Foreign Aid Fiasco; C. H. Wolfe

Nevertheless, this $115 billion sacrifice-or even two, three, or four times that much-might have been totally justified, had it been made voluntarily in the form of private gifts and investments-and especially if the Mr. Wolfe was a member of the staff of the Foundation for Eco nomic Education when this article was published in May 1956. [109 ] money spent had been successful in guaranteeing Amer ican security in a conflict-torn world. Pleas for More Aid Since our foreign aid program has been going full blast for almost ten years now, it is quite possible to analyze not only its motives and methods but also its objectives, and-very important-to what extent they have been achieved. Taking first things first, what has been the motive of Uncle Sam's giant give-away program? It is often por trayed as a Christian compassion for the "downtrodden" or "unfortunate" nations of the world-especially for our noble World War II allies. Such a portrayal appeals strongly to millions of kind-hearted Americans and has been voiced by many proponents of foreign aid, includ ing Secretary Marshall. On May 13, 1947, he declared in an overseas broadcast: "There has been much of misun derstanding regarding our program of aid to Greece.

There has been much of distortion and misrepresentation of our purpose. We are answering the call of a valiant ally who has suffered much .... It is as simple as that." Inconsunent Pretense But only two months before, on March 12, President Truman, in urging the Greek loan, had rested his appeal frankly on the argument that "the very existence of the Greek state" was being "threatened by the terrorist [ 110] activities of several thousand armed men, led by com munists." Thus, according to President Truman, the real objec tive was to "buy" allies in our struggle against Soviet communism. Explaining the purpose of our foreign aid in 1951, Assistant Secretary of State George C. McGhee frankly asserted his opinion that: "The United States cannot afford to follow the forces of neutralism and anti Western sentiment to gain any further ground, nor to allow these forces to be captured and exploited by inter nal communism." And the objective in 1951 is precisely the objective in 1956, as countless recent official acts and statements testify.

It should be plain by now that the primary motive is by no means a compassionate concern for other na tions. It should likewise be clear that the ultimate objec tive is not the economic recovery of war-ravished Europe nor the industrialization of impoverished Asia-as is often alleged-but one thing only: the gaining of anticommu nist allies. A Test of u. S. Motives Anyone who entertains a lingering doubt about this should ask himself: Why were U.s. officials so perturbed when Russia offered to pay for the monster dam at Aswan on the Upper Nile? Would not this have greatly helped the Egyptians, and saved millions of American dollars for other worthy foreign aid projects? Or, why were State Department spokesmen so agi tated this past winter when Khrushchev and Bulganin [ III ] toured Asia with big promises of Russian aid? Surely, if concern for vitalizing the stagnant Asian economy had been uppermost, then our government should have said: "Wonderful! Now the Soviets are joining us in the great task of lifting the Asians out of povertyl" But no, Wash ington was frightened, and considered this Russian over ture as reason number one for hiking our 1956 foreign aid appropriation to the staggering total of $5 billion dollars.

Having observed this technique for gaining allies, we must ask: Do we think it in keeping with the principles on which this country was founded to stoop to the crude stratagem of "buying" friends? Is there anything in all Judeo-Christian tradition which would even remotely sanction the attempt to gain friendship by crossing a palm with silver? Bribery and Blackmail The only principled way to win a friend-whether person or nation-is to take a sincere interest in his well being, apart from any immediate gain for oneself. At tempting to "buy" national friends is, by definition, sheer bribery-a gift bestowed with the purpose of inHuencing action in favor of the donor. And it leads, almost in evitably, to blackmail. The bribed nation is tempted to say: "Give me more, or I'll switch to the other side." And whether or not a recipient country attempts black mail, it is apt to feel a deep-seated suspicion and resent ment.

[ 112] Senator Mike Mansfield, back from an extensive trip in Southeast Asia, declared last February in the Senate: The argument which is often made to the effect that we must outbid the Russians in oHers of aid to· Southeast Asia reflects very little credit on us or on the nations of that area .... The decent, the self-respecting, the independent in Southeast Asia will resent the implication that they can be bought. That this is no mere platitude is abundantly verified by current history-and it applies to Europe as well as Asia. Recent events point to the harsh and stunning fact that foreign aid simply has not worked! Again and again, the record indicates that American dollars have been singularly ineffective in winning friends for the competi tive market system and for the people of the United States. Consider some instances: France. Since the end of World War II, we have given approximately $12 billion in aid, economic and military, to France-more than to any other nation except Eng land. But French resentment of the U.S. is unmistakable.

So is the growing French response to communism-dis played in the recent National Elections when over five million Frenchmen voted communist, seating 150 com munists in the French assembly. This winter, when an American reporter asked 25 French citizens what they thought of the give-away pro gram, nearly all said it made no difference to them; they didn't get any of it. Some remarked, "It made billionaires out of French millionaires." [113 ] Greece. Henry Gemmill, reporting from Athens in the Wall Street Journal of January 26, 1956, wrote: "Today the sentiment of the populace toward the u.s. govern ment ranges from mild exasperation to violent opposition . . . Politicians such as Progressive Party leader Spyridon Markenzinis are making speeches depicting the Greek government as a toy in the hands of "our great friends.' University students have marched through the streets shouting, "Out with the Americans.... '"

This anti-American attitude revealed its intensity last February, when one out of every two Greek voters cast his ballot for the communist-backed "popular front." That's how much friendship the u.s. got for the $2.8 billion it had poured into Greece. Italy. Even stanch advocates of foreign aid concede that communism remains a potent force in Italy. And this, despite American billions, teamed up with an ut terly earnest, all-out fight for survival waged by the Catholic church in its home territory-a struggle in which priests delivered anticommunist talks from soap boxes, and even derobed and turned cloak-and-dagger men, joining Italian communist cells in order to under mine them. Still the Red lure persists, and repeated reports-as for example, from southern Italy where huge sums have been spent for development-have shown more persons becoming communists than anticommunists. Yugoslavia. Looking back a few years, we can remind ourselves that the Yugoslavian government exuded no noticeable gratitude in return for the millions of dollars [114 ] of supplies poured into that country by UNRRA. More recently, since 1950, Yugoslavia has received from us some $500,000,000 in economic aid, and about the same in military aid. And yet Yugoslav officials openly declare they have no intention that our aid should help curtail their admittedly communistic regime.

Egypt. Since the start of our program in 1951, the United States has spent some $60,000,000 in economic and technical aid to the land of the Pharaohs. Yet rela tively few Egyptians are aware of the American dollars circulating in their land. Meanwhile, Egypt has turned to the Soviet bloo to make cotton-for-arms barter deals, and Premier Nasser has fiercely opposed any Arab state's joining a Western defense alliance. England. Here is where we have doled out more bil lions than anywhere else. Yet from the start of our aid to-Britain campaign, many there have viewed us as a scheming Shylock overeager for his pound of flesh. Typi cal was this observation from the dignined London Economist, after the special postwar British loan of $3,750,000,000: "If the purpose of the American Con gress which decides American policy is, as it often seems to be, deliberately to wound and aHlict the British peo ple, it has certainly succeeded. It is aggravating to find that our reward for losing a quarter of our national wealth in the common cause is to pay tribute for half a century to those who have been enriched by the war."

More examples could be cited. These should suffice. The record is abundant with proof: D'Ollars simply do not buy friends. [115 ] European Recovery "But," a proponent of foreign aid may argue, c'our aid has brought European economic recovery, and now it will help build up the backward countries of Asia· and the Middle East; and this is the surest way to stave off . "communIsm. While there is some question as to just how much Europe has recovered, and how much is due to dollar aid, this argument remains the big weapon in the arsenal of those favoring more foreign spending. If the primary goal in Western Europe had been speeding her economic recovery, rather than wooing her with dollars, the first step might have been to analyze just why her postwar recuperation had been so slow. Henry Hazlitt makes such an analysis in Will Dollars Save the World? With clear reasoning and detailed documentation he shows that what Europe needed most was not capital but capitalism-more freedom from both internal and external interference with the market opera tion.

Why was it, at the start of the Marshall Plan, that European countries appeared to need U.S. dollars so urgently? Because, ordinarily, heavy sums were being spent on armaments, on subsidies to nationalized indus tries running a deficit, on food subsidies, and on increas ing pensions, family allowances, and other forms of social security. Rather than cut back on some of these government expenditures, which fiscal soundness would have re[ 116] quired, they issued more currency; and the volume of money in circulation rose enormously. At the same time, these governments tended to hold down interest rates, so they could borrow cheaper and encourage business borrowing-a policy which further increased pressure for higher prices. Yet, though these governments themselves had created the inflation, they refused to take the blame for the accompanying price rises, but instead charged it to "speculators" and "hoarders" and to the rapacity of pro ducers and sellers.

Rather than check the inflation itseH, they determined to hold prices under control by fixing ceiling prices on almost everything. This, in turn, threw their economies out of kilter. As is ordinarily the practice in price regula tion, they put the severest controls on necessities-and cut the profit margin on such items down to the bone. Since manufacturers could make so little profit making necessities, more and more turned to production of lux uries, which were uncontrolled. In turn, more and more workers were drawn from the necessity to the luxury industries. The result? An appar ent labor shortage, and even worse, a scarcity of neces sities-food, shelter, clothing. Without going any further, it is plain that such a situation spells Trouble. Under such a circumstance, we could have done far more for these European countries by showing them the errors of their regulated economies, and instructing them in the merits of the free market, than by shoving American dollars into their pockets.

[ 117] German Recovery During the first few years after the war, West Ger man recovery Was comparatively protracted. In 1947 millions of Germans were starving. As the late Dr. Wal ter Eucken, professor of economics at Freiburg Univer sity and heir· to the German liberal tradition, observed in 1947: Germany today is suffering acutely from an overdose of planning. The Nazis laid the basis for German economic planning-for armaments and warfare. To our surprise the Allies left things largely as they were.... But Germany had come to the end of the socialist trail, and increasing numbers began to feel that at least a slight return toward capitalist incentives might increase production. Then the Marxian-oriented Social Demo cratic party was routed by a new political combine under Konrad Adenauer, which opposed the Fair Deal controls enforced by the American, British, and French military governments. Germany started to edge a little toward a free economy, gradually taking controls off more and more commodities. The result was startling. German productivity lunged forward.

Even a small dose of Markwirtschaft (the market economy) had a· pronounced effect. By 1953 West Ger many's industrial production, on a per capita basis, was above the level of 1938, when the economy was operat ing under a full head of steam in preparation for war. Meanwhile, East Germany, by comparison, remains in [118 ] pathetic poverty. What has caused the difference? It is true that West Germany did receive generous aid in U.S. dollars. But more than one competent observer has con cluded that West Germany's heartening resurgence has been due not so much to an influx of free U.S. com modities as to the. Germans' own hard work and a sounder policy.-..;.a noticeable movement toward Mark wirtschaft. A more complete adoption of the free market would have produced even more abundance, and could have generated far more prosperity than the shot-in-the arm dollar aid. But, even though Germany still clings to a consider able measure of socialism, it enjoys more market freedom -and hence more productivity-than most other Euro pean nations.

what about Military Aid? Still, foreign aid advocates may say, ~~you talk as if all our aid were economic, while much of it is military arms shipped to our allies as a deterrent to Soviet aggression." True, much of our help has been military. And it is probable that substantial amounts designated for eco nomic use actually have. served to buttress foreign mili tary establishments. Even if we did not ship a single gun or plane, but only money or food-and even if we speci fied that these gifts be used only for nonmilitary purposes -every American dollar spent for economic recovery simply frees the equivalent in local currency for some [ 119] "marginal use," such as building a military organization. But inasmuch as our total economic-military aid pro gram has been so ineffective in winning allies, what assurance have we that these guns won't someday be pointed at us? The weapons themselves are neutral. If we have· failed ideologically, failed to win friendship and there are indications we have-then these weapons may eventually explode right in our own faces.

Three Conclusions So, in evaluating almost ten years of U.S. aid to Europe, we find: (1) It has not produced any noticeable good will or loyalty for America. (2) European recovery is highly uneven, and is most marked in West Germany where a move toward a freer economy caused an outstanding upsurge in production. (3) There is no guarantee that U.S. military aid will not be used against, rather than for us. Considering this record of dubious achievement, it is hard to understand the unrestrained enthusiasm some apparently well-informed Americans entertain for our foreign aid program-an enthusiasm which prompts them to say, in the spring of 1956: ':':U.8. dollars have done such a good job in Europe, now let's really pour them into Asial" Aid for India But I say, the vast U.S. tax-away-and-give-away pro gram has flopped in Europe, and what reason have we [120 ] to believe it will click in Asia and the Mid-East? After all, we are not newcomers in India, and what has our record been there? Since 1950 we have dumped some $500 million in India's copious lap, only to see her sym pathies turn more and more toward the Kremlin, while her newspapers either take American gifts for granted or ignore them altogether. Meanwhile, this past winter and spring Russia finally has come to India's aid, offering actual business deals-loans not gifts-and in the process is winning friends.

Some Indians are perceptive enough to urge their government not to accept any more U.S. dollars. This past winter, J. J. Singh, president of the India League of America, asked India to refuse further aid from the United States. He said: "This creates expectancies in the U.S. which India is rightly not willing to meet. That, in its turn, creates disappointment and bitterness in America, thus worsening relations." Before we brashly promise the Asians that our dollars will bring a vital productivity to lands steeped in cen turies-old traditions which fight individual initiative and free enterprise, we should consider carefully the reasons for Asian poverty. India seems destined to receive many American bil lions in coming years. Presumably proponents of dollar aid to India believe it needs American capital, and that this capital must be bestowed through the instrument of the u.S. government. But, according to Dr. Ludwig von Mises: [ 121 ] India lacks capital because it never adopted the pro-capi talist philosophy of the West and therefore did not remove the traditional institutional obstacles to free enterprise and big-scale capital accumulation. Capitalism came to India as an alien imported ideology that never took root in the minds of the people. Foreign, mostly British, capital built railroads and factories. The natives looked askance not only upon the activities of their alien capitalists but no less upon those of their countrymen who cooperated in the capitalist ventures.

Today the situation is this: Thanks to new methods of therapeutics, developed by the capitalist nations and imported to India by the British, the average length of life has been prolonged and the population is rapidly increasing. As the foreign capitalists have either already been virtually expro priated or have to face expropriation in the near future, there can no longer be any question of new investment of foreign capital. On the other hand the accumulation of domestic capital is prevented by the manifest hostility of the govern ment apparatus and the ruling party. This was true in 1952 when Dr. Mises wrote it, and even more so in 1956. Throughout these four years India has turned increasingly socialist-nationalizing industries, controlling private companies with an intricate maze of regulations, allowing the State to confiscate private prop erty, and enacting labor laws which make it extremely difficult to fire anyone, no matter how incompetent.

All these restrictions discourage both native and for eign industry and investment, and create the very pov erty which India seeks to eradicate. As long as India continues her ill-advised march toward socialism, no amount of American billions can bring her prosperity. Our dollars will only serve temporarily to camouflage [ 122] her mistake, and delay the hour when India must awaken to the free market ideas which alone can eliminate her vast army of unemployed and greatly increase the pro ductivity of individual Hindu and Moslem. Why Not Try Voluntarism? Why, then, extend further foreign aid? Additional bil lions will fail to accomplish their purpose. More than that, the whole concept-the idea that one nation must tax its citizenry and pour the booty into the coffers of less prosperous countries-is statist and socialist, utterly contrary to the ideals of a free society. No government-the United States or any other-should be allowed to take the property of individuals by force, and hand out such savings to the governments or the peoples of other nations. Such an action is dictatorial and authoritarian.

The individual alone should decide whether he wants to give or lend his property to other individuals in other countries. This voluntary system of international ex change proved potent when tried-it helped to build America and other great nations as well. At this day and hour, a return to the practice of voluntary individual giv ing, lending, and trading would not be retrogression, but dynamic and urgently-needed progress. [ 123] THE RISK WITHIN WE APPROACH for the first time in history an era in which the industrial tools provided by science and technology give promise to mankind of satisfaction of his basic eco nomic and material needs. Poverty cannot be entirely abolished, but the welfare of all mankind can be raised. Tomorrow's standards can make today look like a mere start. It is not my purpose to attempt to conceal or minimize in the slightest degree the difficulties and dangers that beset the national way.