(The prepared statement of Ambassador Katz follows:) STATEMENT OF AMBASSADOR MILTON KATZ INTRODUCTORY STATEMENT On the basis of 3 years of work and observation in Europe, it is my judgment that the mutual security program, now before the Congress, is soundly designed to meet critical United States needs in Europe. Its justification rests upon three central propositions: That, realistically seen and understood, Europe is a battleground whose security is critically important to the security of the United States. That, during the past 3 years, the United States and its allies have been winning in the struggle under way-but far from won-in Europe. That the mutual security program is needed to bring into being the means essential to consolidate the positions already won and to extend our gains to the point where the security and peace of the United States and the Atlantic community can be firmly established. I. THE SETTING Europe has been under attack by the Soviet Union and its agencies and instruments since 1945. The attack has been both internal and external. The manysided internal offensive has included political penetration and the attempt to disrupt parliamentary processes through the Communist Party and Communistfront organizations; the penetration and capture of labor unions; economic dislocation through political strikes and sabotage; and a vast propaganda apparatus. The external aggression has included the systematic exploitation of the fear of war, in which a primary instrument has been the shadow of the Red Army; the cutting off of exports, as in the case of manganese; actual blockade in Berlin; and the fomenting and support of guerrilla warfare in Greece. This offensive was aided by the economic distress and dislocation following the war. Until 1947, the defense was limited and sporadic. Since then, the defense has become increasingly comprehensive and systematic. The United States participation in this defense has evolved from the interim aid programs and the support of Greece in 1947, through the Marshall plan and the steady development of mutual defense assistance and the United States role in the North Atlantic Treaty Organization. The Mutual Security Program now before the Congress represents an appropriate and necessary next step. On the record, these policies and their execution have been.vindicated by events. I shall undertake briefly to review the record, and to outline the job being done and which must be done, particularly in its economic and production aspects. II. THE RECORD TO DATE ON THE ECONOMIC FRONT A. Gains in production 1. Industrial production.-In 1947, the level of over-all industrial production in the 18 Marshall-plan countries had fallen to 87 percent of the level of 1938. In 1950, it had increased to 127 percent of the 1938 level. This increase represents an improvement of 46 percent since 1947. 2. Agricultural production.—In 1947–48, the level of over-all agricultural production in the Marshall-plan countries was only 88 percent of the prewar level. In 1950-51 it was 110 percent of the prewar level, representing an improvement of 25 percent since 1947-48. 3. Industrial production (steel, electric power, oil refining, coal, rail transport).—Advances of the same order have been registered in the production of basic materials and services. (a) Steel: Steel production, which in 1947 was down to 68 percent of the 1938 level, was up to 112 percent of this level in 1950, representing an advance of 65 percent. (b) Electric power: The production of electric power, which was at 131 percent of the 1938 level in 1947, was up to 179 percent in 1950, an increase of 37 percent. (c) Petroleum refining: Oil refining capacity, which in 1947 was equal to the prewar level, was raised to 300 percent of the prewar level in 1950, an increase of 200 percent. (d) Coal: Coal production, off to 77 percent of the 1938 level in 1947, was up to 93 percent in 1950. (e) Rail transport: Railroad transportation, which was at about 105 percent of prewar levels in 1947, was up to 124 percent of the prewar level in 1950, an improvement of 18 percent. B. Gains in intra-European trade In 1947, the vital process of exchanging goods and services between the European countries was at a very low ebb. The aggregate volume of this trade for the Marshall plan countries in 1947 was only 66 percent of that in 1938. In 1950 the volume of this trade rose to 124 percent of the 1938 level. C. Reduction of dollar deficit In 1947, the aggregate dollar deficit of the Marshall-plan countries reached a level of $8.5 billion. In 1950-51, this had been cut sharply to $1 billion. D. Progress toward economic integration Special mention should be made of three important steps toward the development of free Europe's resources in terms of Europe as a whole. 1. The European Payments Union.-One of these is the establishment of the European Payments Union. During its first year of actual operation, it faced successfully two crises. One was the abrupt pressure upon European payments patterns resulting from the Communist aggression in Korea. The other was a sudden and critical drain on German payments resources. The initiative and responsibility displayed by the managing board of EPU give solid promise for the constructive development of this institution. 2. Trade liberalization.—In the course of the last 12 months, member countries of the OEEC (with exception of a few countries faced by special financial difficulties) agreed to remove all import quotas on goods accounting for 75 percent of the value of their imports on private account from other member countries in 1948. 3. Schuman plan.-The Schuman plan has been initialed. The plan is designed to establish conditions under which the coal and iron and steel industries of six Western European countries would operate in a single market. Within this market, it is contemplated that all tariff and quota restrictions on coal, iron, and steel are to be abolished. The plan now awaits the necessary parliamentary approval to go into effect. III. THE RECORD ON THE POLITICAL, LABOR, AND INFORMATION FRONTS, A, Gains on the political front 1. Communist strength in parliaments.—In Britain, the two Communists who had been members of Parliament have been defeated. In Norway, the 11 Communists who had been members of Parliament have been defeated. In the Netherlands, the number of Communist members of Parliament has dropped from 10 to 8 (out of a total of 100). In France the Communist membership in the Parliament has been reduced from 181 to 101. In Belgium, the Communist membership in Parliament was reduced from 23 to 7. In Austria's postwar parliamentary election, the Communists won only 5 out of 165 seats. In the first parliamentary elections in the Federal Republic of Germany, no Communist candidate succeeded in winning a majority vote in any district. Through the workings of the German system of proportional representation, 15 Communists are members of the Bundestag, whose total membership is 402. Despite these gains, the size of the Communist vote in the recent elections in France and in Italy makes it clear that the struggle on the political front is still a matter of grave concern. 2. Turkey. The dramatic evolution of government in Turkey, through free elections to a parliamentary democracy, is, of course, primarily a tribute to the people of Turkey and its leaders. They were better able to succeed in their remarkable efforts in the context of the Marshall plan and European cooperation. B. Gains on the labor front Gains on the labor front include: 1. The rise and increased strength of the free trade-unions in France-FO and CFTC.-It is estimated that since 1947, the Communist-dominated CGT has lost close to 2,000,000 of its members. It remains, however, the largest laborunion federation in France, with a membership of from 3 to 3.5 million. Many of these have remained unaffiliated with any union; many have joined the FO and CFTC. The membership of FO now stands at about 800,000; that of the CFTC at between five and six hundred thousand. 2. The rise of the free trade-unions in Italy, CISL.-It is estimated that the Communist-led CGIL has lost close to 2.5 million members. But it remains the largest labor-union federation in Italy, with a membership between 2.5 and 3 million. The newly formed free labor union, the CISL, has a membership of about 1,200,000. Another smaller non-Communist union, the UIL, has a membership of 300,000. 3. The rise of the International Confederation of Free Trade Unions (ICFTU) and the numerous withdrawals from the World Federation of Free Trade Unions (WFTU).-The ICFTU now includes in its membership free unions from 69 countries with an estimated membership of 52.5 million. 4. The failure of the Communist-dominated unions, in spite of strenuous efforts, to close the ports of Marseilles, Cherbourg, Antwerp, Genoa, and Naples and other great ports to arms aid shipments.-Despite these gains, the continuing grip of the Communists on the largest labor unions of France and Italy remains one of the serious danger points in Europe. C. Results on the information front 1. Newspaper coverage on economic aid.-Western Europe's 2,000 daily newspapers have this past year given an average of 8,000 articles per week to their 60,000,000 readers on American economic aid, twice as many as a year ago. 2. Newsreel coverage on the Marshall plan.-ECA's monthly newsreel coverages are being shown in commercial theaters in Europe with an average weekly audience of 30,000,000 people and ECA documentary films were shown to a total commercial audience of 64,000,000 and to a total noncommercial audience of 33,000,000 during the past 12 months. 3. Radio coverage on the Marshall plan.-In programs varying in length from 5 minutes to 1 hour, 45 ECA radio shows per week have been broadcast on the networks of the 17 Marshall-plan countries to an estimated audience of 125,000,000. 4. Other forms of information. More than 26,000,000 Europeans have seen 50 Marshall-plan exhiibts during the past year. To tell the story of the motives and solid practical results of American aid, wall newspapers on ECA have been widely distributed in Turkey; mobile motion-picture units have been used in Italy and France; an exhibit boat has been used among the Greek islands, barges in Holland, and a traveling train in Germany, Austria, France, Italy, and Greece. 5. Decline in Communist newspapers circulation.—Since 1947, with one exception, every French Communist daily newspaper, every Communist weekly, and every Communist monthly has significantly lost circulation. The exception is Heures Claires, a monthly picture and style magazine for women. D. Victories in Berlin and Greece The mention of Berlin and Greece tell their own story. These have been the two conspicuous points of external aggression against free Europe in the unrelenting Soviet communism attempt to subjugate it. The triumph of the free people of West Berlin and the airlift over the blockade; and the triumph of the Greek people with American aid over the guerrilla attacks fomented and assisted from Soviet-dominated Eurpoe are two immensely significant victories in the hard record of the years since the war. IV. THE BUILD-UP OF EUROPE'S MILITARY DEFENSES A. European defense budgets In the fiscal year 1949-50, ending with the outbreak of the Communist aggression in Korea, the aggregate defense budgets of the nine European NATO countries (excluding Portugal) amounted to $4,645 million, or 5 percent of gross national product. The figure for the United Kingdom was $2,105 million, or 5.7 percent of gross national product; for France $1,594 million, or 6.5 percent of gross national product; and for Italy $475 million, or 3.4 percent of gross national product. In the fiscal year 1950-51, which has just been completed, European defense expenditures began to rise. The aggregate figure for these European NATO countries was $5,979 million, or 6 percent of gross national product. The figure for the United Kingdom was $2,450 million, or 6.2 percent; for France $2,235 million, or 8.2 percent; and for Italy $650 million, or 4.3 percent. During the current fiscal year 1952, the defense budgets of these NATO countries will rise again, and at a faster rate. [Deleted.] B. Comparison with the United States In the United States, the pre-Korean level of defense expenditures during the fiscal year 1949-50 was $13,200 million, or 5.1 percent of gross national product. This percentage was approximately the same as the percentage of the Western European countries. In the fiscal year 1950-51, however, the defense budget level was upped to $22,200 million, or 7.3 percent of gross national product, which was substantially higher than the figure of 6.0 percent of gross national product in Western Europe. In the fiscal year 1952, the President has recommended a level of defense expenditures which, if the recommended expenditures for foreign aid, both military and economic, are included, would aggregate $46,600 million. This figure is stated on an expenditure, as contrasted with an appropriation basis, the expenditure basis being a proper one to use in comparing American with European figures. Expenditures of this level will amount to about 14 percent of gross national product. C. Basic indicators to assist in evaluating foregoing data on a comparative basis 1. Per capita gross national product.-In the United States, per capita gross national product for the fiscal year 1950-51 was $1,985. In the nine European NATO countries (excluding Portugal), it was $600. In the United States, this figure will increase to $2,143 in the fiscal year 1952. In Europe and NATO countries it will increase likewise, but only to $620. 2. Real wages.-During the pre-Korean period (early 1950), approximately 7 hours of labor were required in the United States to earn enough to buy one pair of shoes. The corresponding figure for the European NATO countries ranged from 13 hours in United Kingdom to 55 hours in Italy. In the United States, 34 minutes of labor were required to buy a pound of butter, as compared to 40 minutes in United Kingdom, 3 hours in France, and 3 hours and 20 minutes in Italy. To buy a pair of worker's overalls requires 2 hours 6 minutes of work in the United States, 10 hours 22 minutes in the United Kingdom, 14 hours 30 minutes in France, 48 hours 37 minutes in Italy. To earn a 6.7 cubic foot refrigerator required 153 hours of work in the United States, 637 hours in the United Kingdom, and 694 hours in Italy. In the United States a bicycle can be earned in 35 hours while it takes 90 hours on the average to earn one in United Kingdom, 118 hours in France, 138 hours in Italy. 3. Trends in per capita consumption.—Between 1939 and 1950-51, per capita consumption in the United States rose 36 percent. In the European NATO countries, it was, with some variation between countries, about the same in 1950-51 as in 1939. These are basic facts which must be kept in mind when a comparison between the United States and Western Europe is made. V. ECONOMIC AND PRODUCTION ASPECTS OF EUROPE'S DEFENSE BUILD-UP A. Continued increases in basic production 1. Over-all production.-On the basis of current indications, we believe that the aggregate gross national product of the European NATO countries can be increased during the next year from the present level of about $101 billion to a new high level of about $105 billion, or an increase of approximately 4 percent. 2. Coal. It is particularly important that the production of coal be stepped up, since coal is currently being imported from the United States at the rate of 21⁄2 million tons per month. Our European NATO partners are alive to the gravity of the problem, and strenuous efforts will be made further to increase coal production. 3. Petroleum.-European refining capacity continues to be rapidly augmented It is expected that the present production rate of 1 million barrels per day will be increased to a rate of 1,250,000 barrels per day by the end of 1952. 4. Sulfur.-Sulfur is critically short in Western Europe. Since exports from the United States are the chief source of European supply, Europe is now largely dependent on the size of United States export allocations. However, Europe is undertaking to expand supplies of sulfur from pyrites, anhydrites, and zinc blends to substitute for crude sulfur imported from the United States. 5. Electric power.-Electric power is in short supply in nearly all the Western European countries. However, additions to generating capacity are being made at the rate of 5.2 million kilowatts (or approximately 9 percent per year. Additional expansion plans are under consideration. 6. Nonferrous metals.-The production of the six principal nonferrous metals (aluminum, copper, lead, zinc, tin, and nickel) in the Marshall plan countries and their overseas territories increased from 340,000 tons in the first quarter of 1950 to 378,000 tons in the first quarter of 1951. Large development projects, including lead and zinc mines in Morocco and aluminum refining facilities in Norway, have been or will shortly be instituted. 7. Food. The increases in agricultural production since 1947 have no more than kept pace with increases in population, and more intensive efforts will be required in the future. It is expected that over-all agricultural production will increase by approximately 6 to 8 percent in the next 2 years, but it is possible that these estimates may be upset as a result of unfavorable weather conditions. B. Productivity There is good reason to believe that the level of industrial production per manhour can be increased by approximately 4 percent during the next fiscal year or two in the European NATO countries taken as a whole. C. Controlling the uses of materials in short supply A few countries (the United Kingdom and the Netherlands) have established a form of priority system under which certain critical materials are allocated to defense and other essential industries. Across-the-board reductions in the use of certain materials have been made by some countries (particularly the United Kingdom and Norway) and end-use prohibitions similar to those in the United States have been applied in a number of countries. With respect to a very limited list of materials, principally copper and other nonferrous metals, there has been a limited application of inventory controls. In the case of materials requiring import licenses, the necessary end use of quantitative controls can to some extent be effected through the administration of import controls. The actual margin available for reduction in less essential uses is naturally more limited in Europe than in the United States, because of lower levels of consumption. For example, the United Kingdom can produce about 400,000 automobiles a year, of which 320,000 are reserved for export to earn vital foreign exchange. As a result, only 1 person in 635 has even a chance to purchase a car in any year, as compared with 1 in 35 in the United States. VI. THE FUNCTION OF ECONOMIC ASSISTANCE The Mutual Defense Assistance Program which has been recommended to the Congress includes a request for economic assistance to Europe in the amount of $1,650,000,000. After making allowance for certain sums to cover the development of basic materials, ocean freight for voluntary relief packages, technical assistance, and recommended aid to Yugoslavia, there would be left $1,512,000,000 for economic assistance to the countries of Europe which would fall within the program. By economic assistance is meant assistance other than military end products— i. e., tools, materials, equipment, and food for the purchase of which dollars are required. Properly understood, "economic assistance" and "military assistance" are two phases of a single process. "Military aid"—i. e., grants in the form of military end products-is in fact also economic aid, since in the absence of such aid the drain upon the economy of the recipient country to build up its necessary defenses would be much greater. "Economic assistance"-i. e., aid in the form of dollars to purchase tools, materials, equipment, and food-is also in fact military aid, in that it makes possible the effective mobilization of the recipient countries' resources to build up their military defenses. The principal functions of economic assistance for helping to build up defenses of Europe against aggression are these: A. Effective mobilization of Europe's resources for the manufacture of arms The countries of Europe have major resources for the production of military equipment and supplies in the form of management, labor, research scientists and technicians, facilities, and materials. In themselves, they are inadequate to build up the equipment and supplies needed at a sufficiently rapid rate. When supplemented by materials, tools, and productive equipment from the United States, their capacity to produce is significantly increased. For the United States each article of military equipment and supplies produced is much less costly than the same article would have been if produced entirely from the resources of the United States. B. Increasing basic production The capacity of Europe both to produce armaments and to maintain operating defensive forces depends upon basic elements in its economy, such as transporta 87360-51-17 |