America’s China Policy Is Not Working
The Dangers of a Broad Decoupling
IN THE simplest terms, reconstruction of European agriculture means employment for the farm population and food for urban people. But its successful performance implies all the difference between chaos and the return of individuals and nations to peaceful life. In a large area of the Continent the initial work of restoration has, indeed, already begun. What is the situation at the turn of the year, when the fields of most of Europe are resting under a blanket of snow? And what are some of the problems that lie ahead?
Since February 1943 Russia has recovered all her territory previously occupied by Germany, has recovered the eastern part of Poland and Estonia, most of Latvia and parts of Lithuania, and has gained Bessarabia and Bucovina from Rumania. These areas comprise the Kuban, the Donets basin, the Crimea, the entire Russian and Polish Ukraine and White Russia, and embrace the magnificent tzernozem, or Black Soil Belt. The liberated areas originally held some fifty to sixty million of the 170,000,000 souls in the Soviet Union. The fury of total war has left these areas the most severely blighted agricultural region ever known.
The Balkans, adjacent to the great plains of Russia, have been largely freed from Axis occupation. Greece, Bulgaria and Rumania are more or less out of the war. All of France and French North Africa are liberated, save for some pockets of Nazi suicide garrisons along the Atlantic coast. All of Belgium is free. Italy's former North African colonies, Lybia and Tripoli, and Sicily and the Italian boot up to the northern slope of the Etruscan Apennines are out of the war. But Holland, Denmark and Norway, Austria, Czechoslovakia and west Poland, northern Italy, Jugoslavia, Albania and part of Hungary are still to be liberated. And Germany remains in the grip of her self-chosen tyranny.
We should note again that Russia's agricultural regions are terribly devastated. In its furious retreats the Red Army scorched the earth throughout those vast spaces which Hindenburg once said could swallow up all the armies of the world. The volume of capital investment per acre in rural Russia was only a fraction of what it was in west European countries, but under the Five Year Plans agriculture had been successfully mechanized and collectivized. This made it possible for the Russians to evacuate the personnel, and to remove or destroy the machinery of the "MTS" -- machine-tractor stations -- which service the collectives as well as the individual farms, and which are the backbone of Russia's farm production. The Russians had concentrated the storage of grain and were able to destroy a considerable part of it. And the fact that most of Russia's farm buildings are wooden structures made them an easy prey to the torch.
The military character of the war in Russia aggravated the destruction. In spite of the power of the panzer columns, Russia's defense in depth always succeeded in maintaining a front, in enveloping these spearhead thrusts, and finally in throwing them back after they had spent their momentum. Infantry and artillery ultimately fought the battles. Guerrilla warfare meant extensive economic sabotage behind the lines. Farmsteads, toolsheds, grainbins, barns, whole villages were burnt to the ground by the thousands in these swinging and swaying movements of fronts. Railroads and bridges were torn up, power dams blasted. And when the German Army retreated it laid the torch to the buildings that were standing or had been rebuilt. The MTS it had reopened in the Ukraine were once more stripped of personnel and machinery, and the population was screened clean of skilled or even able-bodied manpower. Whatever livestock the Russians had not evacuated, eaten or shot, the Germans seized and, in turn, ate or shot while they retreated. But neither the Russians nor the Germans were able to move the vast majority of the farm people. They and the land and the climate remained; and this rural population is immensely hardy. Somehow grain, some potatoes and some carrots and cabbage have been cultivated throughout this ghastly ordeal.
Nowhere else in Europe has agriculture suffered such wholesale damage, unless perhaps through flooding by sea water in Holland; we do not yet know the extent to which that has been or will be carried out. The grinding process in the battle of Italy has not destroyed farms so much as bridges, viaducts and tunnels, railroads and mountain roads and power plants and irrigation dams. Moreover, except in Russia, European agriculture is based on individual family farms -- interspersed in Poland, Hungary and Germany with large estates which depend entirely on hired labor. Agricultural production is not centrally managed even in totalitarian Germany. In spite of a complex system of market controls for farm products, European farms operate as individual units under the initiative of private owners. This decentralization made it impossible for the other countries attacked by Germany to order, let alone enforce, a scorched-earth policy. Militarily, this may be regrettable, although scorched earth would probably never have stopped the German avalanche in Holland, Belgium, France, Poland or the lower Danube basin. Economically, the family farms have been the salvation of Europe's food supply. There has been starvation in Athens and other Greek cities and in the Polish ghettos, but no general famine or epidemic in Europe. The amazing resiliency of the family farm system provides the explanation for this seeming miracle. The nature of the European terrain, with its many mountains and forests, and the stone or brick construction of buildings have also helped agriculture to survive the German invasions and retreats.
Stationary warfare with heavy shelling, sowing of mines, sapping, and "saturation" bombardment from airplanes cannot, of course, fail to erase the last vestiges of human habitation and work anywhere. The stone buildings and sheltering mountains of the region around Cassino did not avert destruction there, nor did the hedges and high poplar wind curtains spare the dairy country of Normandy. Fortunately, however, such stationary war has so far created a no-man's land in only a few limited areas, chiefly in Italy south of Rome, in France near Caen, Bayeux and on the invasion peninsula, and perhaps in the Dutch lowlands.
Taking countries as a whole, the damage to the farms themselves is so far insignificant. One major loss, however, is the curtailment of the livestock herd, a result of the shutting off of imported feed and food. This also means a heavy loss in operating capital. In prewar years the farmers of the Continent imported 9,000,000 tons of grains and 4,000,000 to 5,000,000 tons of oilcake, thus maintaining enough dairy cows, pigs and chickens to export net dairy products equivalent to more than 5,000,000 metric tons of milk, 140,000,000 tons of meat, bacon and lard and 80,000 tons of eggs.
The radical change in continental agriculture from a most active foreign trade position to one of enforced autarchy had a profound impact upon its system of land and crop utilization. Grain, beans, peas, vetches and skimmed milk had to be used for direct human consumption, and their use as feed for pigs and chickens greatly curtailed, in order to save the 70 to 90 percent of the calories otherwise wasted. Denmark and Holland, heavy importers of feed, had to make particularly severe readjustments. France and the southeastern countries were little affected in this respect. The conversion of many pastures and meadows into crop land for growing food caused a further reduction in numbers of livestock. Flocks and herds were reduced to their lowest size by the summer of 1942. Since then there has been a gradual recovery, especially in Denmark and France.
After three poor crops in a row, favorable weather in 1943 and 1944 brought fair to good yields. According to the best estimates available in the fall of 1944, the prewar continental cattle herd and the sheep flock of 100,000,000 head each have been reduced to 93,000,000, a 7 percent reduction of each. This loss is so moderate that a heavy drought could have caused it in peacetime. The reduction in numbers of pigs and chickens has been more drastic. The pig herd has been cut from 70 or 80 million to 50 or 60 million -- more than 30 percent; and the poultry flock has been cut from 500 million to 370 or 400 million birds. It must be remembered, however, that hogs and chickens are mainly converters of surplus grain and potatoes, and that due to their high fecundity their numbers fluctuate violently even in times of peace and prosperity. The present size of the livestock herd is essentially in balance with the available feed supplies and with the forced change to predominantly vegetarian national diets.
Large numbers of horses were drafted for military purposes and many have been destroyed. Many more were taken from the farmers to be substituted for motorized equipment in the strained transportation systems of the cities. But more horses have been bred, and oxen and cows are being used as beasts of burden on the farms more than before the war.
The more highly developed an agricultural system is, the more it depends upon a normal circulation of goods and services. In a modern economy, a net of railways moves the perishables, the livestock and the grain from farm to city, and brings the fertilizer, the coal, the seed and the machinery from the factories to the farm: the production of the farm is stifled if the railroads break down. In wartime the trucks and the horse-drawn vehicles which take over the task of transportation bog down as fuel gives out or as bridges and tunnels are bombed. Where the farms are equipped with electric light and power, stoppage of the central power plants impedes the farmer in innumerable ways. And it is seldom realized how many auxiliary industries service modern agriculture. Mills and refineries, grain elevators, meat packing houses, canneries, oil seed crushing and extracting mills, refrigerator plants and storehouses are some examples. Intensive air bombardment claws holes in such a system, and the inner wear and tear of total war has its destructive effect also.
No man can foresee what devastation the final phase of the war will bring. Concentrated assaults upon an ever-decreasing area may pulverize all improvements on the land in some of the Continent's most productive agricultural zones. "Earthquake bombs" and perhaps new explosives derived from atom-smashing modern chemistry may aggravate the destruction incalculably. And there can be an even more destructive phase, after organized warfare ceases, in which insurrection, marauding by guerrilla bands, and civil war sap the last strength from agriculture.
But though we do not know how much more destruction may be visited upon Europe, nothing could be more simple than to gauge the basic agricultural needs of the future. The farmers must be enabled to repair their buildings or construct new ones, to repair their machines, and to buy fertilizer and seed. There can be no doubt that Europe's millions of farm people long to get their inherited piece of land back into full production. It is also obvious that the urban people of the Continent are in desperate need of the produce of the farms and are probably willing to pay a relatively high price for better food if they can get it.
It is impossible to perceive the political framework within which this task of organizing and administering a program of agricultural reconstruction must be fitted. Above all, what treatment will be accorded to Germany, potentially one of the chief countries of the Continent, with a strong and healthy agriculture? This article does not attempt to analyze the political questions, but only to point out some of the problems which are critical from the standpoint of agricultural reconstruction.
During the interwar period Soviet Russia was, in an agricultural sense, more or less self-sufficient; all the other European continental nations were tied into the network of world trade. The trade in agricultural commodities reached peaks in 1929 and 1939, with the deep trough of the great depression in between. During the long years of this war the blockaded Continent was forcibly united, politically and economically. Fortress Europe had one center of power and control -- Berlin. It is a serious mistake to ignore the unpleasant fact that, in spite of the hatred and open revolt the German conquest inspired, Europe's agriculture has been operating successfully within the consolidated market area of the Fortress. But Europe's coherence was certain to be only temporary. It is now dissolving, and the centralized management of the continental economy is disintegrating.
Eastern and southeastern Europe comprise the Continent's chief agricultural export areas. They are regions of overpopulated farms with low productivity of land and labor, and under-industrialized towns and cities. To find adequate markets for the exports of Poland, Hungary, Rumania, Bulgaria and Jugoslavia was one of the most difficult economic problems of the interwar period. The natural market for these areas lies in the industrialized countries of central, northwestern and northern Europe. Belgium, Holland, Denmark, Germany, Austria, Switzerland and Czechoslovakia can buy the food, feedstuffs and tobacco of the east and southeast, provided they have a flourishing foreign outlet for their industrial exports and quality agricultural products.
Russia is the rapidly rising Eurasian industrial empire. It will offer an insatiable market for a mounting farm production of its own and that of the Baltic States, eastern Poland, Bessarabia and Bucovina. Moreover, the further shift of Russia's population into the cities, the continued rapid increase of population and the rising per capita purchasing power will create sufficient demand to absorb all or most of the agricultural surpluses of the Balkans, Poland and Hungary. Russia may also absorb whatever exports there are in Germany east of the Elbe, if that area is under Russian occupation for many years.
In the opinion of the writer it may be taken for granted that economic and political necessity will cause the responsibility for reconstruction to be transferred to national governments, provisional or constitutionally elected. Really wise and astute military governors cannot fail to perceive the plain impossibility of administering the reconstruction of entire modern economies with a handful of foreign officers or experts. Indeed, even if it were possible to do so, the fact would be a bitter comment on the pretensions of democracy. Our experience in North Africa, Italy and France has proved the necessity of restoring indigenous civilian administration at once. General MacArthur's call to President Osmeña for the reconstruction of the Philippines was a sound move of military statesmanship. By placing the responsibility for reconstruction on provisional national governments in liberated as well as conquered countries, the problem of agricultural reconstruction will thereby be decentralized and reduced to manageable proportions. However, all the questions of foreign trade, capital movement and economic coöperation in general should be separated from the question of domestic economic policies; problems in the former category will demand international solutions more insistently than ever. Policies of reconstruction for agriculture or industry drawn up wholly in terms of national autonomy and sovereignty could lay the foundations for an entrenched economic nationalism. Though reconstruction policies must be executed by national governments, economic policy should be worked out by international agreement.
The key to an understanding of the over-all problem of agricultural reconstruction lies in the fact that the major part of the job must be done outside of agriculture. Depression or prosperity in agriculture is caused chiefly by the conditions prevailing in the market for agricultural products. The volume, character and intensity of the demand are set by the rate of capital investment in industry and commerce, and the resulting rate of non-agricultural employment. In the two interwar decades we learned that while it is possible simultaneously to have a period of low agricultural income and high industrial earnings, the reverse is practically impossible. If Europe's agriculture is to develop its full possibilities, it must be enabled to produce more animal products (e.g., meat and poultry meat, fish, milk, butter, cheese, or eggs), more fruits and vegetables, and, in general, more products with a higher monetary value per unit. Naturally, it can do so only if it can supply the city population on the Continent and the people in Great Britain with a high volume of the preferred and more costly types of food. And this is possible only if high industrial employment keeps consumer purchasing power high. Nothing but industrial prosperity can set the pace for a healthy agriculture.
Whether European agriculture gets on its feet depends, therefore, on the prior recovery of industry in Great Britain and all the continental countries, and on the volume of postwar international trade. If industrial depression stalks the Continent, agricultural depression is the inevitable consequence. Industrial depression dams up the overpopulation on the farms and at the same time throws thousands of unemployed back to the land. Farm wages which are too low forestall the use of costly machinery and lower the output of human labor. Economic distress among the farm population leads to radicalism in the most conservative element of the population, to nationalism and irredentist movements. It is modern society's most dangerous political dynamite.
Only an expanding economy throughout the world can offer the proper environment for reconstruction of agriculture. The problem, in short, is a matter of international policy. The great ports of the world and the merchant marines must spring to life. A prospering foreign trade based on multilateral trade agreements under competitive conditions is the strongest and healthiest support that can be given to European agriculture, to agriculture in any country in the world, and particularly to agriculture in the United States.
Whether this basic and most powerful aid to reconstruction of agriculture will be granted in Europe depends primarily upon decisions taken by the United States -- the world's leading industrial power and the greatest creditor among the nations. Economic nationalism in the form of high tariffs and excise taxes levied to protect the American market against Europe's industrial goods will force the European countries into new systems of autarchy. It will stifle the development of European agriculture along the lines of sound international division of labor. The immense destruction of homes and industry in Europe has created the opportunity for a gigantic reconstruction boom which, if intelligently directed and controlled, could create prosperity for perhaps two decades. Substantial initial assistance from the United States, Great Britain, Sweden and Switzerland, and mutual aid among all the European countries in need, are, of course, prerequisites for such healthy business conditions.
It seems to the writer that plans to force advanced industrial countries into a shrinking economic straitjacket and to reagrarianize them are the opposite of what economic reason demands. Modern agriculture in industrial countries depends to such an extent on the products of industry -- e.g., on gasoline, coal, electric power, steel, machinery, fertilizer, railroads, trucks -- that considerable proportions of industrial and commercial employment are simply a concealed part of the food production on the farm. If more people are forced back to the farm, the capacity of agriculture to feed people will not increase but decline.
The greatest impediment to speedy reconstruction in Europe may be the lack of agreement among the United States, Great Britain and Russia as to the political and economic future of the different countries. The division of authority and responsibility for European political and economic issues among too many governmental agencies in the United States is also a handicap. Too many cooks often spoil the broth.
Assuming that such measures of international coöperation as large loans for reconstruction, multilateral trade treaties and international currency agreements will be agreed upon among the victorious Allies, we may briefly examine a program for the physical rehabilitation of the agricultural plant and its auxiliaries.
Most of the first steps are obvious. The farmers must return to their farms. How quickly the German prisoners of war -- who, of course, include many farmers -- can be set free is to some extent a military question and a matter of controversy. The drafted army horses, the tractors and trucks must be returned to the farmers. Seed and fertilizer must be distributed so far as they are available and needed. Feed must be imported, and gradually better feed rations for livestock be allowed by turning over to the feed trough the bran which now goes into the dark war bread.
Beyond these preliminary steps of demobilization the next moves present much more solid obstacles. Raw materials for industries and replacement of costly machinery are desperately needed. Coal, gasoline, lubricants and steel are essential if industry and the transportation system are to be repaired. The communications system is the worst damaged sector of the European economy.[i] Even in France, a country which has miraculously escaped with limited damage to farms and to many industries, the railroads are in a truly deplorable condition.[ii] Only one-tenth of the locomotive fleet of prewar years is in operating condition; 4,000 out of 14,000 may be put in service by major repairs. No bridges of importance are left intact, about 4,000 having been wrecked by allied bombardment and German demolition.
One of the first steps toward the improvement of food conditions in France or Italy is, therefore, not the shipment of food or feed, or, as some American livestock farmers have anticipated, of cattle, but the shipment of as many locomotives as can be delivered. Trucks and gasoline come next, and electric power must be restored. France had a good harvest in 1944 and the Germans left in such haste that they had no time or opportunity to requisition much of it. It is possible that French farmers will need only indirect aid in the form of industrial supplies and help with the repair of transportation facilities. The situation in France is probably typical of conditions in Belgium and Italy, and in essentials foreshadows the conditions that will be found in Germany, though damage to industrial and transportation systems will be much heavier there.
Agricultural reconstruction in Russia is well under way. Tractors are rolling off several plants reconverted from tank manufacture: spare parts are supplied and the sowing campaign of the fall of 1944 is said to have proceeded according to plan. The rebuilding of farmhouses constitutes a major problem in Russia, temporarily met by dugouts with thatched roofs. The reconstruction of the shattered livestock herds will take several years.
Aside from problems of physical replacement and repair, European agriculture needs the support of measures of financial reconstruction. In countries with private property in land and individual management of farms, the price level and the relation between the prices of various commodities ultimately determine the crop plans, the size of the livestock herd and all other decisions. The first over-all measure to give agriculture a solid foundation must consist of drastic action to stop inflation and stabilize the currencies. If this cannot be done, prices of farm products should be fixed temporarily in terms of gold or foreign currency. It also seems advisable to guarantee farmers a certain modest price floor for the coming crop, as an incentive to maintain or expand production.
The farm mortgage structure, which embraces the land value and the debt service, is a vital part of the agricultural system, if not its major financial anchorage. Its protection is mandatory. A limited moratorium for the initial period of reconstruction, with special incentives for the resumption of interest payments, seems an advisable measure. This whole problem is highly complex, particularly since the deeds, the land registers, the mortgage records and most of the other evidence of property and its encumbrance have vanished. Naturally, farm credit must be restored as one of the major means of reconstruction. In some countries it may be possible to satisfy the demand in part by private capital, but wherever the destruction is heavy, public funds alone will meet the urgent requirements. Such loans will help admirably to revive the national economy and will promise an early return on interest. Due to the slow turnover in agriculture they must be made on a long-term basis -- say, eight to 18 or more years -- preferably with amortization beginning after two or three years.
The reconstruction of agriculture is but a part of the task of general economic rehabilitation, which requires a large volume of investment capital for permanent improvements, and a large volume of operating capital. As the productive resources of the nations begin to be utilized, much of the needed capital can be raised domestically. But if the process is to be accelerated and the whole enterprise be made to stimulate a general improvement in international trade, a substantial part of the capital needed for the reconstruction of agriculture must be supplied through the international market. Even so, European agriculture cannot regain its prewar strength for several years. That does not mean that American agriculture will necessarily find a large and profitable demand for its exportable surpluses in Europe. The odds are heavily against such a development unless Congress changes its policy of fixing farm commodity prices far above the competitive level and unless it also lowers tariffs on industrial imports. In the field of agriculture, as in others, our self-interest will best be served by concern for the general welfare.
[i]Cf. Karl Brandt: "Germany's Vulnerable Spot: Transportation," FOREIGN AFFAIRS, January 1943.
[ii]Cf. The New York Times, October 19, 1944.