IT IS now nearly 12 years since the provision of economic assistance to other countries on a regular and organized basis became an established feature of American foreign policy. Such assistance had previously been offered to Latin American countries and during and after the war to the devastated and distressed countries of Europe and Asia. With the promulgation of the Point IV offer in President Truman's Inaugural Message of 1949, the provision of assistance to other countries for their economic development lost its character of emergency relief. It became, instead, a settled arrangement for helping the less fortunate countries of the world to escape from poverty and to place themselves on a path to self-sustaining growth. The amounts being spent, if not huge, have at least become considerable: in the current fiscal year some $1.7 billion is available for loans, grants, technical assistance and administrative costs, and another $1.2 billion in surplus food and fiber. In addition, $250 million is provided for investment guarantees and $130 million for multilateral aid through the United Nations.

From the beginning, foreign aid has been sharply controversial. It has an aspect of goodwill and compassion that naturally arouses grave suspicion. Liberals, reacting to this, come automatically to its defense. Any criticism has been deemed to conceal some design for discrediting the policy. If results are not satisfactory, it is because we are not spending enough. The normal liberal formula for improving foreign aid is to spend about 25 percent more.

A much more careful view of foreign aid is now in order and, indeed, essential. Such a view does not lead to the conclusion that less should be spent. More money will be needed. But it does lead to the conclusion that much recent and present aid has been very ineffectually employed and for that reason has had gravely disappointing or even negative results. Without a substantial change in the whole view of economic development, the results in most cases will continue to be disappointing. The required changes will not perhaps be easily accepted here or abroad. Yet so great is the need for development and also the desire for it that we should not discount too severely the willingness to take the necessary steps.

The prime difficulty of present aid policy is that it is based on a convenient but largely erroneous view of the requirements for economic development. That economic development is a complex process will be agreed. When certain requirements for advance are present, advance will occur. If these are lacking, progress will be retarded. And if factors decisively important for progress are lacking, it follows that there will be no progress at all. As measured by movements in national income or product, the country will be stagnant.

In our present view of economic development, the missing element in all countries is assumed to be external resources--above all, capital. The country, being poor, has little national product from which to save and much need for current consumption. Accordingly, the chance for internal capital creation is small, and capital must, therefore, be supplied from the outside. This is the critical need. From the outside, also, must come technicians and specialists to advise in the use and development of internal resources--to improve agriculture, search for oil, guide the exploitation of other natural resources, identify industrial opportunity, protect health or plan education. The capital and the technicians, together with food should this be lacking, we supply. Thus, it is thought, we contribute the missing and critical component of advance.

The difficulty is that what we supply is, in many cases, only one of the missing and critical requirements without which there will be no progress. At least four other things are crucial.

(1) A substantial degree of literacy and that smaller number of people with the higher education and skills necessary to man a government and undertake the managerial and technical tasks associated directly or indirectly with economic advance. We may lay it down as a rule that there will be no durable, self-sustaining advance under conditions of widespread illiteracy and ignorance and without an educated élite of substantial size. In the eighteenth and nineteenth centuries, it was well understood--at least in the United States--that popular education was of first importance for releasing the initiative and energy of the people, enabling them to work efficiently and progressively and to give development a thrust or impetus from below. There is no modern reason to believe that this view was wrong.

(2) A substantial measure of social justice. If the ordinary individual receives no share in the advance, he will make no willing contribution to it. And he can normally be counted upon to sabotage it--to be careless of the new machinery entrusted to his care or contemptuous of the new methods recommended to his attention. It is not always easy to get the individual in the underdeveloped country to see and pursue the path of his own self-interest when it involves a break with tradition. He will never do so if all the gains accrue to feudal landlords or employers or to tax-collectors, merchants and usurers.

(3) A reliable apparatus of government and public administration. Clearly, economic development can occur only in a context of law and order, where persons and property are reasonably secure. But even though this is not always present, it is a good deal less than the minimum that is necessary. Positive advance also requires a capacity for more difficult tasks--for planning and building roads and other communications, for importing capital and guiding its use, for the management of a fiscal system that makes adequate use of internal resources, for organizing education, and for many other essential tasks.

(4) A clear and purposeful view of what development involves. Development will not occur if it is believed to come automatically with escape from colonialism; if it is identified as a matter of course with faith in free enterprise or socialism; if it is regarded as the special magic that will be provided by a particular political personality; or if it is to be accomplished by some single stroke of genius such as the building of a particular road, the settling of a particular jungle, or the watering of a particular desert. In all instances, the result--not long deferred--will be serious disappointment.

In practice, one or more of these four factors is missing in most of the poor countries, and each is as critical as capital. Therefore, the only successful development will be that which supplies the missing elements. Since these will be somewhat different for different countries, there cannot be a common prescription for development; what works in one place will not work in another.

These conclusions readily survive empirical test. After a decade or more of effort and expenditure, we have a right to inquire whether the countries we have been aiding are on the way to self-sustaining advance. Has national income been increased? Has poverty been mitigated? Has the likelihood of disorder been lessened? So far as Central America, northern South America, the Middle East and some of Asia are concerned, the questions have a vaguely prejudicial sound. It is as though someone were preparing an indictment of foreign aid. In most of these regions poverty, ignorance and the potentiality for disorder are just as great as they were ten years ago. Ten years, it will be said, is too short a time. But this is a retrospective apology. When we announced our intention to "embark on a bold new program" to rescue the "more than half of the people of the world . . . living in conditions approaching misery," we had a better timetable in mind than this. And, in truth, a better one has been repeatedly promised to the Congress and the American people.

It may be true, as liberal defenders of foreign aid have argued, that the effort has been too small, but if other requirements for advance are absent, an increase in size would not insure advance. Were ample assistance all that is required, Iran and the oil-rich Arab countries would be exceedingly progressive. In fact, in these countries progress remains unsatisfactory, and it is because other requirements for advance are missing. No one supposes that, were the oil revenues of Iraq doubled, the rate of economic development would be appreciably advanced. Similarly, Venezuela, in spite of its massive oil revenues, remains in uncertain equilibrium. Nor would economic aid in larger volume have saved the situation in Cuba or Laos.

The matter may be tested on the other side. One country that has shown great advance since the war, including great capacity to make effective use of aid, has been Israel. It is singularly unendowed with natural resources. It has no oil wells, few minerals, insufficient water and not much space. But all of the four elements mentioned--high literacy and a highly educated élite, the sense and the reality of social justice, an effective government and a strong sense of purpose--are all present. So there is rapid progress. The Israelis, were they forced to it, would better do without their aid than without their education, their sense of shared responsibility and shared gain, their public administration and their clear view of their destiny.

India and Pakistan and perhaps also Ghana and Nigeria are other countries where the requirements of development other than external aid are present or largely present. Thus, India has a large literate minority and a highly educated élite, a considerable if still highly uneven measure of social justice, an effective administration and a fairly clear sense of direction. As a result, and despite the crushing problems imposed by tradition and population growth, India has been making a substantial measure of industrial progress. The fact that her agricultural progress has been far less impressive supports the point. In the agricultural villages literacy is low; the social inequality is high and many know that, come what may, they will live on the bare margin of subsistence; village government is decayed and ineffective and only recently have efforts at rejuvenation been made; and the Indian village is hardly inclined to address itself purposefully to economic advance. So even though India, of all the economically distressed countries, makes the best use of its aid, it too fails in the part of its economy where the other requirements for advance are lacking.


In our prescription for the improvement of other countries, we have a little-recognized but highly persistent tendency to advocate what exists in the United States, with no very critical view of its appropriateness to the situation or stage of development of the other country. In the early years of the Marshall Plan, an agriculturist was moved by divine fire to seek to establish a land-grant college in Bavaria; his motivation was not need (and certainly not the availability of land) but the fact that land-grant colleges had served the United States well. A few years ago another American was bent on organizing a market news service for the floating vegetable market in Bangkok. And in Bolivia our agricultural experiment stations are so elaborate that they are (it is said) too expensive for the Bolivians to operate; in the enthusiasm of the land reform of the early 1950s one of them was enthusiastically seized and divided up by peasants unaware of its function.

Our stress on the role of external resources has a similar bias. In modern times the supply of capital resources has been the limiting factor on our growth; the more capital, foreign and domestic, that we have had for investment, the more rapid our rate of advance. We even measure growth in part by our rate of investment in physical capital. We have tended to overlook the fact that at an earlier stage we had developed a system of popular education, and had achieved an effective system of public administration. We had established the principle that people should be rewarded in some reasonable, if imperfect, relation to their contribution or product. We also had a considerable sense of purpose. It was never imagined that by merely expelling the British we would automatically achieve paradise. But these early prerequisites of development, vital though they were, are largely ignored today. In drawing on our own experience, we are influenced by the later stage of our development when capital became important.

However, in our political and economic policy, we are much less often the victims of retarded intelligence than of convenient illusion. That is so here. It is doubtful that many of us, if pressed, would insist that economic development was simply a matter of external aid. But nothing could be more convenient than to believe this, for once we admit that it is not the case, we become entrapped in a succession of grievously complex problems.

Thus we would have to consider how a country can greatly increase its literacy rate and at the same time build a system of higher education. To organize a good school system, or reform a bad one, is far harder than to organize an equivalent outlay on dams, turbines, generators and transmission lines. This nevertheless may be the easiest of the barriers to pass. To develop a clear sense of purpose; to get an effective system of public administration when one must build on nothing; and to win social reform when great and perhaps even decisive power is held by those to whom reform would be costly--these are vastly more difficult. So the solution has been to pretend that these problems do not exist and that economic aid will turn the trick.

Present attitudes toward aid have a further consequence; they allow and encourage poor selection of the objects of aid, disperse the limited energies of the aided country, encourage a lack of continuity and preclude any real test of performance. This, to repeat, is not an indictment of aid as such and should not be taken for encouragement by those who are opposed on principle to the golden rule. It is very much an indictment of the present approach to aid.

Specifically, if external resources are assumed to be the limiting factor, any particular infusion of such resources is presumed to help. This means that the particular investment to be aided is not subject to any very rigorous test; it can be decided by bilateral bargaining between the representatives of the United States and those of the recipient country. This bargaining allows an almost incredible variety of irrelevant considerations to enter. Our representatives, governed by the imitative habits of mind just mentioned, assume that what exists in the United States has proven itself by the success of the United States. Therefore there is a strong presumption that it will be good for the aided country. "To the campesino's desire for seed, land and water, the agricultural service has too often responded by offering insecticides, sprayers, fertilizers, and a school for training tractor mechanics . . . . The agricultural service has suffered from being too close a copy of the U.S. Extension Service."[i]

The United States has a great variety of developmental services appropriate both to its high state of development and its ability to finance things of secondary importance. The tendency to duplicate these leads to heavy burdens and a radical dispersal of energies. The particular dispersion will depend on the accident of personalities. The arrival of a specialist in plant-breeding will lead to a new enthusiasm for hybrid corn; a home economist will bear the torch for home economics; someone with a background in adult education will give revitalized leadership to a movement for adult education until he departs for the next country. These tendencies are unlikely to be resisted in the recipient country. Officials of a number of countries have said quite frankly that they do not hesitate to adjust their requests to the preferences or whims of current personnel in the American mission. Money talks. Nor are the insights and preferences of the recipients more acute. These are subject to the desire for monument building and the tendency for a new ministerial personality to decry the work of his predecessor and seek to memorialize his own intuition and magic. One form of aid being about as good as another, there is a strong temptation for the donor country to keep the peace and meet these requests. It helps to support the government and maintain its friendship.

The result is a measure of incoherence, discontinuity, dispersal of scarce energies and, inevitably, of waste. But--and this point must be emphasized--there is no remedy within the present framework. No one can be fired for selecting the wrong projects as long as all are assured to do some good and no one knows for sure which do the most good. There will be improvement only when we begin seriously to ask what is needed--when targets are established and attention becomes focused on what is required to reach them. Then it will be impossible (or anyhow difficult) to avoid thinking about the missing elements. And once targets are established and effort becomes purposefully directed toward achieving them, we shall have measures of success--or of failure. Then, conspicuous failure will at least have to be explained, and responsibility for a wrong decision assigned. There can surely be no feature of present aid programs that is so unsatisfactory as that by which much aid brings little or no progress and no one gets blamed. Public life was not meant to be that easy.


One rather more general observation may help to bring this problem into focus. The underdeveloped countries of South America, Africa and Asia can be thought of as the products--and also the victims--of a great historical discontinuity. Colonialism brought them in each case to a certain stage of development. It supplied capital and, in most cases, did this very well. By its nature it supplied a government and the related elements of administration, and in most instances it provided the rudiments of an educational system. Some part of these, at least, was left behind. But given the goals of colonial rule and its tendency to superimpose a small external élite on the social and economic life of the colony, colonialism rarely left a satisfactory system of social justice. And the resentment and antagonisms it aroused, together with some of the social theory that it often provided, led to a partly heroic and partly romantic view of development which has not ordinarily been consistent with serious purpose.

The task of development has been to pick up where colonialism left off--sometimes, as in the case of many of the Latin American countries, after a long interim period of stagnation. In a few countries, as we have noted, colonialism in its day provided a number of the essentials of development, and there the discontinuity is not total; the requisites for continued advance are present. But in other cases colonialism did not provide even the minimum elements for development. In Haiti, for example, it is unlikely that in terms of per capita income there has been any advance since the French were expelled in 1804; that there has been deterioration is far more probable. In a considerable number of the former Spanish countries, income (and literacy, health and general well-being) cannot be appreciably higher than at the time of independence. The Peruvian Indians are probably worse off than under the Inca. And as the Congo sufficiently emphasizes, a number of the new African states are gaining independence with no more, and possibly fewer, of the requirements for advance than were possessed by the Western Hemisphere colonies of Spain.

It is because we agree that colonialism left some of the countries without the requirements for independent advance that we are providing aid today. But we have not reflected on what is missing. In assuming that capital is the missing element, we are continuing to provide the one thing that colonialism provided. This perpetuates the unviable structure left by colonialism and--not surprisingly--it brings down on our heads some of the discredit and dislike which accrued to the colonial powers.

We are face to face, then, with the disconcerting need for new thinking about economic development. This is embarrassing not alone because it is difficult but also because a reputation for soundness in our day continues to rest on a zealous avoidance of novelty, while no one is so admired for his wisdom as the man who reacts sympathetically to change and then explains why it is unwise. Yet there is no escape. The specifications are clear. We must have a design for economic development which extends to all of the barriers to advance; it must be adaptable to the situation of the individual country; and we must have some objective tests of progress. We can no longer allow ourselves to assume progress where, in fact, there is none. If we are contributing to development, we need to know it and stick to our course. If we are on the wrong path, we also need to know it and change.

Finally, what we do must be reasonably accommodated to the financial and administrative resources of the United States and must be considerate of the sensibilities of the newly emerged countries. Nevertheless, we should be aware that excessive sensibility can serve to protect present barriers to progress and that here, as so often in the economics of the impoverished, choice is inescapable. What to do?


For purposes of designation, we may let a new system of organizing foreign aid be called The Positive Development Plan. The positive features are two: it sets achievable but firm goals for the country seeking development, with provision for measuring progress toward their attainment; and it seeks the removal of all of the barriers to advance in the particular country.

Specifically, the Plan envisages a small but talented group of men assembled in Washington under the aegis of a new agency which may be called the National Development Institute. Its purpose, first, is to help countries seeking development under this Plan to establish the targets or goals which they can reasonably hope to achieve over, say, a seven-year period and to devise the steps for achieving these goals; and second, to help the government, not only to execute the program, but to develop the permanent administration required to achieve these goals and continue on the path of permanent and independent development. Acceptance of the Positive Development Plan and of the assistance provided by the National Development Institute would be voluntary, and failure to do so would not exclude a country from other aid programs. Once accepted, the United States would be committed to support the plan and to pursue it for a specified period. For reasons to be mentioned presently, this does not of itself imply a greater aggregate outlay by the United States.

By way of more detailed illustration, a Central American or newer African state would formally seek the help of the National Development Institute in formulating seven-year targets and the measures for achieving them. A small panel would then be constituted consisting in approximately equal numbers of representatives of the Institute and the recipient country. Working partly in Washington and partly in the recipient country over a period of six months, the group would draw up targets, determine the requisite steps and promulgate the plan. American members of the panel would remain in close informal communication with the Institute as a way of sharing and developing experience, of checking the validity of proposals and making the most of scarce personnel resources. Again for purposes of designation, we may call the panel the Planning and Development Authority.

The targets should be both economic and cultural. Four may be sufficient: a specified gain in national income, a specified improvement in its distribution, a specified advance in literacy, and improvement in other areas of education. A multiplication of targets--always a temptation in such planning--must be avoided, and those that are set must be capable of realization. This is subject to a measure of internal control; the targets must be consistent with the measures recommended for reaching them and these, in turn, must be consistent with the measures--external and internal--which will be available.

By establishing targets and agreeing upon the steps to achieve them, all of the barriers to development will be brought into view. Education, social reform and development of public administration will each command its appropriate share of attention--along with economic investment. In this way attention can be focused on the barriers that inhibit advance in the particular country.

The formulation of a plan of this kind is not a matter of great inherent difficulty. The principal problem is to resist the temptation to be grandiose and to avoid things that belong to far later stages of development. But to carry out even the simplest plan is another matter. If a government itself must be built, who is going to establish an educational system, guide an investment program or carry through social reforms--and by what means? The circle is closed, especially as resistance to indispensable reform and to outside help and advice can be expected. Somehow the country must be helped to get the administrative machinery, leadership, organizing ability, technical and professional knowledge, clarity and consistency of purpose to escape from the self-reinforcing bind of backwardness, and it must be persuaded of its need. In the past, planning missions have offered detailed instructions as to what should be done, and then have left the country with the far more difficult tasks of execution.

The only possible procedure is for the Planning and Development Authority to remain in the country in charge of development. If the Plan is acceptable to the recipient country, the Planning and Development Authority will become, in effect, a Development Ministry. Existing government agencies which have development responsibilities--in education, industrial development, agriculture, internal revenue--will become subject to its over-all directions. This arrangement is indispensable, for it is idle to set targets and not provide the essential machinery for reaching them. Yet no one should disguise the fact that on this point the proposal will encounter its most critical objection. The Planning and Development Authority, led in part by foreigners, will seem an invasion of sovereignty. Nations that have won political freedom at what seems to them great cost and peril will be quick to sense a possible threat to their independence.

However, the fact that our intentions are not imperialistic has considerable, if by no means universal, credence. We are contending not with an intention that must be disguised but with a myth that must be dispelled. The difference is considerable. Then there are certain measures of reassurance which we can provide. In the execution phase of the plan, the chairman of the Planning and Development Authority should be the most competent national of the recipient country. And during the period of development the American members should be gradually withdrawn as trained and competent replacements become available. This is in keeping with the design for progress toward fully independent development. United Nations personnel should be closely associated with the work; perhaps a U.N. observer should be invited to be present. And while there must be a strong presumption that the enterprise will be carried through to the target date, it is revocable. In the end, however, acceptance must depend on the deep desire for effective development. This is strong and may grow stronger as dissatisfaction with present progress increases.

Our own undertaking must also be firm, which means that Congress must accept a fairly long-range commitment to this general design. This will not come easily. However, there are features that should commend themselves to any legislator who is concerned with economy. Under this plan, everything that is spent is purposefully directed to the goal of self-support. Resources will be used in accordance with an organized system of priorities. Tighter administration through the Planning and Development Authority could also be a source of economy.

Finally, there will be targets and, for the first time, a way of measuring the return on outlay. There will be annual reports of progress and detailed explanation of any failure to maintain scheduled advance. Responsibility for failure will be pinpointed. We have here the first requirement for sound economy.

Total costs must not exceed a realistic appraisal of what the United States can be expected to spend. And this amount may set the level of the targets. But given acceptance of the Plan, the commitment must be sufficient to achieve targets that will catch the imagination and attract the energies of the country. Acceptance is an indication of serious intent all around.

The Plan envisages a close articulation between the Planning and Development Authority and the National Development Institute. The latter would provide personnel from what, it may be hoped, will be a small but highly trained and expert cadre available to the Authorities for specialized tasks and subject to prompt reassignment when replacements have been trained or their task otherwise completed. The National Development Institute would also supervise training of nationals in the United States and arrange for procurement in this country. This close articulation would mean that our resources were committed directly to the Planning and Development Authorities so that, without ostensible tying of aid, the adverse effect on the balance of payments would be much smaller than in the case of ordinary dollar aid.

Under the Positive Development Plan, it is important that funds be available for those measures of social reform no less urgent than education or capital investment. As noted, feudal institutions are as great a barrier to advance as illiteracy and capital shortage, and in the long run they are probably more important. Land reform under the aegis of the Planning and Development Authority helps assure, to some degree, its practicability, for it avoids the obstacle that landlords are either unwilling to entrust their fate to arbitrary valuation procedures and uncertain compensation, or they assume charge of the operation themselves which ensures that planning never gives way to action. The Planning and Development Authority provides the hope that land reform can be done equitably, and hence that it will be done.


Commonly in the underdeveloped country two powerful political forces are in opposition. On the one hand, there is the drive for modernization and advancing real income; on the other, there is vested interest in backwardness which, in practical manifestation, is usually a system of great landlords and landless tenants. The first thrust is by no means weak in relation to the second. The political strategy of development is to capitalize on it to overcome the vested resistance of the second, and to guide it into channels of orderly change. Perhaps the most serious indictment of present attitudes toward development is that we have failed utterly to find a formula for obviating this potential clash. Then, when it occurs, as in Cuba, we can react only with distraught surprise.

No country should be forced or even persuaded to enter the Positive Development Plan. Failure to do so would not prejudice access to other forms of aid. It might be desirable if the first response were modest--one or two Caribbean or Central American countries, a newer African state--so that the initial experience might be on something of a pilot scale. Moreover, it should be made clear from the outset that there are some underdeveloped countries--such as India, Pakistan or Mexico--to which the Positive Development Plan is not applicable. These countries do not use their aid perfectly, but unlike others, they have a positive approach to the problem of development, or (as in the case of Mexico) they have broken through the main barriers to advance.

Objections to this Plan will not be difficult to discover, and it is assuredly open to modification and amendment. But the ability to discover deficiencies in a proposal involving social innovation is not--in the absence of suggested alternatives--the most challenging test to which the social scientist or public official can address himself. Nor is the ability to identify reasons why something should not be done the quality which the American people sought most in the Administration they brought into office last autumn. Above all, it must be borne in mind that the present procedures on foreign aid in a very large number of countries are acceptable only because we have so resolutely avoided measuring the results.

[i] Richard W. Patch, "Bolivia and U.S. Assistance," in "Social Change in Latin America Today." New York: Harper (for the Council on Foreign Relations), 1960, p. 163.

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  • JOHN KENNETH GALBRAITH, Professor of Economics, Harvard University; recently economic adviser to the President; visiting lecturer in Asia for the Department of State, 1957; author of "The Affluent Society," "Study Guide on Modern Far Eastern History" and other political and economic works
  • More By John Kenneth Galbraith