may create the home market for other industries...
...it may short-cut some of the serpentines...
...Once it was sufficient to hire a few key men or, at worst, a small ruling minority in backward countries...
...in this way, billions in so-called counterpart funds have been converted into grants...
...in underdeveloped countries, where normally the home market is weak, amortization of such projects would be too slow unless they were related to defense...
...This process is sometimes painful, its achievements deceptive and its delusions dangerous, particularly if a nation has set itself such contradictory goals as indicated in India's Second Four-Year Plan...
...Bricker's and Talmadge's, from some senators who—happilywere not in a position, then, to disturb the Emperor's political decisions...
...Yet this tech nique need not shock us, provided it is used honestly, without hypocritical claims of humanitarianism...
...instead, it paid subsidia to its minor allies, and even tributum to some petty kings for staying neutral...
...They bind the export trade of the debtor to their own empire-planning...
...Further confusing the issue, a widely-held sentiment welcomes foreign aid as an opportunity to expiate the sins of imperialism.' But if this redemptive offering is supposed to placate the ire of colonial rebellion, alas it only kindles resentment...
...Private capital used to go overseas in search of markets and investments opportunities, sometimes preceded by the missionary, but invariably followed by the marines...
...The Soviet Government gives preference to such big undertakings, like the Bhilai Steel Mills in India and the Asswan Dam, for their spectacular propaganda value...
...Some countries recently liberated from foreign domination also lost the middle echelons of executive, administrative and technical personnel and have great difficulty maintaining the former efficiency standards of their railroads and utilities...
...On the other hand it was "tainted" with a political motive—to prevent revolution in the Western Europe and to assert American leadership in the free world market...
...Even if, business-wise, it had been possible to raise a hundred million dollars yearly for ten years for the purpose, and if, politically, it had been possible to guarantee a sustained effort until completion, the Egyptian Government could not have promised in good faith that it would maintain the political and economic balance the Dam was supposed to stabilize...
...Various schemes have been published with the aim of facilitating the flow of capital to the areas of the potentially most rapid development, but they all depend on those imponderables which today divide the political from the economic interests of the underdeveloped areas...
...Moreover, pumping a billion dollars into an otherwise poorly supplied economy must create inflation...
...Paul Hoffman in his booklet, "One Hundred Countries...
...tanks, schools, submarines...
...Technical Assistance team by the Shah...
...Also, instead of free grants the Soviet Union gives repayable loans which usually bind the beneficiary economy far more than any U.S...
...Private foreign capital is less available to the new countries than at the time of foreign domination, while native capital is fleeing...
...We cannot do so any longer while pretending to sell them democracy in the same package...
...Some of these projects may be indicated simply to make a young nation livable, to solve an urgent resettling problem, to make a people independent from further subsidies or to permit industrial growth at a faster rate than native resources permit...
...By separating the three functions of investment from each other and providing for each in its own way, a government may obtain the know-how from the U.N., the equipment from private suppliers under an international loan, and then may be able to secure additional credit for the supply of labor and materials...
...Even donated machinery may not find employment in the absence of other facilities, skilled labor, markets and transportation to make use of it...
...It should be understood as a concerted effort to achieve collective economic security...
...Its authority would help in finding supplemental investments to speed the development of communications and transportation facilities...
...The first radically new departure was the Marshall Plan with its emphasis on the channeling of capital supplies and its requirement of organization and integration for the recipients...
...Even so, the U.S...
...construction works of this order can be undertaken only under Pharaonic conditions or with the credit system of a modern, fairly advanced industrial society...
...Grants for military purposes accounted for nearly one-third of the total, but their share increased after Korea...
...Competing with Russian examples, they often think "the bigger the aid the better...
...ists...
...The Marshall Plan was discounted as a clever device to dispose of surpluses...
...its mainspring is the power conflict which feeds on itself...
...21 Agencies now available for international aid are the following: a) United Nations: Technical Assistance and its Expanded Program...
...In this process prestige projects of limited development value tend to gain preference over area planning...
...The thickly settled, commercial nations emerged into the industrial age with governments willing and able to supply these services...
...Defenders of foreign aid, paradoxically, answered the charge of "imperialism" by pointing to the good they were doing to the needy abroad, and the charge of "idealism" by pointing to the good they were doing this country...
...to counter one type of argument, they espoused the other...
...These should refuse to underwrite chauvinism, backwardness and class conceit abroad...
...The European Payments Union has contemplated using accumulated excess credits for international financing...
...both the 1960 and 1961 budgets call for around 2 billion military assistance and an equal amount for other credits...
...Populations suddenly torn loose from their tribal moorings and exposed to the vicissitudes of "modernization" will turn radical more easily when demagogues promise them to loot the rich—preferably those abroad —and they would rather be poor and proud than dependent...
...Their eagerness to give away some show-case projects has opened an enormous potlatch: threatening to accept the same gift from the opponents, some dictators got themselves some monumental white elephants— a modern hospital with no doctors to run it...
...It also may be either governmental or non-governmental...
...Abroad, vested interests have maintained low efficiency standards and low wages...
...7 Similar occurrences have been shoddily compiled in what might be described as the least informed and most irate book on the subject, a widely advertised Regnery publication...
...More and more, foreign aid comes to be regarded as a measure of economic self-protection, the way slum-clearing increases real estate values and decreases health hazards...
...As at least one critic17 has remarked, these conditions place on the grantee as heavy a burden as a repayable loan whose use is controlled by the grantor...
...A specific bilateral grant between governments is considered the least desirable...
...While "lending to the rich" is still a preferred investment risk, some of the funds which are invested in advanced countries eventually find their way into underdeveloped countries—but in a rather round-about way...
...give the new countries fair and stable prices for their goods, and encourage the flow of capital into the new countries...
...Though technically feasible and demographically desirable, it requires thorough economic planning in many fields far away from the construction site...
...Admittedly, this technique has become extremely difficult to use in recent years...
...In such areas private capital often could be obtained for profitable investment if river regulation, roads, power and a communications system could be provided with the help of public funds...
...This was called dollar diplomacy, diplomacy subservient to "the interests...
...they hold responsible for their plight those who pay for their meagre rations...
...Financing a railroad in Thailand may be difficult, but in Turkey it can be justified as "defense support" of NATO...
...At United Nations headquarters, the need to channel capital and know-how from the advanced to the underdeveloped countries is conceived as simple economic logic...
...the Public Law 480 Administration (Food surplus disposal...
...They still have to carry most of the burden, and they may often be tempted to shift it over onto the willing shoulders of some dictator...
...c) general planning for area development or for the balancing of international exchanges...
...irrigation dams where the soil was too salty for any vegetation to grow...
...Nowadays, on the contrary, the government is begging the corporations to please invest some money abroad so as to increase our political influence by decreasing our financial exchange surplus...
...Capital, however, unorthodoxly satisfied with 6% in the domestic market, cannot be lured abroad by an offer of 10% or even 15...
...The distribution cost of gifts is almost prohibitively high in those latitudes where any influx of free dollars first increases the demand for Cadillacs and refrigerators, thus returning to the United States the dollars that had been sent to plug the hole in the foreign exchange reserve .3 Anyway, this operation, though in a left-handed vay, keeps the friendship of the classes that matter in foreign affairs...
...How to Speed Their Economic Growth and Ours in the 1960's," (Albert D. and Mary Lasker Foundation, 1960), supports a similar outlook...
...Despite their propaganda-directed, low interest rate of 2%, Russian loans usually are more "imperialistic" than Western aid terms...
...When the Roman Empire had grown old and tired it began to rely, for the defense of its ramparts, less and less on the prowess of its citizens...
...Arrangements such as the Colombo Plan should increasingly permit underdeveloped countries to dispense with unilateral aid and similar operations which tend to embarrass the donor and the grantee countries alike...
...As in the International Monetary Fund, no single country would be expected to contribute more than 33% of the total amount, and all countries including the beneficiaries would contribute some money, while representation would be proportionate to the contributions...
...Soviet aid remains quantitatively far behind U.S...
...in international politics we are aware of repeated attempts to organize a system of collective security...
...but in neighboring Arab countries even the small amounts of foreign aid cannot be usefully invested...
...In the recent Polish deals we granted aid to a country under Russian domination and tied to the Soviet Union by solemn bonds of common interest and common fears...
...The U.N...
...Uranium, tin, copper, zinc, manganese and lead were stockpiled at support prices by the American government...
...These "progressives" usually can be satisfied at considerably lower expense, through political slogans, the delivery of modern weapons and other toys which flatter their ego rather than their stomach...
...The U.N...
...The latter should expropriate their own millionnaires, kill their sacred cows and allow birth control information to be disseminated before they use their numbers as an accusation against the more fortunate modern nations...
...Nevertheless, it drew noises, substantially similar to Messrs...
...They do not, as the American Government does, subsidize the export prices of underdeveloped countries...
...For the sake of international order, or even for a little orderliness in the application of modern technology, we must understand international aid as a necessity rather than an exercise in morality or an interest of donors and recipients...
...taking both together we form the conception of an orderly world economy providing security and opportunity for all nations.° Starting out from these premises, we distinguish three kinds of international aid according to purpose, two kinds according to sources, and three kinds according to manner...
...20 Tax laws in the donor countries are incomparably stiffer than in the recipient countries...
...they learned the lesson—only to stumble into worse conditions elsewhere...
...International Bank for Reconstruction and Development (World Bank) with its subsidiaries, the Interna tional Finance Corporation, the International Development Association and the InterAmerican Development Bank...
...The projects which followed after 1948 had less and less the character of emergency measures, but the planning features of the Marshall Plan also disappeared and the political motives became more and more distinct, until eventually we have engaged in a foreign gift competition with the Soviet Union...
...In Argentina, dogmatic strings of orthodox austerity have guided the post-Peron government to the edge of political disaster—but the budget is balanced...
...P. C. Mahalanobis, writing in Sankhya, The Indian Journal of Statistics, December, 1955...
...The actual hewers of wood and drawers of water did not obtain a fair share of the twentyyear bonanza and of foreign aid...
...But important as this aid was for its recipients, and pure as it may have been in its intentions, it only differed in scope from other philanthropies...
...Acting Secretary of State Dillon's Report on Grant Economic Assistance of March 4, 1960, pursuant to section 503(c) of the Mutual Security Act, ironically says, in effect, that the best means to reduce bilateral grants is to give them without regard to immediate defense needs...
...The bulk of these 'funds is concentrated in mining and oil enterprises, or in the public utilities of a few Latin American countries...
...This device will not sell more coffee and bananas...
...Children's Emergency Fund, private overseas donations and organized philanthropies, loans or grant of grain and seeds to famished nations were shining examples of international solidarity almost unique in history...
...Vice-versa, it was attacked for the opposite reasons, as a tool of wicked imperialists and as the fancy of starry-eyed global...
...Israel cannot obtain enough capital to suit her immigrants from industrial countries...
...It is necessary also to "raise living standards" for the broad masses...
...The Asswan Dam project offers as good an example as some of the lesser failures of Western aid policies...
...Foreign aid can smoothe out some of the roughness of that path, but it still goes up a steep hill...
...The most desirable aid, on the other hand, is one given by an international agency for the purpose of long range development, in an area short of capital but rich in undeveloped resources...
...strings...
...are auto highway leading to tribes addicted to camel riding...
...Aside from being rather expensive, this idea contradicts every historical experience...
...Gradually we renounced the condition that he should be on our side, and we do not even insist on strict neutrality any more...
...Long ago, of course, we abandoned the requirement that the grantee should be a paragon of democracy...
...16 World Politics, July, 1957...
...Nor need it fear Nasser's inability to pay or to maintain himself in power...
...In the case of cocoa and rice, the Ghanese and Burmese governments, respectively, created monopolistic trading companies of their own...
...thinking here has taken its cue from TVA's amortization scheme: the power it generates must pay for a part of its installations, but their flood-controlling function is subsidized...
...Most of the foreign grants in the immediate postwar period were of the nature of emergency aid...
...maybe that would suit the Russians, but the World Bank certainly was right in warning that the project was not sound in terms of capitalistic accountability...
...To justify a policy which simply happens to be intelligent and appropriate, he must prove that it also is virtuous...
...b) specific aid to promote or accelerate certain projects in one country...
...IV Liberals who would like to show their international solidarity and simultaneously serve their own country are prone to advocate a policy of "massive aid...
...The repercussions of large-scale investments amount to social and economic upheaval and therefore are not an unmixed blessing to the forces they are designed to shore up politically for a time...
...17 (A-2906), Resolutions in the 13th and 15th Assemblies...
...Moreover, some of the hardware and foodstuffs that have been delivered were surplus, and the prices at which they have been "sold" are arbitrary...
...This wise arrangement helped preserve the Pax Romana for several centuries...
...e) Russian: ad hoc programs under the Ministry of Foreign Economic Policy...
...The United States which—privately or through its government—contributed more than 80% to these funds has earned less credit for its generosity than it deserved...
...Their problem, says a study by the International Monetary Fund,18 is not how to advance, but how to prevent regression...
...Incidentally, the governments of new countries often are reluctant to force the transformation of native wealth into capital...
...Rescue and Relief Administration, the U.N...
...The United States usually pays in dollars and agrees to receive "soft" currency in return...
...3) An international agency may select projects different from those which could be financed by bilateral agreements and hence may turn the develop...
...For "imperialism" is not motivated by the desire for profit...
...In the latest development of this competition, we have untied all "strings" that used to be attached to such gifts...
...The new subsidiaries of the World Bank, the billion-dollar International Development Association, and the Inter-American Development Bank are specially designed to lend money to countries which in all likelihood will continue to have transfer difficulties for a considerable time...
...If our billion dollar investment in Frondizi should be lost, at least we lost it in applying sound principles...
...a steel mill where there is no iron, no coal and no market...
...VII Money is not all the poor need to receive from the benevolent rich...
...These governments in turn find it politically unwise to accept loans from foreign banks, and they cannot assure investors that stable laws will permit prolonged operation of foreign enterprise...
...Capital can be mobilized only if it has the guarantee that its investment is looked upon as a business venture, and is so understood by the recipient government and people...
...Brushing aside all sentimentalism, therefore, the Randall Report 2 frankly built its case for foreign aid on the premise that no underdeveloped nation has a "claim" to be helped...
...grants and credits to foreign countries have averaged 5 billion dollars a year, or roughly 1.5% of the gross national product, 10% of the federal budget, and 20-35°%o of the total U.S...
...The constant influx of revenue from oil so far has failed to bring much change of habit and outlook to these countries...
...8 Ragnar Nurkse, Problems of Capital Formation in Underdeveloped Countries (Blackwell, Oxford, 1953), points to the difficulties arising from caste-ridden consumption patterns...
...It remains for the political analyst to tell the U.S...
...The idea of foreign aid first was sold to the American voters, following World War II, not on its own merits but on two secondary grounds: it was philanthropic and it was supposed to keep the Communists at bay...
...the Expanded Program of Technical Assistance, closely connected with it, generally spreads its resources over a large number of small projects...
...The gap between classes, rather, has widened—and we are asked to underwrite this sorry state of affairs through grants-in-aidl Revolutionary leaders of the new countries, ignorant of the blood and sweat and tears which the creation of industrialism cost the Western nations and the Soviet Union, now are trying to achieve, with the aid of foreign grants, three things at a time...
...Its impressive dimensions would have put extreme strain on economies many times stronger than the combined forces of Egypt and the Sudan...
...the strong can be exploited by the weak.9 A third feature of this "new imperialism by gift" does not fit the classical Leninist pattern...
...We plan an operation which is meant to be a loss or a gift—and then we try to save the appearance of an ordinary business transaction by slapping 6% interest on the debt which we know will not he repayed...
...d) British: the Colombo Plan...
...Aid is offered not to the worthy poor but rather to those among the weak who are sufficiently strong to warrant appeasement or who promise to be desirable allies...
...Millikan and Rostow in their otherwise courageous book present a system of economic theory which, upon closer inspection, appears to fit no country but India...
...the Special Fund...
...In Iraq, e.g., we failed to shift our support to other classes in time...
...Outside the underdeveloped countries few people realize how prohibitive the condition of profitability may prove in practice...
...But we are lacking either in candor or in humility if we pretend that our know-how and financial aid can lift the new countries over the hump...
...The outstanding case in point is India, whose rapid development is favored by the Western powers as a counterweight against Communist China.14 VI Plans of this kind require investment aid from governments or from international institutions...
...We have accepted social security at home...
...Liberal writers will go to any lengths in fulfilling every whim of Indian politics...
...12 In fact, one argument for generous foreign aid, seldom realized for its cogency, is precisely the expectation that it might encourage the formation of native capital and persuade it to stay...
...Yearly Soviet loans now run to a billion dollars outside the satellite empire...
...Disagreement on what was good for Iran also led to the dismissal of a U.S...
...Three strategic observations were suggested to this point by Secretary General Dag Hammarskjold: 1) A comparatively small amount of aid, judiciously applied to the infrastructure, may attract a large amount of development capital from private sources...
...but it may lift the morale of some countries if we pay our tributum to them in the form of higher cocoa or tin prices instead through foreign aid, which is subject to review by 100 senators...
...A Special UN Fund with yearly pledges of $29 million15 has recently been established to initiate large-scale projects in the infra-structure of underdeveloped economics...
...On the other hand, they have given some countries prestige toys which they knew to be economically unsound.8 Ironical is the complete reversal of all former theories of imperialism...
...13 Gunnar Myrdal, An International Economy, (Harpers, 1956...
...it helps provide the technicians and experts...
...Special taxes, protective measures for native craftsmen, laws prescribing the hire of native labor and native partners, or any number of regulations may be incompatible with capitalistic notions of controlling property...
...Since its military, economic and publicity budgets come out of one pocket, it can afford to subsidize projects that capitalistic accountability does not justify...
...5 Moreover, whereas the original defense support aid was mostly spent in hotly contested areas, such as Korea, Vietnam, Greece, Turkey and Formosa, the stream of grants and loans now is more likely to fertilize projects worth while in their own right...
...While the surveying service may take the form of a grant and contingent benefits may be subsidized on a pro rata capitalization basis, the projects themselves should be made to pay their way...
...Both now have taken the place of the more ambitious SUNFED project which was to have a revolving capital of $250 million...
...other forms of aid are suspected of hidden strings which might encumber the "sovereignty" of the beneficiaries...
...Even the very latitudinarian proponents of generous international aid, Rostow and Millikin, 16 seem to have misgivings that beneficiary countries occasionally expect more from others than they are willing to do for themselves, and they insist that two essential conditions should be fulfilled—the project should make the most effective use of the grantee's resources and be carried out with reasonable efficiency...
...foreign aid effort has been considerable and remains remarkable even after the criticism we shall apply to its statistics...
...No amount of foreign investments and aid money can be a substitute for the slow growth of new habits in work and studies, in shopping and saving, in marketing and vacationing, which must accompany the great transformation from a pre-industrial to an industrial society...
...b) International Monetary Fund...
...Even so, it took the Kremlin three years to decide that such a propaganda victory over the West was worth immobilizing that much capital in one spot...
...Government economists in the underdeveloped countries privately express regret that foreign capital finds the climate unsympathetic to large-scale participation in their development, but they will not publicly state that such participation is desirable enough to call for more lenient legislation...
...19 Gunnar Myrdal, op.cit., proposes that underdeveloped countries should cartelize their export goods and highly developed countries should "discriminate against their own nationals...
...8 There is an almost mystical belief that the possession of steel mills makes for greatness...
...Every country, however small, contributed to the roster of experts who may be sent into any part of the globe to help in fighting disease, animal pests, hunger, illiteracy, in devising techniques for the improvement of productivity and of living standards, in drawing plans for the development of an area and for the easing of social differences...
...10 Two oil executives, Emilio G. Collado and Jack F. Bennat, writing in Foreign Affairs for July, 1957, favor tax privileges but think guarantees are a handicap rather than a help...
...the Development Loan Fund...
...and they wish to protect their ancient handicrafts and to preserve the hallowed ways of life...
...Its spokesmen even reject iron-clad government guarantees and refuse to be attracted by tax privileges and other devices of channeling capital into underdeveloped areas...
...Technical Assistance (Point IV) and the ad hoc budgets under the International Cooperation Administration...
...To be candid, every open-minded student of the problem now agrees that an intelligent program of international foreign aid must force the underdeveloped countries themselves to face the task of modernizing their ways...
...But the living standards rise rather slowly...
...The governments and national pride eventually became involved in a conflict of policy where originally there had been nothing but an innocent hunt for dollars...
...We did so for frankly self-serving political reasons, but if this be either imperialism or crusade against "Communism," we have to revise the terms in our Politgrammata...
...But private capital will not venture into countries whose governments are considered socialist, nationalist or otherwise irresponsible...
...6 E. S. Kerber, "Major Shift by Area in Foreign Aid," in Survey of Current Business, October, 1956...
...Likewise, many former colonies or economically dependent countries enjoyed, for well over twenty years, an uninterrupted boom of their exports and export prices...
...contributions, but it is concentrated on areas where it does the greatest good to both the Soviet Union and the beneficiary country...
...If the government or a public authority contracts for the loan, its bona fides will be judged by its own austerity, its efforts in assembling everything that can be paid for in local currency and supplied by local labor, its ability to tax its own rich and to strive towards at least the same measure of social equality within its own boundaries that it wishes to attain in terms of international equality between nations...
...neither mass markets nor venture capital have been created in preparation of an independent industrial economy...
...15 Report by Raymond Scheyven to the Tenth Session of the General Assembly, May, 1955, Supplement No...
...For political reasons, the latter seems to be preferable, if only because India's pride is hurt less by the indirect than by the direct grant of American money...
...Uncoordinated growth causes more frictions as new countries assert their interest in the world markets...
...It studies investment needs in the infra-structure and may advance some contingent or initial expenses if businesslike or state investments guarantee the project...
...But the latter has used the profits to improve his farm technology...
...Much of the "aid" we proudly offer for the noble purpose of lifting people out of poverty fails to percolate to the level where it would do most good...
...Such measures, in themselves, should do a number of things which an intelligent 'foreign aid program is supposed to achieve...
...The Russians, who like to get their allies cheap, prefer this kind of foreign aid, but by no means do they own a monopoly on it...
...A modern Secretary of State is less fortunate than his ancient predecessor...
...But not quite 40% of this capital is being invested in countries which might fall under the general description of "underdeveloped areas," and a more detailed breakdown of the total shows that we must make further significant qualifications...
...They came begging humbly that the underdeveloped countries should be so good as to accept the gift of tractors, steel mills, irrigation dams, technical advice (first rate and truly disinterested at that...
...Government how long those classes can stay in power or can be shored up through such devices...
...One half of the total-35 billion dollars—consisted in outright grants for non-military purposes or was subsequently converted into non-repayable aid...
...The Special Fund concentrates on large projects...
...The over-all statistics do not distinguish sufficiently between genuine foreign aid, subsidies to the ruling caste, and military support...
...There is nothing wrong with helping one's friends and nothing immoral in withholding help from one's enemies...
...Trends here emphasized continued in following years (same sources...
...And finally, it may be either bi-lateral, or multi-lateral as in the Colombo Plan, or international as in United Nations...
...Palestinian refugees set fire to a UNRRA ambulance which came to fight epidemics in their camp...
...Private 'foreign investments are favored over government loans by all experts, including Gunnar Myrdal, 13 an ardent advocate of national and international socialism...
...nitrates were in heavy demand...
...This can either be spent locally by the American Government, or it is released later for the use of the recipient government...
...Senate only earned reproaches for holding a hearing about the need for relief—and also because Indian forwarding firms were not allowed to share in the shipping profits...
...V Certainly, some private capital is still seeking investment abroad, at the rate of perhaps 5 billion dollars yearly, including reinvestment of unrepatriated profits...
...Since lack of know-how is one of the major deficiencies in underdeveloped countries, and would-be investors sometimes cannot provide it either, many worth-while projects would remain dormant without this cooperative U.N...
...Many distinctions that are being made are purely administrative or for the convenience of Congress, which finds it easier to vote for projects labeled "defense" or "defense support...
...service...
...Since the war's end, U.S...
...A plan promulgated by the Italian Government would convert all Marshall Aid returns into a development fund for Asia and Africa...
...Somehow related to the idea that the poor might be bought off by charity is the theory, likewise undeservedly widespread, that underdeveloped nations will not go Communist if properly bribed...
...They supply technicians and know-how, but they give few grants...
...This may account for the increase of economic as against military aid in the latest Eisenhower budget...
...The unequal pace of development daily widens the gap between the most industrialized and the back...
...The wicked alien conquerors came neither to sell their surplus merchandise nor to acquire sources of raw material or frontiers for capital investment...
...instead of catching up, the latecomers either fall behind or must take measures which are as odious as they are heroic...
...We therefore define international aid as the organized flow of capital, know-how and skilled labor from the more to the less developed areas, compensating the discrepancies of production and consumption levels, and balancing the international money exchanges...
...Again, some astute Americans have calculated that contributions to such a fund would be cheaper for the U.S...
...Proponents of such schemes to pool all the available funds, however, seem to expect very different benefits from them...
...f) European: Economic Cooperation Administration (liquidating Marshall Plan funds) and European Payments Union, apart from ad hoc programs...
...Gunnar Myrdal, who has lucidly described the conflict between national and international integration, concludes his book in resignation with this advice to the older powers: Accept and forbear, have patience and save what little can be saved of an international economy...
...III From baksheesh we should clearly distinguish international soliidarity...
...armor for an army which could not use it, etc .7 In their eagerness to be helpful, happy cold-warriors have foisted on their unhappy grantees projects which might have made sense under a different latitude and longitude, but were obnoxious to the people whom they were supposed to win over...
...elsewhere it has been treated as a treasure by the sheikhs...
...No Secretary of State need pretend that he negotiates from positions of kindness...
...During the famine of 1953, American wheat was sent to India...
...Some of these pet projects are undesirable in the eyes of the technocrats or from any point of view which looks toward peace—yet they are the ones some nations hope to realize, through log-rolling and political pressure in the board or council which is to administer the pool...
...Congress consistently refuses to give the President authority to commit the United States for more than a year...
...International aid may be: a) emergency aid, such as meeting a famine...
...Moreover, under the stimulus of national planning, an urgent and massive need for foreign capital, foreign equipment and 'foreign know-how has arisen in economic areas which promise little profit in the short run—projects which may be too huge for private enterprise to handle or which may be necessary in the interest of area development without being remunerative in themselves...
Vol. 7 • April 1960 • No. 2
