Mr. President, the attention of the Congress and the American people in recent weeks has been turned, and properly so, to the forthcoming “missile gap.” I have spoken on this floor previously about this gap and the dangers it presents. I intend to address myself to the subject again, but I wish to speak today about a gap which constitutes an equally clear and present danger to our security.
Unlike the missile gap, the gap to which I allude will not reach the point of critical danger in 1961. That point has already been reached.
Unlike the missile gap, the gap to which I refer is not even on the surface being reduced by the combined efforts of our executive and legislative branches. It is, on the contrary, consistently ignored and steadily widening.
Unlike the missile gap, the gap to which I refer gives rise to no speculation as to whether the Russians will exploit it to their advantage and to our detriment. They are exploiting it now.
I am talking about the economic gap, the gap in living standards and income and hope for the future, the gap between the developed and the underdeveloped worlds; between, roughly speaking, the top half of our globe and the bottom half; between the stable, industrialized nations of the North, whether they are friends or foes, and the overpopulated, underinvested nations of the South, whether they are friends or neutrals.
It is the gap which presents us with our most critical challenge today. It is this gap which is altering the face of the globe, our strategy, our security, and our alliances, more than any current military challenge. And it is this economic challenge to which we have responded most sporadically, most timidly, and most inadequately.
Since the truce negotiations in Korea began 8 years ago, it should have been obvious that our greatest danger was no longer military. Since the Russians began their aid and trade penetration of the underdeveloped world some 5 years ago, it should have been obvious now that if India were to fall, if Latin America turned away and if the Middle East slid behind the Iron Curtain, then no amount of missiles, no amount of space satellites or nuclear-powered planes or atomic submarines could ever save us.
And yet our response to this economic gap has never equaled our obligation or our opportunity. The problem is neither regional nor temporary – it is global and long range. Our response has sometimes been wasteful in expenditure and grandiloquent in rhetoric – but it has never been global and long range.
We have reacted ad hoc to a crisis here and the crisis there, year by year, region by region. When the Latin Americans throw rocks at the Vice President, there is finally talk of a Latin American loan fund. When a friendly monarch is threatened in the Middle East, money is dispersed helter-skelter while there is brave but brief talk about an Arab development fund.
Let there be pressures from a north African nation and there is talk of economic aid to meet that crisis in that nation at that time. Let there be a foreign exchange crisis in India threatening all democratic hope in India and free Asia as a whole – and we bail the Indians out, at an inadequate level, for 1 year only.
This policy of using money on a crisis basis, from year to year, wherever difficulties arises, is expensive and ineffective. It is wasteful of our funds. It fails to stimulate effective long-range planning and effort by the recipients. It denies us the opportunity to impose meaningful standards for the use of our aid or significant requirements as to what they must do to match it. There is no follow through, no consistency, no attempt to match our effort to their need and our resources. And so, among the nations of the world, the rich grow richer as the poor grow poorer – with less capital and more people with fewer hopes. It is this kind of atmosphere which increases the appeal of a narrow nationalism and dictatorship which argues that economic interdependence with foreign nations is ominous.
The United States of America, the richest Nation on earth, has not given the poorer nations new hope. But it is an unfortunate fact that the Soviet Union and particularly China, have attracted the attention of the underdeveloped world to another, and seemingly quicker, route to closing the gap. Communist China’s greatest leap forward was the primary event of 1958. We may discount her official figures – which claim to have doubled both agricultural and steel production – but they are based on a hard substance of fact, and they carry credibility in other nations.
China and India are roughly comparable in terms of their historic stages of economic growth and in resources; but China’s rate of economic growth in 1958 was at least three times as high as India’s. Especially in agricultural development and food production, where India’s performance has been sagging, the Chinese record carries great appeal to underdeveloped Asian nations uncertain of which economic route they should follow. A top Ceylonese official was quoted earlier this year as expressing unrestrained admiration for Red Chinese economic achievements.
Within the last year the Chinese have produced their first automobile. Within the next year they may have launched their first earth satellite. Even more seriously, they may well begin to take their place among the select company of nuclear powers. This has been accomplish in part with the nearly $3 billion in credits which China has received from the Soviet Union since 1950, and the over 200 major industrial projects to which the Soviet Union has given technical and machine assistance. But perhaps more significant for the future is the fact that China has become a major trading nation – not only in southeast Asia, where she is gradually supplanting Japan, but also in the growing trade movements to Europe and Africa. Peking has used its position to launch a trade price war which supplements impressively the foreign economic offensive which the Soviet Union launched 3 years ago. Indian primary products such as manganese ore and oil seed, for example, now suffer heavily as a result of China’s price competition.
In a year when China may well have increased her overall food production by one-half, Indian food production rose only by a few bare percentage points. Last year India produced only slightly more than 60 million tons of food grains, yet the minimum annual need for India at the start of her third 5-year plan 2 years from now will be 80 million tons. For the first time in modern history a government appears to have found a way – however brutal its human defects – which appears to solve the problems of large peasant underemployment and labor surplus. The mobilization of the unemployed mass of Chinese rural workers through economic communes, cottage industry, small pig-iron schemes, and all the rest is an achievement whose political and intellectual impact in less developed areas is bound to be immense.
We know that in a nation of stable population which is in the process of economic takeoff a program of investment of at least 8 percent of national income is necessary, for an annual growth of 2 percent. But more typically these nations are also areas of great population growth. In countries with annual population increases of 2 to 3 percent such as India, it requires an additional 6 to 8 percent of investment if national income growth is not to be offset by the rise in population. During the past year India has had a national growth rate of only 3 percent, and 2 percent of this is largely dissipated by population increases. Two years ago India was reaching a national growth rate of nearly 5 percent, but the cutbacks in her plan and bad harvests have blighted this achievement.
In short, to nations in a hurry to emerge from the rut of underdevelopment, Communist China offers a potential model – 1958 was their “round.” As their trade and aid offensive mounted, as their own example provided more attractive, our trade and aid programs faltered and our economy stood still – with our recession cutting the price received for commodities the underdeveloped nations must sell, while our inflation continued to boost the prices they paid for our machinery.
But 1959 could and should be our “round,” our year. We have in this Congress, in these next few months, a movement of opportunity which may never come again. If we act now, on the right scale, in the right way, we may reverse the ever-widening gap – we may diminish the threat of a Communist takeover, and increase the changes of a peaceful evolution in India and other uncommitted, less developed areas. This year, 1959, could be the year of their economic downfall – or the year of their economic “takeoff,” enabling them to get ahead of their exploding population, to stabilize their economies, and to build a base for continuing development and growth. Whichever answer emerges will shape for a generation to come the destiny of the world and the security of our Nation. And which answer emerges is in large measure for this Congress to decide.
In recent years, the scale of our effort in foreign economic policy has been based upon what the administration considered to be the requirements of the domestic budgetary and political situation.
It is time now for that effort to be based upon the requirements of the international economic situation – and our own national security. Let us see exactly what is needed, when it is needed, how much of it must come from this country, and how much it will cost.
And then let us enact the program that will do the job. To do less than is needed is just as wasteful as to do more than is needed. To put it off is just as dangerous as refusing to do it at all.
THE DEVELOPMENT LOAN FUND
By what means do we attack this problem? If we are to mobilize our efforts and our resources to conquer this problem before it conquers us, what must we do? There are several desirable steps to be taken – and one urgent one.
We can and should increase the lending limits of the World Bank and enlarge the reserves of the International Monetary Fund. But this is not enough.
We can and should achieve a better balance between military and economic assistance and a more constructive use, including local economic development, of that military assistance. In some areas there are substantial untapped potentials for economic development purposes if local military forces can be guided on to constructive civilian tasks – public works, community construction, irrigation works, bridges – which will provide not only military training and preparation for local combat, but also ferment for local progress. Such a redirection to constructive military purposes can help to reorient the goals and objectives of foreign military leaders toward domestic development and away from external adventure. But this is not enough.
We can and should take up the more imaginative proposals offered to break the logjam restricting our use of surplus farm crops abroad, to ease the food crisis in such nations as India and Pakistan without impairing the markets of such friends as Canada and Argentina. We are blessed with abundance, yet we are unable to make it more than a marginal asset in world leadership. We must expand the range of our agricultural aid and integrate it more closely with other foreign aid decisions. But this is not enough.
We can, and should, formally dedicate the year 1959 to the concept of international development, ease trade barriers and Export-Import Bank restrictions, work out international commodity agreements, expand technical assistance programs, encourage greater private investment, and take a series of other steps previously suggested on this floor and elsewhere. It is almost exactly a decade since the world emerged from its immediate postwar problems of reconstruction and confronted the long-run issues of growth. It is exactly 10 years since President Truman enunciated Point 4. There is a decade’s experience to survey; successes and failures to be indentified; experience to be summarized and exchanged; technical and scientific problems to be isolated and subjected to concentrated efforts at breakthrough. Even more, there are forward commitments to be made and plans developed for the decade which lies before us. But all this is not enough.
The heart of any solution must be a substantial, long-term program of productive loans to underdeveloped areas from a fully capitalized central fund, capable of working with either independent nations or regional groupings.
This is not a new concept or proposal. The need for it is not new; I make no claim to being the first to describe it. On the contrary, the tool for which we are looking is already in existence, the Development Loan Fund.
But the hard facts of the mater are that the Development Loan Fund has never fulfilled the barest intentions, much less the long-range visions, of its architects here in the Senate. It has totally failed to fill the need for long-term capital, because it has never been given either a long term or very much capital. It has never become a going bank. It has never been permitted to take hold of any major foreign development effort such as India’s. It has never given less developed nations a real incentive to present programs and activities of highest promise for future economic growth.
Instead the Development Loan Fund is in real danger of becoming just another lending institution without distinctive criteria or functions. It has tended to consider only conventional loan applications for particular projects without regard to their significance to the recipient’s long-range overall economic development.
This is not only wholly inadequate to meet the crisis of the economic gap; it is also wholly contrary to the purpose of the program. The Senate Foreign Relations Committee originally intended a long-term fund capitalized at least at $1 billion a year. The administration enthusiastically urged a large scale and duration. But when it came to appropriating the actual funds, neither the Congress or the administration lived up to its earlier promises.
The Development Loan Fund has been forced to get by from year to year without enough funds to get very thoroughly underway. Practically all of its initial $700 million has been virtually committed, with a backlog of more than $1.7 billion in requests which have passed the first screening. Action is still awaited on more than one-half billion dollars in still other applications which meet the Development Loan Fund criteria. As a solution the administration’s supplemental request for $225 million will not go very far for very many projects in very many countries. Neither will the $700 million and 1 more year of authorization requested in the President’s budget.
There may be partisan approval for threatening to balance the budget by cutting this now hopelessly inadequate sum. There may be popular approval for standing by this meaningless figure, regardless of world developments. But there is only one responsible course which responsible citizens can approve. This Congress must take it. Another Congress may never have the opportunity.
Giving the Loan Fund continuity over a period of years will increase its effectiveness in a number of respects. In the first place, the leadership of the underdeveloped countries will not commit their political energies to development unless they see some prospect that the outside resources will be available over a period of years. In the second place, the Development Loan Fund has not been in a position to impose the kind of criteria of effective parallel effort by the recipient country for fear that if appropriations were not committed by the end of the fiscal year they would no longer be available. We can give recipients a strong incentive to meet serious conditions for the granting of loans only if we are in a position to hold the prospects of loans open over a period of time. Thus, continuity would actually increase the efficiency of loan administration. Finally, continuity would greatly increase the incentive effect on countries slow to mobilize their own resources by providing the example of a few successful cases of countries which have responded.
Congress must obtain a clear and comprehensive picture of the necessary missions to be performed by the Development Loan Fund in narrowing this critical economic gap, and the amount of funds and time necessary to fulfill those missions. We must then provide those funds for that length of time.
The alternative is chaos, not economy, a continuing of ad hoc crisis expenditures, a further diffusion and dilution of our effort, a series of special cases and political loans, an overreliance on inflexible, hard loans through the Export-Import and World Banks, with fixed dollar repayment schedules that retard instead of stimulate economic development, a lack of confidence and effort in the underdeveloped world, and a general pyramiding of overlapping, standardless, incentiveless, inefficient aid programs. The cost of wasted effort, the cost of salvage after the damage has been done, and the cost of our lost security will be more than we can afford. But the cost of doing the job right is not more than we can afford. It may not be cheap or easy or popular, but we cannot afford to do less.
THE CASE OF INDIA
One nation in particular stands out as the primary example of what I am urging, one nation of particular importance to the free world, and in particular need of long-term development capital. That nation is India, the hinge of fate in Asia.
I cite India today because of her special importance, representing as she does some 40 percent of the population in the uncommitted world, representing the one great counter to the ideological and economic forces of Red China, and symbolizing for all Asia the testing ground for democracy under pressure.
I cite India today because that nation today represents the largest single area of opportunity to obtain maximum benefits from Development Loan Fund-type loans. India has moved into the stage of economic takeoff; her population, her economy, her absorptive capacity, her own efforts, and her administrative structure combine to deserve our firm commitment this year.
When this body decides the future of the Development Loan Fund this year, it will also in large measure be deciding the future of India.
After the distinguished Senator from Kentucky [Mr. Cooper] and I spoke to this body a year ago about our opportunities in India, the Senate accepted as a part of the Mutual Security Act our resolution recognizing this country’s special stake in India’s economic stability and growth. Although that amendment was deleted in conference, the United States has in the past year made further loans; and indicated our interest in joining Great Britain, Germany, Canada, and Japan to prevent a collapse of the Indian second 5-year plan.
But our assistance thus far has been limited to emergency aid, to meet immediate crises and existing shortages. We have not met the requirements essential for economic growth, nor have we alleviated the harsh realities which India faced a year ago. Her population continues nearly to out-pace economic development, her shortage of foreign exchange continues to increase, and a general loss of hope and morale continues to spread.
This is the critical year for India. This is the year when the second 5-year plan will prove to be either fruitful or futile. This is also the year when the third plan beginning in 1961 will be designed. This is the year, in short, when India must appraise her future and her relations with the rest of the world.
I do not say that India could not tread water for a few more years before going under. But this is the year the Indians need confidence that they can plan major efforts for long-range progress with some assurance of substantial, long-term assistance from the Western World.
More short-term credit cannot do the job. India now has large amounts of foreign debts, both public and private, which must be repaid in hard currency at the very time a new thrust will be needed to move into its third plan. As long as our efforts are aimed only at assuring short-term solvency, they only leave plans for an effective Indian development program suspended in midair – bringing still closer the hour of disaster.
Congress should, of course, base its aid programs on sound criteria and productive investment. But let us remember economies need time to mature. Our own Nation, in the days of its youth, sold railroad bonds to the British and other Europeans – and these were long 40- or 50-year debentures. With the growth of our productive capacity, we gradually become a creditor nation with the ability to repay these foreign investments. There is no question that the Indians, given proper assurance and assistance, could do the same.
Moreover, the foreign exchange shortage has had the effect of holding back private capitalism in India which had shown unexpected strength. A more secure margin in foreign reserves would cure margin in foreign reserves would give to the private sector its old buoyancy, and break down the outmoded wall between private and public planning and development.
But neither the Indians nor the Americans can achieve any success in these matters if we continue to concentrate obsessively on the size of the Indian deficit and how it can be chipped away little by little. Let us concentrate instead on trying to make a success of a common enterprise which is a sensible program for the next stage of Indian economic growth.
Last year Senator Cooper and I recommended that consideration be given to the creation of an international advisory group representing potential donor nations to examine India’s needs and plans, and make precise recommendations to the member governments. The case for such an international consortium is even more compelling this year. We have talked for many years about moving the Western alliance along more constructive channels – about making something more out of it than an anti-Soviet venture. India presents us with such an opportunity – for several Western nations and Japan share a deep concern for the future of that vital area. Canada, Great Britain, Germany, and Japan would, I feel certain, have an interest in joining in a frank and realistic exchange and survey of India’s future needs; and in making a proportional sacrifice and commitment to meet those needs.
Such a mission, particularly if it drew upon men of both national and international stature, such as John McCloy of the United States, Sir Oliver Franks of the United Kingdom, and Escott Reid of Canada, would be uniquely effective in providing a fresh approach, avoiding misunderstandings on both sides, encouraging the Indians in their association with the West, stimulating effective, efficient plans and appropriate lending criteria.
Such a donor’s club, under the sponsorship of the World Bank, would not cut athwart any existing institutions. On the contrary, it would help to harmonize the individual aid programs of the individual nations, without trying to build a new bureaucratic superstructure. The initiative for such a Cooperative examination of India’s long-term needs must, of course, come from the Indians, just as the final decision following such consultations must be theirs alone.
Mr. President, I am submitting, together with the distinguished Senator from Kentucky [Mr. Cooper], a concurrent resolution which expresses the interest of Congress in the creation of a free world mission which would canvass India’s requirements and make recommendations to participating nations regarding joint means by which they can more effectively support India’s economic development efforts. I am delighted that in the House of Representatives Representative Bowles of Connecticut and Representative Merrow of New Hampshire are submitting the same resolution on a bipartisan basis.
CONCLUSION
In the meantime, it is clear that revitalizing the Development Loan Fund is the most important step we can take to assure the Indians of our readiness to stand behind effective long-range economic development. It is also the most effective step we can take to give other governments in Asia and the Middle East, many of whom are now balanced precariously in deciding whether to channel their energies and resources around the tasks of economic growth or around military buildup and divisive conflict, new incentive and inspiration. The Development Loan Fund cannot be a magic solvent of all of India’s difficulties, or those of the underdeveloped world in general. There are no such solutions. The gap is large. The barriers are great. The political and ideological dilemmas are many.
But I am equally confident that this Nation can recover the initiative, that we can give to a doubting world the realization that we, and not Russia and China, can help them achieve stability and growth. We cannot be content merely to oppose what the Kremlin may propose, nor can we pretend that the East-West conflict is the only basis for our policy. Above all, we must not resolve these difficult issues of foreign aid by perpetual postponement and compromise. There are times when it is far better to do the right thing as a result of debate and sacrifice than the wrong thing as a testimonial to national unity.
In short, it is our job to prove that we can devote as much energy, intelligence, idealism, and sacrifice to the survival and triumph of the open society as the Russian despots can extort by compulsion in defense of their closed system of tyranny. We can give a convincing demonstration that we have not a propaganda or crisis interest but an enduring long-term interest in the productive economic growth of the less developed nations. We can finally make it clear to ourselves that international economic development is not, somehow, a nagging responsibility, to be faced each year in the context of giveaways and taxes – but a vast international effort, an enterprise a positive association, which lies close to the heart of our relations with the whole free world and which requires active American leadership.
As a nation, we think not of war but of peace; not of crusades of conflict but of covenants, of Cooperations; not of the pageantry of imperialism but of the pride of new states freshly risen to independence. We like to look, with Mr. Justice Holmes, beyond the vision of battling races and an impoverished earth to catch a dreaming glimpse of peace. In the words of Edmund Burke, we sit on a “conspicuous stage,” and the world marks our demeanor. In this year and in this Congress we have an opportunity to be worthy of that role.
Mr. President, I send to the desk the concurrent resolution on behalf of the Senator from Kentucky and myself.
The concurrent resolution (S. Con. Res. 11), submitted by Mr. Kennedy (for himself and Mr. Cooper), was referred to the Committee on Foreign Relations, as follows:
Whereas the continued vitality and success of the Republic of India is a matter of common free world interest, politically because of her 400 million people and vast land area; strategically because of her commanding geographic location; economically because of her organized national development effort; and morally because of her heartening commitment to the goals, values, and institutions of democracy: Now, therefore, be it
Resolved by the Senate (the House of Representatives concurring), That it is the sense of Congress that the United States Government should invite other friendly and democratic nations to join in a mission to consult with India on the detailed possibilities for joint action to assure the fulfillment of India’s second 5-year plan and the effective design of its third plan.
And that the Secretary of State report to the Congress on the feasibility of such a mission after consultation with interested Governments and with the Republic of India.
Source: Papers of John F. Kennedy. Pre-Presidential Papers. Senate Files, Box 902, "The Economic Gap, Senate Floor, 19 February 1959." John F. Kennedy Presidential Library.