Private Foreign Aid

June 10, 1957

“Military” aid will account for about three-fourths of the total cost of the foreign-aid program. Yet a separate examination of “economic” aid may prove enlightening.

Even the heavy program proposed cannot be described as anything more than a token program. It would be a mere bucket of water in the great sea of poverty into which it was poured. The President tells us that “a billion free people . . . live in lands where the average yearly income of each man is $100 or less.” To the nineteen or so “new nations” in which these people live he is proposing to give in total economic aid next year about $1 billion. But this means $1 a year per person—which, other things equal, would raise each man’s annual income from $100 to $101. Will this 1 percent increase remove the specter of Communism? Will it meet what Secretary Dulles calls their “determination to raise their pitifully low standards of living?”

CAPITALISM THE ANSWER

It is not by government-to-government token aid that these countries can fight their way out of their age-old poverty. It is not by the socialistic experiments to which they are resorting in their “determination.” It is not by flirting with Communism or adopting it. They can fight their way out of poverty—and at what would seem a magical speed—by adopting the philosophy and methods which built this country up from a few pioneers, struggling with a few crude tools, to the richest and most productive nation that the world has ever seen. The leaders of the “underdeveloped nations” can also do this—by adopting free enterprise, by adopting precisely the philosophy of capitalism to which they are so hostile.

Capitalism is not, as the politicians of the “underdeveloped countries” suppose, mere “technical know-how,” or the “application of mechanical power.” These are among the results of capitalism, not its causes. Capitalism is a set of economic and political principles. It means freedom to produce and consume, freedom to buy and sell, freedom of contract, free prices, and free markets. With these freedoms it combines the institution of private property, under which a man is entitled to keep the fruits of his labor. It is these freedoms and protections that give so tremendous an incentive to production.

If the “underdeveloped areas” were to adopt these principles, they would immediately attract both domestic and foreign private capital for their own development. For then they would willingly give the minimum assurances necessary to attract private investment—guarantees to private property against nationalization, seizure, or excessive taxation; freedom to withdraw earnings or principal; freedom from vexatious regulations and controls generally.

PRIVATE INVESTMENT

Some of us have been pointing this out with perhaps wearisome repetition for years (e.g., Newsweek, July 7, 1952). The case was admirably put a couple of months ago in a report by the American Enterprise Association. The thesis of the report is that, dollar for dollar, private foreign investment stimulates more economic growth than foreign aid; and that primary reliance on private enterprise rather than government-to-government aid is more likely to produce an efficient and sustained rise in the welfare of the underdeveloped countries, as well as good political relations with the United States. Private foreign investment, in contrast to aid, the report pointed out, minimizes suspicion on the part of foreigners that ulterior motives are involved. It creates no sense of charity; it emphasizes mutual benefits; and it averts insoluble disputes concerning the intercountry distribution of aid.

The Administration’s new plan does pay lip service to the potential role of private foreign investment. But it wishes to subordinate it to a government Development Loan Fund which as Secretary Dulles admits, would “take greater financial risks than those acceptable to existing institutions and would, in fact, be “primarily an instrumentality of foreign policy.” This apparently means that foreign nations would continue to get loans by threatening to go Communist rather than by creating an attractive climate for private investment.