Foreign Relations of the United States, 1969–1976, Volume IV, Foreign Assistance, International Development, Trade Policies, 1969–1972

124. Draft Summary of Korry Report on Foreign Assistance¹

Washington, undated.

SUMMARY

1. We have worked out a redefinition of the national interest in foreign aid, have developed some broad operational criteria for foreign economic policy toward the less developed world, and recommend organizational changes to match.

2. We arrived at our recommendations after examining and rejecting five lingering myths about development:

• —That the U.S. has essentially the same development objectives in all LDCs.
• —That if the U.S. provides the right kind of resources, we can develop almost any country in a reasonable time.
• —That development assistance provided directly by the U.S. should secure political support for the U.S. on current issues.
• —That economic development is almost exclusively the concern of aid agencies and international financial institutions.
• —That the key relationship in development is between the donor and recipient nation.

3. We found, nevertheless, that there are good reasons for the U.S. and other developed nations to transfer some of their resources to less developed countries (LDCs). We distinguish three broad purposes for doing so, and suggest appropriate techniques and tools for each.

• —First, we argue that there is a particular national interest in promoting economic development in certain circumstances, where it can produce a thrust toward self-sustaining growth. In sufficient quantity, and applied judiciously, resources can help to strengthen—even create—economic and eventually political structures compatible with our own society and with the kind of world order the U.S. is trying to establish.
• —Second, we recognize the need to devote some resources as well to countries not yet ready for a major development effort, and we suggest ways to assist them to work their way toward creating the conditions for growth and a decent life—perhaps for a major development effort at a later date.
• —Third, we also see the need for aid to achieve specific political ends, but we are persuaded that U.S. resources can be employed most effectively if there is a clear division between political purposes and development activities, and the resources devoted to each.

4. We discuss the first purpose at greatest length, since there are some novel elements in the argumentation. It takes its premise from our conviction that the economic structure most compatible with the world we seek, and historically most conducive to human freedom, is one that relies on incentives rather than coercion, on some form of market system rather than on prices determined by political authority, and on decentralized decision-making rather than centralized control. In the course of this study, an interesting phenomenon came to light. A statistical analysis was made of the relationship between foreign exchange position and private investment in ten major LDCs for which data were available. There was a significant correlation between improvements in reserves and increases in fixed private investment. This tends to confirm the judgment of experience as to the important role of resources in maintaining, or developing, economic pluralism.

5. We propose a set of standards, both political and economic, to be met before we decide to participate in a major economic development program in an LDC. While these standards would restrict the number of countries in which we make a major effort, it would also, we feel, substantially improve efficiency in the use of funds. Moreover, it would permit us to rely much more heavily on the LDC for both planning and performance. We are impressed with the arguments used by the Pearson Commission² and others as to the desirability of using international institutions to set up economic criteria for aid and to check on performance, and we propose some steps in that direction.

6. We found that the development process in the LDCs encompasses political, social, and cultural changes that are inseparable from economic performance. We conclude that a major development effort should be undertaken only after a clear-minded assessment is made of the actual and potential resources available to and in the country, and of the capacity and determination of its political leadership.

7. We found, too, that the scope and pace of development is to a very large extent dependent upon relationships among industrialized countries. These determine trade opportunities, money rates, liquidity, investment flows, the terms of debt rescheduling, and other economic factors that, cumulatively, at least equal in impact the inputs of aid. We are persuaded that the complexity of internal and external factors affecting LDCs calls for a continuing effort to bring greater coherence to these relationships and to the international institutions that embody them.

8. The task is thus not only to set up an improved framework for economic assistance but to create a new pattern of foreign economic relations that is consistent with our foreign policy objectives. These objectives, in the last analysis, are world-wide, as befits the U.S. as the one truly universal power. Our economic objectives must similarly be world-wide, having as their ultimate goal a world of shared interests and responsibilities, in which no nation or group of nations is the exclusive preoccupation of any other. A world without client states, for example, is a world without trade preferences. We recognize that many industrialized countries, including our own, will continue for many years to have special interests and concerns deriving from history and geography. But we also use the Latin American example to show the possibilities for new economic links that are more consistent with our national interest in the world of the future.

9. This task calls for a number of organizational innovations, both U.S. and international. We do not find within the U.S. Government at present the means to think through the myriad of interrelated problems in our foreign economic relations, to work out the guidance required, and to coordinate action. Yet we face a new polycentricity in the world, an increasing diversity in our interests, and the growth of many novel economic instruments—SDRs, the Eurodollar, the multinational corporation, and specialized arrangements on commodities and satellite communications, to name only a few. By their very nature, they force new functional responsibilities on many departments and many independent agencies.

10. We recommend, therefore, a reorganization of the U.S. Government along the following lines:

• —An Office (or a Council or a Coordinator) for Foreign Economic Relations, with broad powers over all those policy areas that relate to the less developed world. Its placement and, to some extent, its role might be analogous to that of the Council of Economic Advisors. The Office would have no operational responsibilities but would be charged with developing and coordinating the policies and reviewing the activities of the following entities:
• —An Overseas Development Bank or Fund, capitalized by the Congress, operating in accordance with criteria that we detail. It would be authorized to loan or grant funds to LDCs or to international institutions for development purpose. It would, for the most part, operate without field missions. We assume that Congress would retain direct appropriating authority for replenishing IDA and for subscriptions to international or regional banks. This successor to AID would serve as the U.S. agent for the transfer of financial resources for development purposes, and for dealings with the World Bank Group and other development institutions.
• —An autonomous Technical Assistance Foundation, perhaps also capitalized by the Congress, whose principal tasks would be to identify and enroll U.S. experts, negotiate the terms of their contracts with foreign countries, serve as liaison with other contributors of technical personnel, and provide a repository for information concerning both U.S. and foreign technical assistance.
• —An Office, probably located in the Department of State, whose charge would be to allocate resources, be they of a military, economic, technical assistance, or security nature, for the purpose of achieving political ends. Resources for these activities would be requested annually of the Congress.
• —An Overseas Private Investment Corporation along the lines already approved by the House of Representatives.
• —An Office of the Special Trade Representative, with substantially the same functions as the present entity.
• —Other agencies and offices to the extent that their decisions and activities affect development in the LDCs.

Similarly, international institutions have lagged organizationally behind the demands of the modern world, except where there has been a critical requirement (as for liquidity) or a particular need to coordinate aid activities in an individual country. We are persuaded by the arguments for moving toward providing a larger proportion of our development assistance through multilateral institutions, and we propose that the U.S. urge the World Bank Group to build on its experience with consortia and consultative groups to deal with other countries, regions, and even functional problems. We urge that the U.S. press for setting up an International Advisory Council on Development under the aegis of the World Bank, and making use of the World Bank staff. We make some recommendations as to the composition and structure of the Council, and we suggest some specific areas in which it could work toward developing common standards and norms.

12. The foreign policy implications of these proposals include:

a. By providing a conceptual bridge heretofore lacking between certain of our political and our economic foreign policy goals, the proposals could facilitate decision-making in foreign policy generally.

b. By demonstrating more clearly that the traditional American humanitarian desire to build a better world for everyone also creates an environment of greater security for the U.S., they could provide a new dimension to our foreign policy.

c. By proposing to tie aid, trade, foreign investment, and other foreign economic activities much more closely together, they could make them mutually reinforcing in our negotiations and operations abroad.

d. By setting up specific foreign policy objectives for the U.S. with respect to international development institutions, the proposals could encourage these institutions to contribute more effectively to our long-range goals.

e. By giving international institutions a greater role, both in the process of consultation and in checking development performance, they would provide a basis for striking a new balance in the use of multilateral institutions in pursuit of U.S. foreign policy objectives.

f. By moving our relationships with other developed nations toward a sounder basis of shared responsibility with respect to the LDCs, they could improve the prospects for sharing the burden equitably.

g. By requiring that LDCs receiving major development assistance meet certain minimum standards as to political leadership and the availability of resources, and by placing much more reliance on them for performance, the proposals would make it much easier for the U.S. to avoid involving itself in their domestic political concerns—an involvement that flies in the face of contemporary trends throughout the world and is counter-productive in terms of encouraging economic self-reliance.

h. In that connection, by recognizing that the long-range prospects for human freedom and a sound world order are best served by plural economic institutions, and working in that direction, they could enable the U.S. to take a more relaxed attitude toward the political systems of the LDCs.

i. By maintaining a posture of reduced involvement in the domestic affairs of the LDCs, they could lead to a significant reduction in the number of Americans in our aid missions abroad—and in backstopping them at home.

j. By removing our major economic development effort from the political arena, they could enable us to avoid laying ourselves open to blackmail.

k. By insisting on economic criteria for a major development effort, they could reduce the political embarrassment of aroused expectations, help keep our relations on a business-like basis and speed our responses to LDC needs.

l. By separating the longer-term development objectives from our shorter-term politico-military requirements in the LDCs, the costs of foreign policy tasks can be calculated more precisely and thus compete more rationally in the allocation of total USG resources.

m. By employing a consistent theme—the theme of shared responsibility we are adopting in our national life—they would enable the U.S. to project a more coherent image to the world at large.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 324, President’s Foreign Aid Program. Confidential. Marked “Second Draft,” the summary is attached to a December 9 memorandum from Bergsten to Kissinger (see Document 123) which identifies it as the second draft of the summary of Ambassador Korry’s report on foreign assistance undertaken at Under Secretary Richardson’s request pursuant to NSSM 45.
2. World Bank President Robert McNamara created the Pearson Commission on International Development to stimulate public and governmental interest in foreign aid. Its chairman, Lester Pearson, former Prime Minister of Canada, and its U.S. member, C. Douglas Dillon, former Secretary of the Treasury, called on Secretary Rogers on July 17, 1969. Assistant Secretary Trezise prepared a July 16 briefing memorandum for the Secretary for that meeting. The attached talking points for the Secretary viewed the Pearson Commission as a key element in the U.S. aid strategy that could set the stage for renewal and recasting of the U.S. aid effort. Secretary Rogers was to say that targets were useful only if they could be met but that a “strong push for IDA will be very helpful as we go into the start of negotiations for a further IDA replenishment.” (Washington National Records Center, Agency for International Development, AID Administrator Files: FRC 286 73 A 518, PRM 7-2 (DAC) FY70 7/69-6/70)