Foreign Relations of the United States, 1955–1957, Foreign Aid and Economic Defense Policy, Volume X

38. Memorandum of Discussion at the 320th Meeting of the National Security Council, Washington, April 17, 1957¹

Washington, April 17, 1957

[Here follow a paragraph listing the participants at the meeting and item 1.]

2. Review of Basic National Security Policy: Foreign Economic Issues Relating to National Security (NSC 5602/1;² Memo for NSC from Executive Secretary, subject: “Review of Basic National Security Policy: Proposed Council Agenda”, dated February 19, 1957;³ NSC 5707; NSC 5707/1; NSC 5707/2; NSC Action No. 1675;⁴NSC 5707/3; NSC 5707/4; NSC 5707/5⁵)

Mr. Cutler briefed the Council, in the course of which he paid particular attention to the charts which appeared at the back of NSC 5707/5 together with material to indicate in what countries of the world we were paying the largest per capita amount in the shape of our assistance programs. (A copy of Mr. Cutler’s briefing note and tables are included in the minutes of the meeting.) Mr. Cutler stated that he did not know whether his figures really proved anything, but they served to dramatize where our money was going. He then asked Mr. Hollister, the Director of the International Cooperation Administration, whether he would care to comment on these charts and tables.

Mr. Hollister observed that any charts dealing with the categories of expenditure for the various parts of our military and economic assistance programs were bound to have a somewhat arbitrary character. He would take Laos as an example (this was the country which was receiving the largest per capita amount of U.S. assistance), and reminded the Council that our contribution to Laos was largely to pay the wages of the Laotian Army. Accordingly, this was in a real sense military rather than economic assistance.

Mr. Cutler then turned to Mr. Randall, the Chairman of the Council on Foreign Economic Policy, and invited him, by prearrangement, to go through NSC 5707/5. Mr. Randall observed that a great many of the questions posing economic issues relating to the revision of our basic national security policy would sound very familiar to the members of the Council. He also expressed the view that even if there were no Soviet Union or International Communism to threaten the security of the United States, there would be other reasons of national self-interest which would dictate that the United States provide assistance to certain foreign countries.

Thereafter, Mr. Randall turned to the first major subject of NSC 5707/5, and read the paragraphs as follows:

“I. Allocation of U.S. Foreign Assistance

“1. a. In the allocation of our assistance to less developed countries, should we give more emphasis to economic development and less emphasis to military assistance?

“b. Does the current allocation of aid among countries best promote U.S. security interests?”

After he had read the questions formulated by the Planning Board as above, Mr. Randall asked Secretary Dulles for an expression of opinion on the question in paragraph 1–a.

Secretary Dulles replied that he thought it quite difficult to try to answer such questions as these in general terms. It was better to try to answer the questions in relation to concrete cases in specific countries. For example, as to the very high level of U.S. resources being devoted to South Korea, we in this Administration had felt that it was worth paying a good deal to put an end to the war in Korea. Moreover, we believe that it is a lot cheaper to do what we are now doing in Korea than to be obliged to carry on a war there. Yet, even though we must stand by our commitments to South Korea, we should do what we have to do in the most economical and efficient way.

By and large, continued Secretary Dulles, we should probably put greater emphasis on our assistance to less developed countries for their economic development, and less emphasis on military assistance. The best way to accomplish this purpose without resorting to increased levels of expenditure would be for the United States to create and maintain a long-term development fund from which loans could be made to the countries we needed to assist. The most wasteful and inefficient way to do it was as we are now doing it. Secretary Dulles did not see how the International Cooperation Administration performed as well as it did, considering the manifold difficulties which it faced under the present terms of the mutual security legislation. The ICA had no means of knowing from one year’s end to the next what resources Congress would permit it to make available for its assistance programs.

Secretary Dulles stated that it was his belief that if we could succeed in getting our economic development assistance onto a more or less permanent basis, with the countries we were aiding coming up with their own long-range development plans instead of accepting our plans, we could make a shift to a much more efficient operating basis. As of now, we were completely unable to give any long-term commitments for carrying out economic development programs in these countries.

Secretary Dulles added that his arguments in favor of increased emphasis on economic development did not necessarily mean increased U.S. levels of expenditure but, rather, more effective management and methods. He was “dead sure” that the impact on these less developed countries of the example set by the Soviet Union, in becoming the second greatest industrial nation in the world, was very great indeed. This impact was heightened by the fact that the Soviet achievement was accomplished in the span of a single generation. Of course, said Secretary Dulles, the people of these underdeveloped areas ignore the cruel and terrible methods by which the Soviets had achieved their goal; they only saw the results. Nevertheless, if the United States and the Free World cannot provide some real hope of lifting these poverty-stricken countries out of their misery, they were quite likely to follow Soviet examples and methods.

Secretary Dulles said that of course all of us would like to see our economic objectives in the under-developed countries achieved through the use of private capital investment. But some of the most critical of these under-developed countries existed under conditions where they will have to be able to see genuine hope of a transformation provided by the West, or else they will turn to the USSR. So large were these under-developed areas that if they turn to the Soviet Union the area of the Free World will shrink by another two-thirds. Accordingly, we have got to provide economic development assistance, and furthermore, we must as a nation realize more fully the importance of this assistance to our national security. Secretary Dulles added the hope that there would be a growing acceptance throughout the Free World, and especially in the under-developed countries, of the principle that the United States provided the great military deterrent to Communist aggression. If this realization became clear, it could result in a reduction in the levels of military forces maintained by these poor countries, and likewise in the level of U.S. military assistance provided to these countries. After all, it was both our own theory and, indeed, a fact, that it was the military might of the United States which provided these small countries with the real deterrent to Communist invasion.

When Secretary Dulles had concluded his comments, Mr. Randall called on Secretary Wilson for his.

Secretary Wilson pointed out that when the Armistice in Korea had been established, this Administration immediately took a look at what the United States must do to assist South Korea. There had been a kind of understanding with the South Koreans that the United States would provide a two-year program of assistance. Part of this U.S. program involved the return of many of our divisions to the United States. However, since South Korea wished to maintain a strong military position, it had proceeded to build up its own ROK divisions as our U.S. divisions returned home. The net result was that the South Korean Army was now much too big and was too great a burden for the South Korean economy to maintain. While we all agree that this ROK Army should be reduced, we have never quite stepped up to reducing the ROK military establishment. It could easily be reduced by five divisions, although such a course of action would involve the concurrent modernization of U.S. forces remaining in Korea with the new weapons.

Turning to the subject of economic assistance to South Korea, Secretary Wilson emphasized the poverty of natural resources in South Korea. There was in addition another problem connected with our assistance programs. Who was to own the facilities created in South Korea with our assistance funds? If we left them all to be owned by the Government, we would have created in South Korea the same kind of economic system which prevails now in the Soviet Union. Yet it was extremely difficult to develop a private enterprise economy in that country. This added problem needed study.

Secretary Wilson closed his comments with the suggestion that the United States should cut about $50 million or $70 million, or somewhere between five and ten percent, from the $750 million which we now provided Korea annually in the shape of U.S. military and economic assistance. We should also attempt to cut by degrees the current ROK force levels.

Mr. Randall then invited the comments of the Chairman of the Joint Chiefs of Staff. Admiral Radford referred in the first instance to the charts at the back of NSC 5707/5, and informed Mr. Cutler that since they provided statistics for the fiscal years 1956 and 1957 only, they did not provide a real picture. In order to have a true picture, these statistics should go back to the year 1950. Moreover, continued Admiral Radford, Korea was a special case. The United States could not force the South Koreans to reduce the level of their armed forces unless we could provide them with good military reasons for doing so. After all, the capital of South Korea, Seoul, was close to the border with North Korea and was in constant danger of being overrun. Admiral Radford added that he felt considerable sympathy for these South Korean people “sitting under the guns”. If, on the other hand, we had in place in Korea defensive nuclear weapons, so that the South Koreans could actually see them, they might be impelled to reduce the level of their own military forces.

Admiral Radford also pointed out that there was a front line 150 miles in length defended by the armed forces of the UN and of South Korea. The North Korean Communists were constantly trying to infiltrate through this line and were often successful. According to General Lemnitzer, 14 divisions were needed to maintain this front. Moreover, if we withdrew the remaining two U.S. divisions from South Korea, President Rhee might insist that a Korean commander or a Korean deputy commander should run the whole military show in South Korea. Thus our two U.S. divisions constituted a stabilizing force against the possibility of a march by President Rhee against North Korea. If these two divisions left South Korea and thereafter hostilities broke out between the North Koreans and the South Koreans, there would be an unsolved argument as to who had started the military action.

Turning from Korea to the over-all military picture, Admiral Radford pointed out that our Government did not have the maneuverability it ought to have because of the policies followed and the commitments made by the previous Administrations. In concluding, Admiral Radford said he could not help but feel that the economic picture in the less developed countries would be greatly improved if private capital from the West were encouraged to enter these countries through the provision of guaranties by the United States and other Western governments against losses through war or serious political upheavals.

Mr. Randall then suggested that the Council turn its attention to the second major problem of economic development assistance, reading questions 2 and 3 as follows:

“II. Economic Development Assistance

“2. Will U.S. interests in future years require expenditures for long-term economic development greater than the current levels?

“3. Should we increase the emphasis and resources devoted to training indigenous leaders, developing skills, and providing competent advisers in the less developed countries?”

Mr. Randall then asked Secretary Dulles if he would care to comment on the second question.

Secretary Dulles replied that if one could assume that the political situation is not further seriously disturbed, he could see no reason why U.S. expenditures for long-term economic development should increase. Indeed, it might be possible to reduce these levels. Of course, he pointed out, there are certain new emerging areas of need, such as Africa. This might change the picture, although perhaps something could be done in Africa through the use of private capital.

Mr. Hollister commented that one of the most difficult problems we face is that when areas of new need open up, we do not reduce the level of our aid expenditures in the older areas. Inevitably, therefore, the level of our expenses increases.

Pointing out that we had managed a significant shift of our economic assistance from Europe to Asia in recent years, Secretary Dulles suggested that other shifts could be made in the future. The President commented that Europe represented a rather different problem since our economic assistance there was provided primarily to restore the war-damaged economy of Western Europe.

Secretary Humphrey said that he was, of course, depressed by the two or three small countries—Korea, Taiwan and Vietnam—which accounted for the bulk of U.S. assistance. What we were doing in these countries was, of course, to “maintain military symbols”. But this did not result in building up their economies. Admittedly we needed these military symbols; but how could we maintain the military symbols and still carry out reasonable economic development programs. The President warned Secretary Humphrey that we could not weigh our assistance programs solely in terms of the U.S. budget. We must weigh these programs against the objectives which the United States was seeking in the world—such as peace, security, the development of international trade, and the like. The President added that he had come to look on such countries as Korea, Taiwan and Vietnam as areas from which we will get no positive return from our investment. We put the money into these countries because we needed to maintain the status quo in the world and not permit it to be upset against our national interests.

Secretary Humphrey replied that, nevertheless, if we could only solve the problem of the costs of maintaining these military symbols, two-thirds of our money could be freed for more fruitful uses. The President said that he could not deny this, but did not see how it could be accomplished until some real settlement with Russia had been reached.

Secretary Wilson repeated his recommendation that we just cut a little—say five or ten percent—from each assistance program each year. We should “pluck a few feathers”. The President replied that if we looked the world straight in the face today we would quickly realize that we could not throw down the burdens which we are carrying in Korea, Taiwan and Vietnam.

The Vice President asked if he might have the floor, and said that perhaps he would find himself in a minority with respect to his answer to the second question. He said he was referring specifically to the portion of our resources that we were expending to assist Asia, Africa and Latin America. With these areas in mind—and even taking into account Secretary Dulles’ view that if we shift from grants to loans our total expenditures may recede—The Vice President said that he remained very doubtful. Moreover, if we have in mind that in the years ahead in these three areas there will be a tendency to look either to the U.S. or the USSR in choosing the path to be followed, The Vice President said he believed it was foolish to imagine that the total amount of economic assistance needed by these areas from the United States was going to go down. On the contrary, it was going to go up. This aid might not necessarily be grant aid, but the general level of our assistance expenditures would rise. In short, a substantial increase is necessary over the next ten years, though perhaps private investment would offer some help.

The President pointed out that it was the policy of this Administration to make use of private capital as far as possible to assist such under-developed areas. The Vice President said he realized this, but predicted, nevertheless, that the total cost to the United States would go up substantially over the next ten years. Moreover, if loans or private capital were not available in sufficient quantities, U.S. grant aid would have to make up the deficit.

The President said it would be interesting if anybody knew how much foreign capital had been invested in the United States a century or so ago. He bet that in any case it was very considerable. Accordingly, investment in newly developing lands was no historical novelty. It was simply that the actions of the Soviet Union made such investment now much more urgent.

Secretary Wilson complained that of course in our assistance programs we were not actually investing capital in these newly developing areas. We were giving it away. This, indeed, was a novelty in our history.

Secretary Dulles pointed out that we were making every effort now to make greater use of private capital and of loans rather than of grant aid. Secretary Dulles added that he could find nothing to dissent from in The Vice President’s previous analysis.

Mr. Randall then inquired whether anyone dissented from the third question in NSC 5707/5 as set forth above. The President replied promptly that no one could dissent from admitting the need to increase the emphasis and resources devoted to training indigenous leaders in the less developed countries. There was, however, one word of caution. As we developed leaders in these new countries, we had got to be sure that we provided jobs for these leaders and something for them to lead.

Mr. Randall invited the Council’s attention at this point to the next major problem, Sino-Soviet economic diplomacy, which he read as follows:

“III. Sino-Soviet Economic Diplomacy

“4. Sino-Soviet economic penetration may tend to increase the costs of exerting U.S. influence through aid programs and may make U.S. aid programs more necessary to maintain the Western position. To what extent should we seek to counter Sino-Soviet economic penetration, and by what means?”

Mr. Randall pointed out that this was such a difficult problem that he had created a special committee of the CFEP to take, as it were, a census of the weapons and measures now available in the U.S. armory to counter Sino-Soviet economic penetration. It was proposed to study this problem intensively in the CFEP, but Mr. Randall added that he would heartily welcome any guidance on the problem from the National Security Council.

The President observed that Mr. Randall was likely to meet a lot of silence from the Council on this subject, because we were obliged to decide on our reaction to each individual Soviet measure of economic penetration. After all, said the President, the Soviets have the inner lines and can move at will to confront us with problems and difficulties. Accordingly, a lot of this would have to be “played by ear”.

Secretary Dulles said that it was his impression that in this area of Sino-Soviet economic penetration the United States really did not have to counter a massive Soviet effort in terms of money and resources. His reason, continued Secretary Dulles, was his belief that the Soviets do not actually have the monetary resources to finance great assistance projects in the under-developed areas throughout the Free World. As proof of this he cited the failure of the Soviet Union to make good its boast to build the High Aswan Dam for Egypt in the event that the United States refused to do so. Another instance was the manner in which the Soviets had welshed on their big assistance program for Yugoslavia. Obviously, continued Secretary Dulles, the Soviets are encountering serious troubles at home and terrible problems in the satellites. All this was in addition to the heavy armaments burden that they were obliged to carry. So, in his opinion, he said, the Russian penetration did not really involve the capability of supplying large funds; it was mostly a propaganda operation. Thus they had skillfully made use of trade fairs to lure under-developed countries to choose the Communist path in order to achieve their economic objectives. This would have to be countered.

Mr. Randall commented that, judging from what he had observed at Bangkok recently, the U.S. contribution to the trade fairs was proving very effective. Mr. Allen Dulles pointed out that we were certainly in a position to do much more by way of debunking Soviet economic diplomacy. Secretary Herter, however, pointed out that Congress has already cut out half the money which the Administration had asked for in order to carry out our program for trade fairs in foreign countries.

Mr. Randall then turned to the next problem, on payments for base rights, reading as follows:

“IV Payment for Base Rights

“5. Should we undertake to pay rentals for base rights in countries with which we do not have collective security relationships (such as Morocco, Libya, and Saudi Arabia) in lieu of or in diminution of mutual security assistance?

“a. Could establish firm maximum obligation for bases and rights of renewal.

“b. Would require more definite assessment of the relation between the cost and the value of bases.”

Secretary Wilson commented that it would certainly cost this country less if we undertook to pay rent for base rights in these countries instead of providing a mutual assistance program. Secretary Dulles stated that we really faced a choice of evils in this situation, but on the whole he felt that the payment of rent was the lesser of the evils. If we did not shift to a rental basis we would never be able to get off the wicket of grant aid and onto the basis of loans in our mutual security assistance programs. With this position Secretary Wilson said he agreed. The President expressed the hope that perhaps one day the United States would confront a buyer’s market on bases. He said he was certainly fed up with the situation now facing us.

Mr. Randall pointed out that the Council had exceeded its time on this paper, and asked the Council to look at the final problem, on economic assistance to satellite nations, which read as follows:

“V. Economic Assistance to Satellite Nations

“6. Should we ask Congress to relax legal restrictions (such as those contained in the Battle Act and P.L. 480) so as to improve our ability to use economic aid in fostering the development of independence among the Eastern European satellites?”

The President observed that we certainly ought to ask Congress to relax these legal restrictions, but he doubted that we could induce Congress to agree to such relaxation. The Vice President agreed that this action should be undertaken at some point, but we should not ask Congress to relax these restrictions at the present time. Secretary Dulles agreed with this judgment, and The Vice President went on to explain that before these restrictions could be relaxed there would have to be a preparation of the American people and direct contact between Administration leaders and members of Congress to explain and justify the relaxation.

The National Security Council:⁶

Noted and discussed the report on the subject contained in NSC 5707/5, as presented at the meeting by the Chairman, Council on Foreign Economic Policy.

[Here follows item 3.]

S. Everett Gleason

1. Source: Eisenhower Library, Whitman File, NSC Records. Top Secret; Eyes Only. Prepared on April 19 by Gleason.
2. NSC 5602/1, “Basic National Security Policy,” March 15, 1956, was approved by the President, March 15, to supersede NSC 5501.
3. Not printed. (Department of State, S/S–NSC Files: Lot 63 D 351)
4. NSC Action No. 1675, concerning basic national security policy, was taken at the 314th meeting of the National Security Council, February 28, and approved by the President, March 1. (Ibid., S/S–NSC(Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council, 1957)
5. NSC 5707, “Review of Basic National Security Policy: Basic Problems for U.S. Security Arising Out of Changes in the World Situation,” February 19, 1957; NSC 5707/1, “Review of Basic National Security Policy: U.S. National Strategy,” March 18, 1957; NSC 5707/2, “Review of Basic National Security Policy: National Security Costs in Relation to Total National Resources,” March 19, 1957; NSC 5707/3, “Review of Basic National Security Policy: Issues Affecting the Military Elements of National Strategy,” March 26, 1957; NSC 5707/4, “Review of Basic National Security Policy: Military and Non-Military Aspects of Continental Defense,” March 26, 1957; NSC 5707/5, “Review of Basic National Security Policy: Foreign Economic Issues Relating to National Security,” April 3, 1957; none printed. (All are ibid., S/S–NSC Files: Lot 63 D 351)
6. The paragraph that follows constitutes NSC Action No. 1703. (Department of State, S/S–NSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council, 1957)