The attitude of the American people toward the world's poor, and toward our government's effort to attend to their distress, is seldom examined by those who frame our policies toward the international economy and the less developed regions of the earth. It is instructive, however, to listen to what the American people have to say.

Surveys of public opinion consistently show a deep concern about the plight of needy people in other countries—a concern higher among the public at large than among those groups pollsters designate as “public-opinion leaders.” While attitudes about most other aspects of foreign policy tend to vary with the times, the public's interest in aiding the desperately poor has remained remarkably constant. In 1982, as in previous years, nearly 60 percent of the respondents polled by the Chicago Council on Foreign Relations said they viewed “combating world hunger” as a “very important” objective for the United States; only 5 percent felt it to be “not important.” As in previous surveys, combating world hunger ranked far ahead of “protecting American business abroad,” and even ahead of “defending our allies' security” or “matching Soviet military strength,” as an international concern. Though these results may surprise some who consider themselves experts on foreign policy, they are not a fluke; to the contrary, they are in keeping with a wide range of findings from other polls.

Paradoxically, while the public's commitment to aiding the wretched of the earth gives all the signs of an unwavering consensus, its attitude toward foreign-aid programs appears to be thoroughly hostile. Since 1974 the Chicago Council on Foreign Relations has asked respondents to volunteer their views of “the 2 or 3 biggest foreign-policy problems facing the nation today.” “Reducing foreign aid” is always one of the two top concerns. In these surveys neither the arms race, nor the threat of nuclear war, nor even relations with the Soviet Union has yet evoked the sort of response elicited by the idea of cutting foreign aid, which is by far the most unpopular program in the federal budget. In 1978—foreign aid's “best” year in the Chicago Council surveys—over four times as many interviewees favored cutbacks as approved of increases, leaving the program with a net rating of minus 39 percent. Even at the height of the disillusionment with the Vietnam war or on the eve of the “Reagan revolution,” neither defense nor domestic welfare was held in such low esteem.

What can explain these strong—and yet apparently contradictory—feelings about helping the world's poor? One possibility is that they are only a specific example of a more general proposition: that the public's opinions about international problems are ill-considered, volatile, and vaguely irrational. But there is also a perfectly logical explanation for this ostensible paradox. The American public may think its government's programs for aiding the world's poor defective, or positively injurious. On this view, the stronger the public's commitment to the world's poor, the more forcefully it would reject programs that seem untrue to that commitment.

Interestingly enough, America's elites do not appear to share the deep misgivings of the public about U.S. foreign-aid programs. According to a number of surveys, the overseas-relief, development, and security policies which our people find so objectionable are considered utterly unexceptionable by our “public-opinion leaders.” Such surveys typically indicate that leaders view foreign aid as a “non-issue.”

This cleavage between the public and the opinion-makers is highly significant. At different times in American history the general public has come to an understanding about the world before its leaders. We are now at such a point. The American people seem to recognize an important fact about world affairs that continues to elude their leaders—namely, that the American government's efforts to bring relief, prosperity, and security to impoverished peoples in other countries have gone seriously wrong.

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II

The descent of our foreign-aid policies from their original purposes is a poignant story. Its outlines must be recounted, if only to recall how far we have strayed from our initial objectives and principles.

America's policies toward the international economy and the “backward areas” (as the “South” was then called) were fashioned, in the early days after World War II, by idealists whose vision had been tempered by hard times. America had suffered through more than a decade of economic depression, and had then spent four years embroiled in a war of total mobilization against anti-democratic regimes that had gained control over several of the world's major industrial societies. America's leaders were determined that such events not be repeated.

Their ideas for rebuilding the world economy were shaped not only by their understanding of the causes behind the Depression, but by their memory and understanding of the international economic order which had existed before World War I.

As they knew, and as economic historians have since confirmed, the late 19th- and early 20th century was an era of widespread economic growth—not only in sovereign or imperial nations, but in many colonies as well. This growth had been made possible by technical advances, but it was propelled by a dramatic increase in trade and international flows of private capital, which served as conduits for the transfer of information, productive knowledge, and skills.

Though the architects of the postwar order wished to rebuild this framework, there was to be a crucial difference. Before World War I a system of empires and colonies had provided the political underpinnings for the financial and monetary arrangements of the world. America's leaders, however, were anti-imperialist; before World War II and after it, they were proponents of decolonization and national self-determination. Thus, toward the end of the second war, American statesmen began to create a “liberal international order” in which it would be possible to have, in effect, both bread and freedom: to capture the most beneficial economic workings of the trade and finance arrangements associated with the “Age of Imperialism” and at the same time to protect the weaker peoples of the world against imperial subjugation and anti-democratic oppression.

The instruments devised to meet these objectives were, respectively, the Bretton Woods institutions—the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (the World Bank)—and the United Nations. In laying a base for international material progress, perhaps the more important of the economic agencies was the IMF. In theory, it provided a mechanism for the international convertibility of all members' currencies; in practice, it established the American dollar as the world currency, the new medium of international trade. This guarantee removed an enormous risk in international trade, one which had proved so dangerous between the wars for rich and poor regions alike.

Investment as well as trade had been a vehicle of international progress in the earlier era. The World Bank was to attend to some of the risks of putting private capital to work in poor or devastated areas. The Bank's Articles of Agreement outlined its mission succinctly: “to facilitate investment for productive purposes . . . to promote private foreign investment by means of guarantees . . . and when private capital [is] not available on reasonable terms, to supplement private investment.” The U.S. Treasury Department, which would underwrite much of the World Bank's operations, had a similar understanding of its purposes. In the words of one analyst: “The Bank would encourage private investors to undertake international lending by guaranteeing international loans through the usual investment channels and by participating with private investors in such loans. In exceptional cases, where private capital is not available, the Bank would make loans out of its own resources” (emphasis added).

The key to improving a nation's access to international capital, the early statements of the Bank explained, was its “investment climate.” This phrase is no longer in common usage, but its meaning remains fairly clear. It referred, if obliquely, to the economic and social policies promoted by the state—including its tax policies, its budget policies, its monetary and credit policies, its foreign-exchange policies, its trade policies, its public-investment policies, its legal system, and the extent to which formal and informal restrictions were placed upon people engaging in economic activity. The World Bank was, in these early days, extremely serious about the question of “investment climate.” It went so far as to sanction a practice known as “strategic non-lending”—abstaining from participation in loans to certain nations, even if they appeared credit-worthy in the technical sense, because their economic policies were leading them, and the world community, in the wrong direction.

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III

What was the right direction? In his last address to Congress, President Roosevelt warned that “we cannot succeed in building a peaceful world unless we build an economically healthy world.” “Economic health,” in Roosevelt's vision, depended upon both the international environment and the actions of individual countries. Even in regions of severe wartime devastation or acute mass poverty, recovery and growth were to be stimulated primarily by domestic effort. Roosevelt was firm on this point:

The main job of restoration is not one of relief. It is one of reconstruction which must be largely done by local people and their governments. They will provide the labor, the local money, and most of the materials. The same is true for all of the many plans for the improvement of transportation, agriculture, industry, and housing that are essential to the development of the economically backward areas of the world.

Roosevelt and the men around him were not hostile to the idea of foreign aid. They had, after all, devised the Lend-Lease program, by far the greatest foreign-aid program the world had ever seen (over $200 billion by today's prices). It was their unshakable conviction, however, that foreign aid should meet exacting standards. Its purposes were expected to be clear, and morally legitimate; the programs that it fashioned should prosecute these objectives directly and effectively.

American relief efforts during and immediately after World War II were conditioned by this understanding, and proved eminently successful. Protracted war had destroyed the local economic base throughout Europe and Asia. In many areas, mass starvation seemed a real possibility; in the months after defeat, for example, Germany's infant-mortality rate was higher than Sahelian Africa's is thought to be today. To prevent a widespread loss of life, the United States had prevailed upon the United Nations to organize a Relief and Rehabilitation Agency (UNRRA). UNRRA was charged with providing “only those immediate relief needs which cannot be met out of the resources of the countries involved.” Since it was understood that the danger of postwar famines was a temporary problem, and would resolve itself as civil order and economic activity resumed in stricken regions, UNRRA's mandate was explicitly limited. UNRRA made clear its intentions to pull out after the first adequate harvest in an afflicted country—and kept its word. By 1947 the threat of mass famine in non-Communist nations had been averted; for the first (and possibly last) time in the UN's history, an agency was disbanded after successfully meeting the problem it was created to solve.

The next great application of American public resources in foreign lands, the Marshall Plan, was likewise considered a resounding success. The “European Recovery Act” brought together a variety of heretofore disparate American concerns. In contributing to the restoration of the Western European economies, it created a natural bulwark against the imperialistic ambitions of our erstwhile allies, the Soviets; it strengthened the foundations of the postwar economic order, which would require larger markets and greater supplies of private capital than America itself could offer if the rest of the world was to be drawn rapidly out of poverty; and it satisfied the American urge to assist endangered peoples overseas who shared our ideals and values.

In retrospect it can be seen that the accomplishments attributed to the Marshall Plan—a venture originally undertaken as a gamble—may have inspired a certain confusion about the potentialities of foreign aid under less extraordinary circumstances. Its unique marriage of strategic, economic, and humanitarian objectives would later give rise to the notion that foreign aid naturally wedded these distinct, and often contradictory, concerns.

In addition, the rapid Western European recovery was to mislead proponents of aid about the pace of progress that might be expected in underdeveloped areas, since it was widely forgotten that Western Europe was restoring itself to prewar levels of production activity. And with the restoration of Western Europe's economic health, the actual role of specific Marshall Plan policies in advancing or retarding recovery and economic progress was quickly submerged. Today only a handful of economic historians seem to remember that some of the policies advocated by Marshall Plan administrators, and tied to Marshall Plan aid, seemed to lead to inflation, a diminution of local savings, and economic stagnation—or that West Germany's economic boom did not begin until after Konrad Adenauer and his finance minister, Ludwig Erhard, had repudiated and reversed the policies which Marshall Plan aid was financing in other Western European nations.

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IV

“Development assistance” to low-income countries began in 1949, on the heels of the Marshall Plan. It was a new and radical idea in international relations. Unlike emergency relief, it was not framed in response to disaster. Unlike reparations, it was a state-to-state resource transfer prompted by volition, not indemnity. Unlike military aid or security assistance, it was not meant, in any immediate sense, to apply American will to distant regions of the earth.

Development assistance, as outlined in President Truman's Point Four program in his 1949 State of the Union address, reflected the American preference that other peoples avail themselves of the good things the 20th century had to offer, including the skills and knowledge which made mass affluence possible. It was consistent with our vision of the postwar world. The United States had already created an international monetary and financial system which could contribute to a nation's economic advancement. We were now stating our willingness to help interested governments move their countries into the international economic updraft that the new order had made possible.

The idea of such assistance—of fostering the competence of new governments to deal with their nations' economic problems—received an enthusiastic reception from the world community. By the end of 1949 the United Nations had unanimously endorsed an international plan of action modelled directly on America's Point Four programs, though more modest in resources and scope.

The leitmotif of development assistance in its first few years was the connection between the policies and actions of governments in poor nations and their economic consequences. This connection was taken to be inescapable and obvious. Alluding to the “shortage” of Western capital in the less developed countries—a problem that agitated many leaders in Latin America, Asia, and Africa at the time—Truman's Assistant Secretary of State for Economic Affairs observed that “the real decision must be made by these countries themselves, since only they can decide whether they want our capital to participate in their development. If they want it, they must, in turn, create the ‘climate’ to attract it.”

Nor was this perspective a matter of partisan dispute. Early in 1953, President Eisenhower's Assistant Secretary of State for Economic Affairs warned Congress that the limits on the effectiveness of our technical-assistance programs came from the attitude of recipient governments: “There is a strong tendency to build steel mills when the best economic interest of that particular country would be served by growing a little more food. . . . But the attraction of being self-sufficient, of having these monuments of industry . . . seems to be so great that we have difficulties in getting them to understand wherein their own economic salvation lies.”

Development assistance as America envisioned it, unfortunately, was not quite what the new, nationalist elites in less developed countries were looking for. Regardless of their professed political ideologies, these new regimes were almost uniformly preoccupied with augmenting the power of the state apparatus under their control. To many stewards of new states in the 1950's, the goal of building state power seemed, indeed, to be threatened by the liberal international economic order the United States was promoting. An orientation toward international markets and free flows of foreign capital might remove vital decisions about national destiny from their hands. What seemed more in keeping with their desire to focus the national will through the medium of government was some system of central economic planning.

This approach to “nation building,” later dignified by the title “development planning,” was in fact an application and perfection of the techniques the combatant powers had used to marshall and apply resources against one another in World War II. Around the globe, poor societies in the 1950's were, in effect, putting themselves on a wartime footing. They were going long on steel and short on food; relying on trade where they must, but on autarky where they might.

The extent to which this emphasis on command planning clashed with the American conception of the function of development assistance was not immediately appreciated in the United States—where, after all, the popular preoccupation was with demilitarizing the economy as quickly as possible, and with disassembling wartime economic controls so that the tempo of civilian life might resume. If this conflict in time helped bring about a very large shift in American ideas, in the early 1950's such changes were still far off. The United States had not only firm principles, but clear operational rules by which to guide its foreign-aid policies. It attempted to separate overseas humanitarian aid from the economic interests of lobby groups at home. It made scrupulous distinctions between grants (which were charitable) and loans (which were to be commercial). Perhaps most importantly, it let it be known that there was a difference between military aid and development assistance, and that the demarcation was essential to the purposes and prospects of both programs.

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V

One by one, these precepts about foreign aid were to fall.

The first abrupt departure occurred in 1954, when Congress authorized the Food For Peace program. On the East coast, Food For Peace was justified as a humanitarian gesture by which American bounty could be put to the service of a hungry world; in the Midwest its workings were perhaps more honestly discussed. The champion of Food For Peace, Senator Hubert Humphrey, represented Minnesota, a state then beset by agricultural “overproduction.” So long as the farmers' ability to produce outstripped the market's demand for their produce, competitive restructuring of the farming industry would be inevitable, and, just as inevitably, it would be small farmers who would be “restructured” off the land. These were Senator Humphrey's constituents, and the Food For Peace program, PL 480, addressed their problems. PL 480 would authorize the purchase of massive quantities of grain and other foodstuffs, subsidizing their sale in the markets of poor nations or giving food outright to governments.

For American farmers, the immediate impact of PL 480 legislation was incontestably beneficial. For the poor nations, the consequences were more ambiguous. Heavily subsidized American imports very often drove down local food prices; while this might not have raised qualms in capitals intent upon forced-pace industrialization, it nevertheless caused problems in rural hinterlands, where standards of living were, typically, significantly lower than in the cities.

What is more, recipient governments often resold the food America gave them for cash, so that they could pursue projects that foreign lenders had denied them as economically unwise. A concessionary device permitting recipient governments to repay “food loans” in their own local currencies relieved them of the pressure to value their foreign exchange realistically, with predictable consequences for both budget discipline and export incentives. (This also paved the way for several international economic panics, as when the Indian government suddenly discovered it owed the United States more rupees than it had in central reserves—and nationalized the entire private banking system to compensate.)

Perhaps most tellingly, only a tiny fraction of PL 480's allocations was earmarked for regions hit by famine or disaster. This fact was not lost on overseas observers, who had been warned by Marxists and other anti-Americans that the U.S. would export its own domestic economic problems and call the result charity.

The next radical deviation from principle came over the issue of “soft,” or subsidized, loans. In 1946, American authorities had resolved that concessionary loans to foreign governments would have no place among the techniques of American statecraft; such loans, it was felt, would create a dangerous and needless confusion between charity and commerce. After our first soft loan, a large one to the United Kingdom to stabilize the sterling-based currencies, our National Advisory Council on Monetary and Financial Problems, which had sanctioned the offering, stated: “It is the view of the Council that the British case is unique, and will not be a precedent for loans to any other country.”

Within ten years, soft loans were becoming a preferred vehicle for U.S. foreign aid. Soft loans seemed to vitiate the need for hard choices. Skeptical inquiries from taxpayers over specific projects could be deflected by assurances that the U.S. expected in time to be fully repaid on its principal. Foreign governments would hear that soft loans gave them great financial leverage, since along with the concessionary bequest the arrangement provided a large pool of working capital. Soft loans thus seemed to offer protection to those aid initiatives whose usefulness was most open to question; yet this naturally made the loans a magnet for precisely those proposals which were least justifiable and most likely to waste resources. If soft loans at this time seemed like a “cheap” way of paying for foreign aid, it was only because one of their major costs had been forgotten: their impact on beneficiary governments' conception of, and attitude toward, capital transfer from abroad.

In 1948 the president of the World Bank had urged member nations not to fall into the trap of soft lending; by 1959, the idea of a soft-loan facility at the Bank was gaining acceptance; by 1961, this facility, the International Development Authority (IDA), was established under World Bank auspices, and with American blessings. Two decades earlier, a principal American proponent of a World Bank, Secretary of the Treasury Henry Morgenthau, had said that the institution he was proposing would “scrupulously avoid undertaking loans that private investors are willing to make on reasonable terms.” IDA was true to the late Secretary's wish only in the sense that the sorts of projects it encouraged, and the terms that it financed, were generally unlikely to be attractive to private investors.

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VI

The most fateful departure from previously enunciated principles of foreign aid, however, concerned the separation of military and development assistance. The Eisenhower years saw a profound shift in American foreign-aid patterns. Between 1949 and 1953, military grants and political aid for beleaguered but friendly regimes had accounted for scarcely a sixth of our foreign aid; between 1953 and 1961 they made up over half our bequests.

Security assistance was a calculated response to a pressing problem. Shortly after the victory of the Communist armies on the Chinese mainland, Communist forces from North Korea attacked our allies in the South, and drew us into war. Strengthening the defensive capability of the states in our alliance system seemed the surest way to deter further outside attacks. There was also a widespread threat, in relatively open societies, of internal subversion by armed, and generally antidemocratic, domestic groups. Security assistance was to address this problem as well: it included not only military aid but police training, political advice, covert activities, and unrestricted financial bequests just to buy time (and thereby, with luck, political stability).

Military/security assistance proved to be a highly effective program. With American aid, South Korea and Taiwan were able to secure themselves against potential enemies. Greece and Turkey were stabilized and strengthened, both militarily and politically. Insurgencies were suppressed in, among other places, the Philippines and Thailand. In Iran, a demagogue who was deemed anti-American was turned out of office, and the Shah (whom we took to be pro-American) was returned to the throne from which he had been deposed. There were many other, less heralded, achievements as well.

In the late 1950's and early 1960's, security assistance had widespread public support, while development aid was not nearly so well regarded. Hence, to win acceptance for their overall foreign-aid programs, American statesmen began to draw on the legitimacy of security assistance to protect, and even conceal, development aid.

The process began with a change in legislation: the 1953 Mutual Security Act, which for the purposes of congressional appropriations linked development aid to security assistance. Even so, the two programs were kept operationally—and conceptually—distinct. Eric Johnston, at the time Eisenhower's Point Four adviser, spoke for the administration when he said, “I think the Point Four program . . . should not in any way be confused with military aid to countries.”

That distinction was lost during the Kennedy administration. President Kennedy went so far as to argue that development aid was security assistance, and therefore that advocates of a strong American security posture should support development bequests. As he put it: “I urge those who want to do something for the United States, for this cause, to channel their energies behind the new foreign-aid program to help prevent the social injustice and economic chaos upon which subversion and revolt feeds.” The “new foreign-aid program” to which he referred was the Agency for International Development (USAID), the organization which supervises and administers America's development programs in less developed countries to this very day.

In attempting to broaden and strengthen the domestic constituency behind development spending, President Kennedy had, perhaps accidentally, fundamentally altered the understanding of what development assistance was supposed to be. No longer was it a transfer of skills and a building of basic infrastructure so that governments of poor societies might better take advantage of the economic opportunities afforded them by growing international markets. It was now a program to quell domestic discontent in low-income regions—linking aid to stability through a series of complex syllogisms which ultimately equated rising living standards with diminishing political opposition. This attitude, at once cynical and naive, suggested that counterinsurgency and the diffusion of agricultural research were part and parcel of a single process, differing only in degree. Given this view of the world, Vietnam was in one sense an accident only waiting to happen.

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VII

Even twenty years after the start of rapid escalation, America's prosecution of the war in Vietnam remains a sensitive issue. Though we may still await a balanced and comprehensive account of America's strategies and actions in the Vietnam war, it is not too soon to point out some of the ways in which that war affected our development-assistance policies.

In the first place, development assistance came to be dominated by Vietnam itself. By 1966, that one country was receiving over 43 percent of AID's worldwide development grants, and a similar proportion of AID's talent, energy, and personnel was being applied to problems in Vietnam. The war, moreover, prompted a drastic change in the understanding of what development aid was all about. A violence-rent agrarian society, in which broad stretches of terrain were under the shifting control of contesting armies, was hardly suitable ground for the sort of technical assistance and private investments that the Point Four program had sought to encourage. Development policies had to be adapted, and on the spot; the mutations which evolved had little to do with self-sustaining growth or any of the other desiderata of an earlier generation of technical-assistance policies.

As the war proceeded, AID was drawn into such efforts as the “strategic hamlet” and the “civilian relocation” programs. While these may have served a justifiable military purpose, their economic results were almost the exact opposite of development—at least as that word had previously been understood. By feeding, clothing, and housing villagers who had been dispossessed from areas turned into “free-fire zones,” the United States maintained, and often improved, their material living standards, but the economic base which might sustain these people was simultaneously being destroyed.

In subordinating economic objectives to military ones, AID exposed itself to the charge of “waste.” In a technical sense, such allegations were valid—and indeed, had to be. The criteria for running a war and running a business are fundamentally at odds. Military effort is judged by its effectiveness in securing objectives; the economic efficiency of subsidiary operations is at most a secondary consideration, and the concept of productivity is, strictly speaking, irrelevant.

There was a greater, more overarching problem in Vietnam, which affected aid and everything else the American government was attempting. This was the notorious “credibility gap” separating our actual intentions, policies, and actions in Vietnam from the official descriptions of them. In allowing this gap to develop, the government encouraged the perception that our policies were considered illegitimate by the very men who were framing them. This could only have painful and continuing reverberations in a nation where domestic support for the international application of American power has so typically hinged on the moral purpose implicit in the initiative.

As distrust between the executive and legislative branches deepened over the conduct of the war, foreign aid became a battleground for a most unfortunate sort of guerrilla warfare. Frustrated by the direction of foreign policy in general, Congress resolved to restrict the government's ability to move economic policy in any direction whatsoever. Within Congress a tactical coalition arose between the “Left” (against the war) and the “Right” (against waste); separated by most issues, these two forces united in their hostility to foreign aid. They did not kill AID, but in retrospect, what they did do might have been worse.

By denying AID “obligational carryover authority,” or the right to keep the use of money it had not committed by the end of the fiscal year; by subjecting AID to a process known as “Congressional Notification,” which required the agency to produce two detailed budgets a year for congressional inspection, and in effect gave Congress a line-item veto over even comparatively small projects; and by requiring legalistic impact statements—often as many as 75—for even modest projects within programs, Congress severely restricted the ability of the agency to engage in “development,” and forced AID administrators and project officers to shift their attention from the success of their efforts in the field to the success of their entreaties on the Hill. Sparing AID its institutional life, Congress guaranteed that the organization would be severely and permanently crippled.

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VIII

The efforts to paralyze AID were symptoms of a broader problem of the Vietnam and post-Vietnam era: American foreign policies had come to lack legitimacy in the eyes of a substantial portion of Congress and the public. A period of groping and confusion had begun, during which America's foreign economic policies in general, and foreign-aid policies in particular, broke away from the bipartisan principles which had been established in the early postwar years, and at a speed which sometimes suggested free fall. The events which derailed our foreign-aid policies were specific and discrete, yet in retrospect they seem to form a single, continuing chain of practical and moral errors.

In 1971 and 1972 President Nixon's foreign-aid proposals were defeated in Congress; funding for them was arranged only through a catch-all “continuing resolution” at the end of each session. To restore congressional confidence in the foreign-aid program, and in the presidential purposes behind it, a new code for American development programs was worked out. These were written into law in the Foreign Assistance Act of 1973 and the Mutual Development and Cooperation Act of the same year. At the time, these acts were described as a compromise. They read today as something very different.

The Foreign Assistance Act of 1973 states as directly as such legislation can that our postwar policies toward poorer nations had been a failure: “The conditions which shaped the United States foreign-assistance program in the past have changed. . . . [O]ur relations with the less developed countries must be revised to reflect these realities.” The problem, it was suggested, was that the strategy of export-oriented, self-sustaining growth which we had advocated since the 1940's did not actually benefit the common people of the countries it transformed: in the words of the Mutual Development and Cooperation Act, “economic growth does not necessarily lead to social advancement by the poor.”

The Foreign Assistance Act implied that American power abroad had been secured through alliances with local leaders who had little interest in the welfare of their own public. Hence, the new American approach to foreign aid “should be . . . targeted on the basics”—meaning that it should be judged by its direct and immediate impact on the living standards of the poorest strata of the recipient nations. “Through the restructured program the United States would be telling the developing countries . . . ‘Do not forget the immediate needs of your poorest people.’ . . .”

The “reforms of 1973” had sweeping consequences for American development efforts. In establishing “basic human needs” as the ultimate arbiter by which development would be judged, they shifted the purpose of AID from assisting self-sustaining growth to affecting living standards through emergency-style distribution of outside food, medicine, clothing, and materials for shelter. These “basic human needs” stipulations came on top of the operational restrictions which had already been imposed on AID, with their implicit bias against development proposals with deferred benefits or with consequences principally measured in efficiency or productivity.

Thus, American bequests increasingly came to be seen as a means of facilitating a steady flow of funds to the governments of less developed countries for use in whatever purposes they might choose. Though AID administrators could argue that their grants were “tied” to various purposes or conditions, local leaders generally understood the simple truth that, once received, government revenues were fungible—transferable from one objective to the next—and that aid bequests would become all the more fungible when meant to be applied to an operating budget.

There was a final notable aspect of the legislation of 1973: the explicit purpose of development-assistance programs was rewritten in a seemingly slight but nonetheless significant way. Provision 102(a) of the Foreign Assistance Act of 1967 had read: “Development is primarily the responsibility of the people of the less developed countries themselves.” In the 1973 legislation, the equivalent passage read, “Development planning must be the responsibility of each sovereign nation.” With this semantic change, America was retreating from the concepts of economic health and self-sustaining growth and implicitly repudiating the notion that international markets and free flows of private capital should serve as the instruments by which people might raise themselves to mass affluence. Instead, we had come to endorse, and seemingly to require of recipients of our aid, adherence to the very system of comprehensive planning which our leaders had decried as inimical to the interests of poor peoples scarcely twenty years earlier.

The “reforms of 1973” (also known as the “New Directions” legislation) may yet be hard fully to evaluate, but it is clear that they have had at least one effect. Before Vietnam, the United States could point to a number of self-reliant and prospering economies—Greece, Taiwan, and South Korea among them—which had “graduated” out of American development aid. Since the “reforms of 1973,” there have been no new graduates.

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IX

The decoupling of American development assistance from the policies which had previously been regarded as the best means for improving the economic health of poor nations also bespoke a loss of faith in the United States. It was no longer naturally assumed that American interests and preferences, pursued in practical fashion, would benefit the peoples of the world. To serve the weak and helpless of the earth, Americans were now advised to restrain themselves and their impulse to international action. The United States was urged instead to assist with the one thing it had which poor governments manifestly lacked: money.

As American-administered development programs took on the trappings of relief work, and as the terms “development aid” and “reparations” came to be used interchangeably (in 1973 Nixon administration officials had secretly discussed postwar “development aid” proposals with Hanoi), there arose simultaneously a tendency to give aid through international institutions rather than channeling it directly from our government to the beneficiary capital. Through “multilateralization,” it was argued, donor “pressure” on recipient governments might be made to diminish, even as aid outlays were made to rise.

The multilateralization of aid was made easier by the impressive growth of the World Bank under Robert McNamara, the former U.S. Secretary of Defense who had left the Defense Department around the time of the Tet offensive to assume the Bank's presidency. As admirers testified at his retirement in 1981, he oversaw a tenfold increase in the Bank's annual commitments. McNamara accomplished this remarkable feat by reinterpreting the Bank's mission, and its operating rules.

The Bank's Articles of Agreement specify that bank funds must be used for “productive investment”; they neglect, however, to qualify the sorts of spending which may be labeled productive investment. McNamara took command of the definition of the term. A growing body of economic research was detailing the connection among education, productive knowledge, and economic growth; the results suggested that augmenting “human capital” was as integral to economic development as was deepening the base of “physical capital.” McNamara used this research to argue that health, nutrition, education, family planning, and other social services were in fact investments, and thus legitimate avenues for the application of Bank funds.

While the prerogative for lending was being expanded, the standards for evaluating loans were simultaneously being relaxed. McNamara outlined the Bank's new view of lending in 1970: “What contributes the most to the development of the borrowing country should be the decisive factor in both Bank and IDA operations. . . . Any policy which can be justified for IDA as consistent with its development function can, I believe, be equally justified for the Bank, and the Bank itself should adopt it.” Since IDA was in the business of dispensing “soft” loans—“of doubtful validity,” as David Baldwin pointed out nearly twenty years ago, “by any measured banking standard”—a large pool of capital was being declared exempt from the scrutiny which private loans must customarily withstand.

McNamara's efforts to expand the Bank's financial involvement in less developed countries, while relinquishing some of the rights (and obligations) traditionally assumed to be incumbent on portfolio managers, was consistent, in some ways, with his view of the problems facing the poor nations, and the world. Like many of his contemporaries in Congress, McNamara felt that international development efforts had largely failed the poor. As he told the delegates of UNCTAD III in Santiago, Chile in 1972: “Development programs have been directed largely at gross economic goals, and have failed to insure that all nations, and all groups within nations, have shared equitably in economic advance.” The Bank's new “basic human needs” (or “social investment”) programs were informed by that opinion.

McNamara had decided that an ongoing “global transfer” of public funds would be necessary to meet the problem of world poverty. In his words, “the rich countries have a responsibility to assist the less developed nations. It is not a sentimental question of philanthropy. It is a straightforward issue of social justice.” The idea of unconditional concessionary transfers from Western people to low-income governments was echoed and amplified by a number of officials who rose to prominence in the Bank during the McNamara years; they gave form to McNamara's more vaguely stated notion through their support of “global negotiations” for the expanded and unrestricted transfer of money from the governments of the “North” to the governments of the “South.”

Like many other large institutions, the World Bank has never spoken with a single voice or acted as if by a single hand. Nevertheless, the change in direction during the McNamara years was unmistakable: the felt obligation to provide money to poor nations was growing; the right to monitor its disbursement was more and more open to question. The World Bank had come a long way from the Bretton Woods conference, when Secretary Morgenthau introduced it to the world with these words: “The chief purpose of the International Bank for Reconstruction and Development is to guarantee private loans through normal investment channels.”

Some observers have seen in McNamara's initiatives at the World Bank a sort of expiation for presumed pangs of conscience over his prosecution of the war in Vietnam as Secretary of Defense. A less sentimental and more straightforward interpretation might be that the McNamara initiatives simply formalized, and globalized, the new development policies that the United States had experimented with in Vietnam. In any event, the two were characterized by the same effort at divorcing the living standards of national populations from the productive base which would ordinarily be expected to sustain them.

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X

The multilateral institution which most effectively divorced development funding from the “pressures” of donors, however, was not the World Bank but the United Nations. The story of what happened in, and to, the United Nations over the past two decades is by now a familiar tale. During the 1960's, a voting bloc began to form which defined itself by opposition to American policies in Vietnam. It soon became clear that this bloc was opposed not simply to America's war in Vietnam but to American purposes in the world generally, and to the very idea that America should be a country wielding international power. A psychological barrier was crossed in 1970, when this bloc—self-described as “non-aligned”—succeeded in outvoting the U.S. and its allies on an Albanian resolution to recognize Beijing rather than Taipei as the legitimate seat of Chinese government. Thereafter the bloc grew, both in numbers and boldness, until it became the decisive force in framing UN policy.

The apparatus of development organizations which had been erected beneath the UN flag was inevitably influenced by the new thinking in the General Assembly. It had often been said that the International Labor Organization (ILO), the UN Educational, Scientific, and Cultural Organization (UNESCO), and the host of other UN agencies became “politicized” in the 1970's; it would be more accurate, however, to say that they simply became suffused with a new political ethos—one which, as it happened, was hostile to the meanings of the UN Charter, to the previous purposes of the organization, and to the principles of the Western peoples who provided most of the UN's monies.

The UN's new agenda followed largely from the same line of thought that led to the accusation—enunciated by President Salvador Allende of Chile before the same UNCTAD audience where McNamara professed the failure of Western-sponsored development efforts—that the industrial nations had created a world where “the toil and resources of the poorer nations pay for the prosperity of the affluent peoples.” In logical fashion, and in strikingly consistent measure, the new development initiatives emanating from the UN were aimed at disassembling the liberal international economic order and in augmenting instead the capacity of states and the authority of their leaders to plan their local economies and to direct their people's societies—and to pay for these therapies with renewed “global transfers” of tax revenues from the Western nations which had supposedly made the cures necessary in the first place.

Although there was little intellectual or (in the strict sense of the word) economic merit in most of the new thoughts circulating through the UN during the 1970's, it must be remembered that Western nations put very little pressure on advocates of the New International Economic Order to think more clearly or act more decently. The acquiescence of the United States was especially striking. For seven years—from 1970 to 1977—America made virtually no concerted effort to come to the defense of either its national interests or its principles in any of the UN's many forums. (The attempts of Daniel P. Moynihan, in his brief eight-month tenure as Ambassador, to force a government response to the anti-American invective by then commonplace at the UN, stood in contrast to the accepted policy of the day but did not alter it.)

America did not lack a foreign policy during the early 1970's. On the contrary, from 1970 to 1977 American foreign policy was more fully controlled, and more intricately directed, than it had ever been before, or has been since. Though Secretary of State Henry Kissinger privately—and occasionally publicly—disagreed with the UN's new development thrusts, he seemed to have felt that they were best parried through accommodation. His major speech on development issues, an address to the General Assembly in 1975, highlighted his general attitude. In the course of his exposition he made many references to the need to strengthen free and competitive international markets, but he also proposed a new concessionary window at the International Monetary Fund from which only Third World nations might draw loans and which would allow for the conversion of these IMF loans into “grants under prescribed conditions.” Such plans could only diminish considerably the IMF's ability to lobby credibly for economic responsibility with those nations which applied to it for loans; they were also bound to stimulate international inflation at a time when global inflation was already punishing rich countries and poor alike.

Kissinger also proposed new “bilateral support for training and technical assistance to help developing countries find and exploit new sources of fossil fuel”—a striking suggestion from a U.S. Secretary of State, considering that the greatest technical capacities for oil exploration and development resided in the American energy companies then being nationalized throughout the Third World. He further recommended—less than two years after the politicization of oil prices by the OPEC cartel—that “a producer-consumer forum be established for every big commodity,” the inevitable result of which would be to sanction the setting of commodity prices by political contrivance rather than economic demand.

For the poor nations, in the meantime, there were no special offers to aid them in learning the ways of the world's markets; there was, however, plenty of help should they experience the usual side-effects of “development planning”: a guaranteed disbursement of 10 million tons of food aid a year; a new IMF facility for “emergency” balance-of-payments problems; and “population assistance” to “help curb demographic growth” and thereby, presumably, take pressure off the economic structure to produce efficiently.

In the United Nations, as in so many other arenas, Kissinger presumably hoped to throw his opponents off guard by agreeing to their demands in principle, and then to win the day by rearguard negotiating tactics. This ploy, however, is considerably less effective when the issue at stake is the principles themselves.

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XI

The period of drift and decline in American policies toward the world's poor continued under President Jimmy Carter. Elected in 1976 on a campaign promise to restore moral purpose to American politics, Carter seemed to find it extremely difficult in practice to determine whether any use at all of American power overseas was in fact moral. The administration's sensitivity to criticism on this score, and its ambivalence about American purpose, were highlighted in its foreign-aid policies.

The administration enthusiastically embraced the 1973 “reforms,” with their seeming evidence that America was interested in directly aiding the world's poor. It created the International Development Cooperation Agency (IDCA)—an umbrella organization above USAID—to remove development-assistance programs from the direct chain of command within the State Department, and thus to shield the United States from charges that it was using foreign aid to further America's purposes of state. It agreed to a continuing cutback in military and security assistance, since (it was argued) these monies might be used for questionable or even inhumane purposes by our chosen allies.

The Carter administration also commissioned two major studies of world poverty. The first, the Presidential Commission on World Hunger, warned of “the continuing deterioration of the world food situation.” It stated that “corporations sometimes badly undercut efforts to alleviate hunger and malnutrition,” and equivocated about the extent to which international trade might help reduce hunger. Rather, the report explained, “redirecting income from the rich to the poor” would be a principal vehicle for reducing hunger in poor nations, and foreign aid could figure importantly in this process. Among the recommendations of the commission were a “total” debt forgiveness for the “poorest” developing countries; an easing of IMF lending conditions; an immediate doubling of U.S. development outlays; an increase in “Food For Peace” authorizations and a relaxation of the conditions for disbursing such produce; the promotion of a United Nations code to regulate international businesses operating in less developed countries; and the establishment of a public organization in the United States to lobby for these goals.

The second study, the “Global 2000” report, warned of an impending and generalized series of environmental problems born of overly rapid population growth in the less developed countries and excessive economic growth in the affluent nations. One implication of this computer-model study was that the sort of sustained economic advancement which would be necessary to draw the world's poor countries out of mass poverty might seriously destabilize the fragile global eco-system, possibly causing ruin for all. By seeming to question the feasibility of continuing economic growth, “Global 2000” led some observers to conclude that the only viable way to assist poor nations was through the transfer of existing wealth from the Western states.

Without fully realizing it, the Carter administration had thus ended up accepting as counsel in dealing with the less developed countries many of the basic tenets of the United Nation's proposed New International Economic Order. What did not seem to be entirely understood was that the New International Economic Order was a call for the liquidation of the liberal international economic order which America had helped to create, and continued to lead.

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XII

Ronald Reagan's decisive victory over President Carter in 1980 seemed to presage more than just a shift in attitudes toward the use of American power on the international scene. The Reagan administration came into office with an articulated, and internally consistent, vision of America's political and economic role in the world. This vision had implications not only for the international political struggle between the United States and the Soviet Union, but also for American policies toward the world economy and toward development.

President Reagan's critics were quick to brand him a reactionary; there was some accuracy in this characterization, albeit inadvertent. More than any President in a generation, Ronald Reagan explicitly embraced the precepts which had guided the foreign economic policies of Presidents Roosevelt and Truman. He emphasized this return to earlier principles in a major speech on international economic development in Philadelphia in October 1981.

“Economic health” was the theme underlying the President's prescriptions for promoting international advancement. There was, he said, a “need to revitalize the U.S. and the world economy as a basis for the social and economic progress of our own and other nations.” At the same time, there was “a need for a clearer focus on the real meaning of development and our development record.” “The postwar economic system,” he asserted, “was created on the belief that the key to national development and human progress is individual freedom—both political and economic.”

President Reagan identified five principles by which development might be encouraged:

First, stimulating international trade by opening up markets, both within and between countries; . . .

Second, tailoring particular development strategies to the specific needs and potential of individual countries. . . .

Third, guiding assistance toward the development of self-sustaining productive capacities. . . .

Fourth, improving in many countries the climate for private investment. . . .

Fifth, creating a political atmosphere in which practical solutions can be moved forward—rather than founder on a reef of misguided policies that restrain and interfere with the international marketplace or foster inflation.

Development assistance, in the President's vision, was to be put to the service of these principles. He promised to “work to strengthen the World Bank and other international institutions,” and pledged to make available American technical know-how, food, and money “toward the development of self-sustaining productive activities” in poor nations. The President's words suggested that a dramatic change—or more properly, a historic restoration—of American policies was under way.

The Reagan's administration's actions, however, suggested something quite different. Instead of bringing America's foreign-aid policies back into alignment with the goals and ideals that had originally animated them under Roosevelt and Truman, the Reagan administration allowed American programs to continue down the path which had been charted in the 1970's. So smooth, in fact, was the trajectory that it would be difficult to tell which administration was in power from the statements and actions of its development apparatus. No less than during the Carter years, American development programs under Reagan seemed to be at systematic variance with the objectives of the international order we nominally supported. The administrators of these programs, moreover, appeared increasingly intent upon concealing the discrepancy from the American public.

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XIII

The principal spokesman for the Reagan administration's development programs has been its acting director of IDCA and administrator of AID, M. Peter McPherson. Mr. McPherson made clear his perspective in his first presentation before the House Foreign Affairs Committee in 1981. “We have learned,” he said, “that continued progress in Third World development is of growing importance to our own domestic and international well-being. In the past year, public awareness of our interdependence has been highlighted by the Presidential Commission on World Hunger, the Brandt Commission [a panel of inquiry, created by Robert McNamara and headed by former Chancellor Willy Brandt of West Germany, that advocated “massive” and “automatic” transfers of revenue from Western governments to “Southern” states] and the ‘Global 2000’ study.” Embracing the findings of these reports, he instructed the congressional committee on their significance: “Failure to make acceptable progress in ameliorating conditions of poverty can only lead to domestic instability and increasing frustration on the part of Third World governments over the workings of the international system and the distribution of economic and institutional power in that system as it is now constituted.” To observers of the North-South “dialogue,” the device of wrapping a request for aid in a veiled threat may have been familiar, but in the deliberations between appointed representatives of the executive branch and elected representatives of the American people this procedure was something quite new. It had not been seen under President Carter.

To move American development programs back to the stimulation of “self-sustaining productive capacities,” as the President had pledged, it would have been necessary to challenge the “New Directions” legislation of the 1970's. AID made no effort to do so. Two years into his appointment, and again before the House Foreign Affairs Committee, McPherson may have suggested why. Reflecting on the early 1970's, he remarked:

The political, social, and economic structure which had evolved in many less developed countries had produced little improvement in economic well-being for the poor of those countries. To help correct this situation, a new concern with the effects of our assistance on the poor majority emerged a decade ago, in the form of the current New Directions legislation [of 1973].

This was an implicit endorsement, not only of the legislation but of the analysis which had prompted it. That analysis, of course, held that the postwar order America had created could not be relied upon to advance the interests of the world's poor.

In 1983, in an aid request, McPherson told Congress that “trade and debt pressure is particularly serious for stability and longer-run economic progress in the low-income countries. . . . Our foreign-assistance program can play an important role in their recovery.” It was a revealing analysis. The problems to which he referred were both financial (relating to balance-of-payments shortfalls) and short-term (being exacerbated by a presumably cyclical drop in international economic activity). But development programs, as generally imagined, involve technical transfers and long-term horizons. A “development program” could play an important role in a short-term economic recovery only if it were intended to infuse monies directly into a pool of current spending.

AID's presentations left little doubt about the Agency's view of the propriety of direct budgetary transfers. An AID policy paper on health assistance, for example, noted that “by 1982, one half of the Agency's development assistance budget for health supported the delivery of basic health services in LDCs.” Such “development-assistance” is, necessarily, a direct bequest from the U.S. Treasury, applied to the operating revenues of recipient states. Whatever may be said of such charitable donations, they are in no sense “self-sustaining.”

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Confusion over the distinction between recurrent expense and productive investment likewise marked AID's agricultural program. The agency's Fiscal Year 1983 presentation to Congress proposed to increase agricultural productivity in the less developed countries through the following activities:

supporting land tenure arrangements and agrarian reform policies; encouraging small farmer organizations and local participation; disseminating and developing new technologies; protecting the environmental and natural resource base through better land management; halting and reversing deforestation by developing renewable energy alternatives to firewood, testing fast-growing tree species, and supporting wood-lots for fuel; increasing the availability of water, improved seed, credit, and other agricultural inputs at reasonable prices; reducing post-harvest food losses; and facilitating small-farmer access to markets.

In this conspectus of agricultural productivity, only one item seemed to be missing: any mention of the prices paid to producers. Yet it is prices, unfortunately, which often prove decisive in the success or failure of agricultural development, determining as they do the returns which may be derived from increasing production or adopting innovations.

The President had suggested that misguided policies played an important role in perpetuating poverty in the less developed regions; his AID administrator expressed a very different view. In 1983, McPherson told Congress that “the critical problem of excessive population growth in the Third World . . . constitutes the primary obstacle to increasing per-capita food production, reducing malnutrition and chronic disease, and conserving dwindling non-renewable resources.” This formulation, with its implication that parents in less developed nations irrationally choose “excessive” numbers of children, could be understood as excusing governments in those nations from responsibility for agricultural difficulties, hunger problems, or the management of natural resources. It also appeared to lend legitimacy to governmental efforts to control population growth.

AID had maintained that it would only condone voluntary family planning. But even as a position paper to this effect was being circulated publicly, the agency was participating in a $50-million grant to China from the UN Fund for Population Activities. China was pursuing a population campaign known as the “one child norm,” requiring parents to agree to have only a single offspring. The campaign appears to have been horribly unpopular with the overwhelming majority of the Chinese people, and the Chinese government found it necessary to use pressure, threats, and far-reaching punishments against married couples to enforce the decree. (Many infant girls and ablebodied women are thought to have died as a result of this program.) Since most of the funding in which AID participated was earmarked for Chinese “population education activities” and for health clinics (at which quotas of sterilizations and abortions were being fulfilled in accordance with the population plan), it would have required extreme mental agility to dissociate the Reagan administration's development money from the practice of involuntary population control.

Still another area in which AID seemed to disagree with received American policy was on the issue of private enterprise. AID is committed by law to refrain from using its funds to displace private investment or private commercial activity. Despite this, AID's 1983 budget presentation before Congress stated that, since energy “has become a field of major concern to AID,” the agency had “increasingly broadened its assistance to encompass technical assistance to expand indigenous supplies of coal, oil, and gas. . . .” The projects involved were not described, but it would seem difficult to reconcile these activities with AID's legal mandate.

The question of private enterprise, and its legitimate scope within development, seems to have troubled AID administrators deeply during the Reagan years. One attempt to resolve the issue was the creation of a Bureau of Private Enterprise. In a sense, however, this only compounded the problem: for the first time in its history, AID was formally and explicitly separating the job of encouraging private commerce from its overall responsibilities in promoting “development.” Moreover, the private-enterprise initiative did not have enthusiastic AID backing. In its heyday it was allocated $27 million; since then, its funding has declined. Although no other program receives such extensive coverage in AID's annual budget presentation before Congress, the private-enterprise initiative now accounts for something less than one-half of one percent of AID's expenditures.

Recently, it is true, AID statements and publications have begun to express formal support for the liberal international economic order. But if the tone has changed, AID's priorities have not. In 1984, a top-level internal document on strategy and objectives for a second Reagan term proposed that AID's mission be redefined to include the following goals: the raising of life expectancy in all developing countries to over 60 years; the reduction of infant-mortality rates in all developing countries to 75 per thousand, or below; and the increase to 70 percent of literacy rates in all developing countries. As the draft noted, this change in mandate would require a “renewal” in America's commitment to development funding; indeed, to follow through on such a program in a world where recipient governments maintain sovereign authority over their economic and social policies, this renewed commitment would have to be not only major but virtually open-ended.

This internal AID document contained a number of formal concessions to the notions of “self-sustaining growth” and “policy reform.” Yet as it was outlined, AID's plan for promoting development would not emphasize policies to create self-sustaining growth or to encourage conditions by which living standards might undergo an internally generated transformation; it would, rather, concentrate on the direct and restitutive redress of poverty through social spending. If the rhetoric of the Carter commissions and the Brandt commission had been carefully airbrushed out of AID's public statements in the 1984 election year, such thinking was still clearly acceptable in the inner recesses of the Reagan administration's development apparatus.

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XIV

It may be useful to conclude with a look at the effect of recent American foreign-aid policies on a single nation: El Salvador.

To be sure, even by the variegated standards of the developing nations, El Salvador's problems are not “typical.” Among other things, the country is caught in a bloody war between government forces and Communist-supported troops, a war which has resulted in both severe destruction and massive emigration from this little land. But it is precisely the exceptional quality of El Salvador's circumstances as a small country which needs American help badly, is receptive to American advice, and is the object of a major strategic and financial commitment, that makes it an illuminating case for the study of American foreign-aid efforts in general.

El Salvador is, first and foremost, a country at war. Economic development is unlikely to proceed there unless civil order is restored, so that a climate free of undue physical risk to investment and commerce may assert itself. Such problems would seem to be best addressed by “security assistance.” The Reagan administration, however, has been extremely cautious in extending military aid to El Salvador, preferring to restrict it to a plausible minimum while increasing quite freely the funding for “development assistance” and “economic support.” As late as 1983, two years into the Reagan administration's escalated commitment to El Salvador, the ratio of “development” to military aid for that nation was on the order of 3:1—this, at a time when American military advisers in El Salvador were explicitly asserting that the security-assistance bequests were inadequate for the tasks at hand.

That is a highly problematic approach. In the midst of war, investments in infrastructure or American-sponsored local projects are unlikely to promise high rates of return, especially since the projects themselves may well become targets for destruction or disruption by guerrilla forces. By the same token, “economic support” to cover balance-of-payments problems would seem ill-suited to the difficulties stemming from such symptoms of wartime deterioration as capital flight and the destruction of export industries.

Constraining military aid during a state of war—providing some, but not enough to win—can only be considered a false economy. Providing economic aid instead of military aid in wartime makes still less sense. Such bequests may cushion the decline in living standards that fighting, disruption, and uncertainty inevitably bring, but they are unlikely either to bring fighting to an end or to restore the political stability upon which self-sustaining growth must ultimately rest.

American economic aid to El Salvador has necessarily addressed the problem of feeding and providing for refugees, as it did in Vietnam. Under emergency conditions such bequests serve both political and humanitarian ends, though they make little contribution to “development” as such. But AID was also involved in programs to bring long-term economic change to El Salvador, foremost among them land reform.

After the coup against the old oligarchy in 1979, El Salvador's new junta determined upon a major redistribution of the nation's heretofore highly concentrated land holdings. This program was to be a sort of “land to the tiller” reform. The large plantations would be broken into small parcels, to be owned by the hacienderos who had worked them; in smaller estates ownership would eventually devolve on those who had farmed the fields. In this way, it was thought, El Salvador's farmers might be converted from landless tenants and day-laborers into a class of landowners—possibly even into a middle class.

AID involved itself in these reforms at the Salvadoran government's request under President Carter, and seemed to take an even more prominent role under the Reagan administration. The plan for “Phase III” of El Salvador's land reform (which was to give title to some 60,000 families from the smaller estates) was drawn up by American consultants, and paid for by the Reagan administration. True, legislation sponsored by Senator Jesse Helms prevented the administration from paying directly for El Salvador's land reform by prohibiting the use of aid monies for compensation of confiscated agricultural or banking enterprises. In practice, however, such strictures had little effect on the land-reform program, given the realities of fungibility at a time when American aid was rapidly increasing.

To Americans, the phrase “land reform” often evokes images from our own agrarian past. But the policies America supported and promoted in El Salvador bore little correspondence to the Homestead Act. El Salvador's first step to land reform was the creation of the Salvadoran Institute for Agrarian Transformation. This institute expropriated the nation's large plantations, compensating former owners with government bonds which could not be redeemed until the end of the century, and then only at their nominal face value, unadjusted for intervening inflation. The deeds from these estates, moreover, were not turned over to individual peasants or their families; instead, the land was deeded directly to newly formed “cooperatives,” certified by the Institute. With no title of their own, peasants could not sell their holdings, or transfer their interest to a different cooperative. Voluntary association was thus impossible; a peasant's only options under the new system were to remain with his cooperative or to move and forfeit everything.

With no title of his own, the new “landowner” could also not raise credit against his holdings. Credit was only to be raised by the cooperative's management committee, and was to be allocated as the management committee determined. A peasant's chances of receiving credit thus depended largely on his role in fulfilling the plan which the management committee drew up. Since each committee had a representative of the government on its board, and since credit was now allocated to the cooperative by the central government, the new arrangements made hacienderos more sensitive to agricultural directives from the capital than they had ever been in the past.

The title program for the smaller estates, the so-called Phase III of land reform, was also managed by the Salvadoran Institute for Agrarian Transformation. As with the hacienda reforms, title to land did not devolve clearly and directly to the peasants. Once arrangements were settled (and this itself often proved a long and difficult matter) peasants would obtain an eventual title to their parcel—so long as the head of the household continued to live and farm on it for the next thirty years. In the meantime they would not be able to raise credit from it through secondary mortgages; if the head of the household were to move or die in the intervening thirty years, “his” land would go not to his family but back to the Institute.

The perverse effects of the new land reforms were soon apparent. On cooperatives, peasants petitioned for the right to grow vegetables in “private plots,” and to rent the land they nominally owned so that they might farm it according to their own practices rather than the directives of the management committee. On the smaller holdings, peasants were in effect frozen to their land. Both land reforms had forgotten to take into account the fact that El Salvador was a society with an active rural labor market, in which peasants had moved through their small nation in pursuit of seasonal employment. The new arrangements and their attendant uncertainties virtually precluded “landowners” from pursuing what had previously been an important source of family income. The new arrangements also tended to restrict the healthy growth of towns and rural industries, whose markets and products had typically proved important in countries which had undergone successful rural development.

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One perverse effect led to another. The new land policies could not be enforced or financed without controlling the availability of credit. The Salvadoran government thus found it necessary early on to nationalize the country's private banks. Since the private banks were, by one estimate, custodians of some 40 percent of the nation's credit portfolio, the government also nationalized much of the nation's industry in the process. AID did not protest.

When El Salvador's Central Reserve Bank was established in the 1930's, David Raynolds has noted, “the basic law regulating its functions carefully provided that the national government could not hold stock in the bank, since it was feared that otherwise the credit function would become subject to political manipulation.” Under the new arrangement, all formal credit was controlled by the government. Interest rates were set considerably below the rate of inflation. This made loans a gift; not surprisingly, loans were increasingly dispensed in the way that gifts tend to be. The Reagan administration did not object to this. Questioned before Congress on the administration's support of an IMF loan to El Salvador in 1982, Richard Erb, U.S. representative to the IMF, argued that “it was not an absolute [IMF] requirement to have a positive interest rate.” Legally, he was correct; yet it is difficult to overlook the consequences of such a posture, either for the Salvadoran economy or on the bargaining positions of the many poorer nations that were to attempt to negotiate IMF loans in the early and mid-1980's.

Each control required another. To check inflation, price controls were enforced; to compensate for the loss in international competition, foreign-exchange controls were imposed; to make up for the loss in governmental export revenues, mechanisms were created to purchase cash crops at unusually low prices from the “cooperatives.” All these controls had the inevitable effect of eroding business confidence; domestic capital continued its flight abroad; the economy listed further into decline.

A strange new form of poverty seemed to be settling over El Salvador, not entirely related to the destruction of war. The destruction now becoming evident was one underwritten by government policies. These policies were not only supported by Washington; in some cases they were recommended by Washington. And in all cases, ultimately, they were funded by Washington.

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XV

The record of the last decades shows, in sum, that America's foreign-aid policies are in trouble—not because the American people lack compassion for the suffering of others overseas, and not because Americans are unwilling to devote their nation's resources to helping other peoples, but because the policies themselves are formulated and implemented in such a way as to suggest that the United States no longer understands the nature of the problems facing poor people and poor countries. Far from contributing to the goal of self-sustained economic progress in the low-income regions, our funds are instead being directed to a tragic extent into the construction of barriers against such progress and in some cases may actually be paying for the creation of poverty, albeit in new and pernicious variants. This state of affairs can continue only at great human cost to those whom we mean to help—and at great moral cost to our nation.

The cost, indeed, may be more consequential than is commonly appreciated by cool-headed advocates of a “pragmatic” American foreign policy. The experience of the United States in the world arena since the end of World War I suggests that, for our nation more than any other, power and principle are inseparable. When the legitimacy and moral purpose of American initiatives overseas have been commonly understood and accepted, our government has proved able to mobilize awesome resources in the pursuit of its objectives. When, by contrast, the legitimacy and moral purpose of American efforts have become open to question, the domestic base of support has dramatically diminished, and with it the possibility of pursuing those efforts with any hope of success.

The premises of the liberal international economic order the United States labored to create from the wreckage of World War II remain valid, and the instruments of this order remain capable of creating extraordinary opportunities for general material advance throughout all regions of the world. The failures of American aid policies in recent decades are a reflection not on the soundness of the conceptions that originally brought these policies to life but rather on the degree to which current practice has become divorced from original purpose. America's foreign-aid policies today stand in contradistinction to the thrust and purpose of America's overall foreign policy, and to the values and ideals of the American people. How we deal with this contradiction will affect not only the poor and the unprotected of the earth, whose champions we should rightly be, but our own conception of ourselves and our ability to function in the world of nations.