America’s China Policy Is Not Working
The Dangers of a Broad Decoupling
PRESIDENT COOLIDGE'S tight-lipped comment on the war debts owed the United States by its former allies was: "They hired the money." The lend-lease policy adopted by the present Administration sought to establish a basis for the most effective possible prosecution of the Second World War and also to avoid the sort of wartime financial errors which contributed so much to the economic and political troubles of the twenties and thirties. Article VII of the lend-lease master agreements provides that the conditions of the settlement "shall be such as not to burden commerce between the two countries, but to promote mutually advantageous economic relations between them and the betterment of world-wide economic relations." If this formula can be implemented, no serious economic problems will result from the American part in financing the joint war effort of the United Nations. But political dangers remain. As things stand today, certain aspects of the lend-lease program may well induce serious disputes with our present allies when the time for settlement comes.
When the President proposed the lend-lease idea he told his press conference, on December 17, 1940, "What I am trying to do is to eliminate the dollar sign . . . get rid of the silly, foolish old dollar sign." There should be no financial debt, only repayment in kind. "Suppose my neighbor's house catches fire, and I have a length of garden hose four or five hundred feet away. If he can take my garden hose and connect it up with his hydrant, I may help him to put out his fire. Now, what do I do? I don't say to him before that operation, 'Neighbor, my garden hose cost me $15; you have to pay me $15 for it.' . . . I don't want $15 -- I want my garden hose back after the fire is over."
The lend-lease master agreements carried the concept a step further. Goods that have not been destroyed shall be returned if the President wishes it; "full cognizance shall be taken" of reciprocal lend-lease aid; the remainder of the settlement shall be such as to further the broad economic ends sought by the United Nations. Commenting on Article VII, the fifth quarterly report on lend-lease says: "By this provision we have affirmatively declared our intention to avoid the political and economic mistakes of international public debt experience during the twenties." There has been no serious public opposition to this idea, either at the time the lend-lease bill was passed or since our entry into the war. There is no evidence that "informed public opinion" expects repayment of any large share of the lend-lease aid we have sent to our allies.
Recognition of this change from the attitude voiced by President Coolidge seems to have combined with the sheer novelty of the lend-lease idea to create a widespread belief that all the poison has been taken out of inter-allied debt relations and that the settlement can now be left largely to the experts. Such a belief will not stand examination. Two conditions in particular may lead to political trouble: (1) the widespread public belief that the United States ought to be repaid for lend-lease aid, and foreign uncertainty as to what we will ask in settlement of the account; (2) the treatment of lend-lease as aid from the United States to other countries.[i]
What evidence there is regarding American public opinion indicates that most people think the United States should be repaid for the lend-lease aid sent to its allies, although they have considerable doubt that it will be paid. This has not interfered with public support for the program. In January 1943, one-quarter of the people interviewed in a Gallup poll did not know what lend-lease was. Of the remainder, 72 percent felt that the countries receiving lend-lease aid should repay the United States for it (which means that 54 percent of the total number of persons interviewed gave this answer). However, only 29 percent believed we really would be repaid, and 58 percent thought we would not be. These results bear out those of earlier polls conducted by the National Opinion Research Center of the University of Denver. The latest poll by that organization, taken in July 1942, shows that 39 percent of those polled thought that Britain should repay all of the lend-lease aid received from the United States, 43 percent wanted "part" paid back, and only 8 percent thought there should be no repayment. Somewhat smaller percentages favored repayment by the U.S.S.R. Only 20 percent thought China should pay back everything, while 24 percent thought she should make no return at all.
The polls are not altogether satisfactory. Repayment "in part" may mean almost anything. There was no attempt to find out what people would say if they understood what this country would have to do to accept full repayment. Nevertheless, the results of the polls are of considerable political significance. Only a small percentage of the population seems positively to believe that we should not be repaid for lend-lease aid. A majority believes our allies ought to repay us. Others do not know what lend-lease is; we may presume that if they did, most would think that we should be paid for goods sent abroad. If this situation has not been changed before the time comes for the lend-lease settlement to be made, any propaganda group in this country will be in an excellent position to mobilize support for the idea that we should "take a strong stand" and that failure to collect is a betrayal of American interests. With political strength of this sort apparently to be had almost for the asking, it is too much to expect that no one will seize it. Of course, public opinion may change before the time comes for a lend-lease settlement, provided there is a prompt and prolonged and effective attempt to explain that we have more to gain from a "generous" settlement than from a strict accounting. The polls show that a sizeable group of people believe we will not be repaid, even if they think we should be. This indicates that there would probably be a good reception for a well-presented argument against insisting on repayment.
Foreigners are aware that their obligation to the United States under lend-lease is indefinite. The fundamental economic position of some countries may be deeply affected by the policy we finally adopt. Uncertainty usually has bad effects on policy. For instance, in "Reconstruction," a report on postwar problems, the Federation of British Industries presents as one of the arguments favoring a bilateralistic commercial policy for Britain the supposition that, "Instead of being a creditor, we shall be a debtor nation, to an unknown extent, in view of the implications of 'lease-lend.'" Whether it is true that by any accounting Britain would become a net debtor, and whether it follows from this that bilateralism is the best policy for Britain, is not the question. What is politically significant is that foreign countries may feel that lend-lease is a contingent liability of unknown size that can be met only by adjusting all their policies toward this end. The feeling in allied countries that the United States holds a whip hand over their future is not likely to encourage postwar coöperation between them and this country. They may be expected to try as hard as possible to escape from such a position, even if that means ignoring some of the goals set out in Article VII of the master agreements.
The second great political danger lurking in the lend-lease settlement arises from the fact that lend-lease is a national instrument of the United States used to aid our allies. "The transfers made under the Lend-Lease Act . . . are contributions of material to a common pool with which a common war is being waged."[ii] Nevertheless, they are still marked down in the books as aid sent from the United States to individual allied states.[iii] Detailed accounts are kept by the Office of Lend-Lease Administration showing the quantities and value of all goods (and services) sent abroad to our allies or received by them in the United States. Reciprocal lend-lease aid from our allies to the United States is similarly catalogued by us and, apparently, credited to the account of the country from which we receive it. The decision as to what shall be sent abroad under lend-lease, and in what amounts, is made by agencies of the United States Government acting on requisitions from allied governments. The power of decision as to what shall be used where in this "common war" is thus largely in American hands. However wise and correct the decisions of American governmental agencies may be, they are not common decisions in the same sense that this is a common war. The political implications of these facts bear largely on wartime questions and fall outside the scope of this article. It is the political implication of the fact that accounts are kept, and of the manner in which they are kept, that is dealt with here.
An account implies a balance. There is a total which represents American aid to a particular allied country and another total showing the aid which that ally has given to us. The difference between these two totals must inevitably appear as a "debt" from the country which has given less to the country which has given more. This is true whether the debt is to be paid or forgiven. It is generally assumed that the United States will be the creditor of its allies on lend-lease account, and this is probably correct. Financial repayment has been ruled out, but the balance of the lend-lease account of the United States with each ally would presumably be the indication of how much return in kind or by way of other "benefits" we would expect from that country. Or, if we asked no return and forgave the debt, the balance would appear as the index of how generous we had been to each ally.
Such accounting concepts, and a balance indicating the debt one country owes to another, are not compatible with the idea of a common war. Victory is a vital interest of all the United Nations, and whatever each country does to help attain victory is at once aid to the common cause and self-help. Not all of the contributions of any country can be measured in common terms. Inevitably, one ally will suffer heavier losses in men than another. How can this be weighed against a larger output of war materials? As Lend-Lease Administrator Stettinius has said: "What the other United Nations do to bring about the defeat of the Axis is obviously a vital contribution 'to the defense of the United States.' This is a benefit which cannot be measured in figures. There is no standard of values by which the loss of a thousand Russian lives, for instance, can be compared with a thousand fighter planes."
This incommensurability carries the seeds of postwar clashes between the United States and its present allies. It is not hard to imagine conditions under which Americans would come to feel that they had been "swindled again" because the foreigners never paid for what we sent them to use in the war. Our ex-allies could just as easily forget that Americans, too, died in the war, and might regard the balancing of lend-lease accounts as a new attempt to fasten American commercial domination on the world and make the poor pay tribute to the rich.
Even if we consider only goods, and services which in peacetime would be commercial, lend-lease accounting makes no sense. American and British troops are fighting side by side in Tunisia. The Lend-Lease Administration has made it clear that on the battlefield available material is shared as needed, presumably without regard for accounting.[iv] However, suppose the British troops are using equipment previously supplied from the United States on lend-lease. If a town must be taken and the British troops do it, the British Government incurs a debt to the United States by using up the equipment. If American troops carry out the operation, no such obligation is created. Innumerable examples of the same sort can be imagined, all pointing to the absurdity of thinking of wartime operations in accounting terms. To match the charges we would make for war materials supplied by us for use against the Axis, our allies might suggest that we pay them for the services of men to fire the guns or drive the tanks, since we have not enough skilled labor on the spot to handle our own output. The idea is no doubt fantastic. It illustrates the difficulty of drawing a clear distinction between things which should be paid for and things which should not be paid for in the war against the Axis.
There is room for endless controversy over the settlement of lend-lease accounts. We keep a detailed record of what we send abroad, but apparently the British, at least, do not make a similar check of what they have received from us.[v] Mr. Stettinius has testified that our own officials have not been able to keep detailed accounts of the value of reciprocal lend-lease aid supplied to us by other countries because of the difficulty of putting dollar valuations on all of the goods and services involved.[vi] In following the complicated processes of valuation, determination of ownership and use, and in tracing the history of particular supplies, there are many chances for disagreement between allies if a detailed casting-up of accounts is attempted.
Perhaps the greatest threat of friction in the lend-lease settlement lies in the determination of what shall go into the reciprocal lend-lease accounts which our allies are too ffset against the lend-lease bills that we can present. In the first place, there may be disagreement among the officials of all governments as to what shall be included, and among the experts as to which items should be counted and which not. But it is from the "inspired" public reaction that the most serious trouble is to be feared. No question would arise, probably, over such things as food, construction materials, wages of civilian labor, transportation facilities, army equipment, and the like, which our allies might supply to us. This is the same kind of thing that we are supplying to them under lend-lease. However, there are other facilities, more directly connected with fighting, about which there is no convention or understanding that they represent "services rendered" for which one would expect to pay a fee. For example, rent for airfields in the British Isles might appear to some Americans to be not very different from "rent for the trenches," about which there was so much misinformation, misunderstanding and recrimination after the last war. Great political play might be made of an attempt to charge to reciprocal lend-lease the telephone bill General Eisenhower must have run up in London laying plans for the North African campaign. It could be made to seem the crassest commercialism for the British Government to charge the United States passage-money for American troops who went to England on British ships. Over such items as these there could be bitter and endless controversy, particularly if they were unearthed as a "discovery" by those who wish to present them in an unfavorable light at the end of the war. Even if the money value of such items were negligible, the bad feeling they could engender might easily make all the difference between an atmosphere in which international peacetime problems could be met on the basis of collaboration and one in which friction and rivalries would destroy the possibility of establishing peace and restoring prosperity.
Too much of the difficulty should not be ascribed to the accounting process alone. The root of the trouble and the prime source of danger are that we are trying to fight a common war largely on the basis of separate national actions. No doubt it would be impractical to scrap the accounting process altogether. Records are necessary. But no one ever thinks that because weapons produced in Massachusetts are used by troops coming largely from South Carolina the latter state incurs a debt. While accounting is not the original source of the possible trouble, and may be a necessary process, it is likely to produce serious political repercussions if the lend-lease settlement calls for a casting-up of the accounts. Perhaps there is an ingenuity of accounting that will avoid this danger. Otherwise the only feasible solution would seem to be a complete wiping out in advance of the possibility that any international obligation will flow from lend-lease, regardless of who is creditor and who is debtor when the war is over. Presumably this could be done if the President announced that the use of materials in the war against the Axis constituted the "benefits" to the United States which he is authorized to determine under the Act. No doubt equivalent action could be taken by the proper authorities in other countries.
Perhaps other ways can be devised to avoid the political dangers inherent in lend-lease as it stands today. The Lend-Lease Administration itself has suggested that the principle of "equality of sacrifice" might be applied. Whether this is feasible or not, and whether the principle can be given precise meaning, is a matter to be explored. It has also been suggested that lend-lease supplies be allocated to the commanding officers of United Nations troops in various parts of the world, not to any country. An international corporation which would receive and disperse all lend-lease supplies, even if only in a formal, bookkeeping sense, is another possibility. Regardless of the form of the solution, the main aims to be achieved would seem to be two: (1) the avoidance of any attempt to "count-up" mutual aid so as to strike a balance; (2) the determination of as definite a settlement as possible in advance of the peace, so as to prevent the growth of a public opinion in the United States favoring repayment and the adoption by foreign countries of undesirable policies as a result of uncertainty regarding their obligations to the United States.
The purpose of this article is not, it will have been seen, to say how an effective lend-lease settlement can be reached, but to point out some of the political dangers inherent in the present process. The master lend-lease agreements and the statements of American public officials have gone far to assure the world that the lend-lease settlement will not damage the postwar economy and may be used to facilitate a generally desirable settlement. There is no similar assurance that the lend-lease settlement will be politically beneficial. Present evidence points the other way. "We have scotched the snake, not killed it."
[i]Cf. "The Economic Implications of Lend-Lease," a paper read before the American Economic Association, January 7, 1943, by Eugene Staley, to whom the present author is indebted in a number of ways.
[ii] "Fifth Report to Congress on Lend-Lease Operations," p. 13.
[iii] A number of neutral countries receive lend-lease aid, but the bulk of it goes to our allies. The comments in this section apply to a settlement with them only.
[iv] "Seventh Report to Congress on Lend-Lease Operations," p. 14.
[v] Oscar Hobson, "Mixed Up in Their Affairs," The News Chronicle, September 15, 1942.
[vi] OWI Press Release No. 1147, January 24, 1943.