Foreign Relations of the United States, 1964–1968, Volume IX, International Development and Economic Defense Policy; Commodities

17. Memorandum From the Chairman of the Policy Planning Council (Rostow) to Secretary of State Rusk¹

Washington, October 28, 1964.

SUBJECT

• The Future of Foreign Aid

1. After a protracted examination of the problems involved, I have concluded that we must look forward, in the next phase of policy, to an expansion in the over-all level of economic and military aid, as well as to changes in the balance of aid policy which would give a heightened emphasis to agriculture and to the role of private enterprise both within developing countries and from abroad. I believe we should be prepared, under your leadership, to present this judgment to the President shortly after November 3.

2. With respect to the scale of economic aid, requirements will increase for two reasons. First, because in certain parts of the world (notably Latin America) improved self-help performance by the developing nations themselves automatically yield an expanded legitimate claim for external assistance; but, with the exception of a few countries, this enlarged external assistance cannot yet come wholly from private or other more conventional sources. Second, because expanded programs in agricultural development (discussed below) to some extent must be in addition to programs designed to expand infrastructure, education, etc.

3. With respect to military aid, the combination of increased tension in Asia with enlarged claims in Africa and, perhaps, for certain legitimate purposes in Latin America make it unlikely that the present $1 billion military aid ceiling will prove compatible with the national interest. It simply does not appear sufficient both to cope with our continuing commitments plus inevitable crisis situations.

4. With respect to agriculture, we have prepared a paper which has already been made available to you and been widely distributed in the town.² It seeks to make clear the converging reasons why an increased emphasis is required both within developing countries and within our own aid programs. The reasons are essentially these:

a. The gap, in certain areas, between the rate of increase in population and the rate of increase in local food production, yielding a slide into increased dependence on U.S. food surpluses;

b. The grave structural problem of a number of the more advanced developing countries which not only require an enlarged flow of agricultural products (for food, industrial raw materials, and exports) but also require the entrance of large rural populations into the markets for manufactured goods, if industrial production (now marked by substantial excess capacity) is to expand efficiently;

c. The need to pursue in the less advanced of the developing countries better balanced programs of urban-rural development to avoid a repetition of the structural distortions now to be seen in the more advanced developing countries; and

d. The important and largely neglected role of improvements in agricultural production and marketing in the struggle to contain cost-of-living indexes and inflation in developing countries.

5. We must, therefore, look forward to accelerated programs to expand food production in the developing areas. These will require stepped-up adaptive research and an experimental approach to institutions affecting agricultural incomes, incentives and distribution. They will also require such changes in policies and institutions within developing countries as will induce much larger applications of chemical fertilizers as well as increased production of chemical fertilizers. In addition, we shall probably be called upon in the transition period to generate and transfer substantially higher levels of food surplus from the United States, Canada, Western Europe, etc. than we transfer at present.

6. With respect to private enterprise, we are at a moment of both need and possibility for expanding its role both within developing countries and from abroad. The need arises from the fact that the foundations for industrialization have been laid in a good many countries, but the kind of diversified industry required for the next phase (including modern marketing methods) can only be efficiently developed by private enterprise. This means that relatively more emphasis should be given in our programs to development banks or other institutions which can lend to private firms within developing nations, as opposed to the more classic intergovernmental loans for infrastructure. The opportunity arises from the gradual waning of the old ideological struggle about government versus private enterprise, a waning to be observed, for example, in India and many parts of Latin America. There is a parallel growing sophistication in U.S. and European private enterprise about local sensibilities and the terms on which foreign enterprise can operate within a developing nation to mutual advantage.

7. This argues for a heightened AID effort in the next phase both to accelerate the generation of local private enterprise and to expand the contribution of U.S. foreign enterprise in the development business. Work in this direction is already going forward, much of it quite hopeful. What is needed is additional high level impetus.

8. I would hope that shortly after November 3 you would interest yourself directly in this array of issues, since, evidently, a decision to expand and shift the emphasis of our aid programs requires judgment and support at the highest level of the government.

1. Source: Department of State, S/PC Files: Lot 70 D 199, Assistance to Foreign Countries—1964. Limited Official Use. Copies were sent to Ball, W. Averell Harriman, Llewellyn E. Thompson, Bell, Hollis B. Chenery, and G. Griffith Johnson. A handwritten note on the source text reads: “S saw.”
2. Presumably a reference to a September 24 paper entitled “Agriculture and the Future of Development and Aid Policy.” (Ibid., Food—Population)