The Future of Foreign Aid

January 16, 1950

The Marshall Plan was based on a wrong diagnosis of the sickness of Europe and a wrong conception of its cure. Its sponsors now hail it as a great success. They attribute to it every economic and political improvement in Europe since it was put into effect. Every setback or deterioration, they explain, has been in spite of the Marshall Plan.

This one-way post-hoc-ergo-propter-hoc logic does not seem to be shared by the beneficiaries. In a recent poll conducted for the ECA in Europe, for example, only four Frenchmen in every 100 questioned thought the Marshall Plan had been a factor in French recovery.

On purely economic grounds, it would do no harm to terminate ERP when the present appropriation expires on June 30. Unfortunately, though there was not the slightest good reason for our doing so, we made an implied promise to the European governments that we would continue our Marshall aid for at least four years. We would only bring on recriminations and charges of bad faith if we were to terminate it now.

On the other hand, even the ECA now talks of terminating aid in 1952 and of cutting next year’s appropriations by 25 percent below that for the current year. But if ERP is to run for only two years more, the logical way to taper off would be to cut the appropriation by one third now and by a second third for the following year. The appropriation for the current fiscal year was $3,778.000,000. This should be cut to, say, $2,520,000,000 for the 1951 fiscal year and to $1,260,000,000 for 1952.

To cut the appropriation by only 25 percent now would either imply at least a three years’ continuance or require European governments to make a disproportionate adjustment at the end of the second year. It seems more reasonable to reduce Marshall aid by $1,260,000,000 in each of the next three years than to cut it by only $944,000,000 in the first (and second?) year and by the remaining $1,890,000,000 in the third.

In tapering off Marshall aid in this simple, proportionate way, Congress should act as soon as possible—long before the end of the current fiscal year. And it should authorize now the appropriation both for 1951 and 1952. This would give European governments plenty of advance notice concerning how much they could expect to receive from us. It would enable them to make their plans accordingly. It would also forestall what would otherwise be constant propaganda for larger and continuing aid. The truth is that the amount set for ERP aid has always been an entirely arbitrary figure. To recognize this frankly would lead to enormous administrative simplification. Congress could simply direct that the reduced total sums it appropriated should be divided among the individual governments in the same ratio as in the current year. This would take from ECA officials a burden of decision that should never have been placed upon them.

In fact, the whole ECA bureaucracy was unnecessary from the first. The elaborate ritual of “counterpart funds” and other such special earmarked accounts is meaningless as a real control. It merely befuddles both Europeans and ourselves. All Congress need do is to authorize the Secretary of the Treasury to pay checks at regular intervals to the ambassadors of the recipient European governments. The ineffective but much-resented interferences of the ECA in the economic policies of these governments would halt. These governments would still have as strong an incentive to reform as any ECA pressure provides. It would be the definite knowledge that the aid was coming to an end.

Such a plan would be far superior to the proposed new “clearing union” for Europe. This “union” would be merely one more futile effort to do what the existing International Monetary Fund is already supposed to do. It would actually apply “incentives in reverse” by giving the most to the countries that succeeded in getting themselves the biggest trade deficits.

If we cannot have sound foreign-aid plans we can at least have simple ones.