Can We Aid Europe?

VOLUME 180 NUMBER 2

AUGUST, 1947

90th YEAR OF CONTINUOUS PUBLICATION

by N. R. DANIELIAN

SECRETARY MARSHALL has proclaimed that we will help Europe if Europe will help itself. From the evidence before us we know that since V-E Day, despite our generosity, our economic aid abroad has been ineffective. The question remains as to what form our future help will take.

There has been no lack of information within the government about post-war conditions abroad: witness Adlai Stevenson’s on-the-spot investigations of conditions in Italy in 1944; Sam Rosenman’s reports on France to President Truman early in 1945; Ken Galbraith’s exhaustive surveys of conditions in Germany; Herbert Hoover’s world food survey in 1946; and Hoover’s and Paul Porter’s more recent accounts of conditions in Germany, Austria, and Greece; not to mention Herbert Lehman’s pleas and Fiorello La Guardia’s dramatic campaign. Europe is devastated, disorganized, and abject — ready for convulsive revolution unless assisted to its feet by adequate aid and organization.

This was and is the second battle for Europe, the battle for freedom from want, the battle, in fact, against revolution — call it Communism if you wish — which started after V-J Day. But for delicacy of taste or a lingering hope of despair, one would be justified in calling this the beginning of World War III. Just as the economic depression and disorganization of 1929—1933 led inexorably to the mobilization of Europe under dictatorships with aggressive designs, the conditions after victory in Europe and Asia, incomparably worse than during the depression of the 1930’s, provide fertile ground for mass hypnosis, which may again lead to goosestepping mobilization under a new and equally threatening dictatorship.

This danger was foreseen and anticipated by many in the Administration, even before the last shot was fired, and through 1944 and 1945 steps were taken to relieve the pressure of economic destitution.

One and all realized, of course, that immediately after the war there would be a gigantic relief problem to alleviate suffering from hunger, malnutrition, disease, and displacement of persons. The first step, necessarily, was to ship food and medical supplies to meet urgent distress. The second stage, and not too far behind the first, was conceived as rehabilitation and restoration of public services such as transportation, electric power, communications, and, to some extent, agriculture through the supply of seed and fertilizers. These two activities were expected to take a period of two years and would act as the restorative impulse during the transition. The third and fourth acts of this well-planned drama focused attention on the longer-range reconstruction problems of world economy. These would be accomplished by the stabilization of intercurrency exchanges between the moneys of various countries through the International Monetary Fund, and by the encouragement of reconstruction and development over a period of years through the International Bank.

Copyright 1947, by The Atlantic Monthly Company, Boston 16, Mass. All rights reserved.

Since V-E Day the United States government has contributed or earmarked over 23 billion dollars for economic aid in international relief, rehabilitation, and reconstruction. This is an amount surpassing the cost of all United States war plants built by the government through the Reconstruction Finance Corporation during the four years of war. It exceeds in book value all the properties of General Motors, General Electric, International Harvester, Westinghouse Electric, Du Pont, plus the Bell Telephone System, the New York Central, the Pennsylvania Railroad, the Southern Pacific, and the Atchison, Topeka and the Santa Fe!

Our generous contribution has been made through a welter of institutions which the Congress has created and approved without partisanship. Let us call the roster of United States allotments since 1944, up to June, 1947: —

No one can say that the American people have been either niggardly or laggard in their humane responsibilities. At no other time in world history has a victor assumed the responsibility for reconstruction of war’s ravages in such generous portion. We had the blueprints all right, and we put up the money.

But something has gone askew. Two years after the war the world is in a worse economic mess than during the fighting, and President Truman, the State Department, and their emissaries of mercy, former President Herbert Hoover, Secretary Marshall, and others are back on Capitol Hill asking for new and equally generous grants. The ravages of economic destitution have spread like the plague over wider areas, with the simple yardstick of caloric intake of food in a large part of Europe and Asia below starvation levels, even worse than under enemy occupation during the war. And the light of freedom flickers with diminishing brightness. Where did we fail?

UNRRA: policy and practice

No one can deny that the 3.7 billions spent by UNRRA in two years, of which the United States paid out 2.7 billions, was an essential contribution to alleviation of human suffering in the wake of war. The lack of permanent improvement in the general economic condition of recipient countries is not due to maladministration or lack of resources. It is no use finding fault with the direction of Herbert Lehman and Fiorello La Guardia. The shortcomings of the relief program were inherent in the enabling legislation of the Congress and in policies adopted at the first meeting of the UNRRA Council in Atlantic City in November, 1943.

Two limitations are worth mentioning, for they set the pattern of relief activities and are primarily responsible for the ephemeral character of the results: the insistence of Congress that the scope of UNRRA’s efforts be restricted to relief (instead of relief and reconstruction); and the stricture of the UNRRA Council that all aid should be rendered through the governments of recipient countries.

In the organic articles of UNRRA, as well as the House and Senate hearings on the initial authorization, it was made very clear that the first United States appropriation of 1.35 billions authorized in 1944, and the subsequent allotments, would be devoted solely to relief. At the instance of the United States representatives on the UNRRA Council, Resolution Number 12 specified: —

The task of rehabilitation must not be considered as the beginning of reconstruction — it is coterminous with relief. . . . The Administration cannot be called upon to help restore continuous employment in the world. (Italics supplied)

In the hearings before the Senate Foreign Relations Committee, members of the Committee and witnesses put even narrower definitions upon this resolution. For instance, Under Secretary Acheson was led to agree that rehabilitation and reconstruction would not include rebuilding of the devastations of war. “That,” he said, “is altogether beyond the scope of this organization,” and with that kind of activity “this organization has nothing to do.” In connection with housing, under questioning by Senator Tunnell of Delaware, Mr. Acheson asserted that what they had in mind was merely shelter — “ temporary accommodations for people who are just out in the weather.”

Director General Lehman also strained backwards in reassuring the Senate Committee on Foreign Relations that it was not his intention or that of UNRRA to undertake long-range rehabilitation or reconstruction. Senator Vandenberg fixed this point unalterably: “Governor Lehman, it seems to be quite clear in the text of the agreement that there is a very clear purpose to draw a sharp line of distinction between relief and rehabilitation as such in this operation, and that you are intending to confine yourself, and UNRRA is intending to confine itself, exclusively to relief except insofar as contingent rehabilitation contributes to relief. Is that correct?”

Mr. Lehman: “That is correct. I believe there is an absolute prohibition adopted by the Council with regard to the undertaking of what might be described as permanent reconstruction activities. That was certainly the intention.”

Senator Tom Connally, then Chairman of the Committee, gave the coup de grace to any hopes that UNRRA would help devastated areas back to their economic feet. Addressing Director General Lehman, Chairman Connally summarized the understanding as follows: “Governor, I am much interested in your testimony about the extent to which this organization might go as between rehabilitation and reconstruction. I hope very much you will adhere rigidly to that idea. It seems to me that the Congress and the country want to extend the temporary relief in these areas, hut neither favors any large expenditure looking toward reconstruction in the broad sense.” (Italics supplied)

These quotations are not given in criticism. They merely exemplify the mood of the country. The limitation imposed by the United States covered not only our contribution, which amounted ultimately to 2.7 billions, but also the resources of UNRRA contributed by other countries, totaling one billion dollars more.

The result of this policy appears in the total allocation of UNRRA resources to different categories of assistance. This shows that relief supplies consisting of food, clothing, footwear, medical and sanitation equipment, absorbed 63.5 per cent of the total expenditures. By and large, 36.5 per cent, or a little over one billion dollars, was allocated to agricultural and industrial rehabilitation incidental to relief.

What has been the effect of this program upon the present and future prospects of recipient countries? The general impression of UNRRA workers returning to the United States from various missions is that countries such as Poland and Yugoslavia have made better use of the resources given to them than countries west of the Iron Curtain. The plight of Greece is too well known, in spite of 450 millions of help by UNRRA and other institutions, to require further elaboration here. And the same conditions are present in other countries, as attested by the fury of political and economic unrest. Premier de Gasperi has asked for additional aid from the United States, warning that “hunger is the chief threat to democracy in Italy. Only chaos from famine could bring either a Leftist or Rightist dictatorship” — both seem the same to him. And the UNRRA program in Austria was terminated, with the job of putting Austria on her feet left to some other organization.

The real trouble with UNRRA

The fact that UNRRA devoted a large proportion of its resources to the shipment of consumer goods is not in itself an indictment of poor planning. That was, after all, stipulated largely by Congress. But food and other subsistence supplies could have been used to bring about permanent rehabilitation, if properly handled. Subsistence of labor is the basic element from which capital is created. Supporting labor while at work on making or repairing capital goods, factories, and machinery could have resulted in substantial rehabilitation.

The real failure of the UNRRA program was not in the kind, but in the use, of relief supplies. Instead of using this temporary supply of subsistence goods for putting people to work in reconstruction jobs, it was essentially employed in meeting the deficits of an already inflated currency system of the recipient country. This point will be clear when we analyze the manner in which UNRRA goods were disposed of in each country.

According to resolutions of the UNRRA Council, UNRRA itself was mainly a procurement and supply agency; the actual distribution was assigned to the governments of the countries receiving aid. UNRRA therefore turned over supplies to local governments. These in turn sold the UNRRA supplies within their own countries for local currency, which was really printing-press money. Only a small proportion of UNRRA supplies was distributed free to extremely needy cases. Most of the supplies were sold in Italy for liras, in Greece for drachmas, in Austria for schillings, and so on.

Anticipating the fact that in this fashion UNRRA lost control over the disposition of these supplies, it stipulated in its contracts with the recipient countries that the governments would set aside the revenues from the sale of UNRRA goods and would agree to the re-employment of those funds for internal rehabilitation. As Director General Lehman stated before the Senate Foreign Relations Committee, “The money will be used in carrying on further work of relief and rehabilitation within their country.”

This program unfortunately did not work out as planned, for three reasons.

First, in some countries the “distribution costs” have been so large that they have eaten up most of the revenue from the sale of UNRRA supplies. These distribution costs are the cost of internal transportation, warehousing, wholesale and retail commissions, and so forth. With a large part of the revenue from the sale of UNRRA supplies used up in this fashion, there was not much left over to undertake local rehabilitation. In the case of Greece it is said the cost of internal distribution amounted to more than 80 per cent of the gross revenues received therefrom.

Second, the recipient governments were already operating under heavy and mounting deficits for nonproductive employment in the maintenance of the military establishments and the ordinary civilian functions. The UNRRA contribution was but a small proportion of the deficiency already present. Relief goods were consumed by the use of the inflated currency while people were on the public payroll for economically nonproductive work, and the receipts from their sale did not substantially diminish the budgetary deficits. The government recaptured some of its printing-press currency by selling UNRRA goods, but the “reserve” so created was no better than the paper it was printed on, and just as inflationary, UNRRA put the cart before the horse; it let people consume its supplies before putting them to work on reconstruction.

A third and equally strong reason for this result was that there were no adequate plans and organization in time to apply the subsistence aid given by UNRRA for the employment of labor in reconstruction. In order to use capital in the form of food, shelter, and other elements of subsistence, in the creation, through labor, of new productive equipment, you have to have the plans, the food, the labor, and necessary tools and raw materials all together in time and place. This is the way we built the transcontinental railroads through the wilderness.

The governments of some recipient countries like Italy and Austria now find that the UNRRA supplies are used up and that they hold local currency reserves received from the sale of those supplies, without the underlying subsistence to support the population while engaged on reconstruction. The money reserves are just so much paper. In April, 1947, Austria ended up with a reserve of 714 million schillings in its “reconstruction fund” obtained from UNRRA goods, equal to one fourth of the annual budget. The value of this fund, after the UNRRA goods are consumed, is no more than printed money. The same situation exists in Italy.

We see that the combination of the two basic policy decisions, confining UNRRA assistance to relief only, which meant consumer goods principally, and secondly, failing to synchronize the availability of UNRRA supplies within the country with reconstruction plans of the government, has resulted in the consumption of UNRRA aid without substantial permanent rehabilitation of the economies of these countries. We come to the end of UNRRA aid, after having spent 3.7 billions, with the basic economic difficulties of devastated countries still unsolved, and revolutionary tendencies stirred by hunger and destitution still rampant.

It should be no surprise, therefore, to find the Secretary General of the United Nations reporting, under a resolution of the Economic and Social Council (February, 1947), that in the year 1947 alone, a group of European countries still need net relief from abroad of 2.5 billions. This can become a continuing dole unless more strenuous and successful efforts at reconstruction are undertaken.

Take the cash

UNRRA was the most active of our post-war aid programs, and the failure of its basic philosophy is one of the decisive fumbles of international economic policy. Now let us briefly look at the rest of the economic Pandora’s box that has left Congress gasping for direction. The Monetary Fund is still dormant with slight stirrings of life; only 25 millions have been advanced to France and 12 millions to the Netherlands.

The International Bank, too, is slow and late in getting started. It had to wait upon the approval of the British loan. It had to go through soul searchings in personnel matters. It still has to carve its particular niche in the conscience of the American investment bankers, savings institutions, and insurance companies. And of all the forty-four countries subscribing to its huge capital, only the United States has authorized the bank to lend its current subscription, which restricts its present operation to some 635 millions plus 90 millions in gold and dollars originally subscribed by all other countries, making a total of 725 millions. Of that, 250 millions were allocated to France early in May, 1947. At the very least it will be well into 1948 before substantial progress is made on large-scale reconstruction loans. Even then, present indications are that its contributions will be insufficient to meet the needs of the times.

The 1947 relief appropriation of 350 millions, the Philippine credit of 75 millions, and the International Refugee Organization’s allotment of 75 millions are too small to make an appreciable difference in the gloomy future of liberated areas. And the 725 millions of Army relief in Korea, Japan, Germany, and Austria will hardly lift the caloric allowance of their people above starvation levels.

It is manifest from the current facts that although plans were large and the architectural design was fashioned on a grand scale, performance in the reconstruction of war-torn countries has been both dilatory and deficient. We have missed the historical pulse-beat. What was a logical time sequence of events “ Relief (UNRRA), Reconstruction (International Bank), Stability (Monetary Fund) — appears in the glaring aftermath as the product of ivory-tower thinking. The enormousness of the destruction, the exhaustion of human initiative in devastated areas, the complete disorganization of Europe’s and Asia’s productive institutions, were not adequately foreseen in the plans of the hopeful year 1945. The press reports that this is now admitted by “spokesmen” of our State Department, who are working on a new and bigger plan.

Of all the instruments created since the end of the war, the two that have been used with alacrity and decision are the direct and sole responsibility of the American government — the Export-Import Bank and the British loan. The Export-Import Bank, out of its total resources of 3.5 billions, had committed by December 31, 1946, 2.6 billions and earmarked 500 millions for China. Europe alone secured almost 2 billions, of which only onehalf was disbursed by December 31, 1946, and much of the balance authorized but not yet used. France, with a total credit authorization of 1.2 billions, was the principal beneficiary, followed by the Netherlands — 280 millions, Belgium — 100 millions, Finland — 75 millions, Norway — 50 millions, Poland — 46 millions.

These are all intergovernmental loans. In spite of protestations before Congressional committees by Leo T. Crowley and William McChesney Martin, Jr., successive chairmen of the Board of the ExportImport Bank, that this institution, as distinct from all others, was going to concentrate on encouraging private trade, it too has become an aid in the state trading proclivities of Europe, inevitably so in view of the gravity of reconstruction problems which only state authority seems able to meet.

And even in this field, the bank is at the end of its resources. It has used up most of its funds in authorized loans and commitments extending over many years. In its December 31, 1946, report, released last March, it stated with grim finality: “The Export-Import Bank has decided that it must bring to an end its program of emergency reconstruction credits.”

This door, too, is now nearly closed. What effect the bank’s credits have had upon reconstruction is hard to assess at this time. It is safe to say that technologically advanced countries such as Belgium, France, the Netherlands, and Norway are making the most of the credits in rehabilitation of transport and public utility services. The proposed ExportImport loans to Greece (25 millions) and Italy (100 millions) are frozen, for an obvious reason — political instability; and the 500 millions promised to China have been allowed to lapse.

And here is the paradox: those countries whose democratic traditions have survived the cataclysm of World War II, and whose institutions exhibit the sinews of survival, can secure loans, and make good use of them. The loans may be insufficient but they are applied effectively to reconstruction. Those other nations where the political institutions are shaky, the internal administrative machinery is weak, and the political tension from the Left is most threatening are the ones which can least qualify for assistance under existing programs of international economic aid. In the very testing ground of nonCommunist institutions, the strict bankers’ approach to intergovernmental loans, requiring stability, safety, and a good chance of repayment, leaves the prospective victims of revolution and civil war without aid and recourse.

The essentially passive character of the creditor, sitting on this side of the Atlantic and surveying with glassy-eyed skepticism the shenanigans of Communists in those countries, is not designed to relieve the economic pressures under which the democratic forces are struggling for survival. This is no way to stop revolution nurtured in poverty. This is no way to outmaneuver the forces of political and economic disintegration. It Is plain that we missed the cue in not providing, beyond relief, for a machinery of regeneration of economic enterprise in the most blighted areas of the world.

Priming the British pump

One of the basic steps in our international pirouette with Communism has been our partnership with the British Empire. Whether we selected the right partner, or with what luck in future bliss, only time will tell. It is a cardinal tenet of Winston Churchill’s companionate marriage which we have accepted (he called it “fraternal association”) that we should concern ourselves with the economic well-being of our gallant, proud, but poor companion, obviously in international distress. “We must support the British Empire even after the war” was a common doctrine of faith in the Lend-Lease Administration during the war, and accounted in part for the generous treatment she received while war lasted. With the abrupt termination of LendLease in September, 1945, by President Truman, our wartime partner was in a sad condition indeed.

Lord Keynes and his colleagues came here to “negotiate” a 5-biIIion peacetime lend-lease and went home with a 3.75-billion loan. Under Secretary William Clayton assured Senators that England would not draw more than one or one and a quarter billions a year. On that basis this credit would see England through the critical three years, until 1950.

In May, 1947, less than a year after Congressional approval, one half of the loan had been drawn, and both in England and here it was confidently predicted that the total sum advanced by the United States will be used up before the end of 1948, without having achieved British self-sufficiency, and in all probability before any appreciable normalization of world trade. Here again, another mainstay of our post-war economic structure proves to be inadequate.

Having made available 23 billions in two years, without substantial improvement, abroad, what guarantee is there, in the proposed “ peacetime lendlease” of 5 billions a year, or 25 billions in five years, that it will regenerate the waning ambitions and institutions of three quarters of the world’s population? Bevin and Bidault, at the helm of foreign affairs in England and France, show an understandable haste in “organizing” to qualify for additional help under Secretary Marshall’s “We will help those who help themselves” program. But there is yet to be invented an international financial program whereby it is possible to obtain net assets by summing up a lot of deficits. One is justly inclined to give Senator Vandenberg credit for penetrating insight when he proposed a “highest level” committee to make an audit of our own assets and international needs.

The cost of confusion

What is the answer to this dilemma? Shall we stay home, conserve our resources and finances, and prepare for the worst? This would mean Communism on the North Sea, the Atlantic, and the Mediterranean. It may mean Communism in all China and, in time, in India. In our own country, a self-contained economy would be a regimented economy, and, with the likelihood of economic reverses at home, it may even mean the end of free enterprise. It certainly would not foreclose the possibility of World War III, bred in the greed of dictators, or the envy of the poor, or the fear of the strong. And such a war may have to be fought over Boston, New York, and Washington.

Should we go to the other extreme and pour out our substance in “loans,” “grants,” or an outright lend-lease program? Up to 10 per cent of our productive effort, to rehabilitate the world, means, of course, not money alone but diminishing reserves of iron ore and oil, the skills of our technicians, and the labor of our people, with no selfish motive of repayment, hoping that we shall stem the tide of Communism through the generosity of capitalist America.

Even if this were politically feasible, there is the more serious consideration to take into account. Is it a provident policy to exhaust the natural resources of our land, and to give without stint not only of our substance but also of our knowledge, without the certainty that we shall thereby achieve either economic freedom for all countries of the world outside the Soviet sphere, or the establishment of “democratic” or, at the very least, “friendly” governments? The chances of failure in both our economic and political aspirations are very real, and we may end up weakening ourselves financially and in natural resources, while the countries benefiting from our largesse may st ill fall under the spell of a crafty and competing system of world power, carrying into the camp of our potential enemy both the capital and the know-how generously contributed. Here our sad experience with Japan comes quickly to mind.

A charter for survival

What, then, are the available instruments of economic policy which avert the mistakes of economic isolation or prodigal internationalism?

The record shows that the aid program as fashioned during 1944-1945 was insufficient in scale, restricted in its application, old-fashioned and ineffective in the passive bankers’ approach to reconstruction. We did not realize in time that if the world’s political stability and mankind’s hopes of peace were our responsibility, then certainly economic rehabilitation and reconstruction were equally our task, not only in giving but even more in doing. Let us not quibble about the errors of the past, but use them as guidance for the future. The torrent of history — and we hear its roar from China, Germany, France, Italy, and many other lands does not wait for the self-indulgence of democracies in investigations, debates, and elections. Finally, under the corporate form of organization, we could make available our technological know-how directly, immediately, and effectively. Instead of merely “advising” some foreign governmental bureau, or being hired by a less qualified foreign politician at a fee — both conditions unsatisfactory to most United States technicians of high competence and reputation — an American corporation, with money and authority and power to act, under competent American business leadership, could command the highest type of American technicians, who would be more likely to overcome their natural disinclination to leave the comforts of life in these United States. This would have the added advantage that over a number of years the United States would develop a large, competent personnel familiar with foreign lands, their habits and languages, and their installations — a not inconsiderable advantage in these troubled times.

The hour requires the boldest use of the best in our tested instruments of successful economic action. We must lift the curtain of antiquity in our international economic program. We must rend the anachronisms of precedents. Mere lip service to democracy and diplomatic double-talk, while we dawdle with intergovernmental “loans” to questionable quislings or quasi-dictators abroad, are not worthy of the spirit of the people who embraced a continent and forged an empire within a century.

What are those instruments which helped us scale the mountains, plow the prairies, hew the forests in a thousand arteries of commerce? First and foremost, the priceless and unique gift, which the Founders had the courage to call a right, of freedom of the individual. Let us require this as the price of our friendship and help — not an onerous condition — and the people of the whole world will be our friends. A bill of rights with every peace treaty, a bill of rights with every dollar, is not a burdensome interest to exact. If this be interference with the internal affairs of other countries, let Russia make the most of it.

A second and equally powerful instrument we have used in this country’s rapid progress is the collective application of capital, through the corporate form of enterprise, to the accomplishment of great economic objectives. From the earliest days of this country’s independence, the corporation has been the principal vehicle of economic progress. It made possible aggregations of capital for a common purpose, were it the construction of a railroad across the continent or the conversion of coal into sheer stockings. A corporate charter is the extension of a sovereign state’s authority to a company of private individuals to achieve a purpose defined and approved by the state. It gives both power and responsibility. In combination with capital resources, this makes for quick and effective action.

Corporations are not necessarily organized for private profit. There are corporations created for public purposes, equally effective in satisfying local or national needs. The Tennessee Valley Authority is a public corporation, created for specific tasks, just as truly as United States Steel is a private corporation, and one might say the former is as successful in achieving the functions assigned to it as the latter.

It seems to be true in the international field, as it is in domestic activity, that the corporate form of organization in public as well as private business is the most effective of all institutional forms available for action. Governmental boards, departments, bureaus, commissions, and what not suffer from the common bureaucratic debilities of ill-defined functions, multi-headed direction, checks and balances, which result in diffusion of responsibility, lack of authority, and inaction.

In World War II, two of the most effective international organizations used by this country were the Metal Reserve Company and the United States Commercial Company, little known but highly effective subsidiaries of the Reconstruction Finance Corporation. Although the Board of Economic Warfare made much noise, these two companies had the money, and the men with authority to spend it. And they secured for this country’s war program the strategic materials needed — diamonds from South Africa or Brazil, tungsten from China, mica from India, chrome from Turkey, and scores of other products. There was no debility in these organizations which a few personnel changes could not have corrected. Whereas the BEW could cajole, persuade, threaten, or blow up, as it did, on the Washington scene, the subsidiaries of the RFC could buy, build, loan, own, sell, and transport what was needed, and they did. They were, in their way, just as effective, in principle, as Standard Oil of New Jersey or the International Telephone and Telegraph Company.

We should, then, channelize our foreign economic aid through Federally created corporations, with the power to do things in the countries that are most in need. If a telephone system has to be rebuilt, or a powerhouse reconditioned, if a fish-canning industry has to be established, such a corporation could go ahead and do these things.

We should, therefore, now begin to think in terms of Federal incorporation of an International Reconstruction Corporation with the power to build, own, buy, sell, lend, borrow. Give it total capital stock authorization of, say, 10 billions, to be subscribed to by the United States Treasury, with specifically authorized subsidiaries capitalized as follows: —

Western European Reconstruction Company (France, Belgium, the Netherlands, Denmark, and Norway) 2,000,000,000

TOTAL $10,000,000,000

Each of these companies could be given the power to borrow in an amount equal to but not exceeding its subscribed and paid-in capital. They must be able to borrow not only in the countries in which they are active — to hire local labor, for instance — but also from the Export-Import Bank and the International Bank, as well as private banks in the United States. Let them engage men of the highest competence and achievement, with salaries ranging up to $25,000 a year, and give them the resources and the authority to undertake the reconstruction and development tasks with traditional American drive and efficiency.¹

Actions speak louder

There are three possible arguments against this suggestion. First, it will be said that this proposal is American neo-imperialism, and even worse than the imperialism of private corporations, for it will have the sanction, power, and resources of the United States government. Although appearances lend credibility to this argument, it must be remembered that what makes imperialism obnoxious is the profiteering by foreign corporations, and the imposition of low economic standards, through subsidized puppet governments, which exhibit the worst elements of political and economic exploitation. One need only recall the conditions in the Bolivian tin mines, the East Indian oil fields, or the Malayan rubber plantations, for examples of this kind of exploitation.

What is proposed here is something entirely different. It would be an undertaking for the people, without any profit, securing only enough return over cost of operations to pay perhaps a 2 per cent interest on the money supplied — the average cost of money to the United States government. If there should be a profit over a fair (I hope a rising) standard of wages, the corporate charter may provide that such profit be expended in social services — such as health and sanitary measures, educational programs, public construction, and restoration projects. Lest there be still some doubt of the ultimate purpose of such direct action, the charter may also stipulate that after five years the corporation will transfer its assets to an accredited agency of the local government for a fair price, not to exceed cost.

A second argument will be that foreign governments will not accept aid under these conditions; that they will not permit such an American organization to function freely. This is likely to be true of the Western democracies with a heightened sense of sovereignty and dignity, such as France, Belgium, and the Netherlands. Where possible, this reserve may be overcome through participation in capital stock and in the Board of Directors. I would even provide for United Nations representation on the Board; but the direction must remain American and unhampered until the final objective of reconstruction is achieved. Other countries like Greece, Italy, Austria, Germany, China, and Korea are in no condition to haggle over the terms of our aid. And they are the very countries most in need of help and least qualified to receive loans from the established financial institutions. The proposed instrumentality is ideally suited for direct aid to those destitute countries.

Finally, it may be said that such an American institution would be in no better position to ensure repayment — to convert foreign assets and income into dollars — than intergovernmental loans. Whether or not this will be true depends upon the effectiveness and success of the proposed organization. With the right to build, own, borrow, lend, buy, and sell, such a corporation would be in position to select its objectives with a view to increasing productivity of local labor and to encouraging of export industries.

For instance, Italy secured a 25-million dollar cotton export loan from the Export-Import Bank. But when the cotton got to Italian mills, finished goods were slow in coming to market. The manufacturers were hoarding in anticipation of higher prices. With most of the world hungry for cotton goods, and Italy desperately needing sterling and dollar balances, this was clearly a strike against the Italian people. But let an American corporation take the cotton to Italy and lend it to the manufacturer direct, with a contract for delivery of the finished products on a time schedule; then there would be productive employment and an exportable product much in demand in food-producing North Africa, Egypt, or the Belgian Congo. Under this scheme, at least Italy’s problem — the importation of food from abroad — would be partially solved and somewhat more successfully than at present, and not always at United States taxpayers’ expense.

The second step, the repayment of interest and principal to the United States, may be postponed for some time, and ultimately will depend upon our willingness to buy more goods abroad. Our total commitments abroad will be smaller, with less drain on our resources, and the problem of repayment more manageable. We are now sending food, coal, fertilizer, seed — nearly everything that is needed to sustain life in Europe at a miserable level. The Ruhr coal mines, however, are operating at half of pre-war output, and transportation, industry, and agriculture suffer permanent decline for lack of fuel. The reason for the Ruhr coal debacle is lack of organization, undernourished labor, missing equipment. England and Scandinavian countries have a fish catch greater than their needs, but do not know what to do with it. There is no “exchange” in the Ruhr, of course, to buy this for the coal miners, who need it.

There is no organization that can borrow from the Export-Import Bank or the International Bank; there is no organization that can bring together United States equipment and grains, British fish, German labor, and the black gold in the earth that all Europe needs. J. J. McCloy, President of the International Bank, suggests an “authority” for Ruhr coal so that he can lend it money; and Harold Stassen suggests immediate revival of Ruhr coal, two years too late, but that is not Mr. Stassen’s fault. Here is a situation where the proposed German Reconstruction Corporation, under American initiative, would get results quicker than any other system of boards or commissions, and thereby speed European reconstruction and diminish the current drain upon the United States and Britain. Direct action in multilateral trade by our own corporations would increase the chances of repayment in goods and services in other ways. Take the case of tourist trade. Now we discourage tourism in Europe because of lack of accommodations and shortage of food. If such an American corporation were operating in Italy, it could very well use some of its local currency receipts in the regeneration of tourist trade, even to the extent of constructing the necessary hotel accommodations, for ultimately tourists will contribute a great deal more to the Italian dollar balances than they will use in food and fuel. The same result may obtain on a triangular exchange of goods. If we send cotton and machinery to Italy, and she sends textiles to North Africa or the Congo, then she may receive food and timber in exchange, and we may receive muchneeded minerals, such as copper and pitchblende, and even iron ore.

The United States will need scrap iron for future use to replenish our dwindling iron ore supplies. It does not pay for a private company to collect the scrap from the European battlefields, pay the shipping costs, and sell it at United States prices. As a result, scrap lies on the fields of Western Europe (I suspect this is not the case east of the Iron Curtain), while there is unemployment in Italy and Germany and we are called upon to feed them. A governmental corporation could well arrange for the collection and shipment of this scrap to the United States, giving employment there, an axcellent stockpile here, and a relief cost which would be only the deficit, if any, in this operation, instead of the full cost of supporting unemployed people.

This, of course, is state trading, and violates our most cherished illusions that the post-war world would be a heaven for the private trader. We must, however, appraise our alternatives. Our choice abroad at the present juncture is not between private trade and a state trading system. Our choice is state trading by inefficient foreign entities with our own capital, without chance of repayment, and a good possibility that it will be dominated by a competing, if not unfriendly, governmental system; or, an effective American development and trading corporation which will do the job of reconstruction efficiently, return a good part of our investment, with a fair chance that we shall regenerate a friendly people and a friendly government. This, then, can be the American ideological counteroffensive with the weapons we best know how to use.