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38 Note by Department of External Affairs

Canberra, 15 March 1950

Some Political Aspects of Economic Assistance

The aim is political, the means only are economic. The provision of aid may have good, bad or no results, according to political factors.

2. The result of the United States policy of economic assistance to non-communist or anti-communist states has varied from complete failure in China to partial success when backed with military aid in Greece and South Korea. Financially the United States can afford to risk wasting economic aid and strategically Americans could retire from South-East Asia as they have from China. Australia can neither afford to waste resources nor retire from this area.

3. The political aim is to bolster South-East Asian states against extremism, and in particular communism. While the political structure of another state should not be our concern, states, the governments of which are either unstable or extremist or both, are more liable to aggression than orderly moderate governments. The political structure of a state is our concern if, and insofar as, a government may be used as an agency for the foreign policy of a third power.

4. Political stability is not the sole criterion. A strong nationalist state may be firmly based on an unequal social system and on an aggressive foreign policy, for example, Japan before the war. The new Communist Government in China may prove to be more stable than previous governments, but none the less interested in expanding its influence. On the other hand, internal dissension may lead a weak state to turn to foreign adventures to distract the attention from popular grievances, for example, the Chiang Kai-shek1 Government's agitation against Hongkong in 1946-472 and Syngman Rhee's3 periodic threats of invasion of North Korea.

5. The political problems of Asia result partly from the replacement of western colonial rule by new national states. There is little tradition of popular government other than on a local scale. Extremism may be either of a militant nationalist type or regimentation under a communist party in some degree subservient to Moscow.

6. Political extremism is based largely on economic conditions. Absolute poverty is less important as a cause of unrest than great inequality of wealth between classes.

7. Our interests lie in the emergence of governments which are not only stable but which by reason of their internal political and economic structure are least likely to disturb our security. Such governments would be those which had established a basis of support among their peoples by removing economic injustices and by cultivating responsible political institutions. They would be more likely to concentrate on their own affairs than on aggressive foreign policies.

8. A positive programme for land and other reforms as in Japan is the best guarantee against extremes. We are in a position to dictate reforms in Japan but not in new sovereign states.

9. In Europe the United States Economic Co-operation Administration controls in some measure the use made of American assistance. The newer Asian governments, because of their recent emergence from colonial rule or from unequal treaties, are sensitive to any suggestion of interference with their sovereign rights and suspicious of economic imperialism.

10. In China previously and in South Korea now the United States accompanied economic assistance by advice on political and economic reforms. Such advice, although timely and disinterested, was not heeded by Chiang and is not being heeded by Rhee. Both nationalist leaders take the line that for strategic reasons aid must continue in the interests of the United States irrespective of the extent to which the recipients accept advice.

11. Australia and the British Commonwealth, which have much less to offer than the United States, would be in a weaker position to police an aid programme. Once our decision to assist has been made it should be carried through despite misgivings.

12. While we may not be able to lay down conditions, we should try to give aid in forms most likely to relieve inequality. Consumer goods are preferable to credits to governments. Developmental machinery will more likely impinge upon the population in our favour than arms. Guidance may be achieved by influence, for example by visits, scholarships, information etc., which gives to the new states a picture of a working democracy. Criticism, however timely or well-meant, will almost certainly be resented.

13. There should be no illusions that aid necessarily earns the goodwill or gratitude of a recipient government or people. American economic aid to China went to a corrupt government and did not penetrate to or benefit the people. The result was that the communists capitalised on the antagonism of the Chinese people towards the United States for bolstering an unpopular regime. It may be better to give no aid at all than aid which is regarded as helping repressive rulers who may not maintain their regime.

14. Australia alone can do little. In defining our programme of assistance, we might eliminate, at least in our initial efforts, those states:—

(a) for which others have a clear responsibility, for example, the United States in the Philippine Islands, and the United Kingdom in Malaya and North Borneo;

(b) for which others with greater resources seem willing to take on the responsibility, for example the United States and the United Kingdom in Indo-China;

(c) towards which we have already made a contribution, for example our share in the loan to Burma;

(d) which are least likely to prove effective recipients of aid, for example Bao Dai;

(e) which are more remote from our immediate sphere of interest.

Correspondingly we should concentrate on those states which are:—

(a) nearest;

(b) the governments of which appear most firmly based on the popular support of the people;

(c) the governments of which appear most likely to be moderate in their internal and foreign policies;

(d) with which there already exist commercial ties;

(e) with whom existing political relations of friendship would lead them least to suspect ulterior political or economic motives on our part.

In approaching governments with an offer o f aid we should:—

(a) have made up our minds in advance and unequivocally on the principle of assistance;

(b) present our suggestions as a gesture of goodwill without mentioning our political motives, such as our desire for them to eliminate extremism;

(c) be ready for discussions on details on a basis of equality;

(d) be prepared for some measure of misuse of aid by our standards and some failure by the recipients to respond in the direction which we had hoped for;

(e) expect no great protestations of thanks or goodwill.

[NAA: A 1838, 381/3/1/3 part lb]

1 President of the Republic of China.

2 After the Second World War the Government of China declared its intention to seek the incorporation of British Hong Kong through formal negotiations. Between 1946 and 1947, Australia's representative in Nanking, Patrick Shaw, reported on a series of censorious Chinese press reports, including threats of a trade boycott of Hong Kong for alleged violations of Chinese sovereignty. He suspected that Chiang Kai-shek and the Kuomintang unofficially endorsed these 'agitations' in order to inflame anti-British feeling in Hong Kong and throughout China. See Despatch no. 119/46, A4231, 1946/Nanking part 4.

3 President of the Republic of Korea.

Last Updated: 10 January 2017

Category: International relations

Topic: History