A New Way to Dispense Foreign Aid

EXPORTING ENTERPRISE

EVER since peacetime foreign aid began, one of its stated objectives has been to promote private free enterprise abroad. But, until a fortnight ago, the promotion of free enterprise got comparatively little public attention. Then outgoing International Cooperation Administrator John Baker Hollister issued a memo to overseas staffers notifying them that henceforth the U.S. "will normally not be prepared to finance publicly owned industrial and extractive enterprises." Lower-level career people in the State Department promptly planted stories in the metropolitan press accusing Hollister of distorting State Department policy, of trying to cram free enterprise down the throats of foreign governments as the price of getting U.S. aid. Headlines said the State Department had "repudiated" Hollister and that nothing had been changed.

Last week it was plain that the headlines were wrong and Hollister was right. A significant new policy has been worked out by the U.S. to back the promotion of free enterprise with dollars. Whereas previous foreign-aid bills only paid lip service to free enterprise, the latest foreign-aid legislation contains a whole new section setting up a Development Loan Fund for the express purpose of "encouraging competitive free enterprise" abroad. For the first time the U.S. Government is authorized to make loans directly to foreign businessmen. The Administration and such businessmen as Clarence Randall, former chairman of Inland Steel, and Benjamin Fairless, former president of U.S. Steel, plus such business organizations as the Committee for Economic Development and the National Planning Association, fought hard to get the fund established. But the attack on Hollister was a sharp reminder that the fight is far from over. Even harder fighting will be required to make the law effective. Hollister's successor at the ICA, James Smith, 47, onetime Pan American World Airways vice president, is well aware of the problems ahead--and the objectives. Said he: "We must undertake to help other countries become of age and attain economic growth. And by help I do not mean giveaways. I mean that same kind of sensible, useful help that you would give to a new enterprise in your own community."

The danger is that the effort will be sabotaged by the bureaucrats, those who have made a career of emergency-type, government-to-government foreign aid. Not only does the new program pose a sharp threat to the perpetuation of much of foreign aid in its present form; it calls for a completely new approach. Instead of handing over foreign-aid funds in lump sums to foreign governments to pass out as they wish, it now also becomes necessary to find worthy loan possibilities among private businessmen unable to get credit in their own countries or from U.S. banks. As a starter, the loan fund has $300 million available for this year for loans to promote private business. Applications are expected to total $950 million. Next year Congress has authorized $625 million more. By then applications may total as much as $1.5 billion.

New Administrator Smith has wide latitude on how to render assistance. He can lend directly to a foreign businessman, guarantee bank loans to a foreign business, or buy the bonds of foreign businesses for later resale to private investors after the enterprise has proved its ability to prosper and pay a profit. One thing he cannot do: purchase stock interest in a foreign business," since foreign governments might frown on this as a violation of their sovereignty.

One big handicap to the program is the squeamishness among some State Department people who fear that if the U.S. vigorously pushes free enterprise it will offend foreign governments with a socialist bias, such as India. But last week India itself proved this fear unfounded. It signed an agreement with the U.S., guaranteeing the repayment in dollars of profits earned on private investments in India, making India the 35th and the largest country to sign such a pact. Furthermore, in India there are many businessmen, such as Steelmaker J.R.D. Tata (see Business Abroad) who are vigorous proponents of free enterprise, who would welcome help in their fight to expand private business.

To a world which for years has heard more of the sins of Wall Street than the benefits of private business, the curtain is rising on an exciting experiment. C. Douglas Dillon, Deputy Under Secretary of State for Economic Affairs, says that enterprises started under the new program "will show people who have had no experience with American capitalism the values of a successful free-enterprise system." Not only will this be an education for undeveloped foreign countries but in the long run it could make other forms of foreign aid unnecessary. At the least, said Dillon, "this should reduce the need for our financing."

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