Aid with What Strings?

April 3, 1961

Our foreign-aid program, now fourteen years old, is the product of sentimental confusions. Its basic assumptions are wrong politically, diplomatically, and above all economically. Yet just at the moment when our balance-of-payments crisis makes it most necessary to re-examine them, and to consider how we can most gracefully taper off the program, we are planning to expand it to “towering dimensions,” and to commit ourselves for years ahead.

Consider the dimensions the program has already assumed. Since the end of World War II the United States has spent the staggering sum of $90 billion in foreign aid—more than $60.4 billion of it for economic aid—to more than 70 nations.

In a book written in 1947, I pointed out that intergovernmental loans (they were first proposed as loans, not gifts) were on the horns of a dilemma. “If on the one hand they are made without conditions, the funds are squandered and dissipated and fail to accomplish their purpose. . . . But if the lending government attempts to impose conditions, its attempt causes immediate resentment. It is called . . . ‘American imperialism’; or ‘interfering in the internal affairs of the borrowing nation.”

THE DILEMMA

This dilemma has never been acknowledged by the successive administrators of foreign aid. In practice, however, they have grabbed first one horn, then the other. Faced with waste, corruption, fantastically impracticable schemes, they tried to impose a few modest conditions. Faced with resentment of these conditions, they hastened to assure recipient governments that the aid would be given “without strings.”

Now, in the new Kennedy foreign-aid program, particularly as outlined in the March 13 speech to Latin American diplomats, we are to impose conditions again. But unless I gravely misinterpret that speech, they are to be precisely the wrong conditions. We are to give aid, not if the recipients will adopt the only principle that can make the aid effective—the principles of capitalism, free markets, private property, private enterprise—but if they will adopt grandiose statist or socialist programs:

“Each Latin nation must formulate long-range plans for its own development—plans which establish targets and priorities.” Was it by formulating long-range government plans and establishing governmental targets that the United States itself became the richest and most productive nation on earth? Or was it not, rather, by permitting free individuals each to make his own long-range plan or establish his own targets and priorities?

PRICE ‘STABILIZATION’

Mr. Kennedy seems to call for more of the very programs that have brought many Latin American countries to their present distress. “The United States is ready to cooperate in serious case-by-case examinations of commodity market problems. Frequent violent changes in commodity prices seriously injure the economies of many Latin nations. . . . Together we must find practical methods of bringing an end to this pattern.” It is precisely changes in prices that guide producers as to what to plant or make, and how much of it. It is precisely changes of prices in free markets that guide allocation of production among thousands of commodities, tending to optimum balanced production in the long run. It is precisely government attempts to “stabilize” such prices—Brazil’s with coffee, ours with our own farm commodities—that lead to waste, imbalance, unsalable “surpluses,” contrived scarcity, increased taxes, and final disillusion for the very producers being “aided.”

It is true that the President makes some points in the other direction. He wants Latin American nations to “insure monetary stability.” But it is precisely the “massive planning efforts” they have already made (of which he calls for more) that have led the great majority of them into appalling and inexcusable inflations. And our own present contemplated expansion and perpetuation of our foreign-aid program is one of the major threats to renewed inflation at home.

How long will it take us to learn that the most important thing we can do for world stability is to keep the dollar strong?