740.5 MAP/3–2950
The Executive Director of the European Coordinating Committee of the Mutual Defense Assistance Program ( Bonesteel ) to the Deputy Director of that Program ( Ohly )
Dear Jack: This letter concerns some long-range thinking on the future of MDAP, European Military Production, and, in fact, the whole scope of our military and economic policies vis-à-vis Western Europe. I am sending this letter to you with extra copies which you might wish to show George Perkins and Dean Rusk. If the ideas seem worthy, I suggest they might be chewed over and refined by a small and select group and then made the subject of a governmental study. I am not proposing that there be any immediate action in connection with the coming Fiscal Year ’51 presentation to Congress, but would hope we could begin some thinking aimed at possible crystallization by next year.
To set the stage, let me reiterate a few of the basic facts and considerations. The basic assumption is that our general policy toward Western Europe is correct. That it is in the enlightened self-interest of the United States to support, without dangerously straining our own economic strength (but probably demanding some greater sacrifices), the free countries of Western Europe with their total population of 300 million people, a high percentage of skilled artisans and potential soldiers, an industrial production at least two times as great as the USSR and Satellites, and with political and moral traditions like our own. This support must increasingly aim at “uniting” the [Page 37] strength of Europe and must be applied with an increasing degree of US leadership.
The psychological benefits, in both Europe and North America, of the Atlantic Treaty and initial MDAP increments cannot be maintained indefinitely without a feasible and realistic plan for the future which will persuasively indicate to the public that there can be developed, in real fact, military power and posture in the North Atlantic community able to stand up against Soviet power. The realistic military requirements for such strength are in the process of being developed, I believe, in the NAT organization, although at best they can be only broad estimates. However, they are likely to show requirements for quantities of equipment, with supporting production, necessary for, say, fifty divisions (some in being and some mobilizable but for which equipment must exist); a tactical airforce of considerable magnitude with perhaps ten thousand or more first line planes; and naval strategic air (if any is furnished by Europe) and specialized forces of appropriate magnitude. These matériel requirements should be realizable within some reasonable period, perhaps five or six years, if the NAT concept is to remain real and vital.
By pure guess work, one might suppose that the total cost of such matériel would run perhaps to the equivalent of $30 billion. To find these finances as well as to divert from peaceful economies the materials, manpower and production facilities needed, will be a terrific burden on both our American and the European economies in their present state. There is a danger that the demands may seem so vast that the combined resources of Western Civilization may seem insufficient to meet them without such a degree of personal sacrifice by all that people will turn from such sacrifices and react like ostriches burying their heads in the sand. Sacrifices are needed, but can be called for only if there is a realistic chance that they can provide success.
Western Europe has long been known as the “workshop of the world”, dependent, however, for a large part of its raw materials and food on overseas trade and supplies. The physical productive capacity of Europe today is perhaps higher than ever before, but world economic and political dislocations are making it well nigh impossible for Western Europe to be self-supporting at the standards of life which politically and sociologically are necessary today. The “dollar problem”, disruption of triangular trade, the rise of nationalism in Southeast Asia and sub-Asia with the inevitable concomitant of desires for national self-sufficiency, the problem of industrialized Japan—not to mention Communism, the loss of China, and possible subversion of more of free Asia—all tend to leave Western Europe with an industrial production potential which will require positive action if it is to be sustained unaided.
[Page 38]The “Dilemma of Defence” so excellently expounded in the London Economist’s lead article of last December 15 is very real and not by any means easily solvable. It arises from the fact that the necessary increases in military budgets in Europe—necessary to achieve appropriate military strength in being—must come very largely from sacrifices in the field of individual social security expenditures. The exaggerated emphasis on social security in Europe has had a long evolution, which, politically, will be extremely difficult to reverse, if indeed this is either feasible or desirable.
The US economy with its enormous industrial production and equally great agricultural and raw material production (now producing surpluses) is unlikely to be able to bear the major burden of providing as end items the majority of the overseas European military requirements, particularly when the needs for economic and military assistance to other parts of the world are taken into account. (This statement needs careful checking, since if it is untrue, US provision of a vast amount of arms would be one possible alternative solution to the basic problem. However, I doubt this is a realistic alternative.)
Now, with the above all well in mind, comes the $64 question—what do we and the Western Europeans do to find a feasible solution to the problem of making Europe physically strong while preserving her economic stability, and not wrecking our own strength. The following thoughts are set forth, not as answers to the problem but to indicate a possible method of approach which, if thought through on an appropriate high and coordinated level, might show the way toward a solution.
The essence of the approach I want to suggest is that an important segment of European productive capacity be utilized, with American aid, to produce most of the arms required for Europe’s re-strengthening. In other words, a vastly broader approach to the problem of “additional military production” in Europe. At present we are working on the basis of a few million dollars worth of assistance to AMP under the caveat of not jeopardizing economic recovery. The results are discouraging and there is little broad incentive involved. Can we not enlarge the present concept of AMP to relate it to very substantial increases of European military production with American economic and military assistance, both direct and indirect, permitting utilization of European productive capacity within a coordinated working out of the future economic and political as well as the military policies of the US vis-à-vis Europe?
Last year the French and Belgians indicated to Western Union a physical capacity for military production, disregarding financial considerations, amounting to something like a billion dollars worth of end items per year. Italy, in her confused submission of “project [Page 39] statements” a few weeks ago, indicated a production capacity of over a billion dollars worth of end items. Italy also has her almost unsolvable problem of unemployed labor force. Western Germany has a very considerable potential, which if not utilized for end products could at least provide much of the steel and basic materials needed, say, in Italy and France. Most of this potential physical capacity in Europe is unutilizable at the moment, partly because of insufficient military budgets or insufficient total budgets, if you want to look at it that way, in the countries concerned and partly because available raw materials, manpower, etc., have to be directed into export production drives in the effort to get foreign exchange to buy both industrial raw materials and food.
These conditions will be aggravated by the cessation of Marshall Aid.
Somewhere in this maze of economic factors, I believe there is a pattern which if followed through might indicate a method of applying total American assistance to Europe so as to greatly benefit both military production and the economic situation of Europe in the future. This should be the problem put to a study group in Washington—a group made up of representatives of State, Defense and ECA.
I do not want to try to point out the answer, but perhaps it lies along the lines of provision of:
- (a)
- Considerably increased direct dollar assistance to European military production aimed at increasing or converting capacity and not excluding consideration of “pump priming” by partial financing by the US of transfers of finished equipment from one country, like Italy, to others—a sort of partial “off-shore purchases” of finished equipment.
- (b)
- Overall aid to Europe in “kind”, perhaps by providing part of our agricultural surpluses of food, cotton, tobacco and other raw materials possibly as grants related to the Military Assistance so as to decrease the pressure of the foreign exchange, including the dollar, problem, and help provide the economic and financial basis for greatly expanded military production.
This has been a lengthy and not too clear exposition of a new approach in the way of aid to Europe. It tends to merge economic and military assistance. It has many additional ramifications which are too involved to attempt to put in this letter. It may not be feasible or realistic, but I do believe it deserves some consideration on a planning level and therefore commend it to your attention.
While the ideas set forth herein seem to relate mostly to the relationship between the US and free Europe, I do not mean to exclude the appropriate and necessary consideration of the Far Eastern and Pacific elements of the total problem. We still have access to most of [Page 40] the raw materials in the world but continued access to adequate amounts is a factor. The development of underdeveloped areas in many parts of the world, Point IV, and all these factors must be related.
The Western Union1 organization is now pulling together comparisons of available financial resources with the cost of a strategic plan based on targets set at Luxembourg. Similar calculations are in train for the whole North Atlantic Area, and the whole matter will be formally receiving the attention of the North Atlantic Treaty organization. Before we go too far in this field we need to think through the US position on basic policy questions involved in mobilizing those economic resources necessary to implement an adequate strategic plan, and be ready to assume appropriate leadership.2
Sincerely,