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Foreign Aid in Historical Context
Many historians have argued that studying foreign aid programs reveals essential truths about the people who constructed them; it helps explain how economists and national leaders in the United States and Europe understood Asia, Sub-Saharan Africa, Latin America, and the Middle East, and how these economists and national leaders believed those places could and should be transformed. As tellingly, it can explain how foreign aid planners understood their own societies and their own national histories.1 Michael Latham, in writing about US aid programs in the 1960s, argued that these understandings could collectively be called an “ideology,” a holistic set of ideas that led to a particular approach to the world. The foundational assumption of this ideology, for aid planners, was a belief in “development,” that expertise and financing (foreign aid) coming from materially advanced societies could and should promote growth in less materially advanced societies.2
Development suggests a hierarchy of nations ranked from “more developed” to “less developed.” The differences between them might be measured by per capita gross domestic product, or it could include factors like the opportunities for consumers to purchase factory-made goods or participation in global markets. It also might include a government’s potential to fund foreign aid programs. The rungs of the ladder separate more “modern” or “advanced” or “rich” societies from ones that are “traditional” or “backward” or “poor.” Movement up the ladder (more industry, more technology, more consumption, and more trade) is “progress,” which makes a society better.
Latham was writing about the early 1960s, but as this chapter will argue, the roots of development ideology predated that era. At the end of World War II, as the Cold War began, US leaders already reasonably assumed their country was the wealthiest and most technologically advanced in the world, and believed it was capable of making development happen. As importantly, they determined that aid could be a weapon to fight and win the Cold War. Aid would help construct stable non-communist societies and a cohesive non-communist community of nations in which the United States could be secure and economically prosperous. They reasoned that if less developed countries became modern through US efforts, the people living in them would not be attracted to communism and their leaders would become happy and thankful friends. In this way, aid programs would be a Cold War security policy that would cost far less than war. Another advantage would be that aid-receiving nations would be willing and capable trading partners. This would strengthen the US economy in the short run and provide a foundation for global prosperity and economic integration over the long term. US leaders thus understood foreign aid both as a tactical weapon for winning the Cold War and as a tool for advancing broad US economic interests; aid was not only good for the people in poorer societies, it was good for the people of the United States.3
However, throughout this period, there was always substantial opposition to foreign aid programming. Critics, broadly speaking, challenged the logic of one of two interconnected ideas on which development ideologies rested (or both). Some rejected the notion that government could move other societies up a development ladder from poor to rich, traditional to modern, and backward to advanced; and that external interventions could make people’s lives better. Others fought the idea that government should be involved in the lives of people outside the state. They rejected the belief that other people mattered to the people in the nation, and that helping them would strengthen the country.4 From these opposition perspectives, foreign aid made no sense. There was no point in spending money on foreign aid if that money could not improve other societies, and there was no point in spending money on foreign aid if there was no benefit to be gained in the spending.
These opposition perspectives were not new in the Cold War period; both had roots in much older historical debates. In exploring those roots, this chapter helps explain that clashes over foreign aid were, as Latham argued, fundamentally about contested visions of the nation, the nature of society, and its purpose.5
The First Idea: Alexander Hamilton and Government Power
The first of these two ideas, that government could promote economic development, can be traced back to Alexander Hamilton, its most important advocate in the early national period. Hamilton was not alone in pushing this idea, and certainly not the first to advance this philosophical case, but because of his role in early national government, it makes sense to start with him. Throughout his public career, including most importantly as Secretary of the Treasury in President George Washington’s cabinet, he pushed for the construction of a powerful state with a dominant executive that could spur developmental progress. Making this point, he wrote in Federalist Papers 11 that “Under a vigorous national government, the natural strength and resources of the country, directed to a common interest, would baffle all the combinations of European jealousy to restrain our growth … .”6
More specifically, he believed commerce and industry had to be the foundation for transformative economic progress, therefore government effort should support them in moving the nation up a developmental ladder. He wrote, again in Federalist 11, that without a powerful government, an “unequaled spirit of enterprise, which signalizes the genius of the American merchants and navigators, and which is in itself an inexhaustible mine of national wealth, would be stifled and lost, and poverty and disgrace would overspread a country which, with wisdom, might make herself the admiration and envy of the world.”7 In the following essay, Federalist 12, he argued, “The prosperity of commerce is now perceived and acknowledged by all enlightened statesmen to be the most useful as well as the most productive source of national wealth.”8
This vision was at the core of Hamilton’s much longer 1791 Report to Congress on the Subject of Manufactures in which he maintained that capitalists in manufacturing fields needed government backing to succeed. He wrote, “It is in the interest of nations to diversify the industrious pursuits” of non-agricultural economic activity, which was “calculated to increase the general stock of useful and productive labor.” Government funding was especially important in the United States because, compared to historically wealthier European societies, there was limited private capital available for investment. Government needed to intervene, he said, to borrow money from abroad, help attract European capital, and invest in building a foundation for domestic trade and production.9
The radicalism of his views is most apparent when considered alongside those of contemporary theorists – most influentially, Adam Smith. In The Wealth of Nations, Smith argued in 1776 that
No regulation of commerce can increase the quantity of industry in any society beyond what its capital can maintain. It can only divert a part of it into a direction into which it might not otherwise have gone; and it is by no means certain that this artificial direction is likely to be more advantageous to the society than that into which it would have gone of its own accord.10
That is, states should allow markets to operate without interference. Avoiding interventionism (a laissez-faire approach) would help businesses to grow organically and efficiently.11 In sum, while Hamilton argued that government should and could promote economic growth, Smith argued it could not and should not.
Hamilton’s views also developed in a way that set him at odds with Thomas Jefferson and James Madison. Both did agree that a powerful state was necessary to protect national independence, and that weak government had made fighting the British harder. They also embraced the idea that a vigorous government was an antidote to political chaos. Yet they understood the role of government differently. They rejected the idea that commerce and industry should be the bedrock of the national economy, and instead hoped the new government would promote an agrarian society of independent farmers. Commerce and industry were dangerous because they concentrated power in a few hands, and urban people working in shops and factories could never fully be free. Land ownership, and the autonomy that came with it, they believed, was the cornerstone of freedom; an agrarian democracy, in which independent farmers held sway, would safeguard a wide distribution of power.12
The essential job of government, to Jefferson and Madison, was providing order so that freedom and liberty could flourish. This built on the enlightenment idea that government was dangerous, especially if powerful and active, because it could limit basic human rights.13 Democracy, they believed, was virtuous because it freed a citizenry from a self-interested elite while also keeping order. These concerns about government power also motivated anti-Federalists, who opposed the Constitution and hoped to preserve the Articles of Confederation. Patrick Henry of Virginia and Melancton Smith of New York both argued that real power should remain with state and local officials, as a vigorous national government, by definition, meant less local autonomy and freedom, and greatly increased the potential for dictatorship or corruption. To be clear, Jefferson, Madison, and the anti-Federalists did not see this issue as Smith had. They did not reject the notion that state power could be effective in promoting development; instead, they saw Hamilton’s modernization theories as destructive to democracy.14
The Question of Government Power After Hamilton
Initially Hamilton seemed to have lost this debate. As Secretary of the Treasury his greatest success had been the establishment of a national bank, however this united his foes and strengthened their resolve to fight pro-industrial and pro-commerce government policy. Hamilton and his allies increasingly lost influence, and Jefferson’s win in the 1800 presidential election was so complete that Hamilton’s political party, the Federalists, never regained national power, and by the mid-1810s it had essentially disappeared. Its ideas were unpopular in a nation composed of farms and small towns. Andrew Jackson’s presidential election victory in 1828 was a climax of anti-Hamiltonianism in its celebration of the idea that ordinary citizens living on farms and small towns should manage the state, while policies dedicated to helping business leaders get richer were dangerous to the nation’s political equality.15
Yet Hamilton’s approach never completely went away. His logic was key to New York State governor DeWitt Clinton’s effort to construct the Erie Canal between 1817 and 1825 and to the multiple canal-building projects that followed. His ideas were also important in mobilizing opposition to Jackson. In 1832, the influential Kentucky senator Henry Clay proposed a Hamiltonian-like plan for internal infrastructure development. The American System, as Clay called it, envisioned government spending on roads, canals, and other infrastructure to strengthen the state and extend prosperity through increased trade and manufacturing. Clay, and others who joined him in the new Whig party, believed state spending could advance progress, and that evolution from barbarism to civilization was the goal of the human condition; small towns were not the future, they argued, cities and factories were.16 The Whigs did not survive the tumult of the pre-Civil War period, but their ideas about a government role in helping trade and industry drove their post-Civil War successors, the Republicans, and provided them with the logic for what could be considered the first foreign aid program in US history, the post-Civil War reconstruction effort in the South.17
Toward the turn of the century, Progressive Era reformers similarly embraced vigorous government. Herbert Croly, the longtime editor of the New Republic and a leading Progressive intellectual, wrote in The Promise of American Life that “every popular government should in the end … possess the power of taking any action, which, in the opinion of a decisive majority of the people, is demanded by the public welfare.”18 Croly had been inspired in part by Hamilton, noting the founding father had understood “that genuine liberty was not merely a matter of a constitutional declaration of rights. It could be protected only by an energetic and clear-sighted national government, and it could be fertilized only by the efficient national organization of American activities.”19
Woodrow Wilson, while still in academia and long before he became president, wrote about these ideas in his 1898 text, The State: Elements of Practical and Historical Politics. He explained that government was “the organ of society, its only potent and universal instrument” for advancing progress, and wrote that “it should be the end of government to accomplish the objects of organized society.” Like Jefferson and Madison however, Wilson worried about the destructive impact of economic development. He wrote that industrialization “has so distorted competition as sometimes to put it into the power of some to tyrannize over many” and ...
