No. 558
I commend these enclosures to the thoughtful examination of the
Department and of other departments and agencies of the Government
concerned with the determination of US economic policy. In my opinion
the conclusions and comments contained therein merit careful
consideration at the highest level.
Based on the premise, which appears incontrovertible, that the objective
of Soviet policy remains the destruction and Communisation of the
Western world, and that it is consequently of prime importance that, in
self defence, the Western powers exert every effort to thwart the Soviet
achievement of that end, these related papers contain convincing
evidence of weaknesses in the Soviet system and conclude that
appropriate exploitation thereof can materially lessen and conceivably,
in the ultimate, destroy Soviet aggressive economic potential. Taking
issue with the view which seems to us to have tended heretofore to have
over-influenced Western economic thinking in regard to Russia and her
satellites—namely, Western dependence on Eastern economies—these studies
show the important degree to which the converse—Eastern economic
dependence on the West—is true, and suggest the urgent desirability that
Western trade policies toward the countries under Bolshevik leadership
be reviewed as an effective alternative to the disastrous consequences
of Soviet industrial expansion.
Extended Western restrictions on trade with Russia and her satellites are
seen as imperative and mechanisms are proposed for determining how far
and how fast the West can go in that direction. I believe that the
effectiveness of the application of such additional restrictions will be
directly proportionate to the expedition with which they can be
introduced and am apprehensive of the potential results of appreciable
delay.
[Enclosure]
Memorandum Prepared by the Economic Section of the
Embassy in the Soviet Union
top secret
[Moscow,] October 1, 1949.
Despite the Western world’s “inferiority complex” attributable to
successful Soviet policies of censorship, limited access, and the
never-ceasing drumbeat barrage of a strident and highly confident
Moscow-disseminated propaganda on a grudgingly receptive capitalist
subconscious, the tone of optimism which characterizes Mr. Porter’s
thoughtful Geneva A–113 on the subject of East-West trade, and which
receives basic support from other papers on the subject in Moscow at
the present time (Warsaw’s despatch no. 478, July 14, 1949 and
London’s despatch no. 1365 of August 18, 1949) is encouraging.
In so far as the thinking of these papers is characteristic of U.S.
and Western representatives generally—it is believed that lengthy
forward strides have been successfully negotiated. The proposition
that such confidence rests on firm foundations, will gain strong
support through the arguments and conclusions of this memorandum and
the foundation studies enclosed to despatch no. 558.
Summary examination of the technical weapon strength of the “Soviet
socialist camp” and of the “aggressive capitalistic camp” may prove
useful at this point in establishing perspective for the arguments
and recommendations subsequently advanced in this paper.
Generalissimo Stalin’s startingly successful postwar surge to
expansion and power may be essentially attributed to the skillful
manipulation of the same three old and trusted weapons handled by
him for years, i.e., strident propaganda, ruthless
force, and concentrated economic power. These elements
supplement one another and are effective though to varying degrees
in all climates—the Soviet world, the “middle” world and the Western
world. Politics, the battle plan of the “great teacher”, for the
short- and the long-run future, are designed on the basis of, and
are mutually dependent upon, the estimated strength of the
opposition anticipated, as well as the effective fire power of his
own arsenal. Comparatively “effective” economic
power is, in the final analysis, the determining factor
limiting the scale of his political pattern for any given campaign.
Should this outline require support, it is to be found in:
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“Economics is the basis—politics the superstructure.”
(Marx and Engels, Collected Letters, p.
422.)
“Politics is the concentrated expression of economics.”
“Politics cannot have priority over economics. To judge
otherwise—means to forget the alphabet of Marxism.”
(V. I. Lenin, Works of, vol. XXVII, p.
4.)
An inventory of the arsenal of the Western world discloses some
significant differences. First, the propaganda or information arm,
though vastly improved in recent years, has its ultimate recognized
limitations, i.e., its access to only the Western and “middle”
worlds, hence its value is largely defensive. For all practical
purposes the weapon of ruthless force does not exist, nor is there
any will to develop it. The big gun in the Western locker is clearly
labeled “economic power”. This instrument too has undergone radical
re-appraisal, coordination and improvement in recent years though
its application to date has also been limited to essential defensive
holding operations excepting a single significant, though
experimental, offensive foray. (The U.S. export control program
instituted, March, 1948.)
The success of the Western world’s “politics”, i.e., short- and
long-range battle plan, are considered to be similarly dependent on
(a) accuracy in the determination and
estimation of enemy strength, and (b) its
knowledge of the “effective” fire power contained in its own
arsenal. The limitation of weapon types outlined above makes
“economic power” even more a fundamental and determining factor. The
gap between the actual and potential force of this Western weapon is
today extremely wide. It is the problem of steadily narrowing this
gap, of increasing the “effective” economic power of the Western
world plus the problem of improving the accuracy of our estimates of
this sector of Soviet force which are examined in this paper.
The foundation studies on which this paper is based draw conclusions
as to the serious vulnerability of the Soviet Union and its
satellite world to the application of an increasingly tightened and
improved trade restriction program. It is important to note at this
point that such conclusions are not those of a narrow group within
this Embassy alone but are shared by every qualified observer of the
free powers represented in Moscow at the present time.
Let us, however, reject such an estimate in its entirety and, for the
benefit of those who prefer a gloomier view, examine the question of
an alternate to intelligent deployment of our economic power in
trade with Soviet and satellite areas. Assume then for the moment
that the policy of promoting expansion of free trade was tomorrow
applied to the Soviet-dominated world and that its initial result
was an expanded market for Western capital and products plus perhaps
even an engaging grin from the obliging bear. Do we have a qualified
student of the subject available to support the thesis that the
Western
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nations would be
in a healthier position vis-à-vis the totalitarian world, let us
say, ten years from today?
For all practical purposes no alternative exists and elemental wisdom
dictates that priority importance and emphasis be accorded the
further development on U.S. Government initiative of a coordinated
Western world long-range policy of increasingly restricted trade
with the Soviet areas along lines best calculated to achieve
long-range Western economic and over-all strategic objectives.
Embassy recommendations concerning a course of action for the
immediate future based on the objectives outlined above are
therefore summarized below and further developed in the body of this
paper.
-
a.
- A thoroughgoing analysis should be undertaken of the
missions of the various U.S. government agencies engaged in
the gathering and evaluation of information on
Soviet-dominated areas with priority accorded the necessary
regroupings and reallocations to achieve the maximum
collection and evaluation of information enabling specific
determination of the probable extent of the most critical
Soviet and Soviet-satellite industrial, technological,
material and scientific shortages and shortcomings.
-
b.
- U.S. should take initiative leading to the maximum
strengthening of the free world’s organization and
application of its economic power on a basis comparable to
that of the monopoly power wielded by the Soviet Union. A
suggested first step is the formation of a trade committee
within OEEC which could
coordinate and shepherd the acquisition of important
essential items from Eastern Europe on the basis of exchange
of similarly “essential” commodities originating in the West
European nations. Working with guarantees of U.S. support
the objectives of maximized bargaining power would be
sought. Clarification of U.S. trade policy—through
reservation of the “free trade” principle to the free world
would have a beneficial effect.
Assuming the attainment of these immediate objectives, we should then
be in a position to apply the full effective force of Western
economic power to the Communistic countries.
[Here follows an elaboration of the points made in lettered
paragraphs “a” and “6” above, covering nearly five single-spaced,
typewritten pages in the source text.]
Some Concluding Remarks—There is little need
for this paper to introduce once more the question of U.S. economic
health and that of the rest of the imperialist camp countries as a
vital factor in the calculations of the Soviet rulers. It is
virtually certain that in addition to attainment of their cherished
dream—disrupted Western unity—the Soviets have pulled in their
economic irons over the past half year to watch the course of the
U.S. disinflation process with logical anticipation of more complete
access and easier terms in concluding their equipment purchases
abroad. While their planned economic goals are internally adjustable
for a considerable period—the
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waiting is not without cost nor will her
requirements for outside essentials become less pressing over
time.
As regards measures adopted in the West looking towards further
economic recovery and stabilization, the necessity for an advance
careful calculation of the incidence and impact of these various
measures on the Soviet economic world cannot be overstressed. The
Soviet Union being outside the International Wheat Agreement, for
example, permits her all of its advantages (support of the world
market price) but with none of the obligations. If one remembers the
effect of the sharp decline in grain prices in the early 30’s on
this heavy grain exporter in its frantic efforts to secure its
minimum machinery requirements abroad—its relatively rosy prospects
today thanks to the capitalist-imperialist agreement is lucidly
clear. Every effort consequently should be exerted by these same
capitalist-imperialists to deny the Soviet opportunists the
advantage of reaping profits from their neighbors’ work by means of
cooperative special arrangements and coordinated action.
The best means of denying the Western world’s industrial secrets,
technological and scientific advances to the “novo-Japanese” is a
complex problem adequately developed in Enc. 1 to despatch no.
558.6 Possibly
such tasty new dishes, however, as the “continuous casting steel”,
oil-shale petroleum and other major new U.S. technological processes
are worthy of special protection in light of the effectiveness of
the Soviet industrial intelligence program and the naivete of the
average American. Such developments as the above can be expected to
become very juicy bones in the eyes of a really hungry hound as the
period of the US-USSR economic divorce lengthens.
The avidity of Soviet intelligence operations themselves and the
devouring of Western technical journals in the Soviet land suggest
the possibility of rather fruitful underhanded planting by a future
really effective technical-economic intelligence organization. In
line with the same tactic as recent licensing of impractically
designed drilling equipment, certain theoretically plausible though
actually impractical ideas, blueprints and processes might also in
the future be granted an export license for shipment to the Soviet
Union.
One cannot contemplate with equanimity the ultimate results of
continued economic assistance to the Russian-dominated Communist
countries, even though we may profit on a short-term basis. They are
too deeply committed to the ultimate victory of Communism for us to
expect that “good will” would be included among the commodities
which we might receive for any help in solving their many
problems.
Happily, the horizons of the Western world are broad on the economic
front—the task relatively clear, i.e., proceed to the doing
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now, of a job that must
necessarily be accomplished sooner or later in the future. The time
element could be of vital importance, however—now we are in pursuit
of victory, later the pursuit may be for means of survival.
