Why the Ukraine Crisis Is the West’s Fault
The Liberal Delusions That Provoked Putin
The ultimate success or failure of the Alliance for Progress will be determined, in my judgment, primarily by the attitudes and actions of the business community in both the United States and the Latin American republics. This is not to say that the role of governments is unimportant; it is, indeed, essential. But without the enlightened coöperation of private enterprise, which provides 80 percent of the gross national product in Latin America, the growth pattern prescribed by the Alliance is unlikely to be realized.
The experience of United States private business to date reveals that a fundamental obstacle to its effective participation in hemispheric development is the existence of a deep-rooted misunderstanding of its purpose, practice and potential. In many countries this misunderstanding has led to laws and regulations unfavorable to business and to extreme forms of nationalism which create a climate unfavorable to foreign investment. The clichés responsible, endlessly repeated, are in some cases the result of ignorance, while others have been cunningly insinuated by those who seek to undermine free and democratic societies and confidence in free enterprise as the economic system that can best advance the public welfare.
Communist propaganda stridently blames the United States and United States business for all the readily visible ills of Latin America. Soviet, Castro and Chinese Communist agents move through city and village spreading half- truths and whole falsehoods. North American capitalists, they say, are out to exploit resources and markets to the detriment of the host nations; the capitalists want to keep the people in poverty so they can take over their minerals and metals; they are obsessed with excessive profits and have no concern for the land or its inhabitants.
Although these charges are largely without foundation, United States companies, with a few notable exceptions, are doing little to refute the misinformation and clear up the suspicion spread by Communist propaganda. Yet combat it we must, for otherwise we are in grave danger of losing our investments, our markets and-more importantly-our friends and allies in a critical sector of the world. Unless we convince Latin Americans that their best interests lie in providing an environment in which both domestic and foreign private enterprise can thrive, then the Alliance for Progress will be in deep trouble. This is something that should be done even if there were no Communist threat, but that threat has underscored the necessity for prompt action.
Perhaps we can best arrive at an understanding of the situation by examining a few of the more widely held misconceptions reflected in a significant body of Latin American opinion, and then considering ways in which an improved understanding of private enterprise can be encouraged. It seems to me that four myths are especially important and generally representative:
Myth 1: The United States Government and U. S. business want to perpetuate a primitive economy in Latin America.
Not only is this contention not supported by the facts, but it ignores the novelty and complexity of the whole global economic development problem. So novel is this problem that few minds have yet begun to produce meaningful answers. Two-thirds of the world's people, living in countries where the per capita income averages between a dime and a quarter a day, have suddenly become aware that their poverty is not inevitable, and they are resolved to overcome it. The result is a massive determination in scores of countries to move from purely agricultural subsistence economies into the kind of world that lives by buying and selling, by making and assembling things. "The impact of modern science and technology," says Eugene Black, "has made traditional ways obsolete without as yet providing a tolerable alternative. Change is becoming the price of survival."
Economic development is a problem so complex that one economist has aptly described it as a series of "vicious circles within vicious circles and interlocking vicious circles." For example, development requires change-but change is strongly resisted by many of those in power today in the developing countries. Development requires capital-but capital comes from savings, savings come from postponing consumption, and a poorer economy must consume most of its meager produce. Development requires a balance between population and production-but the developing nations cannot achieve a higher standard of living without some form of population control, and they cannot achieve population control without a higher standard of living and the higher level of education that goes with it.
Industrialization is desirable, inevitable, indeed crucial in the economic growth of any area. Quick to acknowledge that the nations of Latin America should have a rapidly expanding industrial plant, the United States Government and the American private sector have contributed significantly to the industrial development that leads to eventual economic sophistication. Our assistance has been extended to a host of enterprises, ranging from retail stores to paper mills to heavy industry. Loans by the United States Government played an important part in building Altos Hornos in Mexico, Volta Redonda in Brazil and Huachipato in Chile, to mention but three major Latin American steel mills. But the bulk of United States Government aid has properly gone for infrastructure projects, which certainly are essential to any industrial growth. Loans from the Agency for International Development (A.I.D.) have helped finance rural electrification projects in Chile and Ecuador, highway studies in Peru and the first hydroelectric plant in Honduras.
The direct and complementary contributions from the American private sector are epitomized by operations in a wide variety of commercial and industrial enterprises. Sears' Roebuck & Co., for instance, has a record of exemplary performance throughout the Hemisphere. In one country where it has trained over 1,000 employees, Sears makes purchases from 1,400 local factories, many of which did not even exist before it came on the scene. Other examples are legion in nearly every sector of industry and commerce.
However, history teaches that it is exceedingly important for the modernization, diversification and expansion of agriculture to develop in proportion to industrial expansion. As the Latin American population of 230,000,000 swells to more than 300,000,000 in the next decade, insufficient attention to agriculture could obliterate many of the economic gains in the industrial sector.
Yet many Latin American and United States economists fear some Latin countries are neglecting their agricultural base in the headlong rush toward industrialization. For nations in the early stages of development, a steel mill is more apt to be a status symbol than the most efficient means of accelerating economic growth. If, as I believe to be the case, much of a country's potential to generate wealth depends on producing food to support a rapidly growing population, it is essential that prime emphasis be given to stimulating more efficient and diversified agriculture.
The case of Panama is illustrative. A dozen years ago, the Chase Manhattan Bank launched a program to improve cattle-raising in the republic. On radio and television, the Bank advertised that it would finance the modernization of ranches if cattlemen were prepared to follow a scientific program of seeding, feeding and breeding. As collateral, it accepted not only real estate but also liens on cattle. It even developed its own "C.M.B." brand for these steers. The brand came to be looked upon by the people as a status symbol because it marked a rancher as progressive enough to be supported by an American bank.
The cattle program was aimed at upgrading the quality of beef, encouraging higher meat consumption to improve dietary standards, and making the country eventually an exporter of beef. These goals have now been achieved and Panama has been transformed-in a relatively few years-from a large importer of beef to an exporter. So enthusiastic has been the reception for the program that the Bank now has five cattle experts assigned to its Latin American branches. All are local citizens, trained in the United States. They have recently conducted studies of the cattle potential in Trinidad and Venezuela and are now preparing similar reports for members of the new Central American Common Market-Costa Rica, El Salvador, Honduras, Guatemala and Nicaragua.
Much of the apprehension about directing energies and investments toward improving agriculture stems from the fact that certain Latin nations traditionally have depended heavily on a single agricultural crop for their foreign exchange. They have experienced severe trade imbalances and serious balance-of-payments problems as a result of fluctuations in the price of the commodity on which they depend so heavily; hence they are reluctant to become still more dependent on its production. To counteract extreme price fluctuations, the United States has made special efforts in relation to commodities on which individual countries are almost entirely dependent. We have adopted sugar quotas and we sustain sugar prices at a level above the world market. Similarly, we support the International Coffee Agreement.
Yet these are, at best, imperfect measures. There are many valid reasons for not wishing to see them substitute for supply and demand in regulating the market. It would be far preferable for an exporting country to avoid excessive dependence on a single commodity by providing enough variety of supply to adjust to shifts in demand. It is for this reason that the United States strongly urges agricultural diversification as a solid basis for industrial development. This is an essential foundation if the Latin American countries are to emerge as a strong industrial force in the world's economy.
The cliché that North American business wants to hold its southern neighbors in the bondage of a primitive economy includes the charge that its industrial exports are too highly priced. This is an inaccurate and misleading charge. On the whole, most United States industrial prices in the past ten years have remained quite constant. Any increase has been the result, in large part, of increased quality and sophistication of products. Any American who has gone shopping for computers becomes keenly aware of this fact. The same holds true for most capital goods, and it is certainly evident to the housewife who sees the new packaging of goods in the supermarket. The quality, presentation and other characteristics of manufactured goods are changing in many instances, and so must their prices.
By expanding and diversifying agricultural production, by encouraging commodity exports to earn more foreign exchange, by enlarging regional markets, and by creating a better environment for private investment, Latin America will be able to increase its industrial capacity in a balanced and rational manner. This is the objective that the United States Government and business are working with the Latin American nations to achieve.
Myth 2: United States private investors seek to exploit Latin America economically.
This simply does not square with reality. A few statistics will give some idea of the nature and magnitude of the direct contribution being made. United States businesses operating in Latin America supply one-tenth of Latin America's production, pay one-fifth of all taxes and account for a third of all export earnings. An estimated 1,500,000 Latin Americans are employed by United States businesses, in many cases at higher wages than they would earn in other, local industries. United States citizens, on the other hand, account for only 2 percent of all employees of United States firms in Latin America. The United States investment in Latin America has fortunately been moderately successful on balance, but it can hardly be called "exploitative."
The Punta del Este target for new foreign investment from private sources was $600,000,000 annually, of which $300,000,000 was to come from the United States. In 1964 the United States figure was only half that, and the European figure even less. On the other hand, if reinvested earnings are added to direct investments, the total contribution of United States business exceeds the target level.
In my view, a primary reason for this relatively good performance, which is of recent date, is a change in the policy which prevailed in the early years of the Alliance of placing too much emphasis on rapid and revolutionary social change and on strictly government-to-government assistance. This approach, while it took account of the fact that there is a genuine and urgent need to do away with social inequities, did not encourage the conditions which are essential to stimulating private investment and economic growth. Revolutionary change which shakes confidence in the fair treatment of private property is incompatible with rapid economic expansion. Now that the vital role of private enterprise is being recognized more fully in a number of Latin American nations, we see the development of a more favorable business climate. I am confident that companies and individuals alike, both United States and local, will respond to the increasing opportunity in those countries where this attitude prevails, and that the rate of investment will grow more rapidly as a result. This should make possible more meaningful social reform since it will be accompanied by a rising standard of living. Progress along these lines will not be possible, however, if misunderstandings are allowed to hamper investment and frustrate honest efforts to stimulate a widely shared economic advance.
The Latin American businessman can do much to help encourage investment. By pooling the vast resources of talent, initiative and knowledge of local conditions which he has at his command, he can work with governments to sustain a business climate that attracts foreign capital and retains local funds. United States investors seek no special favors, but like most other businessmen they look for stability, for guarantees that contracts between the two parties are binding on both and will be honored, and for evidence that threats of expropriation will not cast ominous shadows on capital investment.
Myth 3: United States private business does not want Latin America to share in the ownership or management of promising enterprises.
It is true that certain types of enterprises do not readily lend themselves to joint ventures. But a growing number of United States companies are seeking Latin American participation in the management of investments they have in Latin America. Such joint ventures represent a most promising area in which Latin American businessmen can improve the investment climate and advance the goals of the Alianza.
The Chase Manhattan Bank's experience substantiates this belief. Its affiliation with Banco Lar Brasileiro in Rio de Janeiro in 1962, as well as a second venture the same year with the Banco Mercantil y Agricola of Caracas, led to a third in 1965 with the Banco Continental in Lima. In each case, the Bank has found that the organizations have been complementary. To the intimate knowledge of the local economy contributed by the Bank's partner, it has been able to add modern techniques in fields such as personnel policy, credit analysis and operations procedures, bringing rewarding results and much good will.
A model joint venture has been Brazil's manganese ore company, Industria e Comercio de Minerios, with 51 percent ownership by Brazilians and 49 percent by Bethlehem Steel. In 1949, backed by loans from the World Bank and the Export-Import Bank, this company laid a 122-mile railroad through the jungle, dredged part of the Amazon for ocean-going ships and built docks and roads. Since its first manganese shipments in 1957, the company has netted between $12,000,000 and $15,000,000 each year and has been able to pay back its Export-Import Bank loan three years early. The venture also made possible Brazil's first private foundation to support agricultural research, education and development in backward areas, Its workers enjoy modern homes, a fully staffed hospital and some of the best schools in Brazil.
Kaiser Industries started automobile companies in Brazil and Argentina and then turned a majority of the stock over to Latin Americans. All but a handful of employees are now local nationals. Kaiser sought out local industries to produce parts for the cars. The company established educational programs to train skilled technicians and sent bright young men abroad for further training.
The International Basic Economy Corporation, better known as IBEC, has introduced modern merchandising techniques in supermarkets in Venezuela and other countries, enabling housewives to save as much as 20 percent on their food bills. The supermarkets buy most of their wares from local suppliers whom they have trained in mass production, packaging and marketing. Ninety percent of the employees are recruited in the local area and taught how to stock supermarket shelves, to keep up the inventory and to run the checkout counters.
All these companies and many others like them are demonstrating American economic democracy at work-and working successfully. Their partnership approach is a rebuttal to contentions of economic imperialism.
Myth 4: Latin American economic integration is opposed by U. S. businessmen.
On the contrary, most businessmen I talk with consider it absolutely imperative for true progress. Without such integration, there is inefficient division of markets and costly duplication of effort. Only by closer coöperation can the Latin nations make the best of their own resources and provide the broadest appeal to additional foreign investments. President Kennedy emphasized this stand in announcing plans for the Alliance for Progress when he said: "We must support all economic integration which is a genuine step toward larger markets and greater competitive opportunity. The fragmentation of South American economies is a serious barrier to industrial growth." This policy is being continued by the Johnson Administration under the leadership of Under Secretary Thomas Mann.
In the case of the Central American Common Market, U.S. businessmen have been among the first to applaud the encouraging results of economic integration: elimination of almost all internal tariffs, harmonized duties on nearly all outside imports, a broad internal market of 12,000,000 people and United States investments by mid-1964 of about $350,000,000.
The Latin American Free Trade Area (including the eight countries of South America as well as Mexico) has straggled to build on less substantial but nevertheless hopeful foundations. Trade among its nine members climbed 83 percent between 1961 and 1964, with an import figure among them of $6465000,000. Yet progress was slowed by historic problems of protectionism, political instability and inflation.
Most U.S. businessmen recognize that as tariff barriers between nations are dropped, the increased demand for finished goods will create a broader general market. Agricultural nations will be buying within the Latin American market many of the goods they now import from other areas. The resulting generation of domestic capital will decrease the emphasis on foreign aid and open up new opportunities for investment. To suggest that businessmen in the United States oppose such developments is not only untrue but illogical as well.
Representatives of private enterprise in all parts of the Hemisphere are being encouraged to stimulate and support economic integration through groups such as the Council for Latin America. This organization, resulting from a merger of three separate groups concerned with Latin American affairs, provides an effective channel of coöperation between businessmen in the United States and their counterparts in the countries to the south. It also offers a means of continuing communication and consultation with the White House, the State Department and other agencies of our government.
All the evidence suggests that popular misunderstanding of the role of U.S. business in Latin America is not rooted in substantial fact. Nevertheless, myths persist and they must be answered on an expanded and more effective scale. It seems to me that the approach must be essentially threefold.
First, U.S. business must develop an effective message, one that will explain clearly and affirmatively what it stands for and is trying to accomplish. In such a message the key idea is "identification."
Each individual company operating in, or trading with, Latin America must identify itself with Latin American aspirations; it must become a positive factor in the region's economic development. The United States business community as a whole must become a creative and constructive force working for Latin American growth and progress. Each member of it must, in contacts with Latin Americans, identify private enterprise as the system with the potential for the fastest and surest means of economic development in an atmosphere of individual freedom and human dignity.
One of the most formidable roadblocks to identification is the habit of Latin Americans of describing their own aspirations as "socialist" and of verbally rejecting "capitalism." If the semantic smog is lifted, however, we see that the "socialism" they are talking about is really a combination of "social security" and "social justice," both of which are unimpeachably orthodox concepts in our own country. The "capitalism" they are criticizing turns out to be the predatory system of tightly held power and privilege which they have read about in Karl Marx, This was a system which may have had reality in the nineteenth century when Marx made his observations, but it has long since been outlawed in our own country.
It is well for us to remember, however, that the evolution of business ethics in the United States was a relatively slow process. Corporations did things in the 1870s and 1880s which advancing business standards later made clearly improper. Many of the same corporations fought bitterly in the old days against attempts at public regulation which they now accept as a matter of enlightened self-interest. The developing countries of Latin America have not had this same history of ethical evolution, so it is not surprising that some of their concepts of business standards differ markedly from our own.
What the Latin Americans actually want, though, is basically what we ourselves stand for and are continually striving to achieve. One of our chief tasks, then, is to cut through the deceptive labels which serve only to create divergence where there is none. We need a new image of ourselves, and some new phrases to describe it.
The case for private investment must be stated in the context of what it can do to help achieve two goals which the majority of Latin Americans dearly want. One is economic growth. Private investment promotes this by mobilizing the initiative, know-how, manpower and property of millions of individuals to achieve optimum output of goods and services. The other goal is political stability. Private investment promotes this by supporting the rise and vitality of a group of managers, property owners and small capitalists, and by providing a bulwark for individual freedom against the rise of arbitrary power.
Furthermore, it must be made clear that an atmosphere conducive to private investment can facilitate the accomplishment of other goals such as improved sanitation and health, better and more universal education, a more equitable distribution of wealth and a meaningful expansion of political democracy. All these goals are more readily attainable in countries where the standard of living is rising. In explaining why this is so? American businessmen have a wide range of examples to document their case, and they should not hesitate to use them.
The second step must be to distribute this message effectively. As the Joint Congressional Economic Subcommittee on Latin America said: "The virtues of the free-enterprise system need to be better understood and more aggressively presented and 'sold'." This calls for a sensitive awareness of cultural differences and tact, which Jean Cocteau has defined as "knowing how far to go in going too far." The objective must be to win the active support of as many people as possible in creating broader understanding of the role of business and private enterprise.
The most important group to reach is the Latin American business community. Not only is this group significant in itself but it is a good vehicle for reaching other audiences-employees, customers, clients, dealers, government officials. The business community needs attention because sections of it lack a true appreciation of the role of foreign investments in their countries. Some businessmen fear that such investments mean increased competition, which they are reluctant to face. However, one heartening aspect is that a new generation of business leaders is now moving into positions of influence in many countries. Most of these leaders are in their forties or early fifties, well educated men bent on bringing about far-ranging improvements in both government administration and business management. I have met many of these men and have been enormously impressed with their grasp of current problems and their determination to do something about them. They can be most effective salesmen in emphasizing the virtues of free enterprise in their respective countries.
A scarcely less important audience consists of members of the national governments in the Latin American countries, where governmental influence goes far beyond anything we experience in the United States. In many countries, wages and hours are fixed by decree, rents are tightly controlled, employee profit-sharing is determined by edict, and the government operates a growing array of business enterprises-most of them, incidentally, at a substantial loss. This means that we must promote within the government agencies an understanding and appreciation of private enterprise as a strengthening force in the economy. It is not enough for Latin American businessmen to be convinced that what they advocate is right and fair; the appropriate people in government must also understand that it is right and fair.
Still another important audience consists of the leaders in forming public opinion-educators, intellectuals, professional men and women, labor leaders and the clergy. It is vital to establish a mutuality of interest and understanding with this relatively small but highly influential group. Educators and intellectuals occupy a special position of respect in Latin America, as indicated by the fact that the Communists spend considerable time and money infiltrating the universities and establishing close links with intellectual groups. They offer teachers numerous opportunities for self-expression and public recognition by sponsoring travel programs and lectures and subsidizing publications. If we are to persuade the makers of opinion of the importance of private enterprise, we must convince them that we are genuinely concerned about them and about the welfare of their countries. We must help them accommodate their hopes and plans to the realities of today's world. Above all, we must emphasize continually that our common aspirations and convictions place us on the same side.
The third step is to demonstrate the validity of what we preach through our own performance. Our success in convincing Latin Americans of the importance of free enterprise will depend, essentially and profoundly, on the way we practice it ourselves. No wizardry of words can cover up callousness or conceal corporate cupidity. American business must demonstrate in action that the exploitative capitalism that the Communist propaganda machine constantly inveighs against is a thing of the past. We must demonstrate that a new brand of capitalism has evolved, based on the concept of a fair profit for free enterprise combined with social responsibility to the community as a whole; that we are not against change per se; and that we believe business can itself be a creative force for constructive change, as has been shown in some of the cases already mentioned.
To deal effectively with this situation, U.S. management must assign its best brains to the developing nations-particularly those of Latin America- and train them further in their dual role of businessmen and representative Americans. These managers should relish the challenge of doing business in new ways and with new hazards, but with the potentiality of new rewards.
Specifically, the manager should have at least a working knowledge of the language of the country in which he is settling. He should know something of its history, culture, institutions and national goals. He should have a natural curiosity about the country and a desire and ability to mix with its people. Only with this background can he hope to earn respect for his business and further an understanding of the United States. Too often, regrettably, Americans going abroad do not have this background, with the result that American business has acquired a bad name in many places overseas.
Business management must also be knowledgeable about the policy of the United States Government and help shape it along constructive lines that will stimulate faster economic development abroad. This, to me, is an essential part of management's social responsibility. The time is long overdue when the business manager should speak up to the public, to the government and to the governments of the developing areas on issues with which he is familiar and on which he has a qualified judgment. He should say that economic development is fundamentally a product of a nation's own policies and attitudes; that for the good of their own people, governments must discourage extreme nationalistic attitudes toward foreign business which not only lead to stultifying regulation and expropriation but arouse concern about the safety of local private investment as well; and explain the vital contribution of American business to local economies around the world in terms of products, policies and-above all-profits.
One of the most formidable barriers to private investment abroad, in my judgment, is the barrier existing in the minds and emotions of those who need foreign investment most. Because they wrongly tend to equate it with colonialism, they are reluctant to accept it, adopting instead a coldly anti-capitalist attitude and challenging the profit motive which in the industrialized nations of the Western world has been the prime generating force producing economic growth since the Industrial Revolution.
This hostility to profit among many people in Latin America is based, in part, on a lack of understanding of its essential role in attracting investment and, in part, on a misconception of the magnitude of profits actually made by foreign investors in Latin America. On this latter point it is generally believed that profits have been exorbitant and have resulted in the exploitation and impoverishment of the host country. This belief was brought out in a special Gallup Poll conducted not long ago in fourteen nations of the non-Communist world. Participants were asked what percent of profits they thought a typical United States industrial firm earned. The estimates ranged from 25 percent profit in Rome to 60 percent in Montevideo. Actually, a recent survey of 100 large North American corporations showed that foreign assets returned 14 percent before taxes and domestic assets returned 13 percent; close to half the companies studied had pretax profits of no more than 10 percent.
Today, Latin America is going through a social revolution that represents a dramatic and far-reaching restructuring of an entire society. After this transformation, whether accomplished through violent or peaceful means, the continent will ultimately bear little resemblance to the Latin America we have known up to now. Millions of Latin Americans are determined to have a better life in the future than they have had in the past. The obstacles in their way must be removed by men of good sense and good will, north and south.
To accomplish its objectives, however, Latin America does not have to be changed into a violently radical or Communist continent. Indeed, if this were to happen, the people of Latin America would find themselves sold down the river, for many of their objectives would not be achieved by this route. The modern social revolution can develop peacefully and democratically, and such is the aim of the Alliance for Progress. There is a growing realization that economic development and social reform must go hand in hand. While this new approach cannot produce economic and political stability overnight, it seems to me to offer greater hope for success than the overly ambitious concepts of revolutionary social change which typified the thinking of many who played an important part in the Alliance in its early days.
The outcome of the Alliance for Progress in Latin America is bound to affect the larger contest between Western democracy and Communism as to which is to be the world's way of the future. In this contest, United States business has been thrust into a new and difficult role. It must spread its message abroad and demonstrate the validity of that message in day-to-day actions. Some companies have already acted on this realization, and more must do so. Business must heed the democratic clamor in Latin America. Blatant propaganda will not bring about better relations with our historic "good neighbors." That will be done only by emphasizing the identity of our objectives, by putting into practice the conviction that economic growth with freedom is something to be shared by all.