Foreign Aid: For What and for Whom

"Foreign Aid: Billions in Search of a Good Reason" was the title of a 1963 Fortune article by Charles J. V. Murphy. Seven years later, the billions may be fewer in number, but the search for the good reason is all the more intense. The continued quest for a rationale for foreign aid is one of its distinguishing characteristics as an area of public policy. It is a quest which has been pursued through countless commissions, study groups, conferences, reports, and memoranda. President Nixon told the most recent presidential task force that its primary mission was to come up with a new concept or purpose for foreign aid. This search for a rationale will come to a public head in the spring of 1971 when Congress will probably pass the first completely new authorization act for foreign aid since it approved the Kennedy Administration program in 1961. This legislation will presumably set the course for the U.S. foreign assistance program for the 1970’s.

One would expect the opponents of foreign aid to ask: "What’s its rationale?" Instead, it is those most fervently committed to foreign aid who most often raise the question. Here is a marked reversal of the usual pattern. For in other areas of public policy, the purposes of a program are fairly clear: there is, for in. stance, obvious good reason to improve the economic well-being of the urban Negro; the problem is to come up with the right program or programs (welfare, job training, black capitalism, equal job opportunity) to achieve that goal. Similarly, there are obvious reasons why the United States conducts intelligence activities, engages in overseas public information and propaganda, and maintains a nuclear retaliatory force and a Marine Corps. One may or may not agree with the reasons for these activities, but at least there is little doubt as to what those reasons are.

With respect to foreign aid, on the other hand, many people seem to feel that it is a good thing but that they lack convincing reasons as to why it is a good thing. It is tribute to the emotional dedication and loyalty of its supporters that foreign aid has staggered along as well as it has during the past few years. Both the strength and the weakness of foreign aid stem from the fact that its supporters remain firmly committed to it despite their difficulties in finding a rationale. To the dedicated, foreign aid is a "good-in-itself" and the more of it the better. The criterion of progress and of the wisdom of Congress as a legislative body is the size of the annual foreign aid appropriation.

Supporters of foreign aid agree that its rationale is "inadequate." They do not, however, draw the obvious conclusion: namely, that if its rationale is inadequate, foreign aid should be reduced. Instead of scaling down the program, they seek to beef up the rationale. At the same time they castigate Congress for taking the inadequate rationale at its face value. The development of the rationale becomes the means of preserving and expanding a program which is good-in-itself, whatever the weakness of the arguments for it. The psychology of the foreign aid devotee often bears a striking resemblance to that of the battleship admiral or bomber general who views American ships and airplanes as good in themselves quite apart from any national purposes they might serve.

Those who do not belong to the select, articulate corps of aid true believers may look at the program slightly differently. To what extent is foreign aid something "good-in-itself"? If we had not inherited a foreign aid program from the past, would there be any clear national need to create one? If there were such a need would we create a program resembling the current one?

The only way to deal with these questions is to reverse the implicit means-end relationship of the aid true believers. Foreign aid involves the concessional transfer of resources — capital, commodities, expertise — from the United States to other countries. Foreign aid is, in some sense, the foreign counterpart of federal grants-in-aid to the states. These latter programs may be devoted to a variety of purposes from road-building to public housing to welfare to education. In the domestic context, grants-in-aid are recognized as simply one means of achieving a number of goals. In the international context, the facts are the same but perceptions are different. The federal government has no single "foreign aid program" any more than it has one "domestic subsidy program." Aid is a means which can serve a variety of ends most of which can also be served by other means. The scope and nature of U.S. foreign aid presumably should reflect: (a) the relative importance of the ends to be served by foreign aid in comparison with other goals; and (b) the relative effectiveness of foreign aid as a means to achieve those ends in comparison with other means.

In analyzing the purposes to which foreign aid may be relevant in the 1970’s, it will be desirable:

1. to reconsider and to restate the U.S. interest in the principal purpose to which foreign aid has been devoted in the 1960’s, i.e., the economic development of poor countries;

2. to disentangle from each other this and other purposes served by foreign aid and to realign programs and organizations in terms of major purposes; and

3. to identify any new purposes of high priority for the United States which might be promoted by some form of foreign aid.

The pages immediately following analyze the interest of the United States in economic development. The remaining two topics will be dealt with in the next issue of FOREIGN POLICY.

I. Trends in the 1960’s

Sensitivity to the problems of economic development manifested itself in the higher echelons of the U.S. government in the late 1950’s. In 1961 the Foreign Assistance Act replaced the old Mutual Security Act as the legislative basis for aid programs. The new act declared that emphasis should be given to long-range assistance to promote economic and social development. Two years later Congress warned that such assistance should not be diverted to "short term emergency purposes… or any other purpose not essential to the long range economic development of recipient countries." Economic development thus became the prime rationale for American economic assistance programs. There was, as Edward S. Mason observed, "a growing conviction that the primary objective of aid was the promotion of economic development. ” In the years after 1961, this conviction became an increasingly accepted assumption for most people actively concerned with the aid program. Indeed, "aid" and "development" came to be so closely linked as to be almost interchangeable.

The growing emphasis on economic development of poor countries as the purpose of U.S. foreign aid more or less coincided with two other trends in the quantity and quality of U.S. foreign assistance. The amount of U.S. economic assistance moved sharply upward in the very early 1960’s, when the economic development rationale was new, peaked in the mid-1960’s (somewhere between 1963 and 1966, depending on what statistics are used), and then declined slowly but regularly to the end of the decade. Perhaps more significantly, Congressional appropriations for the central economic development assistance program in the Agency for International Development (AID) declined much more sharply. At the same time that there was this overall decline in the quantity of economic development assistance, there was also a marked deterioration in what is generally called the quality of such assistance. In successive annual authorization and appropriation acts, Congress wrote in more and more restrictions as to how, where, and for what aid could be used. The restrictions ranged from those designed to prohibit aid to certain countries (e.g. those who trade with Cuba, who fail to prevent mob destruction of U.S. property, who expropriate U.S. property, or who are delinquent in debt repayments), to those which were designed to safeguard the U.S. balance of payments and provide minimum interest rates for U.S. loans, to those which benefit specific U.S. industries. The 1969 Foreign Assistance Act took 84 pages to spell out restrictions which had accumulated over the years in response to the special interest demands of legislators and lobbies. There were, at that point, some 65 individual restrictions on the checklist for the making of loans. "It is probably not an overstatement to suggest," one AID report put it, "that perhaps as much manpower, talent and energy are spent in insuring compliance with specifically imposed restrictions as is spent in the execution of programs and projects."

The declining level of aid since the mid- 1960’s and the multiplying restrictions on aid since the early 1960’s all suggest that economic development as a purpose lacked a certain appeal among key policy-making groups, most notably in Congress. This is not surprising. U.S. aid programs in the 1940’s and early 1950’s were largely devoted to the reconstruction and recovery of an area of the world (Western Europe) whose independence, defensibility, and prosperity were obviously of crucial importance to the United States. The Mutual Security programs of the later 1950’s were largely devoted to strengthening "forward defense" countries, like Korea, Taiwan, Iran, Turkey, and Greece, whose security appeared to be essential to that of the United States and who appeared to be threatened by Soviet or Chinese expansion. Compared to the national interest in European recovery and containing Communism, the U.S. interest in the general economic development of poor foreign countries could easily seem somewhat remote. If a country is threatened by 50,000 Communist troops, the rationale for U.S. economic and military aid to that country is fairly clear. If a country is threatened by a 3 percent rate of economic growth, the implications for American national interests are not quite so obvious, to put it mildly. In addition, so long as the rationale for aid is primarily in terms of economic benefits to a foreign country, it is hard to defend the aid program against restrictions and conditions designed to provide economic benefits for the United States (e.g., tying aid, shipping restrictions, the Hickenlooper Amendment). Why, indeed, should we put economic advantages for other countries ahead of the protection of seemingly legitimate United States economic interests?

II. Foreign Aid Without Foreign Policy: The Purist Rationale

The general weakening of U.S. support for economic assistance in part reflected the belief that the economic development of poor foreign countries was not and could not be a very high priority goal for the United States. It also, in part, reflected the negative impact of one type of rationale which was advanced in support of developmental aid. The argument was often eloquently made that economic development should itself be a high priority goal of U.S. foreign policy, but that economic development assistance should not reflect U.S. foreign policy. Economic development was made an end-in-itself, just as at a lower level of abstraction foreign aid was considered an end-in-itself. The organizational implication of this "purist rationale" was that the administration of developmental assistance should have an autonomous status (in an independent bank or institute) divorced from the State Department. This argument undoubtedly reassured aid supporters of the morality and importance of their cause at the same time that it weakened that cause. Three aspects of this approach are worth noting.

First, the purist rationale emphasized the general relation between the developed and the underdeveloped world, stressing the extent to which development is an extraordinarily longterm process. It abstracted the whole question of development from the particular interests which the United States may have in particular countries for particular periods of time. The case for aid was typically phrased in terms of foreign needs rather than U.S. purposes. As portrayed by the supporters of aid, the needs of the poor countries were so great that anything the United States might do would make little difference. The 1969 Pearson Commission report begins by saying, "The widening gap between the developed and developing countries has become a central issue of our time." According to one analysis, however, even if the Pearson Commission recommendations were implemented, the gap would "continue to increase to three or four times its present size by the end of the century."

If indeed this is true, then the case for not bothering to do anything becomes overpowering. As Ambassador Edward Korry neatly put it: "by not differentiating our development objectives in accordance with realities, we appear to be engaged in developing virtually the entire less-developed world. An undertaking of that kind is simply not credible."

Not only has the purist rationale typically been formulated in universal terms so far as geography is concerned but it also has been formulated in indefinite terms so far as time is concerned. The promoters of aid, indeed, have gone out of their way to emphasize that development is a long-term process. This, to be sure, it is. But a government aid program needs to be directed to specific objectives which can be achieved in particular periods of time. The indefinite, universal quality which adheres to the goal of economic development contrasts with the limited, specific character of the most successful U.S. aid effort. The Marshall Plan was: (a) directed to specific and well-defined goals; (b) limited to a geographic area of vital concern to the U.S.; and (c) designed for a limited period of time. U.S. efforts to promote economic development in Third World countries have lacked all three of these characteristics. As a result, those efforts appear to have little relation to U.S. foreign policy purposes.

A second key proposition in the purist rationale is that economic development assistance should, as one memorandum put it, "be treated as separate and independent from the shorter-term political and economic goals which both donors and recipients pursue as a matter of immediate national advantage." Indeed, if there is any cliché which is regularly invoked in almost every report and analysis of aid, it is this: economic development programs must be separated from "short-term political objectives." Nothing could better illustrate the self-defeating character of the purist rationale. As anyone having even a marginal familiarity with government knows, "short-term political objectives" are precisely the thing to which political leaders devote most of their time. By proclaiming that economic development is divorced from "short-term political goals," the aid enthusiasts are saying that it should be divorced from the main concerns of political leaders. It is a little peculiar to try to mobilize the support of politicians for something by arguing that it has no relevance to politics. In economic development assistance, as elsewhere, those who wish to be pure-in-spirit are usually doomed to be poor-in-pocket.

In fact, of course, economic development assistance can be very relevant to politics, just as aid which is given for political purposes has been very relevant to economic development. By stressing again and again that economic development must be pursued as an end-in-itself, apart from all other goals, the proponents of economic development limit the potential supporters of aid. The proponents of aid in the United States might well have learned something from those other countries which have had relatively high or increasing aid levels in recent years. French official economic assistance has consistently been fifty to almost a hundred percent higher than U.S. assistance as a ratio of Gross National Product (GNP). One reason for this may well be that French aid has had the very consciously defined political purpose of maintaining French influence in its former colonies and that it has been almost exclusively concentrated in those former colonies. Such purposes make sense to chief executives and legislatures. In a somewhat similar fashion, the rapidly increasing Japanese aid has been directly tied to the efforts of the Tokyo government to extend Japanese commerce and investments in Asia. It seems highly unlikely that the foreign aid administrators of France, Japan, or any other country would ever repeat the statement of the U.S. AID administrator who declared it absolutely false that "the foreign aid program can and should win friends for the United States and increase our bargaining power in the United Nations and other international forums." If supporters of economic development want the United States to spend the same proportion of its one on aid that France does, they might well forgo their ideological purity and graciously endorse aid being used for purposes similar to those which French aid serves.

The most extreme version of the purist rationale argues not only that economic development should be pursued independently of political goals but that economic development is the only legitimate goal of economic assistance. The use of economic assistance for other purposes is either immoral or ineffective. "If the objective of economic assistance is to have an immediate influence on the political behavior of aid-receiving countries," in Professor Mason’s words, "we had better get out of the aid business now." In practice, however, the United States has frequently given economic assistance to achieve noneconomic objectives, and with results which have been at least as relatively successful as its efforts to promote economic development. This assistance has generally tended to take three forms:

1. The granting of economic assistance to a friendly government to help it consolidate its position after initially coming to power (e.g., Brazil, 1964), to help it to survive a temporary period of financial crisis (Iran, 1961), or to help it win an election against somebody we would rather not see in power (Chile, 1964). In these cases, there is mutuality of interest between the government of the country and the U.S. government.

2. The granting of economic assistance to a government which may or may not be very friendly to the U.S. in return for that government giving us something which we want, e.g., base rights, a U.N. vote, troops in Vietnam, the ,rejection of aid from another country. In this case there is a reciprocity of interest between the government of the United States and the other government; the relationship depends simply on each government feeling that it has gotten what it wanted from the bargain.

3. The denying of economic assistance to governments which do things we do not like or refuse to do things which we want done. Often the U.S. has, for instance, suspended assistance to governments which have come to power through coups d’état until such governments have scheduled elections. At other times, the U.S. has attempted to use the threat of suspending assistance to induce governments to settle controversies or refrain from other political acts. The desirability of economic assistance for political purposes in situations (1) and (2) depends on how one rates the purpose to be achieved and the price which is paid to achieve it. Such aid is almost always effective. Efforts to induce other governments to change their behavior by threatening to deny them aid (situation [3]), on the other hand, are often not effective. Psychologically and politically, it is easier for another government to accept aid in return for performing some service to the U.S. than it is for that government to allow itself to be "coerced" into doing something by the threat that the U.S. will take away aid.

The exchange of economic assistance for political benefits between the U.S. and poor governments during the past decade has rested on the fact that the U.S. government has had hard currency which other governments have lacked and wanted, while poor governments have had other things (e.g., strategic locations) which the U.S. government has lacked and wanted. In the future, as the U.S. increasingly assumes a "low posture" in many parts of the world, presumably there will be fewer other things which the U.S. government would consider worth a lot of economic assistance. To the extent that other governments also come to place less value on economic assistance, they will, presumably, be less willing to perform services for the United States in exchange for such assistance. Thus, the use of economic assistance purely for "short-term political objectives" is likely to decrease. Given the differences in resources and in goals among governments, however, such assistance will appropriately and naturally continue to exist in one form or another, and it does not serve any useful purpose to argue that there is something inherently illegitimate about it.

III. Pick a Number, Any Dramatic Number

The purist rationale also divorces economic development assistance from foreign policy by defining the goal as a level of foreign aid equal to some percentage, usually 1 percent (for all resources flows) or .7 percent (for official aid) of GNP. It is difficult to conceive of a more telling admission of bankruptcy of purpose than the enthusiasm with which the proponents of economic development have espoused this target. Such a figure is, of course, completely unrelated to the differing and changing interests and purposes of the aid donors; it is almost equally unrelated to the differing and changing requirements of the aid-receivers. The amount of aid which the poor countries could effectively use for development has to be worked out on a country-by-country basis. Their total needs might or might not be more than one percent of the ore, of the developed countries. Estimates of the probable needs of the poor countries in 1973, for instance, range from a low of $13 billion to a high of $22 billion. The latter figure is somewhat more than 1 percent of the probable GNP, of the developed countries in 1973; the former is about 2/3 of 1 percent, or just about the level of United States aid in 1968. In addition, of course, a target such as this "puts the emphasis on the wrong side of the partnership" for yet another reason: a decrease in the GNP, of the rich countries could well coincide with an increase in the development assistance needs of the poor countries.

There is something basically wrong with a program when its supporters define its goal in terms of how much should be spent on it rather than what should be achieved by it. The establishment of percentage goals reflects the view that foreign aid is a good-in-itself: pick a good round figure, which can be easily dramatized, which is substantially higher than existing levels, but which is not entirely beyond the range of the economically and politically feasible, and make this your target! In the absence of a dear relationship between foreign aid spending and some viral national purpose, however, the percentage goal becomes highly unreal. Expenditures are justified only insofar as they serve some important objective, and the national interest in them will presumably change over time. Thus, it is not surprising that at one time some countries (Japan, Germany) may find it in their interest to increase their aid efforts significantly, while another country (the United States) may find it in its interest to cut back on aid because it is moving into a "low posture" in foreign affairs and giving increased attention to domestic needs. The foreign aid programs of different countries are designed to serve different ends. It makes little sense to add together apples and oranges to produce international comparisons of aid levels, when the resulting totals obscure crucial differences in content, quality, scope, and purpose.

There is no more rationale for setting official development assistance at .7 percent of GNP than there is for setting military spending at 10 percent of GNP or educational spending at 4 percent of GNP. In the mid-1950’s when the Eisenhower Administration was sharply reducing the defense budget, some generals in the Pentagon came up with the idea of trying to get Congress to declare that 10 percent of the GNP should be regularly spent on defense. Fortunately, for both the defense program and the country, nothing came of this idea. At that time, however, the generals, like the proponents of foreign aid today, were having a hard time making a convincing case for higher military spending. Their seizing on the 10 percent figure, like the current seizing on the 1 percent figure, was a sign of the weakness of their case.

A percentage can be a target, but it is not a purpose. The aid proponents’ enthusiasm for a fixed level of aid underlines a desire to escape from politics and a reluctance to develop a rationale relating aid and development to other U.S. foreign policy goals. It is, however, precisely a statement of such relationships which is required today.

IV. Economic Development and Foreign Policy: U.S. Interests

A more conscious effort is needed to place economic development in the over-all context of U.S. foreign policy. Many arguments and analyses have been devoted to this purpose. Much of what has been said has been quite persuasive, though some of it has been rather extravagant in the claims made for a U.S. interest in economic development. What follows in this section is an effort to take a cold, hard look at these claims and come up with an honest answer to the question: To what extent is the promotion of the economic development of poor foreign countries a desirable and important goal for U.S. foreign policy?

U.S. concern with the economic development of poor foreign countries can presumably be analyzed in terms of moral obligation and national interest. The moral obligation is clearly that of the rich to be concerned with alleviating the poverty of the poor. In the words of the Pearson Commission, "The simplest answer to the question [Why aid?] is the moral one: that it is only right for those who have to share with those who have not. ” This argument is persuasive and unchallengeable. The problem is that in its simple form it does not reach very far. Those who can help have the obvious responsibility to help eliminate the obvious evils of hunger, disease, illiteracy, inadequate housing. The moral obligation to attack such evils furnishes an effective justification for many elements of U.S. foreign aid, including the Peace Corps, food programs, relief programs, health programs, and, perhaps, population control. The justification for longer-term/rod, usually, larger projects and programs oriented more specifically toward economic development, on the other hand, is more tenuous. The moral obligation to feed the hungry in India is fairly obvious. The moral obligation to insure that India’s economy grows at 6 percent per annum is considerably less obvious.

The moral obligation is further weakened by the nature of the public aid-giving process. This typically involves the transfer of resources or credit from one government to another government. The moral obligation, however, is to help the poor people of poor countries, not the governments of poor countries. Yet aid which is given to the government of a poor country may well yield little direct or indirect benefit to the poor people in the poor country. This is the reason why private relief programs and public programs, such as the Peace Corps, which can show direct results in aid-to-people, advance a greater moral claim for support than those which involve aid processed from the "power structure" and upper- or middle-class bureaucracy of one country to comparable institutions in another country.

The moral argument is thus persuasive when it comes to providing minimum economic well-being for individuals, but much less so when it comes to promoting optimal economic growth of societies. Indeed, in some sense the goal of promoting economic development may conflict with the implicit assumptions underlying the case for moral concern. It is, for instance, generally agreed that aid for economic development should be given primarily on the basis of past or prospective economic performance. Donors should help those who help themselves. The moral case for aid, on the other hand, normally is made in terms of need, not performance, which means helping those who are not able to help themselves.

What then is the U.S. national interest in promoting economic development in the Third World? Three arguments economic, security, political — are usually advanced. First, economically developed countries are better markets for U.S. goods and better locations for U.S. investments than less developed countries. This proposition is indisputable. The extent to which it necessarily follows that the U.S. has a clear economic interest in the economic development of Third World countries is not quite so obvious. Economic development of those countries will not only open up sales and investment outlets; it will also produce many industries which may compete with U.S. products in foreign markets and conceivably in the U.S. market. Economic development may also have other consequences which could counterbalance the benefits of new sales and investment outlets. Nonetheless, it seems likely that the long-term effects of the economic development of the Third World would probably be more beneficial than not to the economic interests of the U.S.

The second, or security, argument for a U.S. interest in the economic development of poor foreign countries revolves around the inherent instability of a situation in which a tremendous gap exists between a small proportion of the people of the world who are rich and a large majority who are poor. Reducing this gap is essential to the security of the affluent minority. If this does not happen, resentment, frustration, hostility will escalate and violence will inevitably result.

This argument is not very persuasive. In fact, poor countries are less likely to have either the desire or the capacity to threaten the security of others than are countries engaged in rapid economic and social development. Only countries which have reached a minimum level of economic strength are in a position to undertake aggression. Historically, war and economic development have been closely related. Economic development of a poor country contributes to U.S. security only where the security of that country is essential to the security of the United States. By and large, poor countries, so long as they are poor, lack the capability to threaten U.S. security, whatever their desires may be. Once they are richer, they will have greater capability to be a threat to the United States, and there is little or no basis in logic or history to think that any desire to threaten the U.S. will be significantly lowered simply because they are richer. (This is not, let me hasten to add, to argue that the U.S. should therefore do what it can to promote grinding poverty in other countries. It is simply to say that the elimination of grinding poverty in other countries will not increase U.S. security and may well decrease it. Since grinding poverty is an evil-in-itself, I, for one, am quite willing to run the risk of some insecurity for the U.S., in order to have less poverty for others.)

V. The Political Argument

Finally, the political argument for U.S. help for Third World economic development is that the current poor countries are going to develop economically by hook or by crook anyway, and that it is in the long-term interest of the U.S. to help them in order to win their friendship and understanding or at least to minimize the bitterness which a failure to aid them would engender. On the surface, this argument has a persuasive simplicity to it, and one can think of cases (U.A.R., Cuba) where U.S. refusal to give aid probably contributed to subsequent hostility towards the U.S. But as with most commonsensical propositions, there is also a commonsensical counterproposition. How many times have we heard that one cannot buy friends by giving them aid, that it is a mistake to think that other people are going to like us because we help them, that such relationships are more likely to breed feelings of resentment, guilt, and frustration on both sides?

More generally, the gratitude of nations and governments is normally a transient thing at best, and is apt to approximate the classic expression of the ward heeler to the political boss: "But what have you done for me lately?" The country, after all, which received more U.S. aid than any other, France, was hardly a model ally for many years thereafter. On the other hand, insofar as the governments of both rich and poor countries expect the United States to demonstrate an interest in the economic development of poor countries, the U.S. may well have a political interest in demonstrating such an interest in order to avoid the critical opinions and antagonistic behavior which might result if such expectations were disappointed. This derived or secondary political interest could lead the U.S. to promote such development even if the direct political benefits which might result there from were minimally positive or minimally negative.

This political argument is often based on the explicit proposition that economic development is the overriding goal of the people and governments in the poor countries. That it is a goal is quite clear. That it transcends all other goals is not clear at all. Governments, in particular, have to be concerned with many other things which often conflict with economic development and must often take precedence over it. The prime requisite of any government is to remain a government, and political leaders give first priority to staying in power. They are likely to rate the goals of internal order and external security above that of economic development. They may prefer to have a greater degree of national independence than a higher growth rate. Some may be more interested in ideological and symbolic goals than in the more mundane demands of economic development. In fact, of course, some political leaders of poor countries clearly have not given very high priority to economic development. The extent to which the World Bank, AID, and consortia have found it necessary to impose conditions for aid in the form of demands for fiscal and economic reforms suggests that the recipient governments, if left to their own devices, would give priority to other needs. Foreign and international aid donors often appear more interested in the economic development of the aid recipient than is the recipient government itself. Since the donor agencies have that as their raison d’être and since governments are inherently multipurposed, this situation should cause neither surprise nor alarm. It does mean, however, that the economic development goal which may be the be-all and end-all for donor agency officials is only one of several targets for the harassed and cross-pressured political leaders of the recipient government.

When viewed from a somewhat broader perspective than that of the aid agencies, economic development is also unlikely to be the overriding American interest in most poor countries. Take India, for example. The U.S. has a definite interest in promoting Indian economic development. The U.S. also has, however, at least three other important interests in India:

1. The military security of India against external attack, particularly from Communist China.

2. The national integration of India, preventing its break-up into half-a-dozen or more squabbling ethnic-linguistic states.

3. The political stability of India as the largest democracy in the world and one of the few effectively functioning democracies in the Third World.

Each of these three goals, it can be argued, is considerably more important to the U.S. than the economic development of India. In some respects, economic development may contribute to the achievement of these other goals, but it also may threaten these goals. The economic development of India would, presumably, make a net contribution to the security of India by increasing its ability to arm itself and to defend itself. (It may also, of course, contribute to the insecurity of Pakistan, but that’s another issue.) Economic development, on the other hand, is likely to have some negative effects on Indian national unity. It could well exacerbate regional differences, promote differential rates of social mobilization and economic well-being among ethnic groups, and enhance communal consciousness through increasing literacy and education. So far as political stability is concerned, clearly the future of India’s democratic system depends, in some measure, on its ability to bring about at least gradual improvements in the economic well-being of the Indian people. At the same time, very rapid rates of economic development, certain unbalanced forms of economic growth, and particularly (as we have seen in Pakistan) high rates of growth which involve and in part may be dependent upon at least temporary increases in income inequality, can be politically destabilizing. Presumably few would argue that India should abandon democracy and adopt an authoritarian system of government because that system could promote a higher rate of economic growth (assuming that would be the case). Similarly, no one would argue that India should eschew economic development simply because it might produce strains on its democratic system. The problem, obviously, is to achieve an appropriate mix of two inherently desirable goals which may in some situations be reinforcing but in others be incompatible.

The general point simply is that the U.S. interest in the economic development of India or any other part of the Third World has to be viewed in the context of other U.S. interests in those areas. Economic development cannot be presumed to be the only U.S. interest or even the primary U.S. interest in developing countries.

VI. Where and How Much

Assuming the U.S. does have an interest in the economic development of at least certain Third World countries, there is still the question of how great an interest it has. How important is it to the U.S. that India achieve a 6 percent rate of economic growth rather than a 5 percent rate of growth? If that 1 percent higher rate of growth were dearly dependent upon $300 million or $500 million or $1 billion aid from the U.S. during the next five years, what case could be made for giving that use priority over, say, (a) investing the money in U.S. urban ghettos; (b) granting additional tax cuts to the U.S. poor; (c) allocating the amount to medical and scientific research; or (d) reducing inflationary pressures by not spending the money at all? There probably is no way to answer this question which is both rational and persuasive, but it is clearly the sort of question which is in the minds of many critics of aid and which has to be grappled with in one way or another.

Assuming the U.S. has some general interest in the economic development of poor countries, there is still the question of its particular interest in the development of individual countries. Recent arguments on behalf of development assistance have generally not been framed in terms of individual countries. Presumably, however, the U.S. does have a greater interest in promoting the economic development of some countries than of others. What criteria might be used to distinguish among countries in terms of the extent of U.S. interest in their economic development? The obvious answer furnished by the logic of economic development is the manifest interest of the recipient government in promoting its own economic development, measured by past or prospective economic performance. Yet even the enthusiasts for economic development recognize that while they may be able to make a case for the use of purely economic criteria in allocating resources within a country, they dearly cannot hope to persuade political leaders that purely economic criteria should be used in allocating resources among countries. These criteria may play some role, but other factors necessarily and indeed appropriately also come into the picture. Perhaps five criteria are relevant:

1. Economic performance, i.e., the demonstrated or probable ability of the country to make effective use of aid for economic development and its willingness to commit its own resources and to adapt its own politics to this goal;

2. Security relevance, i.e., the extent to which a country’s external security is of major interest to the U.S. and the extent to which that security is or could be threatened by another power;

3. Political democracy, i.e., the extent to which the country has a broad-based, democratic political system with meaningful elections and protection of individual civil liberties;

4. Historical association, i.e., the extent to which some special, historical relationship has existed between the country and the U.S., giving that country an extra claim on U.S. consideration and help;

5. Global importance, i.e., the relative weight which the country does have or potentially may have in world politics.

Presumably the U.S. interest in the economic development of countries which meet several of these criteria is considerably higher than its interest in those which meet none or only a few of them. The critical point is that the U.S. interest in the economic development of a country is one aspect of the overall U.S. interest in that country and has to be meshed with the totality of U.S. foreign policy toward that country.

VII. Economic Aid as a Means to Economic Development

If the U.S. does have some interest in promoting the economic development of Third World countries, to what extent is economic assistance an effective way of achieving that goal? Are there other means, such as tariff preferences or investment guarantees, which may be equally effective or more effective than capital and technical assistance in promoting economic growth? Economists may provide academic answers as to the relative effectiveness of differing means of economic development, but the United States government is singularly ill-equipped to consider this issue on a policy basis. AID is the only agency primarily concerned with the economic development of poor countries. AID’S only real means of promoting this goal, however, is in effect through capital and technical assistance, k is in no position to consider the trade-offs between aid and other ways of achieving economic development. These other means fall within the jurisdiction of the Treasury Department, the U.S. Tariff Commission, or Commerce Department, for whom the economic development of poor countries is a relatively low-priority concern.

In practice, therefore, economic assistance becomes the principal means of promoting economic development. How effective has it been in doing this? Here again the talents of the economist are essential. But it cannot be blindly assumed that there is a direct positive relationship between economic assistance and economic development. The relationship may exist, but it has to be demonstrated. During the 1960’s, aid financed 10 percent of the capital investment in the poor countries and 20 percent of their imports. Alan Strout has evidence that in developing countries, "the GNP contribution of foreign capital has equaled or exceeded that of exports in spite of the fact that export earnings were larger than foreign capital receipts by a factor of 5:1" and that it was also greater than the contribution of all of agriculture. In a few countries (Korea, Taiwan, Iran, Turkey) massive doses of aid apparently led to high rates of growth which either have freed or promise to free these countries from reliance on concessional aid. In Pakistan, between 1960 and 1965, as Professor Mason has pointed out, 40 percent of the total developmental expenditures and 70 percent of developmental imports were made possible by foreign aid. Technical assistance has contributed enormously to the ability of poor countries to plan and manage their development and to educate the additional manpower needed for development. In agriculture, foreign assistance has made possible the "Green Revolution" which promises to make many countries self-sufficient in food, thus freeing foreign exchange for other developmental purposes.

At the same time that a case of this sort can be made for the role of aid in promoting economic development, it is also necessary to note that there may be a few holes in the relationship. Even the Pearson Commission is forced to admit that despite the contribution of aid, "the correlation between the amounts of aid received in the past decades and the growth performance is very weak. ” Raymond Mikesell argues that:

Historically, some countries have developed without significant capital imports and, in some cases, the achievement of sustained growth preceded a substantial capital inflow. On the other hand, large capital inflows have frequently made little contribution to development. As a general proposition, external capital or aid is neither a necessary nor a sufficient condition for development.

In a similar vein, Professor Mason has pointed out that external assistance to India under the Third Five Year Plan was double that under the Second Five Year Plan, yet there was no significant increase in the Indian growth rate." This testimony would seem to suggest that in some situations high rates of economic development may be achieved with low levels of foreign aid and that in other situations high levels of foreign aid may not alter low rates of economic development.

The impact of different types of economic aid on economic development also does not appear entirely predictable. Economists tend, for instance, to view defense support or supporting assistance as a somewhat dubious form of foreign aid which clearly does not have the same impact as project aid or technical assistance. Commodity assistance they seem to be of a divided mind about. "It is," therefore, as Professor Nelson has observed, rather "striking that among the countries receiving sizeable U.S. assistance, those that have recently achieved or are expected to achieve self-sustaining growth are the countries in which U.S. aid was initially and for some years after directed to security problems. The outstanding characteristic of these programs was sustained large-scale commodity assistance. This assistance almost surely served as a powerful catalyst for later rapid growth." That this aid would have this effect apparently was not anticipated by most economists. Nor does there seem to be any general agreement now among the economists as to the relative value of program and project assistance. Non-economists, consequently, may perhaps be excused if they remain somewhat perplexed as to the real efficacy of different types of aid in promoting economic development.

VIII. The Opponents of Aid

One question deserving more attention is the increasingly hostile attitude of groups within recipient countries toward foreign aid. American thinkers have been searching for a new rationale for aid, Third World thinkers have been developing a new rationale against aid. This and-aid rationale is rooted in three increasingly important intellectual currents: nationalism, socialism, and traditionalism or anti-Westernism. The intellectual opposition to aid generally accepts the view that aid makes a difference — it does have an effect — but this effect is more negative than positive. As one representative Brazilian intellectual has argued, foreign aid is good for the U.S. because it helps to maintain a channel for the exercise of U.S. influence in Brazil, to keep in power a Brazilian government friendly to the U.S., and to insure a receptivity in Brazil to U.S. private investment. (This latter point that a main purpose of U.S. aid was to create a favorable environment for U.S. private investment was widely endorsed by AID officials in Brazil.) So far as Brazil was concerned, however, U.S. aid impeded development and sustained the status quo. Development in Brazil could come about through either the emergence of a vigorous national bourgeoisie or by the overthrow of the existing system by a revolutionary elite. U.S. aid encouraged U.S. private investment, which, with its superior resources and managerial talent, now dominated the dynamic sectors of Brazilian industry. (This judgment, too, was confirmed by U.S. aid officials in Brazil.) Hence, there were increasing obstacles to the emergence of an autonomous Brazilian entrepreneurial class. The absence of such a class would place a ceiling on the extent to which Brazil could develop under a capitalistic or mixed economy. At the same time, U.S. military and economic assistance strengthened the repressive powers of the government and consequently made it more difficult for a revolutionary movement to overthrow the existing system. U.S. aid thus condemned Brazil to economic and social backwardness.

In one form or another, this type of argument has been expressed by intellectuals, not all of them either Communist or Marxist, in almost every developing country. These expressions range from the argument by the Chilean psychiatrist, Vincent Sanchez, that U.S. aid is creating "cultural psychosis" in Chile to that elaborated by Ivan Illich that the export of Western concepts, aspirations, and techniques of mass production and consumerism induces "chronic underdevelopment" in poor countries from which the latter can escape only by evolving some fundamentally different alternatives unknown to developed Western societies.

Not only is there an anti-aid rationale developing among Third World intellectuals, but there are also some second thoughts on aid appearing among Third World governments. In Brazil, for instance, the U.S. suspended aid in December 1968 in response to the Institutional Acts disbanding Congress and severely restricting individual liberties. The effects of this action on the Brazilian government, however, were nil. U.S. aid was largely directed towards education and agri. culture, and these apparently did not rate very high among the concerns of the military officers running Brazil. The willingness of the governments of Peru, Bolivia, and other countries to risk aid cut-offs under the Hickenlooper Amendment suggests that aid in itself occupies a subordinate position in their hierarchy of values. Such attitudes may seem perverse to Americans preoccupied with development as the overriding goal. Yet it is perfectly natural and rational for the government of a poor country to be as much concerned with how its economy develops as with how fast it develops. All aid involves some costs for the recipient, and the additional 10 percent investment (supplied by aid) may simply not be worth those costs to many governments.

IX. A Few Conclusions

U.S. assistance to the economic development of poor countries has suffered from the tendencies of its supporters to divorce economic development from over-all U.S. foreign policy objectives and, more generally, to make the case for U.S. economic development assistance in terms of the needs of the poor countries rather than in terms of the interests of the United States. Economic development assistance has been underfunded in part because it has been oversold. In this essay, we have attempted to escape from the rhetoric and sentimentality which has so often been adduced on behalf of foreign aid and instead to take a cold, hard look at the interest of the U.S. in the economic development of poor countries. Three general conclusions seem to flow from this discussion:

1. As the wealthiest country in the world, the United States has a moral obligation to help alleviate the sufferings of poor people in poor countries.

2. The United States has some real but not overriding interest, primarily economic and long-term, in the economic development of poor countries generally; it also has some derived political interest in not disappointing the expectations of other governments that it ought to be interested in the economic development of poor countries.

3. The United States has special interests in the economic development of individual countries which are of particular concern to the U.S. usually for noneconomic reasons and the promotion of whose development is an integral part of overall U.S. foreign policy toward those countries. Rarely, however, is the economic development of a country the primary interest which the United States has in that country.

In most countries, economic assistance probably helps economic development, but the relationship between levels and types of aid, on the one hand, and economic growth, on the other, is by no means clear. There may also be other policies, particularly in the areas of trade and encouragement of private investment, by which rich governments can equally well promote the economic development of poor countries. Finally but most importantly, the governments of poor countries may have good reasons to prefer less aid rather than more aid.

From this, one can conclude that the U.S. ought to maintain at least three different types of economic assistance programs: humanitarian and related programs aimed primarily at alleviating immediate evils to poor peoples; general economic assistance grants channeled through the World Bank and other multilateral agencies to assist in the overall economic development of the Third World; and bilateral programs which are an integral part of U.S. foreign policy toward countries where the U.S. has special political, economic, or security interests.