Handout or Investment

April 10, 1961

Near the beginning of his foreign-aid message to Congress of March 22, President Kennedy posed “a fundamental question: Is a foreign-aid program really necessary?” It is a question we ought to have asked ourselves a dozen years ago. Many of us will answer that continuance of a so-called economic (as opposed to military) aid program is not only unnecessary but harmful to the United States, and in the long run harmful to the recipient nations themselves.

The President’s own answer to his question is that “there is no escaping . . . our moral obligations . . . our economic obligations as the wealthiest people in a world of largely poor people.” But when did this obligation, historically, begin? When will we be able to consider it discharged? Has it any limits? What are they? Do we keep pouring out money until every country in the world is as rich as ourselves—or we as poor as the poorest? If we, by establishing a free economy, have made ourselves the richest nation in the world, shouldn’t we be proud of that achievement? Why should we have a guilt complex because others, with repressive systems, haven’t done as well?

The most specific sign of how the President measures the extent of our obligation is the proposal that each industrialized country provide annual aid to backward countries amounting to 1 percent of its gross national product. But this is a token figure, unrelated to the special “needs” of Chile or Chad. It may sound small, but it would mean more than $5 billion a year for the United States. That is greater than the $3.8 billion deficit in our balance of payments last year.

AID AND INFLATION

The President seems to take this problem lightly. He estimates that “not more than 20 percent of foreign economic-aid expenditures will affect our balance of payments” because 80 percent “will be spent directly” for our goods and services. But this overlooks that when we give away the dollars to buy part of our exports, we give away those exports. We cannot use the proceeds from those exports to buy our needed imports.

Our foreign-aid program, moreover, causes the budget deficit that causes the inflation that causes the deficit in the balance of payments. The President forecasts a budget deficit of $2.2 billion for the fiscal year 1961 and of $2.8 billion in 1962. But, other things unchanged, both deficits would be surpluses without the foreign-aid program.

Instead of “a series of one-year programs,” the President recommends “long-term development loans at low or no rates of interest” running for “as long as 50 years.” This proposal calls for careful scrutiny. Our own government is now paying more than 3½ percent a year for long-term borrowing at home. On every dollar borrowed now at that rate our taxpayers will have to pay $4.58 at compound interest over 50 years. To charge no interest on such loans would be equivalent to giving away four-fifths of the amount even if the principal were repaid at the end of the period.

SOCIALIZED SOCIALISM

But the most serious aspect of the new foreign-aid proposals is that the money is to be given or lent only if the recipient countries promise to “engage in long-range planning,” to “mobilize their own resources,” to set “targets,” to embark on “land reform” and “social justice.” This clearly means state planning. What we are offering to do is to subsidize other people’s socialism. We are insisting on more of the very planned economies that have brought a tangle of government controls and chronic inflations.

It is because this is what we have been doing in the past that the President is correct when he points out that “many of the nations we are helping are not much nearer sustained economic growth than they were when our aid operation began.” If we stopped our foreign economic-aid program these nations would have to turn to private investors. These investors would insist on the reforms really calculated to bring sustained economic growth. They would insist on assurances against seizures or stifling controls. The plan they would ask for is capitalism—the system of private property and free markets—to release the initiative and energies of millions of individuals everywhere.