4. Study Prepared by the Policy Planning Staff1

SOVIET ECONOMIC PENETRATION

[Here follow a summary of the conclusions and recommendations, a table of contents, and paragraphs 1–20 of the paper.]

Conclusions

21.

Focus of US Policy. The main conclusion of this paper is that current Soviet economic policy is operative within a larger political field and is most successful where the broad political situation is favorable to it, as say, in Egypt and Afghanistan. The Israel issue, the Egyptian-Iraqi rivalry, the Pushtunistan problem, neutralism, resentment against the US or the UK—all of these existed before the Soviet policy was undertaken. But it is in these contexts, and in association with related Communist Bloc policies, that the economic campaign has taken on substance.

For the longer run, the less developed countries almost inevitably will be a continuing target of Soviet efforts to expand Communist influence and power. It must be apparent to the USSR, as it is to ourselves, that the process of social and economic change in these countries will be a vastly unsettling affair. We do not have to believe the present phase of Soviet policy is destined to be permanent to recognize that the Communist effort to take advantage of the situation in the underdeveloped world will be an insistent and pervasive one. Indeed, it may well be that the Soviets consider that the long run opportunities in this part of the world offer the major hope for eventually overshadowing the US in the world struggle.

Neither the shorter nor the longer view of the Soviet campaign offers grounds for complacency. But they do suggest that US policy cannot be directed narrowly at “economic penetration”. The more immediate threats posed by Soviet actions involve the range of US military and security policies in the Near East and South Asia. The more remote issues relate to long run political trends in the less developed countries and bring into the picture US stands on matters like colonialism and racial discrimination, along with, for instance, US economic development and commodity stabilization policies. The fact that some of the issues are remote and that the Soviet appeal to the less developed countries is not intended to win immediate satellites only underscores the necessity for a broad look at US policy toward the underdeveloped world. The danger is less of [Page 14]“losing” countries now than of finding the less developed countries in the control of the USSR a decade or so hence.

22.

“Countering” Soviet Policy. It is quite possible that a re-examination of the problem of the less developed world will illuminate areas where US policy has needlessly provided openings for the Soviets. But we should not make the error of unreasoningly conforming our policies to those of the USSR, thereby enhancing Soviet prestige.

For the most part, we cannot prevent other nations from trading with the Bloc or from accepting Soviet aid, including Soviet technicians, in their development programs. To seek to do so by coercion will bring on us, for no return, the kind of obloquy that Stalin incurred for his veto on the Marshall Plan in Finland and Czechoslovakia (and Stalin at least had his way). And to try to match or exceed every Soviet offer will not necessarily bankrupt the US, but it will help to fritter away US prestige piecemeal.

Our economic assistance policies, similarly, ought to be our creation, not the USSR’s. There is, first, the obvious truth that the allegedly superior Soviet performance in this field is based on a record so limited as to be of hardly any probative value. More important, our assistance programs are intended to advance in the most effective way possible the economic development of the recipient nations. It is doubtful that this end would be more closely approached if we were to offer assistance not only for projects we considered wise but for any projects, unconditionally. Or that the sum of economic progress in the less developed countries would be greater if this government were to undercut the interests rates of the International Bank.

In refusing to be drawn into a pattern of conformity to Soviet initiatives, there need be no compulsion to hide our conviction that Soviet motives are mischievous and worse. And where the Soviets are meddling in local controversies we need to point up the dangers to the peace that these actions raise. But public evidence of undue US alarm at Soviet actions is likely to be counter-productive. As the Secretary has said, we do not wish to have a monopoly on economic aid and we have long stood for an expansion of peaceful trade in the world.

23.

Soviet Vulnerabilities. We have no warrant, of course, for expecting that the change in Soviet foreign economic policy will end by converting the USSR from habits of conspiracy and militancy to what Harold Nicholson2 called “commercial diplomacy”. But since the new policy does represent a small step in the direction of living more normally with the rest of the world, it may be worth considering [Page 15]whether the USSR can safely be enticed a bit further that way. The most likely possibilities are in the field of multilateral activities, where Soviet efforts at mischief-making can be effectively exposed.

There may also be opportunities in Soviet Bloc economic policy for our information programs. It will be desirable, of course, to point out the extent to which Bloc purchases of surpluses have been followed by re-exports of these commodities to free world markets. Within the Bloc itself, neither Communist China nor the satellites can be entirely happy over the allotment of some of the Bloc’s resources to non-Communist nations. The Chinese Communists in particular pretty surely were not satisfied with the amount of Soviet aid they were given for the Five-Year Plan, and some of this dissatisfaction must have cropped up again at the news of Soviet loans to India and Yugoslavia and Afghanistan. And leaving aside the Communist regimes in the Bloc countries, there is the question of popular sentiment. It seems unlikely that Russian people, for instance, can cheer the proposition that after their own bitter sacrifices over four decades the Soviet regime is now intent on raising living standards—in Afghanistan.

Recommendations

The above analysis and conclusions carry within them the principal recommendation that we should respond to Soviet economic policies by the effective application and improvement of our own policies toward the less developed areas rather than by efforts directly to counter Soviet actions. It may be that a review of US policies in this field would have been desirable anyway. The Soviet campaign, which, again, is not narrowly limited to economic activities, lends urgency to the need for such a review.

A. The Overall US Position

1.
Most broadly, the US, in its relations with the less developed countries, should stress our concern for the independence and well being of these countries per se. This theme was stated in the Secretary’s Philadelphia speech on February 263 and in his report to the nation on March 234 and in the President’s March 19 message to Congress on the Mutual Security Program.5 The positive emphasis of these statements is in effective political contrast to an appearance of preoccupation with the contest with the USSR, for this latter [Page 16]appearance inevitably suggests that the US is merely seeking to substitute its influence and control for that of the Soviet Union.
2.
Because of the Congressional relations problems involved, it would be desirable to hold discussions with the four Congressional committees most concerned to explain the political disabilities that follow, especially in Asia, from public attention to the Soviet threat to the exclusion of other concerns.
3.
In dealing with the Soviet economic campaign it would be advisable generally to refrain from threats of cessation of US aid. Most sovereign governments will be inclined or will be forced by public opinion to respond negatively to outright US pressures; and a US position that could be interpreted as reflecting opposition to economic development will be untenable anyway. Our necessarily limited capability for persuasion should be reserved for the special cases, such as arms traffic or civil airline concessions, where important security issues are involved and where there is reasonable prospect that persuasion will be successful.
4.
Direct US comments on Soviet offers should nevertheless be candid in explaining our view that Soviet economic activities are motivated by a desire to obtain undue influence on the national policies of target countries.

B. Economic Development Policy and Administration

1.
The effort to obtain legislative authority for greater continuity and flexibility in the use of economic aid should be pressed forward. It is clearly undesirable to have significantly less flexibility than the Soviet Union. Moreover, it is necessary to be prepared, on an ad hoc basis, to provide an alternative if the USSR seeks to apply direct economic pressures to free countries.
2.
Additionally, however, the Soviet challenge makes necessary a review of US economic assistance policy and administration. Economic aid, as a major instrument of policy toward the less developed countries, needs to be as effectively geared to the prosecution of US interests as is possible. There are serious questions about the adequacy of present programs:
a.
Are present organizational and fiscal methods for handling economic aid well suited to a long term US effort in the underdeveloped areas? In particular, can the annual appropriations process (and the consequent requirement that aid programs be more or less fitted into a fiscal year pattern) be made consistent with the aims of efficiency and flexibility?
b.
Is the nature, size and composition of aid programs calculated best to accomplish our goals? In this connection, the conclusions coming from the special studies of military-economic assistance programs in a number of countries should be made a part of any general review of economic aid policy.
c.
Are unnecessary and politically unproductive “conditions” imposed on US assistance? If so, can they be minimized by administrative action or are changes in legislation required?
d.
Would any revision in the US position with respect to multilateral economic development institutions be desirable, taking into account the possibility that the Soviets themselves may elect to extend their participation in multilateral economic aid activities?

C. Surplus Commodity Disposal Policy

1.
Our relative vulnerability on this issue makes it especially important that surplus commodity disposal policy be administered with attention to the legitimate interests of other exporting nations. We should continue to consult with these nations in carrying out our policies; and we should make the earliest, fullest and most specific announcement of surplus disposal plans that is possible, so as to enable other producers to make necessary adjustments with adequate knowledge of prospective market situations.
2.
At the same time, we need to look imaginatively at the possibilities for making the commodity surpluses into a foreign policy asset. The authority provided by Title I of Public Law 4806 to use surpluses to assist in financing economic development programs abroad probably will need early expansion. Furthermore, the problem of integrating surplus commodity disposal operations more closely with other economic aid programs needs careful examination. Finally, the predictable expansion of the world’s population justifies consideration of the likelihood that our commodity surplus stocks may have an important role to play in easing the food crises that may well appear in the world over the next decade.

D. Other Foreign Economic Policies

1. The appearance of the USSR as a competitor in the economic field inevitably will lead to comparisons between US and Soviet performance, a fact that re-emphasizes the need for consistency between announced US principles and US practice. This consideration has special relevance in the area of foreign trade policy and practice since the US, as the world’s largest international trader, is of key importance to all other participants in the free world economy.

E. Information Policy

1. Treatment of the Soviet economic campaign by our official information media should take account of the following points: [Page 18]

a.
Although we should not be unduly apprehensive at the Soviet economic offensive, it should be recognized as an important facet of a general and pervasive political campaign to advance Soviet interests and to extend Soviet influence.
b.
The Soviet Bloc can make good on its trade and assistance offers and its ability to do so should not be questioned. There will be shortcomings in Bloc performance, however, and these should be treated factually; one example of these shortcomings is the Bloc practice of re-exporting commodities in long supply to other free world markets; there will be many others.
c.
Information addressed to the Soviet Bloc itself can legitimately stress that Bloc economic assistance imposes sacrifices on the member nations and the individual citizens of the Bloc.

  1. Source: Eisenhower Library, CFEP Chairman Records. Confidential.
  2. British author, critic, and a member of the British diplomatic service from 1909 to 1929.
  3. For text, see Department of State Bulletin, March 5, 1956, p. 363.
  4. For text, see ibid., April 2, 1956, p. 539.
  5. For text, see Public Papers of the Presidents of the United States: Dwight D. Eisenhower, 1956, p. 314.
  6. Agricultural Trade Development and Assistance Act of 1954, enacted July 10, 1954; for text, see 68 Stat. 454.