The Chairman

by Kai Bird

  Rowe personally disliked Eberstadt, telling Dean Acheson he was a “stinker.”76 He believed Eberstadt and James Forrestal, who was now secretary of defense and also a member of the task force, would bring a right-wing attitude toward any review of the growing intelligence establishment. Rowe would have preferred the selection of McCloy as chairman of the task force, even though he and McCloy had clashed so violently over the internment of the Japanese Americans during the war. As Rowe explained his feelings about McCloy in a letter to Acheson that spring: “I don’t like him [McCloy] much either . . . but I think the Elihu Root-Henry Stimson tradition of civilian control over the military (while not all that it should be) is a hell of a lot better than the Eberstadt-Baruch-Forrestal mumbo jumbo. I am a man who knows a lesser evil when I see one and therefore I plump for McCloy.”77 As it happened, McCloy was selected by Hoover to be a member of the task force, chaired by Eberstadt. As usual, he was one of the few men acceptable to both a James Rowe and a James Forrestal.

  McCloy welcomed the diversion. Throughout the spring and summer of 1948, he sat in on weekly meetings of the Eberstadt Task Force, where he was allowed the opportunity to question CIA Director Rear Admiral Roscoe H. Hillenkoetter, George Kennan, Bill Donovan, Frank Wisner, Lyman Kirkpatrick, and dozens of other officials in the State Department, the CIA, and the National Security Council.78 These encounters constituted a virtual refresher course in the status of intelligence matters at a critical moment in the Cold War.

  McCloy had no qualms about the Agency’s growing number of covert operations. Since his Black Tom days, he had been enamored of “blackbag jobs,” paid informants and intercept intelligence. In 1947, Truman had specifically assigned the CIA responsibility for covert psychological operations. These covert duties were expanded in June 1948, when the president approved NSC directive 10/2, a document drafted by George Kennan. NSC directive 10/2 gave the CIA responsibility for “propaganda, economic warfare; preventive direct action, including sabotage, anti-sabotage . . . subversion against hostile states, including assistance to underground resistance movements, guerrillas and refugee liberation groups, and support of indigenous anti-communist elements.”79 This rather sweeping language suggested that the Agency was authorized to engage in everything short of outright warfare on the communist world. Years later, Kennan denied that this had been his intention. “It did not work out at all the way I had conceived it. . . . We had thought that this would be a facility which could be used when and if an occasion arose when it might be needed. There might be years when we wouldn’t have to do anything like this.” As things turned out, once begun, covert operations quickly seemed to provide an answer to every crisis.

  Early in 1948, prodded by Forrestal, the CIA had secretly begun subsidizing the election campaigns of anticommunist politicians in France and Italy. Similar payments were made to anticommunist newspapers and labor unions in both countries. In Italy, the Agency spent $10 million, and Forrestal was elated when the communists suffered a decisive electoral defeat that spring.80 Forrestal became a fervent advocate of covert action. McCloy regularly played tennis with the hard-driving defense secretary, and afterward, over dinner or drinks, Forrestal frequently regaled him with stories about the Agency’s wide-ranging covert operations in Europe. McCloy fully approved of these operations, but he could also see that his friend had become obsessed with the Soviet threat. Forrestal was the kind of high-strung, passionate individual who tended to see the world in extremes anyway. Within a year, his obsessions would turn to outright paranoia and lead to a complete mental collapse, and then suicide.

  Cold War tensions heightened dramatically in June 1948, when the Soviets—in response to the American decision to introduce a new currency in West Germany—imposed a land blockade of West Berlin. McCloy was playing tennis with Forrestal one day that summer when the defense secretary confided to him that the military governor in Germany, General Lucius Clay, wanted to dispatch a column of tanks to break the blockade. Forrestal said he feared this would provoke a full-scale Soviet invasion of Western Europe, an event for which the United States was militarily unprepared. McCloy was alarmed by this news; sending tanks down the Autobahn might needlessly provoke a war that he believed the Soviets had no desire to fight. And yet he agreed that Washington had to do something. So, when Lovett called him a few days later and asked what he thought of the notion of airlifting supplies into Berlin, McCloy endorsed the idea. It was, he thought, just the right measure of resolution. After Lovett got off the line, McCloy called General Henry “Hap” Arnold, who had directed the army’s air arm during the war, and asked him whether it was feasible to supply a city the size of West Berlin by air. Arnold thought it possible, and shortly thereafter Lovett persuaded Truman to support an airlift. When Clay continued to insist that an armored column was the right approach, Lovett had McCloy call his old friend in Frankfurt and explain that it just was not going to happen.81

  The Berlin crisis underscored for McCloy that Washington needed to be able to respond to Soviet challenges in Europe with something other than mere military hardware. The atomic monopoly was not enough, and the United States could never hope to match the Soviets in terms of combat-ready divisions stationed on the ground in Western Europe. He discounted the possibility that the Soviets intended to invade Western Europe, but this did not mean there wasn’t a threat. A larger, better-financed intelligence apparatus, he believed, would afford Washington another offensive weapon in the political struggle with the Soviets, and a measure of defense against the possibility of another Pearl Harbor. America, with its new global responsibilities, had to have the knowledge and capability to intervene anywhere. As he questioned CIA officials brought before the Eberstadt Task Force, McCloy demonstrated his desire to see the Agency expand both its capabilities. The Agency’s deputy director, Brigadier General Edwin Wright, told him that his chief limitation was time, not money. With a budget that year of some $70 million, the Agency had all the money it needed; in fact, that year the CIA returned to the Treasury millions of dollars it had found impossible to spend.82

  By the end of 1948, the Eberstadt Task Force was ready with its recommendations. On the critical issue of covert operations, McCloy and the other members of the task force concluded that “those responsible for operations in CIA should be given considerable autonomy.”83 The Agency, they believed, should be doing more, particularly in the field of covert propaganda: “The battle for the minds of men may decide the struggle for the world. The Committee found present facilities and mechanisms for the waging of psychological warfare inadequate.”84

  Such advice opened the floodgates to a massive new program of covert activities. That autumn, a special unit, the Office of Policy Coordination, was organized within the CIA to run covert political-action operations. A former OSS officer and wealthy lawyer, Frank Wisner, was brought in to run the unit. Under Wisner’s vigorous direction, OPC rapidly mounted large-scale, ongoing covert operations around the globe. He operated with the most liberal administrative autonomy, reporting only sporadically to the heads of the State Department, Defense, and the CIA. As a measure of its activities, from 1949 to 1952 Wisner’s unit grew from 302 personnel to 2,812, plus 3,142 contract agents overseas. Wisner was soon tapping into local currency counterpart funds generated by the Marshall Plan to fund his operations in Europe. In 1949, his budget was $4.7 million; three years later, it had risen to $82 million. By their recommendations, McCloy and his colleagues on the Eberstadt Task Force bore a heavy responsibility for what Wisner was now calling his “mighty Wurlitzer.”85

  On a personal level, McCloy’s experience with the Eberstadt Task Force increased his itch to leave the Bank. Dramatic events were happening all over the world. In February 1948, a communist-dominated government seized power in Czechoslovakia. From his seat at the World Bank, McCloy felt left out. But with the upset re-election of Harry Truman in November 1948, there seemed little possibility that the one job he really wanted—secretary of state—would become
vacant. Nor could he easily imagine going back to the law. Early in 1949, he complained to Bernard Baruch of the New York law firms: “They are busier, if anything, than they ever were, and they make just as much money, but instead of their work being as it was when I first came down to practice law in terms of productive projects such as putting together groups to build or expand railroads, public utilities, industries, etc., today their work is almost all defensive. They deal with taxes, anti-trust suits, litigations, Government administrative work almost exclusively.”86 That was not for him.

  Early in April 1949, McCloy learned that his brother-in-law had suffered an appalling injury to his eye while fly-fishing on the river Test in England. While he was casting a heavy wet salmon fly, a sudden gust blew Douglas’s line back, snaring his left eye with the hook. In agony, he had to be carried three-quarters of a mile across muddy ground and then driven fifteen miles to the nearest hospital, in Southampton. The hook was removed, but the damage to the eye was such that doctors were uncertain whether it would require an operation. McCloy had Bank business in London anyway, but when he learned these details of the accident, he boarded an early plane for London and spent the next few weeks trying to comfort his old friend. In the event, the doctors decided not to operate, but Douglas’s vision was so poor that for the rest of his life he wore a distinctive black eye-patch.87

  McCloy also had something of importance to discuss with Lew Douglas. President Truman had called him into the White House and offered him the job of high commissioner for occupied Germany: “the toughest job in the Foreign Service.” Startled, McCloy had remarked to the president that this was not the first time he had been offered the post; he described to Truman how Roosevelt had greeted him with a Nazi salute and the words “Heil McCloy—Hochkommissar für Deutschland.”88 McCloy now told Douglas that he was considering the job, but that he did not want the Bank’s vice-president, Robert Garner, to succeed him.89

  While McCloy was in London, the American papers were publishing reports that he was Truman’s first choice for the high-commissioner position. When he returned to Washington on April 28, he told reporters that his mind was not made up. After discussing the matter with Dean Acheson for two hours, he still hesitated. He had learned from Douglas that Clay had clashed frequently with both Acheson and Averell Harriman over various political issues. Harriman felt Clay was demanding an inordinate share of the Marshall Plan’s Economic Cooperation Administration (ECA) revenues for Germany’s exclusive benefit. Clay also found it difficult to accept Washington’s orders to remain neutral over internal German politics, since he could not abide the abrasive leader of the Social Democratic Party (SPD), Kurt Schumacher. The more McCloy learned about the job, the more he had to admit that he was “somewhat appalled by the difficulties. . . .” When Truman urged him publicly to take the job, in early May, McCloy made it clear he would do so only if certain conditions were met. He wanted a “free hand in picking people” to assist him, and an assurance that “no substantial decisions on Germany” would be made “without consultation with me.” In addition, he would not take the job unless he had full authority over ECA monies dispensed in Germany.90 This was not all. He also wanted Truman to name Eugene Black as his successor at the World Bank. The president agreed to this deal; Black was nominated for the Bank presidency, and a presidential executive order was signed giving McCloy full control over ECA monies in Germany. Only then did McCloy send Truman a brief note accepting the job of high commissioner.91

  McCloy left the World Bank with ambivalent emotions. Under his two-year administration, the Bank had made loans totaling some $650 million; forty-eight countries were now members of the Bank; its bonds on Wall Street were regarded as good risks; and the projects he had chosen to fund in both Europe and the developing world were all considered sound economic investments. In an article for Foreign Affairs entitled “The Lesson of the World Bank,” McCloy wrote that all these things were “satisfying” accomplishments. “They are not spectacular in any sense,” he observed, “but they represent the fruit of much intensive work.”

  It was clear, however, that he was well aware of the Bank’s shortcomings. Many people had harbored ambitious expectations for the Bank, and now he acknowledged the “consequent disillusionment when the spectacular failed to materialize.” His critics, he admitted, believed that the Marshall Plan and other bilateral U.S. aid had relegated the Bank to “a role of secondary and minor importance. . . .” In his defense, McCloy argued that such a view was shortsighted. Marshall Plan aid was scheduled to end in 1952, and the World Bank, he predicted, would soon begin to finance a “considerable expansion of productive facilities within Europe itself.” This was never to happen. By 1952, Western Europe was poised for a major economic boom, and had no need for the Bank’s relatively high-interest loans. As for Eastern Europe, McCloy had been forced by the Truman administration to back out of negotiations for loans to communist-dominated Poland and Czechoslovakia. Both countries eventually pulled out of the Bank. Poland, Hungary, and Rumania would not become Bank members until the Cold War began winding down in the 1980s.

  Turning to the less developed world, McCloy tried to explain why the Bank had not been able to do more. “Development,” he wrote, “is not something which can be sketched on a drawing-board and then be brought to life through the magic wand of dollar aid.” The Bank had learned that there were severe limits on the ability of these poor nations to absorb foreign capital. The rate of development could be accelerated by well-planned, economically viable projects. “But it must never be forgotten that low productivity and living standards are as much the product of poor government, unsound finance, bad health and lack of education as of inadequate resources or the absence of productive facilities.”

  Forty years later, development economists would have no dispute with these observations. It is still difficult to design projects in the poorest countries of Africa, the Indian subcontinent, and Latin America that directly improve the lives of the poorest of the poor. But today the World Bank is not in any sense a “secondary” institution. It has become a financial colossus, pumping out nearly $20 billion in loans annually, dwarfing investments made by private commercial bankers.92

  McCloy had thought that in the long run only the free flow of private capital could ever make “a significant inroad on the world’s development needs.” This too proved to be wrong. The private bankers today take their lead from the World Bank, and in the countries with the greatest need for investment, private capital flows are negligible. The World Bank of the 1970s, ’80s, and ’90s more closely resembles Harry Dexter White’s vision of a global New Deal agency than the conservative institution McCloy administered.

  McCloy acknowledged that there might come a day when it would be politically possible to increase dramatically economic assistance to the developing world. If so, he strongly felt that any such expanded program of development assistance should be administered “under international rather than national auspices.” Washington no doubt would have liked to maintain control over its foreign aid in order “to secure immediate bargaining advantages.” But nothing would create more ill-will toward America, he argued, “than to have other nations of the world over a long period of time regard the United States Government as their principal source of capital.” Moreover, his experience at the Bank had reinforced his faith in the utility of international agencies. He told readers of Foreign Affairs that, unlike the United Nations, which had become a group of national, highly partisan representatives expressing the views of their respective governments, the World Bank was developing a truly international civil service, “whose loyalty is only to the Bank itself. . . .” In these times of “knife-edged political tension,” he argued, one needed men and institutions capable of “objective nonpolitical analysis of the issues.”93 At the height of the Cold War, such internationalism might sound a bit rarefied, an odd article of faith for a man in McCloy’s position. But McCloy’s actual practice was more pragmatic. When Cold W
ar politics had interfered with Bank business, he had not objected. And now he was going to Germany, the cockpit of the Cold War.

  * * *

  I. Within the year, White was named at a congressional hearing by Elizabeth Bentley, a former Communist Party member, as having spied for the Soviet Union. White vigorously denied the accusation before a congressional committee, and then a few days later died of a heart attack. His supporters over the years have demonstrated that the evidence against him was unreliable, but neither has White been fully vindicated. Some historians suggest that recently declassified intercept intelligence indicates that White had indeed been in communication with Soviet diplomats stationed in Washington. But the circumstances of these contacts leave open the question of whether he was operating as a Soviet asset.

  CHAPTER 15

  German Proconsul: 1949

  “I had once a chief, a very great chief [Henry Stimson] during the war who kept telling me all the time the way to trust a man is to trust him, and when you don’t trust him, hit him.”

  JOHN J. MCCLOY, 1949, FRANKFURT

  News of McCloy’s long-awaited acceptance was greeted with near-universal acclaim. The New York Times editorialized, “Here is a job to fit the man, and a man to fit the job.”1 James Reston said his old friend and neighbor was a “man who can cuss out a general or win over a Senator, or out talk a diplomat or knock the chip off a reporter’s shoulder. . . .”2 McCloy would need all these abilities to carry out Washington’s agenda in Germany. Americans had come a long way from the anti-German sentiments of only three years earlier. Occupied Germany—divided sharply between East and West—was now seen by many Americans as a new battleground.