Foreign Relations of the United States, 1961–1963, Volume XII, American Republics

7. Memorandum From the President’s Special Assistant (Schlesinger) to President Kennedy¹

Washington, March 10, 1961.

Attached you will find a report on my recent visit to Latin America.² Because it is a long document, I will herewith summarize its main points.

The argument is that Latin America is irrevocably committed to the quest for modernization. This process of modernization cannot take place without a drastic revision of the semi-feudal agrarian structure of society which still prevails through much of the subcontinent. That revision can come about in two ways—through a middle-class revolution or through a “workers-and-peasants” (i.e., Communist or Peronista) revolution. It is obviously to the US interest to promote the middle-class revolution. Unfortunately the Latin America’s landed oligarchy does not understand the gravity of its own situation. It constitutes the chief barrier to the middle-class revolution and, by thwarting the middle-class revolution, may well bring about the proletarian revolution.

The paper discusses the changes we should make in US policies in order to help the middle-class revolution. It then describes the forces arrayed against the attempt of the middle class from bringing about a peaceable reconstruction of Latin American society. Pages 11-13 contain an evaluation of Castro’s present strength in Latin America.

Two appendices contain notes on the Latin American statesmen interviewed and on the US diplomats consulted along the way.

Arthur Schlesinger, jr.³

Attachment

REPORT TO THE PRESIDENT ON LATIN AMERICAN MISSION

February 12-March 3, 1961

Part I. The Current Crisis in Latin America

In a famous quotation, German Arciniegas, the Colombian historian, once wrote, “There are two (Latin) Americas: the visible and the invisible.” The invisible Latin America, Arciniegas said, is the Latin America of presidents, embassies, armies, navies, business offices, haciendas. This is, on the whole, manageable and predictable. It is the invisible Latin America which constitutes the mystery. This is “the mute, repressed America which is a vast reservoir of revolution. … Nobody knows exactly what these 150,000,000 silent men and women think, feel, dream or await in the depths of their being.”

The problem of political ferment in Latin America is the consequence of the struggle of the invisible Latin America to move into the 20th century. To put the question less rhetorically, it is the problem of the peaceful incorporation into their national economic and political societies of a vast submerged population, largely Indian, which has existed for centuries outside both the money economy and party politics but which is now uneasily stirring with (and being ruthlessly stirred by) new aspirations and new expectations. To put it most concisely, it is the problem of the modernization of Latin American society.

The chief obstacle to modernization is the existence in many Latin American countries of an agrarian, semi-feudal economic structure. The chief guardians of this backward economic structure are the classes which benefit from it—the so-called landholding oligarchy which still more or less governs most of the continent, including especially the Andean nations of Chile, Peru, Ecuador and Colombia. So long as this structure exists, half the population of these countries will be excluded from their national societies and kept in poverty and illiteracy; and, so long as this structure exists, industrializations, economic growth and social mobility will be impossible.

What are the means of breaking the agrarian system? The most favorable means from the US viewpoint would be the middle-class revolution where the processes of economic modernization carry the new urban middle class into power and produce, along with it, such necessities of modern technical society as constitutional government, honest public administration, a responsible party system, a rational land system, an efficient system of taxation, mass education, social mobility, etc.

These middle-class revolutions arise typically out of a combination of technological change, entrepreneurial initiative (often set off by foreign capital) and statist doctrine. They are often accompanied by deceptively lurid nationalist-populist rhetoric. They range along the ideological spectrum from the Brazil of Kubitschek, where the bonds of the old agrarian society were burst by the sheer momentum of economic growth, to the Mexican Revolution of 1910, where the state broke the bonds under the banner of extreme revolutionary sloganeering. Betancourt is currently trying to carry out a middle-class revolution in Vene-zuela; Haya de la Torre has one in mind for Peru if he can win the election in 1962.

None of these Latin American revolutions has been complete. Even Mexico and Brazil, economically the two most dynamic countries, still have great areas of poverty, illiteracy and stagnation. Nonetheless in the last forty years the middle class has increased from 10 percent to perhaps 25-30 percent of the Latin American population—an increase reflected in the swing away from dictatorship and personalism and the increasing demand for stable free governments.

The pressing need in Latin America is to promote the middle-class revolution as speedily as possible. The corollary is that, if the possessing classes of Latin America make the middle-class revolution impossible, they will make a “workers-and-peasants” revolution inevitable; that is, if they destroy a Betancourt, they will guarantee a Castro or a Peron.

Part II. US Policy and the Middle-Class Revolution

The problem for US policy is to do what it can to hasten the middle-class revolution.

This task now has an extremely high degree of urgency. The main reasons for this urgency are as follows:

1) Because population has been growing faster than output, in recent years, Latin America has begun to lose ground in the struggle for development. Population has been increasing at a faster rate in Latin America in the last decade than in any other region in the world. In most Latin American countries the rate of increase during the fifties was two to three times that of the US. During this decade, the population of the 20 Latin American republics, which was about 132 million in 1945, rushed ahead of that of the US. Every indication is that this population explosion will continue. It is currently estimated that by 1975 Latin America will have a population of 303 million as against 240 million for Northern America, and that by 2000 the difference will be between 592 million and 312 million.

In the meantime, production has failed to keep pace with population growth. Latin American statistics are generally unreliable; but it would seem that, while per capita gross domestic product increased in the period 1948-56, it has since then begun to decline. Certainly so far as agricultural products are concerned, the per capita production may have fallen by as much as 6 percent. In general, Latin America will have to double its real income in the next thirty years to stay as poor as it is today. Moreover, the disparity between the rich and the poor has increased, and—with the influx of the desperately poor into the cities—the contrast between luxury and squalor is becoming more visible and explosive than ever.

2) The Soviet Union, in association with Cuba, is exploiting the situation and providing the US with unprecedented serious competition. The hemisphere level of expectation continues to rise—stimulated both by the increase in conspicuous consumption and by the spread of the Castro idea of taking matters into one’s own hand. At the same time, as living standards begin to decline, many people tend toward Communism both as an outlet for social resentment and as a swift and sure technique for social modernization. Meanwhile, the Soviet Union hovers in the wings, flourishing large development loans and presenting itself as the model for achieving modernization in a single generation.

3) Time is running out for the parties of the middle-class revolution. For a generation, the essential struggle in Latin America has been between the old oligarchy and the new proponents of middle-class society (including men in the social-democratic tradition like Betancourt, Figueres and Haya de la Torre as well as men in the liberal tradition like Lleras Camargo and Galo Plaza). This has been an indecisive fight. In the main, the landed classes have succeeded in blocking basic structural change. The democratic parties, in short, have thus far failed to deliver the goods to the satisfaction of the younger and more impatient members of the middle and working classes.

As a consequence, I found a disturbing tendency on the part of the younger intellectuals, for example, to regard parties like Accion Democratica (Venezuela) or APRA (Peru) as tired, played-out, irrelevant, the parties of the older generation—at the same time that the oligarchy in these countries continues to regard them as parties of red revolution. My guess is that, if the middle-class parties don’t go over the goal line in the next decade, they will be finished, and the initiative will pass to parties committed to a drastic and violent radicalism.

4) Latin America is waiting expectantly for new initiatives from Washington. The election of President Kennedy and the return of the Democrats to power have given rise to enormous expectations throughout Latin America. The Inaugural Address evoked particular admiration. People are looking on JFK as a reincarnation of FDR. To a surprising degree, the slate has been wiped clean of past neglect and error. The atmosphere is set for miracles. There is consequently real danger that the intensity of present expectations may lead to future disappointments—though I am sure that, if the US government comes up with any reasonably developed interest and program, the present mood will continue.

The US must act very soon, in short, to reverse the recent decline in Latin America’s economic position, to counter the increasingly adroit efforts of the Communists to exploit this situation and to reinforce the middle-class parties before their credit runs out.

What can the US do to hasten the middle-class revolution?

The policies may be divided for convenience into three categories: political; economic; and social. Obviously the more that these policies can be carried out through the OAS rather than as unilateral US decisions, the better. And obviously the applicability of these proposals will vary considerably from country to country.

Political. Here the main thing is familiar enough—to make it absolutely clear that we regard dictatorship and the suppression of popular rights as ultimately incompatible with the principles of the hemisphere. We can’t start off on an anti-dictatorship crusade, and no doubt we will continue to have short-run dealings with dictators; but no one in the hemisphere should be under any illusion how the US feels about dictatorships in the long run. We should give every dictator a sense of impermanence. Along with this, we should encourage the OAS to concern itself with the ways and means of guaranteeing regular free elections in all countries of the hemisphere.

Moreover, we should give our positive and particular support to governments which seem likely to bring about the sort of middle-class revolution we regard as favorable to our own interests—countries where social reform and economic development promise to be attained through democratic means. Full backing for the Betancourt government of Venezuela, for example, might be the best possible way of convincing aspiring Latin Americans that the democratic road to national fulfillment is both more reliable and more agreeable than the Castro road.

Economic. Here we must place our main emphasis on development. This may not sound like a new departure; but for several Latin American countries, it will represent a radical change in US policy.

During the fifties the US Government, under the baleful influence of the International Monetary Fund, committed itself to the view in a number of cases that the first requirement was, not economic development, but financial stabilization. The consequences for Argentina, Chile and Bolivia were drastic deflationary programs which induced economic stagnation, lowered living standards and finally brought about an entirely predictable pro-Communist reaction. Today Frondizi is politically on the ropes in Argentina; the pro-Communist parties are making impressive gains in Chile; and Communist penetration of the MNR party in Bolivia has proceeded apace. Of course, each country presented its own problems; the case for catharsis after the Peron years in Argentina was much stronger than the case for austerity in Bolivia, a country where there are no savings to be protected from inflation. An unchecked inflation is obviously a grave social danger. But the point is the prevailing belief of the fifties that stabilization and development were competing alternatives. As a US Assistant Secretary of State for Inter-American Affairs told the House Committee on Foreign Relations with regard to Bolivia in testifying on the Mutual Security Act of 1960, “We had to tell the Bolivian Government that they couldn’t put their money into it (the development program) and we weren’t going to put ours into it.”

The IMF argument, of course, is that stabilization will ultimately bring about development by attracting foreign capital. Unfortunately this process hasn’t worked in any of the three countries mentioned. On the other hand, Brazil, which defied the Fund in the fifties, has had, along with a serious inflation, a genuine economic expansion. Today Brazilian GNP is probably about four times that of Argentina.

In short, the IMF policy has not produced economic growth. It has probably retarded the middle-class revolution. It has certainly increased anti-US feeling, since the Fund’s location in Washington means that many people in Latin America assume it to be an arm of the US Government. Its programs have demonstrably resulted in political gains for the far left. It is surely time to dissociate US policy from the Fund and its mechanical application of deflationary remedies. (It would be better still to begin to moderate the policy of the Fund; a good first step would be to appoint someone like Seymour Harris as US Executive Director.)

Development, of course, is a broad term. It requires a substantial capital outlay from the US; it also requires careful consideration of the uses to which that capital outlay should be put. We must, for example, be prepared to give more assistance than we have in the past to industrialization. For one thing, industrialization is the shortest way to promote the rise of the new middle class on which our political hopes in Latin America must rest. Also, in the long run industrialization, far from destroying the market for US industrial exports, will probably (if the experience of other markets holds true) enrich the countries industrialized and increase their purchases from the US. Our policies have been geared too long to the thesis that Latin America should be essentially a producer and exporter of primary commodities—a thesis which, of course, gratifies the landholding oligarchy and convinces the apostles of modernization that we plan to keep Latin America in perpetual colonial servitude. In this connection, we must surely abandon the doctrinaire position that we will make loans to private corporations but that, when a Latin American government wishes to develop its own petroleum or electric power resources, the United States can make no loans to state-owned enterprise. Private enterprise has a most important role to play in Latin America. But we complicate our life immeasurably if we regard it as the sole engine of economic development and thereby appear to convert our own government into an instrument of American business interests.

Industrialization is only one part of the strategy of development. It must be accompanied by simultaneous action on a number of other fronts if it is not to aggravate economic disparities and social tensions. For example, industrialization at the expense of necessary investment in agriculture and transportation can cause dangerous imbalance in a national economy. To maintain this balance—and to introduce a larger measure of predictability into economic calculations—it would seem useful to explore the possibilities of commodity stabilization agreements to protect countries whose whole foreign exchange position depends on one or two export crops. Moreover, since most of the increase in GNP will go to feed new mouths, these countries can accumulate capital for investment only if they can sell their primary commodities to industrial countries at adequate prices.

The problem of industrialization is closely related to the structure of land ownership. Through much of Latin America, the existing land system, as we have seen, is a main barrier against the modernization of society. In effect, the land system imprisons a large part of the population, cutting it off from effective participation in the economic or political life of the nation. For generations, people accepted this condition as a law of nature. Now increasing numbers refuse to take it any longer. In Peru the Indians are moving onto the large estates and squatting on land sites. In northeast Brazil the Ligas Camponeses of Francisco Juliao are mobilizing the peasants and urging them to assert their “rights.” In Brazil, Vene-zuela, Peru and other countries, people are flocking out of the country into the shocking shanty-towns which already ring Rio, Caracas and Lima and which promise to become extremely dangerous centers of political unrest.

The only way to control such movements is to set in motion effective programs of land reform. But unadorned land reform—i.e., the redistribution of land to the peasants—by itself may do more harm than good. It must be accompanied by programs to increase the productivity of small farms—which means especially “supervised credit”, a combination of credit and agricultural extension work, along the lines of the Farm Security Administration in the thirties and of the Japanese land reform in the late forties. If land reform programs threaten to reduce output for a year or two until the new system begins to take hold, the US Food for Peace program can play a valuable role in supplying food for the period of transition.

The problem of land reform is closely bound up with the need for a reform in tax systems. The typical Latin American tax system is based on (a) import duties and (b) excise and sale taxes. In recent years, there have been rather rudimentary efforts to impose income taxes, largely evaded. There has also been some use of export duties (as in Chile, Salvador and Guatemala). Corporate income taxes are generally below US levels.

The obvious omission in this recital is land. In most countries tax on land is nonexistent or negligible. The result is a highly regressive system in which the landed oligarchy pays an exceedingly small proportion of its income in taxation. Because the tax on land is so inconsiderable, capital naturally rushes into land, which bids up land values and results in artificially high land prices. This means that the poor can never afford to buy land. It means also that expropriation with compensation at prevailing rates would result in terrifically inflated claims against the national treasury.

Tax reform thus is potentially a most significant key to agrarian change. An effective land tax could do much to reduce resistance to land reform. The state of Sao Paulo in Brazil recently enacted a law imposing a tax on landholders whose land was not in efficient cultivation; the idea, of course, was to induce them either to put their land into cultivation or else to divest themselves of it to small-holders. It is interesting to note that this law had the strong support of the Sao Paulo business community.

All these necessities—industrialization, land reform, tax reform—are thus intimately connected and require simultaneous action. The result of action on these fronts would be to encourage economic diversification, lay the basis for a small farmer class in the country and a business class in the city, and thereby advance the middle-class revolution.

Social. Activity in a number of areas is required to give the middle-class revolution logistic support. Transport, public health and housing are all essential. For example, Brazil today has (I am told) fewer miles of paved roads than Vermont. There is need in every Latin American republic, except Argentina, for speedy development of internal transportation—not only railroads but farm-to-market and other access roads. The needs in public health and housing are too evident to call for elaboration.

Most important of all is education. At present (despite such countries as Costa Rica, Uruguay and Argentina), Latin America remains 40 percent illiterate. Half of the children of school age never get to school; of those who do, half drop out at the end of the first year. Only about 5 percent complete primary school. The institutions of higher education are handicapped by a tradition of university organization which gives excessive control to the students and depends to a considerable degree on a part-time faculty. Of those students who do get to the universities, too many become lawyers and accountants; too few become engineers, scientists, agronomists, metallurgists, veterinarians. The condition of technical education is abysmally low throughout the continent. Argentina’s economy, for example, has been organized for generations around livestock; but its universities offer no degrees in animal husbandry. Public administration, business administration, industrial engineering—all are virtually unknown. Obviously modernization requires a massive redevelopment with US and OAS help of the Latin American educational system, not only because literacy is indispensable to a middleclass society, but because trained technical personnel are indispensable to rapid economic growth.

It is extremely important to keep a proper balance between the programs of economic and social investment. We encountered repeatedly in Latin America the fear that the creation of the Bogota social fund meant that US interest was shifting from economic to social investment. When we pointed out that economic growth resulted in the main from improved productivity and that productivity depended on education and research and that therefore schools, for example, were a good thing, the answer came obstinately back that steel mills were more important. It is no doubt true that some countries, like Bolivia, have overdone their provisions for social investment at the expense of heavy capital investment. Yet social investment remains of fundamental importance in the advance toward a middle-class society.

Beyond the specific issues of social investment, there remains the broader question of the cultural setting in which these policies seek to operate. The Latin Americans tend to regard the United States as a materialistic nation, a paradise of Babbits. At the turn of the century the Uruguayan Jose Enrique Rodo in his influential book Ariel y Caliban argued that the Latin role was to play Ariel to the US Caliban. Rodo wrote of the US, “Its prosperity is as immense as its incapability of satisfying even a mediocre view of human destiny. Titanic in its concentration of human will-power, with unprecedented triumphs in all spheres of material aggrandizement, its civilization yet produces as a whole a singular impression of insufficiency, of emptiness.” The Latins see themselves as Greeks, the North Americans as Romans.

Our policies, to have their full effect, must take account of this Latin American attitude. We must take every opportunity to show that we do not regard economics as the be-all and end-all of existence. We must make it clear that we are concerned with material abundance, not for its own sake, but to promote the higher aims of culture and civilization. We must also make it clear that, in our zest for economic growth and the middle-class revolution, we do not propose to remake the other nations of the hemisphere in our own image. We must show our respect for the distinctive cultures and traditions of the other American republics. Our proposals should derive ultimately from a generous vision of the diverse spiritual potentialities of a united hemisphere.

[Here follow Part III, “Obstacles to the Middle Class Revolution” and an appendix conveying Schlesinger’s personal impressions of the Latin American heads of state with whom he met.]

Arthur Schlesinger, jr.⁴

1. Source: Kennedy Library, Schlesinger Papers, White House Files, Latin America Report, March 10, 1961. Confidential. Copies were distributed to McGeorge Bundy, Walt W. Rostow, and Allen Dulles.
2. Schlesinger accompanied Food for Peace Director George McGovern on a mission to Argentina, Brazil, Peru, Bolivia, Panama, and Venezuela.
3. Printed from a copy that bears this typed signature.
4. Printed from a copy that bears this typed signature.