Foreign Aid Forever?

July 12, 1954

For the last six or seven years a strange performance has been annually re-enacted in Washington. The Administration in power has decided that it is somehow America’s duty to provide handouts to an increasing number of nations all over the world. The Administration officials then tell Congress that the money is necessary to bring “world recovery”; “to avert world war three”; “to fight Communism,” and to get or keep allies. Most of these contentions have been pure rhetorical assertions. The simple truth is that no convincing economic case was ever put forward in favor of our far-flung economic program, and that Congress has never been given sufficient factual data on which to base an intelligent decision regarding the need and size of the military-aid program.

The so-called military-aid program, moreover, is merely another name for an economic-aid program. This is an elementary point, and yet it never seems to get any serious discussion or debate in Congress. The argument for “military aid” is at bottom an economic, not a military argument. The argument is not that Ruritania needs so-and-so-much defense, but that it cannot afford to pay for its own defense. More precisely, the argument is that while Ruritania needs y plus x millions for defense, it can only dig up y millions of its own, and it is up to us to supply x millions. Yet I have never seen a serious calculation put forward in detail for such a contention with regard to any particular nation, or the totality of aided nations.

If we supply Ruritania with x millions for defense, then Ruritania has more millions to spend than it would otherwise have. Unless we are sure that it spends x more millions on defense than it otherwise would have done (and we can never confidently answer this might-have-been) then it has that many millions more to spend, say, on deficits on its socialized industries, regardless of whether we earmark our funds for military uses.

The $3.5 billion that President Eisenhower asked for this year’s foreign-aid program is greater than the $2.9 billion deficit estimated for the fiscal year. If we could save this money we could balance the budget. The President pointed out that part of his proposed funds were for Europe, part for the Near East, Africa, and South Asia, part for the Far East and the Pacific, and part for Latin America. How did we ever get into the position where we thought it necessary to spend so much to support so many? And what, for example, are we now likely to get in return for the hundreds of millions we have poured into the war in Indo-China? Would not this money have been far better spent in building up our own defense program?

President Eisenhower this year recommended one good germ idea—that the new legislation should reserve for loans, rather than grants, not less than $100 million of the fiscal year 1955 funds. It would be much better, in fact, if nearly all the aid were offered in the form of loans. International loans are in themselves no more sound politically than international grants. But if we followed, say, something like the practice now followed in private mortgage loans, and offered these funds at, say, 3 percent or less, repayable, beginning immediately, in equal monthly installments over not more than the next twenty years, we could accomplish two substantial results. Having no large sums to repay at any one time, the foreign debtors could not start plausible complaints about the budget problem or the “transfer” problem. And there would probably be a surprising shrinkage in the size of funds requested from us.

Funds that a nation or an individual gets for nothing, whether for military defense or any other purpose, are seldom spent with much of an eye to economy and efficiency. Sums that have to be repaid are spent carefully, and only when the spender is convinced they are necessary. Most of the recipient nations can in fact afford to pay for their own defense. By such a shift from grants to loans, we would not only come far closer to getting our money’s worth, but far closer to bringing the whole foreign-handout system eventually to an end.