Out of this there came the argument that the true role of foreign aid was neither military nor technical assistance but the organized promotion of national development. Millikan and Rostow made an early statement of this viewpoint in a book of 1957, A Proposal—Key to a More Effective Foreign Policy; and Rostow gave the idea its historical rationale three years later in The Stages of Economic Development. The Charles River analysis made several contributions of great significance. First of all, it offered the aid program what it had long lacked—specific criteria for assistance. The goal, the Charles River economists said, was to enable underdeveloped nations, in Rostow’s phrase, to “take off” into self-sustaining economic growth. This, they believed, was feasible for most countries; and, when it was reached, the need for special external assistance would end. Next they pointed out that non-economic as well as economic factors determine growth. Thus, in addition to the familiar range of economic issues—industrialization, agricultural methods, sources of energy, the internal market, inflation, balance of payments and so on—they brought in structural change, land reform, the roles of the public sector and of private entrepreneurship, political development and other social and cultural adjustments required, as Millikan put it, “to reduce the explosiveness of the modernization process.” Both economic and non-economic factors were to be subsumed under national development plans. The emphasis on national development was not intended to divorce foreign aid from the political interests of the United States. But it looked to long-term rather than shortterm political effects. In this view, foreign aid, instead of being a State Department slush fund to influence tactical situations, should aim at the strategic goals of a stronger national independence, an increased concentration on domestic affairs, greater democracy and a long-run association with the west.
All this, it must be confessed, had occasionally a certain blandness. It sometimes made the process sound a little too easy and continuous. Economic development, for example, did not infallibly make for social stability or political democracy; and, while this was duly noted, one missed in the analysis a sense of the savage tensions in developing countries as traditional structures broke down and released new anxieties and furies. Thus most of the Cambridge thinkers wanted to tame the ordeal of land reform, making it gradual and responsible, accompanying it by supervised credit and agricultural extension services. They declined to recognize that its essential value might come precisely from the revolutionary effect it had on the distribution of wealth and power, even if this meant the discomfiture of landlords or the reduction of output. One missed too a sense of the hopelessly widening gap between the poor and the rich nations which was transforming Harlan Cleveland’s revolution of rising expectations into a revolution of raging envies.
There was a sharper feeling for the discontinuities of development in an influential essay which Galbraith published in Foreign Affairs in April 1961. Pointing out that capital assistance alone could not do the job, Galbraith laid heavy emphasis on four other things as equally crucial: a substantial degree of education within the country; a substantial measure of social justice; a reliable apparatus of public administration; and a purposeful theory of national planning. The stress on education assumed particular importance in the next years. “A dollar or a rupee invested in the intellectual improvement of human beings,” as Galbraith said later in India, “will regularly bring a greater increase in national income than a dollar or a rupee devoted to railways, dams, machine tools or other tangible goods.” The stress on country planning and social reform similarly became central, especially in Latin America.
The Charles River approach represented a very American effort to persuade the developing countries to base their revolutions on Locke rather than Marx. Perhaps this was a dream, but it was not impossible of fulfillment in all countries. Certainly it represented an immense improvement over the philosophy of the country store. It gave our economic policy toward the third world a rational design and a coherent purpose. It sought to remove our assistance from the framework of the cold war and relate it to the needs of nations struggling for their own political and economic fulfillment. It laid out fields for research and priorities for action. Its spirit was generous and humane. It may have fallen short of the ferocities of the situation. But, given the nature of our institutions and values, it was probably the best we could do.
2. KENNEDY AND FOREIGN AID
In the late fifties a few people in the Eisenhower administration, influenced partly by the Millikan-Rostow book of 1957 but even more by their own experience, were growing dissatisfied with the technical assistance preoccupations of ICA. Within ICA itself middle-level officials wanted more emphasis oh capital for development. The case for change was strengthened in 1957 when Douglas Dillon returned from the Paris embassy to become Under Secretary of State for Economic Affairs. Dillon’s energy and imagination, combined with pressure from liberal Democrats in Congress, led in 1958 to the Development Loan Fund (DLF), authorized to offer foreign countries capital assistance for development projects, and, two years later, to the Inter-American Development Bank with its Social Progress Trust Fund. But the DLF received only a limited appropriation, and the Dillon of that day recoiled from such heresies as country planning. Moreover, since the congressional advocates of DLF insisted that it be set up as an independent corporation in order to avoid being dragged down in the ICA quagmire, it had little impact on ICA philosophy or performance.
The Charles River economists had their more direct influence on Kennedy who was, after all, their Senator and accustomed to consulting them on other matters. As the decade progressed, Kennedy’s interest in aid problems had steadily increased. His concern with India soon led him to larger reflections about the challenge of modernization. He readily accepted the Cambridge thesis that the American interest would be best served by the development of strong and independent states. He knew that money was essential but insisted repeatedly that it was not enough. “If we undertake this effort in the wrong spirit,” he said, “or for the wrong reasons, or in the wrong way, then any and all financial measures will be in vain.” Along with capital, he wanted education and social change. The political payoff, in his view, would come in the long run and as a result of other things than aid appropriations. He doubtless agreed with Machiavelli: “The friendship which is gained by purchase and not through grandeur and nobility of spirit is bought and not secured.”
He also had a deepening sense of the urgency of the aid effort. In 1959, after mentioning the national preoccupation with the missile gap, he called attention to another gap which, he said, “constitutes an equally clear and present danger to our security”—the economic gap. By this he meant “the gap in living standards and income and hope for the future . . . between the stable, industrialized nations of the north, whether they are friends or foes, and the overpopulated, under-invested nations of the south, whether they are friends or neutrals.”
It is this gap which presents us with our most critical challenge today. It is this gap which is altering the face of the globe, our strategy, our security, and our alliances, more than any current military challenge. And it is this economic challenge to which we have responded most sporadically, most timidly, and most inadequately.
The Eisenhower administration’s approach to foreign aid, he said, was helter-skelter, fragmentary and ineffectual. “The heart of any solution,” he continued, “must be a substantial, long-term program of productive loans to underdeveloped areas from a fully capitalized central fund.” The idea behind the Development Loan Fund was right; but the DLF “has never fulfilled the barest intentions, much less the long-range visions, of its architects here in the Senate.” Unless it received sufficient resources and authority, we could expect in our aid undertakings “a continuing of ad hoc crisis expenditures—a further diffusion and dilution of our effort—a series of special cases and political loans . . . a lack of confidence and effort in the underdeveloped world—and a general pyramiding of overlapping, standardless, i
ncentiveless, inefficient aid programs.”
Kennedy’s interregnum task force on foreign economic policy renewed this indictment. George Ball was chairman; and Cambridge, with Millikan and Rostow, Galbraith and Gordon, was well represented among the foreign aid consultants. The task force pointed out that three-quarters of the aid funds for fiscal year 1960 and four-fifths for fiscal year 1961 were for military and short-term political programs; development was assigned only 23 per cent one year and 19 per cent the next. The existing system, it said, “has been designed primarily as an instrument against communism rather than for constructive economic and social advancement.”
Three weeks after receiving the report, Kennedy as President faced the task of reorganizing the aid effort. He had inherited an organization, or rather a congeries of organizations; he had inherited a congressional conviction that foreign aid was primarily part of the cold war; and he had to work within that inheritance. His first foreign aid message in late March illustrated his quandary. As originally drafted in terms believed necessary to win maximum congressional support, it was an old-fashioned ‘let’s beat communism through foreign aid’ appeal. But Walt Rostow in the White House and David Bell and his deputy, Kenneth Hansen, in the Bureau of the Budget managed to insert a little of the new philosophy into the text before it was delivered.
“The fundamental task of our foreign aid program in the 1960’s,” Kennedy finally said, “is not negatively to fight communism: its fundamental task is to help make a historical demonstration that in the twentieth century, as in the nineteenth—in the southern half of the globe as in the north—economic growth and political democracy can develop hand in hand.” To meet this challenge, he continued, the effort must base itself on new principles—especially national development planning and long-term authorization and financing. It must also have unified administration and operation; and this meant, Kennedy explained, a single aid administration absorbing not only the International Cooperation Administration and the Development Loan Fund but Food for Peace, the Peace Corps and even certain functions of the Export-Import Bank.
In the meantime, he had appointed Henry Labouisse as head of ICA and Frank Coffin as head of DLF. Labouisse, a civilized and intelligent man, had been scheduled for the ICA job under Eisenhower, only to have the appointment withdrawn when a White House sleuth discovered that he had once registered in Connecticut as a Democrat. Giving him the job now seemed a useful act of moral retribution. Coffin, who had fought for the DLF as Congressman from Maine, was a man of judicious and liberal temperament for whom Kennedy had warm personal regard.* At the same time, Labouisse was also made chairman of a task force on foreign economic assistance, with three subsidiary groups—on program (headed by Coffin and Max Millikan), organization (headed by George Gant of the Ford Foundation) and legislation (headed by Theodore Tannenwald, Jr.). The task force worked through the spring and summer to lay the groundwork for the new Agency for International Development (AID).
It was notable that the task force mandate was confined to economic assistance, even though military aid constituted the bulk of the annual program. In the White House Robert Komer argued for a parallel reappraisal of the military effort. There were strong reasons for this. In some underdeveloped countries the military programs imposed heavy economic burdens. If the United States provided the heavy equipment, the countries themselves had to come up with local funds for pay, quarters, food, uniforms. Moreover, the programs had unanticipated and often questionable political side effects. Kennedy saw the point and set up an interagency steering group to look into it.
In three months the group concluded that the days of Korea were over and that the communist threat in most developing nations was not external aggression but internal disruption and subversion. The way to deal with this, it felt, was to build social and economic health; and it therefore recommended a steady shift from military to economic assistance. Kennedy was in complete agreement. But, when the report went to the National Security Council early in 1962, the Secretaries of State and Defense were resistant, and the Joint Chiefs of Staff aggrieved. Among the swarm of problems assailing a President, this one did not seem sufficiently urgent to justify a wrangle with State and the Pentagon; and the military assistance program, though reduced and revamped in a somewhat haphazard way in the next years, remained a vulnerable point in the aid effort.
The establishment of AID inaugurated a long period of turmoil and frustration. The unification of the aid agencies was the inevitable consequence of the decision to encourage national development planning in the countries aided; but a further consequence had to be the organization of the new agency along regional rather than technical lines in Washington. This posed a mortal threat to the vested ideas, interests and routines of the aid bureaucracy. The functional specialists—agriculture, public health, housing and so on—had long dominated the geographical desks in ICA; and their masterful leader, Dr. Dennis Fitzgerald, an old-time government servant, had gradually gathered to himself the reins of operating authority as one aid director after another had flashed by in the Eisenhower era. Labouisse was a kindly, modest man whose experience in diplomacy and then in UN relief work led him to see aid in political and humanitarian more than in development terms and whose energy was stretched between ICA and the task force. He found it hard to control the ICA bureaucracy, traditionally committed to projects rather than to programs, and, as time went on, yielded more and more to the old-timers. By midsummer Kennedy, who liked Labouisse, began regretfully to feel that he was not the man for AID. Labouisse was offered the embassy in Greece; and Ralph Dungan, the President’s agent in these matters, began the search for a successor.
Dungan was looking for someone conservative enough to reassure Congress but liberal enough to carry forward the program—a business image, as it was put, without a business mentality. He finally hit upon George Woods, a progressive-minded investment banker; but the involvement of Woods’s firm with the Dixon-Yates scandal of Eisenhower years caused a revolt among liberal Democrats on the Hill; and the invitation had to be withdrawn—a Labouisse case in reverse. Woods later had a chance to display his abilities as head of the World Bank. Then the choice fell upon Fowler Hamilton, a New York lawyer and a Democrat with government experience in the Second World War who had been under consideration for the directorship of CIA.
3. EVOLUTION OF AID
Hamilton was a tough and brisk administrator, well fitted to carry through the job of reorganization; and this he did with expedition. The technical assistance specialists were dethroned. Dr. Fitzgerald was shunted into an administrative limbo, from which he retired in 1962 with a blast against “the fanciful contention that brilliant new policies, bright new administrators, and brand new organization” were likely to improve the aid performance. Hamilton then recruited a group of effective regional directors, especially William Gaud for the Middle East and Teodoro Moscoso, Graham Martin and William Rogers for Latin America.
His recruitment effort concentrated on businessmen. This was on the theory, a recurring cliché in government administration, that appointments from the business world would both disarm Congress and improve the efficiency of the agency. But Operation Tycoon, as it was known, had more failures than successes. The idea was actually born in June, before Hamilton came on the scene, when the Vice-President suggested at a White House meeting that the presidents of the fifty largest companies be asked to provide their best vice-presidents for a year of service in the aid program. “You get all those vice presidents,” Johnson said, “and we’re in business.” Someone asked Robert McNamara, the only businessman present, what he thought of this idea. McNamara responded crisply, “Out of about 10 per cent you will get some good people. But 90 per cent of the ones you get won’t be any good at all.” In the end, Operation Tycoon did little to falsify McNamara’s prediction, saddling the agency with executives whose main contribution was to say at regular intervals: “That’s not the way we did it at Proctor and Gamble.”
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p; For the rest, Hamilton spent most of his time dealing with Congress. This was a heartbreaking job. Congressman Otto Passman of Louisiana, a fanatical foe of foreign aid, had for years used his strategic position as chairman of the House Appropriations Subcommittee on Foreign Aid to denounce “the spenders, the dreamers, the internationalists,” torment successive aid directors and tear the program to pieces. Moreover, Congress was filled with suspicions, many of them justified, about the intelligence and efficiency with which the program had been carried out. But the administration staged a vigorous drive for the new aid bill—it “made the Eisenhower foreign aid propaganda campaigns look amateur,” Passman complained—and Congress agreed that the Kennedy recommendations deserved a try. The great exception was the request for five-year borrowing authority, but in later years this issue did not seem so crucial as we thought it in 1961.
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