Part II
U.S. Foreign Aid in the
Last Half of the Twentieth Century
Chapter Five
Point Four, the Cold War
and the Legacy of Vietnam
“AID!” the farmer cried. “Look at you....” He pointed, sweeping his finger from one charred remembrance of a home to another. “Here is your American AID!” The farmer spat on the ground and walked away.[1]
In retrospect, however, foreign aid reached its peak in 1960s.[2]
America is what everyone here wants to be like….[3]
We have “discovered that the need to influence these countries is far less than we imagined.” We now know that the economic development of the poor countries will be “very slow.”[4]
Thousands of pages of mimeographed reports and documents sent from Saigon have been piled haphazardly in out-of-the-way files in the University library, un- catalogued and unused.[5]
Origins in the Cold War
Foreign Assistance before 1950
Foreign aid, after 1950, did not develop in a vacuum. There was a two hundred year legacy of state and non-state action which preceded it. Two themes are reinforced here as we examine the first decade of institutionalized foreign aid. First, there was a long history of financial transfer and exchange that in part defined international diplomacy. Secondly, between 1500 and 1960, colonial empires defined a system of international governance including overseas support that impacted on international assistance in the last half of the twentieth century.
International assistance at the end of the Second World War was intended to be humanitarian and temporary, and over in two or three years.Early foreign assistance was limited to post-war Europe and her colonies, China, Japan and the Philippines (and other members of the U.S. informal client states). U.S. monetary assistance was expected to finance the transition to peace.[6] After that time, the reconstruction organizations could be dissolved; the technical personnel sent home. The situation changed with the decision to expand foreign assistance worldwide after 1948 though the early designers of foreign aid continued to view assistance as temporary.
In the period after World War II,the U.S.developed certain “rules of the game” for its foreign aid.[7] The systems of operations and commodity procurement were based upon those that had developed in wartime and through the operations of the Interim Aid Group in the State Department and the Office of International Trade in the Department of Commerce. Much of the contracting was based upon military models, well developed by World War II. The grants process which provided money for non-profits working internationally likewise had its roots in the aftermath of World War I.
The Economic Cooperation Administration(ECA) was created on April 3, 1948 to administer foreign aid under the Marshall Plan. It operated on the assumption that they were gap filling at a point where there was a financial deficit in the war torn countries of Europe and Asia. The ECA originally was programmed to end in 1952. Two aspectsof foreign aid policy had their origins in the ECA: there would be strict scrutiny of all individual transactions and the foreign aid regulations would require that the agency would buy American.
After 1948, there were a number of components to foreign aid and technical assistance as the U.S. government moved toward a more comprehensive, but perhaps more naïve, growth-oriented approach to foreign aid.[8] These included the assumption that development was based on a model of self-help, private enterprise and individual initiative. To many development theorists, it was the absence of individual initiative that caused underdevelopment. Humanitarian aid had to be changed to incorporate developmental principles in order for it to be successful. Wise guidance to indigenous peoples on the part of the change agent was built into this principle.
Prior to 1950, large-scale economic aid was only available to a few non-European countries, excluding China and the Philippines, in the form of loans provided by the Export-Import Bank, established in 1934, and from the International Bank for Reconstruction and Development.[9] By 1950, however, according to Jacob Kaplan, the leaders of the war time alliance began to hear a clamor for foreign aid from the“underdeveloped nations of the earth who were already blaming their circumstances on the “exploitation by the colonial powers and the industrialized countries.”[10]
U.S. assistance to the Philippines had begun again in 1946 as the country gained its independence. Other countries outside of Europe that received foreign assistance just after World War II included Morocco, Libya, Ethiopia, Tunisia and Somaliland. In South America, Columbia and Venezuela were early recipients. Taiwan, Korea, Thailand, and Indochina in Asia received support. Initially, in Asia, as in Europe, it was thought that international assistance would be required only on a temporary transitional basis, as countries moved from war to peace.
International assistance would be humanitarian in nature and would provide at least minimum amounts of consumers’ goods and raw materials so that war-devastated countries could reactivate their agricultural and industrial productive capacity and restore or reconstruct their communications systems. Secretary of State Dean Acheson also promoted the link between foreign aid and foreign trade markets.[11]
U.S. attitudes in the late 1940s “expressed a sense of omnipotent capacity with which the United States emerged from World War II.”[12] As U.S. foreign aid policy developed after the Second World War, “ what U.S. officials did in the reconstruction of Europe [and after] continued to follow the American’s impulse to address other people’s problems by concentrating on one-shot solutions, usually by applying their own experience to them.”[13] It was an optimistic beginning to the last half of the twentieth century.
The 1950 Point Four Program
The Point Four Programof foreign aid was proposed by President Harry S. Truman as the fourth point in his Jan. 20, 1949, inaugural address. Truman “called for a ‘bold new program’ for making the benefits of American science and industrial progress available to ‘underdeveloped’ countries.”[14] Early assessments of Truman’s Point Four speech made clear that:
United States foreign aid has been a powerful instrument for strengthening orderly social processes in an era during which the exploitation of poverty, of bleak economic horizons, and of frustration of even modest national aspirations threatens both our own national security and the peace of the world.[15]
The Point Four Program came directly out of the experiences of the Marshall Plan.U.S. assistance was organized bypolicy makers linked to the Economic Cooperation Administration (ECA) but the Point Four legislation created a separate Technical Cooperation Administration (TCA) to administer foreign aid outside of Europe. There was to be no duplication between the two programs.
The foreign aid industry overall was well developed by 1950, the year that the Point Four Program began. A bibliography of international administration published shortly thereafter noted that there were 215 organizations around the world involved in international development work in that year.[16] By 1951, foreign grants, worldwide, amounted to almost 34 billion dollars. The foreign aid programs employed 630 Americans and more than 800 Europeans in the development and administration of its programs by 1950.[17] Supporters of Point Four suggested that missing from many developing countries were skills and that technical assistance, the focus of the new program. “American Know How,” as Esman and Montgomery laconically point out, would end the skills gap.[18]
The Point Four Program shifted international assistance from post-war Europe to the developing world. U.S. foreign policy focused on the principles of modernization of the countryside which was, “an important part of so-called nation-building throughout the post-war period….”[19] It also committed the U.S. to a policy of what Jacob Kaplan called “enlightened self-interest” and moved the foreign aid system towards a more permanent and coordinated set of institutions. As Walter Sharp put it:
What are the underlying assumptions of Point Four? First, that the United States should assume leadership in a cooperative effort to raise the living standards of more than a billion of the earth’s peoples who are now the victims of undernourishment, disease, and ignorance. Second, through such an effort the economies of both advanced and underdeveloped countries can eventually be strengthened. Third, that technical assistance and capital investment can be combined in a program which will help the underdeveloped areas to attain a balanced economic development while avoiding the evils of exploitation and social disruption. Fourth, that the peoples of such areas can thereby be rallied to the cause of democratic freedom and against Soviet communism.[20]
The final legislation for Point Four was approved by Congress on June 5, 1950. Initially, the Point Four Program was only intended to provide technical assistance. Developing countries were to seek foreign financing for their development programs from private programs and the World Bank.[21] Only a limited amount of capital was available for Indochina and a number of dependent overseas territories. This proved unworkable, however, and funding became a part of the TCA mandate.
The Point Four borrowed significantly from pre-War precepts of international assistance provided by American missionaries, private agencies and the State Department offices which administered international assistance prior to 1948.[22] The big difference after Point Fourwas that the U.S., and eventually most developed nations,would create huge aid bureaucracies in order to implement their programs.[23] In 1950, in recognition of the need for specialized professional expertise in non-Western countries, the Truman administration established the separate organization, the Technical Cooperation Administration, to fund (under grants and contracts) foreign andtechnical assistance.
The Cold War prevented the demise of the Economic Cooperation Administration and it merged with the Technical Cooperation Administration and security assistance agencies to form the Mutual Security Administration in 1951. The Mutual Security Administration initially became the Foreign Operations Administration under President Dwight D. Eisenhower and in July of 1955 was renamed the International Cooperation Administration. In September 1961, the Foreign Assistance Act of 1961 created the U.S. Agency for International Development (USAID).[24]
In 1950, in addition to the Cold War, the world leadership inherited the twin legacy of colonialism and imperialism that had defined international technical assistance for more than a century. The entry of the U.S. into institutionalized foreign aid in the 1950s coincided with the disintegration of the old European Empires and the proliferation of newly independent countries in Asia and later in Africa. Also part of the legacy was a new alliance system that was disturbed and mistrustful and a citizenry in Europe that was edgy and rebellious.[25]
Various critics of the Point Four Program warned of impossible promises made in the Point Four speech; some calling it both foolish in the modesty of the amounts promised and a “hoax” played on the poor nations of the world.[26] As the United States approached the Point Four Program in the post-war period, Curti and Birr warned policy makers to learn from the past. “[If] American experience in the past is neglected or overlooked and the mistakes of previous missions are repeated, Point Four may turn out to be merely one more grand scheme that failed.”[27]
Direct assistance continued to the defeated powers of Germany, Austria and Japan until the mid-1950s. By the early 1950s, in addition to Japan, the U.S. was providing assistance to a number of Asian countries:Taiwan, South Korea, Thailand, Indonesia, the Philippines, Indochina and Burma. A number of U.S. administered territories, including trust territories in the Caribbean and the Pacific also received assistance. The proposed 1952 financial authorizations are provided in Table 5.1.
Table 5.1U.S. 1952 Financial Authorization by Region[28]
Europe
Military assistance / $5,293,000,000
Economic assistance / 1,675,000,000
Asia and the Pacific
Military assistance / 555,000,000
Economic and technical assistance / 262,500,000
Korean reconstruction under UN / 112,500,000
Near East and Africa
Military assistance / 415,000,000
Economic and technical assistance / 125,000,000
AmericanRepublics
Military assistance / 40,000,000
Technical assistance / 22,000,000
TOTAL / $8,500,000,000
The origins of Asian foreign aid lay in the aborted Chinese and Korean rehabilitation programs. China had fallen to the Communists in 1949. As Sharp has noted, of a total of $230 million that had been made available by 1950, only $139.5 million was authorized for procurement, and only $81 million was actually spent when the mission to Korea ceased to function in the wake of the Korean War.[29] “The remaining $44 million,” Sharp went on, “became the basis for a new aid program in Burma, Indonesia, Thailand, and the three AssociatedIndo-ChineseStates of Laos, Cambodia and Viet-Nam.”[30]
In six Asian countries: Formosa, the three Associated States of Indochina, Thailand and the Philippines, Economic Cooperation Administration programs (under the Marshall Plan) were “accompanied by military assistance programs, the latter being administered by United States Military Assistance Advisory Groups.”[31] In order to “operate the program in the field, ECA organized country staffs known as Special Technical and Economic Missions (STEMS). ... More than twice this amount ($535 million) was concurrently allocated for military assistance to “the general area of China (including the Philippines and the Republic of Korea).”[32] When China fell to the Communists this money was reprogrammed for East and Southeast Asia.
Critics of foreign aid began to look back into history for lessons. There was a pre-war experience with Latin America in the 1930s. Foreign assistance in Latin American was a disappointment and among Latin Americans by mid-century there were both disagreeable memories as well as perceptions continued U.S. interference and political pressure in Latin America’s internal affairs. Both were often cited as reasons why foreign assistance failed.[33] Everett and Helen Hughes, writing as early as 1950 were blunt:
The exportation of technical skills and capital to unindustrialized areas is not a new thing under the sun. In the past its characteristic form has been the exploitation of colonial territories by imperialist powers.[34]
Despite these warnings, there existed an optimism that defined foreign aid in the middle years of the twentieth century. “In an atmosphere of freedom and goodwill…,” Curti and Birr went on, “Americans can, through Point Four and its successive programs, be of great help in bringing some of the blessings of liberty and well-being to needy peoples of the world.”[35]
By the early 1950s, the Economic Cooperation Administration had expanded its operations to the Asia region by combining commodity grants with specific technical assistance projects. These were, given the nature of the developing Cold War, not targeted just at general economic development but also to stimulate the production of strategic materials needed for the defense sector. “With its vast superior bargaining power,” According to Sharp, “the United States can induce certain underdeveloped countries to accept economic aid on conditions designed to promote a particular U.S. foreign policy objective; e.g. increased production of strategic raw materials.”[36]
Table 5.2United States Foreign Aid by Program for 1945-1948
(in million dollars)[37]
1945-1948
Program / Gross Grants / Gross Credits
Lend-lease / 1,957
Civilian supply / 2,360
UNRRA / 3,172
Greek-Turkish aid / 165
Philippine rehabilitation / 130
China aid / 120
Technical assistance / 66
Surplus property / 1,234
British loan / 3,750
Export-Import Bank / 2,087
Others / 299
Technical assistance, in its contemporary form, began with the Point Four Program in 1950. As Paul Mosley points out, “It is in the early 1950s that one sees the beginning of aid in its present-day sense, as a transaction between sovereign states, with the beginning of the U.S. development program in Southeast Asia.”[38] This program, over the next twenty years would define both foreign policy and foreign aid in the post-war world. Table 5.2 presents figures for U.S. Foreign Aid by Program for the years 1945-1948 while Table 5.3 below provides a summary of U.S. grants and loans under Point Four terms. Table 5.4 gives thenumbers forU.S.foreign aid in terms of gross grants and credits, for the period 1945-1957.
Table 5.3U.S. Foreign Aid Grants and Loans
Grants in 1952
(Amounts are shown in millions of dollars)[39]
Lend-lease (for civilian supplies) / $ 1,968
UNRRA, post-UNRRA and Interim Aid / 3,444
Civilian supplies, Occupied Areas / 5,104
Greek-Turkish Aid / 670
Philippine Rehabilitation / 635
Chinese Stabilization and Aid / 524
Korean Aid / 237
European Recovery Program (ECA) / 10,998
Technical assistance and Inter-American aid
(including Point Four) / 159
Other Aids / 368
Total Grants / $24,107
Loans
Lend-lease (excluding settlement credits) / 72
Special British loan / 3,750
Export-Import Bank loans / 2,688
Surplus property (including merchant ships) / 1,339
European Recovery (ECA) / 1,219
Other loans / 603
Total Loans / $ 9,671
TOTAL – all forms of economic assistance / $33,778
Table 5.4
United States Foreign Aid--Gross Grants and Credits, 1945-1957
(in million dollars)[40]
Year / Gross Grants / Gross Credits / Total
1946 / 2,289 / 3,245 / 5,534
1947 / 2,049 / 4,183 / 6,232
1948 / 4,078 / 1,444 / 5,522
1949 / 5,363 / 690 / 6,053
1950 / 4,173 / 453 / 4,626
1951 / 4,586 / 428 / 5,014
1952 / 4,794 / 825 / 5,619
1953 / 6,317 / 712 / 6,029
1954 / 4,929 / 387 / 5,316
1955 / 4,247 / 401 / 4,648
1956 / 4,423 / 484 / 4,907
1957 / 3,999 / 980 / 4,979
The First Decade
The early foreign assistance period for the U.S. was characterized by by its advocates as a success. Despite a modicum of criticism, especially linked to Latin American sensitivities, a broad consensus had developed around the goals of foreign aid. The post-war world, as Stephen Browne has pointed out, was thoroughly Keynesian. The goal under Point Four and subsequent aid programs was the promotion of industrial growth and the creation of a skilled labor force in Less Developed Countries.[41]