7. The Expansion of the Public Sector through Foreign Policy

7 The Expansion of the Public Sector through Foreign Policy J. FRED RIPPY With the complete imposition of totalitarian Socialism (Communism) or the adoption of full-scale democratic Socialism, the private sector of any economy is absorbed by the public sector. So far, only the first type of Socialism has succeeded in virtually eliminating the private sector. Democratic (parliamen tary) Socialism is more gradualist. It expands the public sector by selective take-over and by generally hampering the operation and growth of the private sector. Most of the non-Communist economies of today are described as "mixed" economies. They are neither completely private nor entirely public, the "mix" differing from nation to nation. Both Socialism and Communism require an all-encompassing centralized government machinery. As its result we see the expansion of state functions to regulate, control, tax, and spend.

Governments may seize a few or many of the means of produc tion, but in the process they cannot avoid restricting free enter prise in general by intervention or domination and by increasing taxation and the size of the regulatory bureaucracy. Moreover, in this climate there appears to be an inevitable tendency to berate and abuse the private sector, often accusing-sometimes falsely -those who run it of all sorts of economic crimes (see the essay by Commissioner Mason). 131 13'2 The New Argument in Economics The survival of the private sector in contemporary economies may in part depend upon a better understanding of the causes, agencies, functions, and intended or unintended consequences of interventionist government in the United States.! The Proximate Causes of Expanding Government in the United States 1. Large-scale businesses, inviting regulations 2. Labor-union monopolies 3. Business cycles 4. Unresisted demands by pressure groups for special benefits 5. Political and bureaucratic ambitions 6. Global enthusiasms for the salvation of mankind 7. Involvement, eager or reluctant, in world politics and economies 8. The disposition of people to believe that the government can solve most of the problems perceived in the modern "com plex" world.

Of course, there is some overlapping among the above cate gories. They are merely intended as a general checklist. The existence of large corporations and labor unions and the need to control monopolistic tendencies are obvious. There are also several "natural monopolies" that require regulation in respect to rates and services because of the impracticality of competition. However, it would be difficult to maintain that eco nomic monopoly per se is a genuine cause of big government. If this were true, we should expect less government today than in 1900. And we remember, of course, the Great Depression and the numerous "alphabetical agencies" established in the vain effort to achieve "full employment and. economic prosperity." The fourth cause, the demands by pressure groups for govern· ment favors, has been in operation since the beginning of our nation. The significance of such words as tariffs, bounties, "pork barrel/' quotas, and subsidies should be l\"ell known. A multi plicity of government favors not only requires a multitude of Expansion of Public Sector through Foreign Policy 133 public employees but also tends to give rise to bloc voting and electoral corruption through "platform bribes."

The personal ambitions of politicians, demagogues, and bureaucrats to make history or at least widen their jurisdiction also cause growth and extravagance in government. This trend, curiously enough, is no longer fully noticed by the general public of our time. The warnings of the founders of the limited governments of the Old World and the New have been forgotten. For the promotion of their welfare, people now seem to expect more and more from the state and less and less from their own efforts and ingenuity. The sixth and seventh causes are closely related and will form the crux of my analysis. But first a few observations about the context. Big government operates in ever larger measure through agencies of various types which have restricted the free enterprise of the people but which also have tended to wring from the Congress more and more autonomy and thus have removed themselves ever farther from the inspection and con trol by the representatives of the people. Many of these agencies are attached to the various federal departments headed by the President's Cabinet officials. These posts have increased con siderably during the past century. The most recent addition was a Secretary of Health, Education, and Welfare. And the most likely addition in the near future will be a Secretary of Urban Affairs and Housing. Some agencies, such as the Bureau of Federal Revenue, have themselves become so autonomously fragmented that contradictory decisions arise within them. A more numerous group of agencies stand apart from both the federal executive and the federal legislative body. Nobody seems to know the exact total of both types. Estimates run as high as 2,500.

Classified in respect to function, perhaps the majority of these agencies can be reduced to the following categories: 2 1. Monetary and fiscal agencies, including collectors of revenue 2. Quasi-judicial agencies 3. Procurement agencies 134 The New Argument in Economics 4. Regulatory agencies 5. Agencies concerned with domestic security and order 6. Conservation agencies 7. Subsidizing and welfare agencies 8. Agencies engaged in production and distribution 9. Agencies, both military and civil, engaged in the preserva tion of national security, the conduct of foreign relations, and the promotion and protection of foreign trade and foreign investments. For present purposes I am mainly concerned with the agencies that conduct foreign relations, including the promotion and protection of foreign trade and investments and the expenditure of public funds for these purposes. But a few more general remarks about the broad setting maybe in order.

The more or less unintended consequences of big government are numerous and often oppressi ve or even fatal for personal liberty and national prosperity. The following list is probably incomplete. I. Enormous and often wasteful expenditures of public funds 2. A federal debt approaching $300 billion 3. Federal taxes which take an average of more than 20 per cent of the national annual income 4. Draining of the sources of state and local revenues, as well as a growing tendency toward double taxation 5. A propensity to transform national elections into grand auctions in which rival candidates bid against one another for the votes of the electorate with promises to spend the people's money 6. An inflation that has reduced the purchasing power of our dollar to less than 47 cents in comparison with its pur chasing power in 1939 7. The linking of wages and salaries of federal employees and officeholders to the inflationary kite, thus removing a major bureaucratic motive for preventing the continuous rise in the cost of living Expansion of Public Sector through Foreign Policy 135 8. Curtailment of personal freedom, particularly freedom to spend, invest, and conduct private business enterprises 9. Gradual substitution of government economic activity and government doles for private self-reliance, initiative, in genuity, and industry.

In its attempts to promote global justice, prosperity, and peace, our Federal Government has granted and loaned a total of more than $90 billion, without counting the administrative costs of the numerous international organizations established largely at its behest since 1945. The United States has forced its tax payers to provide from one-third to more than one-half of the compensation of these international income-tax-exempt em ployees. Compulsory spending for foreign aid has been utilized repeatedly as an argument for extravagant federal appropriations for domestic purposes. In line with governmental attitudes and practices acquired and cultivated in the foreign-aid field, our Federal Government now employs funds taken from the taxpayer to induce or force state and local governments to intervene in various private sectors or else to accept federal intervention. Federal Intervention in Foreign Trade and Foreign Investment I now invite attention to trade and investment intervention in the international sphere. Probably necessary in some in stances, if foreign governments cannot be dissuaded from taking similar action, it is the sort of activity that tends to break through all restraints. Already it involves .more agencies, bureaus, and commissions than I can enumerate here, and no doubt it like wise involves considerable overlapping and overstaffing. Impor tant in this category are the Export-Import Bank, the Tariff Commission, the Bureau of Foreign Commerce, an office of Tour ism, the Commodity Credit Corporation, the General Services Administration, commercial and agricultural attaches scattered around the world, an agency in charge of trade fairs, a host of bureaucrats in the State and Agricultural Departments busy with the negotiation of sales and barter agreements required by 136 The New Argument in Economz"cs Public Law 480 of 1954 and subsequent amendments, legisla tion designed to dispose of farm surpluses by means of grants, sales, and barter-all these and many other agencies and em ployees are involved.

Subsidies are provided for our Merchant Marine and our International Airlines. Attempts are made by federal bureau crats, chiefly for political reasons, to manipulate import quotas for petroleum, sugar, and other commodities. And our wool growers are given bounties for the same purpose. Capitalists who invest their funds, equipment, and skills abroad are guar anteed by our government against almost every hazard except bad judgment and defective management. A billion dollars in such guaranties is already authorized. Ironically, these guaranties apply only to new investments. The Cuban and Bolivian expro priations and confiscations revealed that no such guaranties are provided for older investments. Such guaranties, however, under mine any determination to exact prompt and adequate compen sation for losses of capital in sugar, petroleum, tin, and other enterprises. Finally, the large grants and loans made to foreign countries in connection with our so-called "mutual-assistance"

programs are motivated in part by the desire to promote exports of capital goods as well as consumers' goods. And if, in the process of stimulating exports, a number of industries turning out con sumers' goods or producing primarily for the domestic market are injured by the manipulation of tariffs and import quotas, these industries must be compensated by federal subsidies to both their owners and their workers. Free enterprise and individ ual liberty would be far· better served by international agree ments to desist from the utilization of these complex and costly efforts to promote trade and investment. Foreign-Aid Programs and the Public Sector The total cost of our foreign-aid programs for the fiscal years 1946-1961 has been estimated, as already noted, at some $90 billion in government grants and loans. But this does not Expansion of Public Sector through Foreign Policy "137 include the many millions contributed by our Federal Govern ment to the administrative expenses of a multitude of inter national organizations, global and regional, established during the postwar period, many of them at the urgent suggestion of our own high officials.

Whatever the doubts we may have about the talents of our politicians and bureaucrats in the conduct of foreign relations, their talent for the multiplication of public agencies must be admitted. The total that they have sponsored for the manage ment of international relations and the promotion of universal prosperity and peace during the years since the end of World War II is certainly not less than seventy-five. And in addition to expensive participation in all these organizations of an inter national or regional type, our Federal Government has set up numerous special organizations of its own for the purpos.e of engaging partly or exclusively in foreign-aid programs. Among the latter are the Export-Import Bank, the International Co operation Administration, the Development Loan Fund, the United States Information Agency, the Office of Cultural Rela tions, the Peace Corps, and several agencies charged with admin istering the provisions of Public Law 480 and with the task of bartering farm commodities for stockpiles of minerals and metals.

Because of overlapping between these and the many international organizations, co-ordinating agencies are beginning to be created -and surely we shall soon have co-ordinators to co-ordinate the co-ordinators. 3 I have rny doubts regarding the inevitability of the course of world politics (supposedly) forcing our top-level politicians to attempt too much too soon in setting out to redeem the inhab itants of our planet. More pertinent for this occasion is an attempt to assess the weight and quality of our performance since World War II. Does. the postwar participation of our country in world. politics show or· promise more satisfactory results than were achieved by the efforts of Woodrow Wilson, F. D. Roosevelt, and their collaborators? I have not been able to put aside my .. misgivings about the possibility of attaining within any short time 138 The New Argument in Economics the announced goals of freedom, justice, prosperity, and peace for all mankind, particularly through the economic means em ployed by our government.

Except for the threat of Soviet aggression, most of Western Europe, owing in part to the economic assistance received from theU nited States, probably is in a much better condition than at any time in the past. But a very large part of the rest of the world is far from showing a reasonable result of the billions poured into it. In the Orient, in Africa, and in much of Latin America, turbulence and violence and extreme economic and social tensions, partly caused by the glowing expectations aroused and fostered by the United States, the United Nations and its special agencies, and the utopian promises of the Soviet bloc, are hampering political, economic, and social progress. Growth in population is outrunning growth in production, and produc tion is impeded by statism. Thorough inspection of our assistance programs has revealed mismanagement, waste, and corruption wherever such inspection has been made: in Laos, Cambodia, Korea, Formosa, South Vietnam, and Iran; in Haiti, Bolivia, and Peru. Although most of those guilty of corruption are natives of the various countries, much of the waste and inefficiency must be charged against the agents and agencies of the United States. If despots are now fewer in Latin America than before the programs were initiated, despots have become more numerous in the rest of the under developed world (e.g., Ghana, Egypt, Indonesia, to name a few).

The immediate benefits of our aid, such as they have been so far, have rarely reached the masses of the people. The major part of our so-called "free world" is neither free nor prosperous, and we are gravely dissipating our resources in attempts to bring freedom and prosperity to them. Our noble intentions and our benevolence have rarely de veloped gratitude or confidence, goodwill or respect. Govern ments that formerly asked for help as a favor are now demanding it as a right and threatening to join the Sino-Soviet bloc if our help is denied. Thinly veiled blackmail is becoming a habit Expansion of Public Sector through Foreign Policy 139 in many instances. Neutralism with reference to the global con flict between totalitarian tyranny and political, personal, and economic freedom is spreading in the Orient and Africa, and even in the Western Hemisphere. Dependence upon government rather than private initiative and enterpris,e, fostered-probably for the tnost part unintentionally-by our aid progratns, is being increasingly emphasized almost everywhere. Our government has not even been able to negotiate a consensus in respect to the Communist regime set up by Fidel Castro in the Caribbean danger zone.

Hardly anywhere in this vast and populous underdeveloped world, I repeat, can the impartial observer discover a strong determination to promote the private sectors of national econ omies and contrive protective equilibriums against the encroach ment of the public sectors. If any exceptions are to be found, they might be in Latin America-maybe in Argentina, Peru, or Colombia, or in some of the small countries of Central America -although the evidence is not yet convincing to me. Nor do I believe that our cheap public loans and grants will serve to promote the private sectors in these countries; on the contrary, there are already indications that free funds are likely to be used to buyout foreign holdings of private enterprise and expand the public sectors. It is difficult to discover facts showing that any of these Latin neighbors are more favorably disposed toward private enterprise-particularly foreign private enterprise-than before they began to receive economic and technical assistance from our government. Public ownership and operation of the means of production seems to be spreading in most of the nations south of the Rio Grande. The public sector, which has long included telegraph systems and a few railways, most of the locally owned steamship firms, a few telephone systems, and several electric utilities and water and sewer installations, has now taken over many more of these, and has begun to add to them, beginning with the petroleum industry (after the earlier Mexican and Argentine examples) and extending to banking, finance, and 140 The New Argument in Economics insurance, the new steel plants, the mining industry, broadcast ing and television, and several others.

Price stabilization and production controls are expanding in agriculture-and our government, at the recent conference in Punta del Este, and on other occasions, has agreed to speed this movement into the public sector. The state bureaucracies are growing like mushrooms during the rainy season. Many of the state enterprises incur deficits year after year, so that inflated currencies continue to purchase less and less. But, as I have said, I have not succeeded in ferreting out any convincing evi dence of a strong disposition to reverse or even interrupt the general trend. Nothing that our government can do, or seems willing to do, appears likely to redress the balance and create the equilibriums required for the efficient functioning of stable national Hmixed economies." 4 Meantime, our foreign policies, political and economic, have fostered the advance of our own country's public sector until it threatens to crush the private sector by heavy taxes and a maze of regulations and controls. Although our foreign policies have not initiated this expansion, they have accelerated the advance, and accelerated it more than has been necessary in order to deal with the crises of our century.

Suggestions Regarding Policy In spite of all my pessimistic utterances. and apparent defeatism, I am still an optimist with respect to my own country and a few others in the Western world, provided our people and theirs can be aroused from their apathy. I propose an appealing statement of freedom's basic creed. My personal belief is that the creative spirit and the energies of the individual are the major impulses of all progress, and that every restraint imposed upon them not only retards progress but hampers the pursuit of happiness as well. Every expansion of government-i.e., of unappealable power by men over men except expansion for the purpose of preserving order, safe..

Expansion of Public Sector through Foreign Policy 141 guarding national security, promoting justice, and preventing monopoly, constitutes a reduction of the liberty of those governed. Regarding every proposal to multiply the functions of govern ment, this fundamental question should be asked: Does this proposed new function restrict the creative spirit and energies that freedom provides? This ought to be the crucial test; and whatever the language employed to clothe this basic creed, it should be constantly reiterated by all our public officials and by all who take part in the formation of public opinion. Any political, economic, or social order established upon a widely different foundation is bound to weaken and eventually destroy the principle of the sacredness of the individual human being and his inherent rights. To the extent that we feel our nation must assume global responsibilities in the national interest, I propose that our foreign policies should be designed to extend this creed to other nations and peoples, and that every operation in the realm of foreign affairs should harmonize to the maximum extent possible with this creed; that departure from it in the name of expediency should be reduced to an absolute minimum; that representatives of our government charged with the management of our external relationships and interests be selected in as strict accord with this principle as possible; and that vigorous and tactful efforts be made to persuade nations and peoples receiving our support and assistance to act in harmony with it. This will mean, of course, that our aid may have to be cut off from some of the ninety-seven countries to which it has been granted, but perhaps most of these are beyond our redemptive powers in any event if they cannot be induced to accept our phjlosophy of the individ ual. This may likewise mean that not a few of our incumbent statist bureaucrats, both at home and overseas, should be removed.

I must confess that all those who are engaged in this global effort to accelerate the economic and social progress of this vast aggregation of retarded nations and peoples arouse my deepest 142 The New Argument in Economics sympathy. They arouse my sympathy because, like the leading actors in a classical Greek tragedy, they are likely to be doomed to frustration and failure. According to my view, there is only one way to develop the underdeveloped inhabitants of this earth without doing violence to human dignity and human rights, and that one way is freedom's way: free enterprise, hard work, honesty, efficiency, a long preliminary period of low wages and fairly high profits regularly and prudently invested, and a government that confines itself mainly to improving trans portation, education, and health and to providing conditions that will foster private investment, both domestic and foreign.

Unless the many millions now said to be involved in this "revolu tion of rising expectations" can be convinced that austerity must precede affluence and that an expansion of the capacity to pro duce must be achieved before launching a multiplicity of welfare programs·, their anticipations will never be realized. Unless they move along this highway in their pursuit of higher levels of living and happiness, all the economic aid that the more affluent nations can provide them, all the personnel that may be sent overseas to assist them, will do them little good. Perhaps we can find some reassurance in the address by Robert L. Garner, President of the International Finance Corpo ration, delivered on September 21, 1961, at the annual meeting of the Board of Governors of the World Bank in Vienna. I con clude with a few quotations from it: Obviously there is need for governments to provide the basic facili ties and services. To do this in adequate measure will strain their human and financial resources. It seems sensible, therefore, to give the greatest scope to private initiative and capital in all field& which are not necessarily in the public sector.

There is convincing proof that this is the most assured method of getting development. The most productive economies which have brought the highest standards of living to the most people have been those which have permitted private initIative to control the widest range of activities. This system has worked in Europe and Japan with the long-established societies. Over the past fourteen years I have visited some fifty countries, Expansion of Public Sector through Foreign Policy 143 most of them in earlier stages of development. The most substantial progress I have observed has come from the private sector, where it has been provided with basic facilities and a political and ad ministrativeclimate in which it could exercise its talents. NOTES I. Professor Calvin B. Hoover's The Economy, Liberty, and the State (Garden City, New York: Doubleday, 1961) is a cautious treatise on this subject, dealing, however, only with Europe and the United States.

2. The World Almanac contains a long list of these agencies and com· missions. Consult the United States Government Manual for fuller in fonnation. Among the functions listed, there is considerable over lapping. Among the ones that have expanded most are those involving regulation, conservation, subsidization and welfare, and those related to national security and foreign trade and investment. Production and distribution of commodities include water for irrigation, electric power, the repair of ships, and world-wide operation of housing and hotel facilities and post exchanges, to mention only a few of the most important. 8. This and the preceding paragraph are based on the Hearings of the House Subcommittees on Appropriations for the State Department, the United States Infonnation Agency, and the International Coopera tion Administration. I refrain from a mass of detailed citations.

4. The following works contain impressive data on Latin-American pro pensities to expand the public sector: Harry Stark, Social and Economic Frontiers in Latin America (Dubuque, Iowa: Wm. C. Brown, 1961); J. Fred Rippy, Latin America and the Industrial Age (New York: Put nam's, 1947); and British Investments in Latin America (Minneapolis, Minnesota: University of Minnesota Press, 1959). Consult especially the chapters on industry and public services, including railways. The Congressional Record (Sept. 23, 1961), pp. 19799-801, contains an account of an electric-power seminar held in Mexico City during the previous August. Written by Alex Radin, a public-power advocate from the United States who attended the conference, it points out that the governments of Latin America own and operate 60 per cent of the region's installed electric-power capacity and that most of these govern ments are advocates of the further expansion of the public sector into this phase of their economies. The conference was attended by repre sentatives from the United Nations and its special agencies as well as from the Latin American countries and the United States.

The Congressional Record (Sept. 25, 1961), pp. 19846-854, offers an illuminating discussion of the shortcomings of "mutual assistance" by Senator Prescott Bush of Connecticut, who had just returned from a conference of representatives of various multilateral financial agencies engaged in efforts to speed the development of the retarded countries.

144 The New Argument in Economics Senator Bush quotes at length from the high officials of the global banking organizations: World Bank, International Finance Corporation, International Development Association, and International Monetary Fund. I emphasize this quotation from the head of the IFC: Over the past fourteen years I have visited some fifty countries, most of them in earlier stages of development. The most substantial progress I have ob served has come from the private sector. ....