Subsidizing Socialism

May 9, 1960

Ever since the advent of the New Deal, socialist assumptions have tended increasingly to supplant capitalist assumptions in our thinking. Nowhere has this change been quite as marked as in foreign economic policy.

The whole foreign-aid program, outside of purely military aid, rests on socialistic assumptions. The quickest and healthiest way to economic growth, which will tend to supply soonest the goods that consumers most need, is the way of free enterprise. The first duty of the government of an undeveloped country (as of a rich and “developed” one) is to make its country as attractive for private investment, domestic or foreign, as it possibly can.

This means that it must assure a sound and stable currency to protect savers against inflation. It must restrict itself to prudent spending, to remove any need for burdensome taxation. It must not discriminate against foreign investors or harass its own businessmen. It must refrain from price-fixing, wage-fixing, and exchange controls, so that foreign investors are free to convert or withdraw their earnings at all times. Above all, it must not socialize or expropriate industry or property or threaten to do so. It must respect property rights at all times.

UNATTRACTIVE FIELD

In the main we followed such policies in our own early history and attracted British capital that greatly increased our rate of expansion. Canada in the main follows such policies today and has attracted billions of U.S. private investment. The great majority of “underdeveloped” countries today fail to follow anything like such policies. That is why they are so unattractive a field for private capital, foreign or domestic.

Foreign aid does not cure this situation. It aggravates and prolongs it. As long as foreign governments can get the capital they want from our government without adopting any of the policies or giving any of the assurances that private capital would properly insist on, they will not adopt these policies or give these assurances. So long as we do not insist on these policies (and are even afraid to do so for fear of “dictating” or “attaching strings”) our aid subsidizes and prolongs socialism and retards real economic growth.

Today we are actually making state “planning” or socialism a condition for the receipt of our foreign aid. Six weeks ago I called attention to the remarkable endorsement by President Eisenhower of socialized planning for Nationalist China and Latin America. On April 20 Secretary of State Herter went even further, and declared that the problem of land distribution should have the “urgent attention” of the Organization of American States.

‘LAND REFORM’

Now the Secretary should know that in the last twenty years so-called “land reform” in a score of nations has been commonly an accompaniment of socialization or communization. In most cases it has been a euphemism for expropriation, a fancy name for seizure. A typical procedure has been for the state to take over properties at a fraction of their market value and to pay even this sum in government bonds that would sell for only a fraction of their nominal value. What foreign countries do about their land problem is none of our business except when they expropriate American holdings. Then it is our plain duty to protect the lives and property of our citizens abroad. The Secretary’s statement may indicate why our protests against Castro’s seizures have been so feeble and perfunctory.

Another recent declaration of the State Department was revelatory. It declared that the picketing of the Egyptian ship Cleopatra by seamen in New York was “embarrassing” the conduct of United States foreign relations, but added that it recognized “the special status afforded to labor union picketing in labor disputes.” This “special status,” unfortunately, does exist under the Norris-La Guardia Act. Under the pretense of protecting “free speech,” this makes union members a privileged class, with the right to picket in mass, to intimidate and menace, to block entrance and exit—in short, to use private coercion. It is certainly “embarrassing”—and unconvincing—for our government to explain that it has stripped itself of the power to prevent this.