More about American Help

October 26, 1953

In this space last week I discussed some of the things that this country could do to help both itself and the world. My first proposal was that the President call upon the present Congress to pledge itself not to increase any import duty or impose any further quota restriction during its term. My second proposal was to wipe out all our import quotas. My third was to emulate the principle that we followed in the tariff of 1833, and provide for a gradual reduction over ten or twenty years of tariff rates above 20 percent down to that maximum level (with the possible exception of some items vital to defense).

The purpose of this last proposal would be to reduce the hardships of tariff readjustment to a minimum. As Prof. Yale Brozen has put it: “In moving toward free trade, we must reduce our tariffs slowly in order to give . . . those who have invested in skills and equipment specialized to our protected industries . . . the opportunity to depreciate their equipment and to adjust to the new situation.” (See the “economic forum” pamphlet, The Economics of Tariffs, 112 pages, National Industrial Conference Board, $1.)

It may be asked whether, instead of such a unilateral reduction of our tariffs, it would not be better to extend the reciprocal-trade-agreements program for a period of twenty years. Among the arguments of those who favor this are that it would provide us with better leverage in getting tariff reductions from other nations and that more attention could be paid to the specific merits of each tariff rate. But the arguments against continuing the reciprocal-agreements program seem to me to outweigh these. For the program rests on the false tacit assumption that a reduction in tariff rates is primarily a favor to the other country’s producers rather than to one’s own consumers. And precisely because such a program does treat each rate on its own alleged merits, it makes every rate a source of special haggling, multiplies lobby pressures and the pull and tug of special interests, and violates the spirit of the most-favorednation principle even when it adheres to it technically.

We are brought back once more to the question of foreign financial aid. The whole foreign-aid program from the beginning has rested on a false diagnosis of the ills of Europe and the “underdeveloped” countries and a false conception of the remedy. In practice, instead of inducing the beneficiary countries to return more quickly to sound policies and free enterprise, our aid has subsidized socialism and encouraged these countries to continue statist controls far longer than otherwise.

But the foreign-aid program can be terminated with less shock, and the proper reforms encouraged, if for a limited transition period our government would undertake to guarantee private loans to private foreign borrowers against political risks, especially against the risk of nontransferability of profits, along the lines and on the firm specific conditions suggested by F.A. Hayek in The Freeman of April 6. This program, however, should in no case be in addition to present foreign governmental aid, but as a short-lived substitute for it, to ease adjustment to a free system.

At the very beginning of the Marshall Plan, our government could have obtained far more results with far less money if it had offered to make loans solely for currency stabilization on strict conditions of eligibility.

But the time for that has now passed. If a government fails or refuses to follow sound monetary, fiscal, and economic policies, no foreign loan can be large enough to do any permanent good. Its proceeds would only be drained away as were those of our $3,750,000,000 loan to Britain in 1946. If, on the contrary, a country follows sound monetary, fiscal, and economic policies, it can get private loans if it needs them, and is unlikely to need any outside governmental help at all. Perhaps the worst result of our whole foreign-aid program has been to divert attention away from the measures a country must take to help itself and to stand on its own feet.