Mr. MEADER. I have no questions.

Mr. BONNER. We certainly thank you for coming down, and we appreciate the information and the frank way you have advised us. Colonel HAINS. Thank you, sir.

Mr. BONNER. We will stand adjourned.

(Whereupon, at 12 noon, the subcommittee adjourned.)

AFTERNOON SESSION

Mr. BONNER. Mr. Kennedy, will you introduce the next witness. Mr. KENNEDY. We will now hear from Mr. Harlan Cleveland.

STATEMENT OF HARLAN CLEVELAND, ACTING ASSISTANT ADMINISTRATOR FOR PROGRAM, ECA; ACCOMPANIED BY JOHN PIERSON, ECONOMIC ADVISER TO THE DIRECTOR OF THE FAR EAST PROGRAM DIVISION; AND WALTER STETTNER, SPECIAL ASSISTANT FOR EUROPEAN PROGRAM DIVISION

Mr. CLEVELAND. I am not wholly clear about this. It might be helpful if you would indicate just what would be most helpful to you. Mr. WARD. The committee is interested in general supply activities and related matters concerning scrap and salvage-that type of thing as well as foreign-aid programs in the various countries. You might outline what aid is being given the various countries, what the programs are and the accomplishments under the programs.

Mr. CLEVELAND. I take it your special interest is in the countries that this group will be visiting?

Mr. BONNER. Yes.

Mr. WARD. You could start with Japan.

Mr. BONNER. You can hand him the itinerary.

Mr. CLEVELAND. Mr. Chairman, perhaps the best way to proceed would be for me to give you a very brief statement on the major phases of the operation of the Economic Cooperation Administration which is about to become the Mutual Security Agency under the bill which was enacted into law a few days ago and signed by the President 2 days ago.

We are really engaged in two quite different types of operation. You will remember, of course, that ECA was set up as the agency responsible for the administration of the Marshall plan, and was engaged for the first 2 years, up to Korea, in a job that was primarily related to the recovery of the European countries in an attempt to get them on their feet; get them in a position where they could earn the dollars they needed to pay for their own imports.

EMPHASIS ON MILITARY EXPENDITURES IN AID PROGRAM

As soon as Korea hit the world, the focus of the activities of the ECA began to change rather rapidly, and over the last year or more we have been increasingly engaged in the use of economic assistance as an instrument for both assisting and persuading countries in the European areas to make the largest possible military expenditures consistent with the continuing economic health of the countries themselves. For that purpose many of our negotiations, and much of the

work of our missions in Europe, are concerned with the size and the composition of the military budgets of the countries of our NATO allies, and of other countries not now in the North Atlantic Treaty Organization, particularly Greece, Turkey, and Germany.

On the other side of the world, the ECA is engaged in the use of economic and technical assistance for a purpose that is also very important to the security of the United States and the security of the free world, but which takes a very different form. There, the problem in most of the countries-in a country like the Philippines which you will be visiting is primarily a problem of internal security.

PROBLEMS OF NEW GOVERNMENTS IN SOUTHEAST ASIA

The Communists, as you know, always prefer the weapons of internal subversion to the weapons of external aggression. One of the reasons for this preference is very clear and will be particularly clear to a group like yourselves. It is cheaper. It costs a lot less to run a Communist Party, even a big Communist Party in a big country like France, than it does to conduct even what is sometimes called a limited war, though it does not look so limited to most us, in Korea. So their primary concern in the whole of south and southeast Asia is to try to subvert the Nationalist governments in those areas.

Throughout that area—in the Philipines, Indonesia, Burma, India, and Pakistan-the areas are dominated by new governments; governments that did not exist before the war, which are the result of the Nationalist movements which have finally gotten rid of colonial masters and who are really starting out on a new road of their own.

They feel very independent; they feel very self-conscious about their idependence; they feel, in short, very much as George Washington and his contemporaries must have felt about the new endeavor they engaged in.

I think it is probably true to say in Indonesia, apart from their own national heroes, the people they look to for inspiration are the leaders of our own American revolution.

So that in these areas these governments have just been set up. They have to survive. Their purpose is to build governmental machinery; to build a relationship with their own people which will enable them to survive and which will act as a counterweight to the constant attempt of the Communist groups in every one of those areas to make life more difficult for these new Nationalist governments so that they will collapse and a government subservient to the dictates of the Kremlin can take over.

AMERICAN SHORTCOMINGS IN PHILIPPINES

The Philippine case is exceptional in some respects to the general pattern, partly because its relatioinship to the United States is obviously so much closer, we having been the previous colonial power in the picture. But in the course of our work in the Philippines ever since the Philippines were an American possesion several decades ago, the United States did not adequately build up the local governmental machinery; did not put the government and the economy in sufficiently strong shape where it could really survive under its own steam without further ado.

I do not think we need to be more ashamed of that than the other colonial powers. I think probably we did better in the Philippines by and large than many of the other colonial powers, but the fact remains that there are not enough trained government people; there are not enough trained agricultural and health people. Because of these and other problems, in relation to the needs and wants and expectations of the Philippine people, the survival power of a free government in the Philippines is not as strong as it could be.

It is for that reason that the United States Government has an economic and technical assistance program in the Philippines.

Why is it that these governments are in such difficulty? Sometimes it is with their own people. It is because throughout Asia people have come to feel that a rising standard of living and more economic opportunity are really things that should be available to them.

AWAKENING OF ASIATIC PEOPLES

A couple of centuries ago in China the situation never was that a peasant felt that he could be better off at the end of his life than at the beginning, or that a son could be better off than his father was. This is a twentieth-century development that people throughout Asia suddenly feel primarily because we have demonstrated with our constantly rising productivity that it is possible by the application of science and technology in the problems of ordinary living to get more out of the land. The pie can get bigger and everybody can have a bigger share of it.

So this revolution which takes the form of rising expectations on the part of the people is a revolution that the Nationalist Governments have to do something about quickly because, having thrown off the colonial masters, their people expect a great deal from them; they expect a great deal more than they are physically able to deliver. They expect much more than we are able to deliver, obviously, but we can help them in the key fields of public-health services, agricultural extension work, small rural industries, and the building of a reasonable transportation system and increasing the productivity of their agriculture, and so forth.

In that kind of a program, the people can come to feel that they have a stake in things as they are and as they are developing.

BELL MISSION TO PHILLIPINES

In the Philippines there is a special circumstance because of the history of the program with which ECA is concerned. There was a mission that went to the Philippines headed by Daniel Bell, which made a report on the situation in the Philippine Islands, a report on the problem of the Government there, and on the needs of the Philippine economy for development. It was a very astute report.

Those of you who may go to the Philippines might well read that report because it is worth reading, especially the excellent summary that takes up the first part of the report.

Mr. CURTIS. A commission report or an individual report?

Mr. CLEVELAND. A commission. It consisted of about 15 or 20 Americans who went with Daniel Bell. It was the so-called Bell mission. It was sent to the Philippine Government at the request

of the then President in a letter to President Truman, and they made a very frank report; a report that was criticized in the Philippines as being too frank, but a very hard-hitting and realistic report indeed. It is on the basis of the recommendations of that report that there is now an economic and technical assistance program in the Philippines administered by the ECA.

Now, one of the recomendations of that report was that no program whatever ought to be started in the Philippines until a couple of things happened-until, first, the Philippine Government adopted tax legislation that would draw in a great deal more revenue and would change somewhat the incidence of taxation so that the low income people did not take the main brunt of the tax burden.

The other thing they recommended was that it really was not worth while starting a program there until and unless the Philippine Government adopted minimum wage legislation for agricultural workers in order to bring the lowest paid worker in the Philippines up to what we would probably consider a very minimum wage indeed, but a wage that probably would be more than a quarter or a third above the total that the agricultural laboring population has been getting.

FOLLOW-THROUGH ON RECOMMENDATIONS

So, in the first few months of our Philippine program we did not spend a cent except for advisers on minimum wages and tax legislation and people who were engaged in negotiations with the Philippine Government. Then they went ahead and produced a piece of tax legislation which would do credit to any minister of finance in the world. They increased their total tax bill at a single session of their Congress by 60 percent, which would be quite hard to do in this country and quite hard to do in most countries of the world.

They did pass a satisfactory agricultural minimum wage law, and based upon those two earnests of performance, we moved in with an economic and technical mission in Manila, based in Manila but getting around the country a good deal, which is now headed by Dr. Renne of the University of Montana.

RELATION OF JAPAN TO SOUTHEAST ASIA AREA

Following your itinerary, we do not have any operation in Japan at all, so I will say only one word about Japan.

Japan, of course, is potentially a very great source of industrial materials and equipment for the whole southeast Asia area. In turn, the whole of the south and southeast Asian territory is an important source of supply for Japan, since Japan is a country, like Italy and like the United Kingdom, which exports manufactures and imports raw materials and food.

This is particularly important since Japan has lost what had been historically her normal source of supply, both for food-soybeans coming from Manchuria-and for raw materials and fuel-the iron and coking coal that previously came from Manchuria and north China.

So it is particularly important to develop this relationship between Japan and the southeast Asian area. That is, if Japan is ever going to be able to pay its own way in the world.

The United States Government is one of the biggest sources of the present earnings of Japan. There is no aid program for Japan. They do not need it. They are earning a lot of dollars from the military, but that is not, we hope, a permanent source of revenue.

It is important, I think, to look ahead to the time when that abnormal situation will not exist and Japan should stand on its own feet and not be the subject of any continuing dole. In other words, so we do not have to start a Marshall plan for Japan after the Korean thing is over because we have not paid attention in the meantime to the development of this vital trade between Japan and her potential trade partners in the rest of Asia.

We used to have a program in Korea before the North Koreans came across the thirty-eighth parallel.

Mr. CURTIS. For the sake of the record, the population of Japan now is around what?

Mr. CLEVELAND. Eighty million, I believe.

Mr. CURTIS. And Korea-South Korea is about what?

Mr. CLEVELAND. It was about 20 million before the invasion. I am not sure what the population now is.

Mr. CURTIS. And the Philippine Islands?

Mr. CLEVELAND. About 20 million.

AID SITUATION IN KOREA

During the last fiscal year we got out of the business entirely in Korea, and the remaining funds that were not spent for the sort of relief and rehabilitation program we had taken over in turn from the Allied Military Government a couple of years before, those funds reverted in part to the military and are being used for relief purposes by the United Command now there, and in part they are available under the authorization bill that has been passedand I think there is $50 million left-to be used for getting the United Nations Korean Rehabilitation Agency on the ground as soon as there is some kind of military settlement under a cease-fire and this United Nations relief group is able to move in and give attention to the massive task of reconstruction that is ahead of the Koreans. I cannot help you on Okinawa.

Singapore is not a part of the far eastern program since it is part of a British colonial set-up.

EFFECT OF TAXES IN PHILIPPINES

Mr. BONNER. Before you leave the Philippines, has the tax increase caused private capital to withdraw?

Mr. CLEVELAND. I do not know. There was a good deal of discussion about the incidence of the tax increase on foreign business there. By and large, however, I believe the American business community in the Philippines understood and sympathized with the need for the tax program in order to promote economic and financial stability in the Philippines. I think that a good deal of the objection was not so much to having more adequate, tax burden on the country as a whole, but to the feeling it might be enforced on foreign enterprises and not enforced on domestic enterprises as such. My impression is-and John Pierson, of our Far Eastern Division, can check me on this-