Created: 3/14/1956

OCR scan of the original document, errors are possible

NLE MSCaseHo.-

Occurred No.



Approved far Refaasa



The Soviet Bloc is engagedetermined and accelerating drive to establish closer economic, political, and cultural relations with Free World countries politically susceptible to such influences. Although still in its early stages, the Bloc offensiveell-planned and integrated onevigorous, selective, and opportunistic. Soviet economic expansion has proceededuccession of related actions affecting particularly the underdeveloped countries of the Middle East and South and Southeast Asia. The recent extension of the program to Latin America and Africa reflects its global scope.

Soviet leaders areteady flow of capital equipment and technical assistance to industrialize the underdeveloped countries and alsotable market for their primary commodity exports. Of particular appeal is Soviet willingness to accept payment in exportable surpluses or local currencies and tbe extension of long-term low-interest capital credits. Ashe Bloc has offered credits, primarily for capital goods, totaling aboutillion. Acceptances so far0 million to be usederiod of upears. The Bloc is supplying additional assistance by direct purchases of basic commodities; for example, it has contracted for one-fourth of Burma's estimated rice exports' ,

The Bloc has the economic capability not only to meet thesebut also to provideubstantially expanding program of capital equipment and armaments exports. Tbe basic agricultural and mineral products obtained in exchange for capital exports represent in many cases much-needed raw materials and foodstuffsso that the trade relationship involved is of net advantage to the Soviet economy, over and above political considerations. .'*

Soviet spokesmen are proclaiming this economic competltiOa.withj. .capitalism as an opportunity to establish the "historic superiority of socialism." Although tbe Bloc program to date Is small, it poses an increasing challenge to US foreign policy and to the traditional trade and political interests of other nations of the Free World that It would be dangerous to underestimate.

U. Purposes aod Objectives.

The coon!iceted economic and psychological offensive represented by tbe new program seeks to neutralize US influence and undermine the

Western politico-military position in areas adjacent to tbe Soviet Bloc.

The initial emphasis has been on these uncommitted countries vbere lt vould have tbeediate and useful political effect: Yugoslavia,

ndia, Burma, and Afghanistan. Recent approaches, have included countries presently aligned with the US, such as Pakistan and Turkey.

The Soviets are identifying, themselves-with :tha satisfying^of .the-great concern of the governments and peoples of the underdeveloped countries for political and economic progress. They are dramatically publicizing the Inherent advantages of the Communist system forrapid industrial and technological development without disclosing its forced labor aspects. Tbe argument put forward is that tbe USSR has become ln one generation an industrial power of tbe first rank and that the Communist states are able and willing to assist other countries to achieve similarly rapid industrialization.

The Bloc also seeks to demonstrate tbe superior effectivenessby the flexibility of its program in meeting the needs ofcountries for liberal capital credits and forfor their raw material surpluses,ack of apparentstrings. Is contrast, tbeolonial" powers areseeking to subvert underdeveloped countries by entanglingtheir economies through private Investments, and keepingas undeveloped producers of primary materials. At tbe sameleaders are encouraging these countries to use Soviet offersaa increased bargaining power and leverage ln negotiationsWest. Thus even additional aid from the West is claimed "ashelp by the Soviet Union."

Furthermore, the USSR and Eastern Europe find lt advantageous on economic grounds toelatively varied line of capital goods in return for certain food and raw material imports. Additional output from many extractive and agricultural sectors has become more costly than producing additional Industrial goods to exchange for these primary

. materials. The shift in the trade pattern of the USSR from importing capital goods and exporting raw materials to-exporting capital goods and importing rawhift previously experienced by otherindustrial economies, is being achievedime highly advantageous to the Soviet Bloc. The political and strategic opportunities are great when politically vulnerable, capital-biingry nations need-the kinds of capital goods which the Bloc has the capability to export and when the USSR-can readily absorb their exportable

elated long-term objective of the Bloc is to disrupt trade relations between the underdeveloped countries and the industrialized capitalist states, including the United Kingdom, West Germany, and Japan. By encroaching on the traditional foreign trade markets of the capitalist trading countries, lt may be possible simultaneously to increasecompetition for remaining markets and to gain Bloc control of raw material supplies, such as Middle Bast petroleum; on which the Western countries are dependent. It has for some time been an announced Soviet aim todemocratic" world market which would rival and ultimately supersede the capitalist world, market.

HI. Characteristics of the Program.

. The main economic attack of the. Soviet Bloc combines offers ofequipment with technical assistance. These offers are related to industrialization projects in the underdeveloped countries, thetation of their latent raw material resources, and tbe expansion of their transport and communications system. Many of the projects appear to fall in the category of the massive "symbols" of progress most appealing to the local governments and most obviously apparent to their .people.

Sales of capital goods are accompaniedide range of technical assistance In support of indigenous programs for economic development and for improved public administration. This assistance includes not-only the sending of Soviet- technicians into underdeveloped countries but also the training of native students, teachers, technicians, and leaders in Soviet institutions.

Conventional armaments are suppliedpecialized type of trade goods. The supply of industrial consumer goods has not been neglected, and trade in these is beginning to develop. The Soviets are also offering assistance in nuclear fieldsan area of hitherto unquestioned US international leadership.

The Soviet emphasis for financing their assistance has been almost exclusively on loans with "soft" terms (long-term repaymentopercent, or hardly half tbe World Bank rate) and on bilateral trade agreements particularly advantageous to exporting countries. These trade agreements are directed toward Soviet purchases of exportable surpluses which Western countries are reluctant to buy. In some cases the Soviets are willing to accept in payment large quantities of local currencies.

Tbe Bloc has particularly sought to appeal to underdevelopedbytable market on favorable terms for tbeir commodity surpluses. In the process the Bloc may emergeajor "broker" for certain primary commodities. Thus rice purchased from Burma has been resold to Ceylon and French West Africa. Although tbe Bloc Isself-sufficient ln cotton, it has moved into the Free World cotton marketarge scale by Importing from Egypt end other producing countries while doubling USSR exports to West European countries.

Paralleling the economic drive of the Bloc, there Is an equallypropaganda drive, including personal visits of political notabilities, prestige exhibits at fairs and exhibitions, theof local trade offices, and advertising In local newspaperstolimate of opinion favorable to Bloc international economic and political programs.

TV. Economic Capabilities.

The USSR has become the second industrial power in the world. It hasontinuing high rate of industrial Investments, although sustained only at considerable hardship and by enforced low living standards for its people. More recently the European Satellites have similarly concentrated on industrial construction. The present capital equipment contracts and offers to underdeveloped countries are for tbe construction of factories similar to those which the USSR and its more Industrialized Satellites have been erecting for some time in their own territories. Communist China, also. Is participating in the coordinated trade drive, although the scope of its effort is necessarily limited.

The credit program so far offered to underdeveloped countries will impose no net economic burden on the economies of the Soviet Bloc. The amount of credit involved, aboutillion (spreadearmounts toercent of annual Industrial production. Substantial

further commitments could be accepted without Imposing any great strain qn the economic capacity of tbe Bloc aod without changing the mainion of Its output. As its own requirements for conventional armaments are satisfied, or international tensions furthereduction of armaments production would release Important industrial capacity for additional exports of capital goods and industrial equipment. Under these circumstances the USSR could export capital goodscalewith tbe United Kingdom or West Germany. *

Because obtaining additional output in the agricultural andsectors of the Bloc economy is becoming more costly, the exchange of capital goods for surplus commodities supplements net Bloc resources in an increasingly important degree. Hence the generalof the program upon the Bloc should be to foster economic growth and to enable the Bloc to utilize its resources more effectively. During theears, Industrial production of the USSR probably will grow By more thanercent per year, faster than that of any othercountry. The expanding capability to export capital goods and tbe increased requirements for rav materials mean that the scale of the Bloc's economic drive in underdeveloped countries could be steadily enlarged.

The Bloc can easily supply conventional armaments from currentfrom large stocks, or from recently obsolescent holdings. Such exports of armaments provide particularly effective penetration into areas where local tensions are already high, such as the Middle East and South Asia.

The Soviets are in an excellent position to compete with the UStrained technicians for technical assistance. graduated0 engineering specialists, compared withfor tbe US. Although higher education in the USSR isthan in the US, Soviet technical training is equal to ours.

Furthermore, Soviet graduate engineers go where they are sent, whereas arrangements for leave of US experts from their usual employment are often difficult.


Soviet1 Ativantages aad Plswdvajtaa-a.

disappointing effect of substantial US programs.of assistance over theears in winning over the countries of -the Middle East and South and Southeast Asia contrasts with tbe increasing impact apparently being made by the presently more modest program of the Soviet Bloc. This situation ist least in part, to certain Inherent Bloc advantages overn dealing with these areas.

The economies of tbe underdeveloped countries are much morewith the Bloc than with the US. The lag in Bloc agricultural production makes possible the import of surplus agricultural commodities for which these countries mustarket, whereas the .US is itself beset with surpluses of many of the same producte-and exports cereals, cotton, and other staples in directhis greatly enhances the Bloc's bargaining position In selling Industrial products to these-Although capital goods exports from the Bloc are frequently not up-to-We stern technical standards, their very simplicity makes them more desirable for users in- underdeveloped areas.

The Soviets take full advantage of their centralized, andcontrol of the economies of the Bloc to mobilize the available Bloc resources for calculatedn competition with Free "World industry, the Bloc can more easily arrange for complete equipping of cocplex industries, for acceptance of surpluses in barter exchanges, and for absorbing the cost of any subsidies required for trade or credit concessions. The countries of the Bloc are also able to enforcein their domestic-economies in order to meet foreign objectives. Hot only have Soviet negotiations been very flexible in credit and trading arrangements, but in addition, they have astutely not sought any obvious quid pro quo in terms of political alignments, MDAP-typeor Battle Act commitments.

The Issue of "colonialism" is easily raised against us in these areas, me US is identified with the former colonial powers of the West, through SEATO andoncerting of action ln the NearEastlliances which are resented by countries not included, even though their noninclusionafcter of their own choice. -Theof the Soviets to the "alliances of the colonialogether with the racial and geographic background of the Soviets, have made it possible for them to pass as .non-Europeans, as fellow Asiatics.

Tbe peoples of these areas believe that the West, particularly Europe, has obstructed their Indus trial! ration in the past and will eoatloue to discourage lt in the future, so as to keep thea as sources of primary commodities and as markets for consumer-goods exports. Consequently, they are easily susceptible to Communist claims that US aid programsorm of economic imperialism -or colonialism.

Many of these underdeveloped countries, underestimating tbeinvolved lo Industrialization, have thought that when colonial status ceased, their economic advance would progress rapidly. It did not; aod we have tended to point out that economic progresslowound foundation of supporting financial and political stability. Tbe Soviets, on the other hand, throughd'p*rsistent'propaganda, have impressed many people in these countries with the alleged success of the Communist system In transforming tbe USSRhort span of yearsackward agricultural country to tbe first rank of military and industrial powers. This Communist appeal plays on the desires of tbe underdeveloped countries for rapid economic advancement and makes thea sore susceptible to cooperating with the Bloc ao that they too can, somehow,easure of growth similar to that which they see in the

In some countries there are particular causes for suspicion of the US which the Soviets seek to exacerbate. Cur attempts toalance between Israel and tbe Arab states have permitted tbe Soviets to intervene as supporters of tbe Moslem world. US support of Pakistan alienates India and Afghanistan. Furthermore, these countries see US economic aid tapering off, while the bulk of it la going to individuals and regimes which they do not likefor example, Rbee, Chiang, Japan, and Israel.

The Soviets use their foreign economic programs to encourage Many of these countries have in general alreadyno entangling alliances" role in tbe world conflict, to which American public discussions oftea refer in terms offensive to thea. They believe they can best continue to maintain their independence if they accept both US and USSR aid, and they are not averse to playing off one against tbe other.

Tbe political and economic instability of tbe underdeveloped nations and an obsession with their own problems bring growing opportunities for Soviet political and economic penetrationendency to ignore the political implications of tbe Soviet proposals-

Offsetting tbe clear Soviet advantages are certain counterbalancing factors, seme external and some internal. Native leaders tend tothe fact that US economic development has been more rapid and better balanced than that of tbe USSR and that in addition toapid economic growtharge military capability the US has never -stopped raising the living standards of its people. They have yet to appreciate fully the extent to which Soviet military and industrialhave been achieved through tbe ruthless subordination offreedoms and of the living standards of tbe people.

The capitalist states of the West have better developedfor generating capital exports, whichoreframework couldlear competitive advantage over.

The Communist program, although astutely initiated and selectively concentrated, is 'still in an early offer and promise stage. There may be frustrations and failures in dealing with the Soviets, discrepancies between Soviet promises and performance. Jet it would be unwise to rely unduly on this factor, since the new Soviet leadership hasn unusual degree of adaptability and since the Soviets have gained valuable experience in China in dealing with sensitive Asiatics.

Internally, the Bloc is not without certain political and econcoic tensions and strains arising from an arbitrarily imposed centralizedow domestic standard of living, captive Satellite nations, and obligations to China. None of these factors, however, appear to be 'of sufficient importance ln the eyes of the Soviet leaders to acteterrent to the expansion of their foreign economic programs.



VT. International Impact.

The developing threat of Connunlst trading with underdeveloped areas Is not yet fully apparent In the trade data. It Is clear, however, that Soviet Bloc trade with these areas is increasing. Por example. Bloc trade with latin America has In theears Increasedercent.

There are no large pools of private savings for capitalln underdeveloped areas. For this purpose, these areas must obtain foreign credits or force Internal savings by depressing an already low standard of living. -The Bloc has an expandingto extend capital credits to these capital-hungry areas and is beginning to do so where related political objectives are clearly served.

To the extent that Bloc capital credits and trade withexpand, it will disturb established patterns of Freeand will tend to Unit the trading opportunities ofFree World Allies of the US, particularly Western Europe

Since credits for the installation of capital goods andassistance generally involve long-term arrangementstrade patterns once established tend to continue, thebeosition to pre-empt certain segments of worldan indefinite period. Similarly Bloc imports of primarysurpluses are being madeilateral barter basisfor internationally convertible currencies, thereby tendingdirectly the economies of the countries involved to Bloc

The stability and development of the industrial economiesEurope and Japan are heavily dependent on foreignbecause of past political disruptions of foreignInvestment markets, these Free World countries aredifficulties in maintaining adequate markets forexports. Their Industrial capacities would supportexpanded export of industrial goods, therebyrequirements for raw materials and agriculturalincreasing entry of the Bloc into the markets of theareas will tend to further restrict Free World

By extending its economic drive, the Bloc will not only gainpolitical influence in the underdeveloped areas but also will be indirectly increasing the economic and political pressure on our Allies. Limitation of West German foreign trade markets, for example, could be usedressure for obtaining long-term capital exports from West Germany to Communist China oo Soviet terms. Serious interference with the foreign trade markets of the United Kingdom would bring increasing internal political pressures for reduction of UK defense expenditureseutral accommodation in the world conflict. .These effects would of course be greatly intensifiedecession in the US occurred in conjunctionignificant decline ia world prices for primary commodities.

VII. US Problems Posed.

The US itself is not economically threatened by the economic drive of the Soviet Bloc, since our dependence on foreign trade is relatively limited. The main threat to the US is political and strategic. The capabilities and advantages inherent in the Bloc programs of economic penetration. Indicated above, provide the basis for an effectiveto limit US leadership and influence in tbe underdeveloped countries and to weaken tbe Western alliances.

The most striking disadvantages of the Soviet systemitsof freedoms and limitation of living standardsare viewed with relative indifference by populations which nave never knownelse. The specter of possible Communist oppression is less

motivating to then than the remembrance of recent colonial controls.

And Bloc living conditions which are low by Western standards are

nevertheless already far above those of mass populations in Asia and


Soviet bargaining strength and flexibility In this campaign are enhanced by the centralized decision-taking authority of state trading operations, whichegree of governmental meneuverabmty that Is difficult to attain under normal democratic processes. Suchis, at least in tbe shortefinite advantage which adds significantly in timing and effectiveness to the value of Soviet actions. Soviet capabilities are multiplied by an unquestioned authority to allocate goods from the gross national product of the -Bloc for opportunistic tradefor economic and political infiltration.

is no need to Justify the direction, amount, or terms of these foreign programsomestic electorate. Ministers are not subject to questioningarliament or Congress, orree press. of policy with respect to Individual transactions or nations does notublic Issue. Changing conditions can be metomplete flexibility of decision. Transactions with other nations can be varied toalculated advantage to the Soviets and to embarrass the rest of the Free World.

In contrast to the flexibility of Soviet state trading practices, Implementation of US foreign assistance programs is burdened by the excessive lead-time required to authorize, appropriate, and expend foreign-aid funds. Moreear of executive planning andhearings Is ordinarily required before funds can beand specific US aid commitments discussed with other Negotiations with the recipient governments, followed by technical discussions and actual Implementation of projects, may require upwards of anotheronths before funds are finally -Such long lead-times make it difficult to maintainin US aid policies and also preserve the flexibility necessary for adapting current program operations to changing International situations.

J.M. Dodge6



Million US $

Areas Middle East


Serious Discussion


Lebanon Saudi Arabia Sudan Syria Turkey

South Asia








1 6

0 6

9 9







Information as

Original document.

Comment about this article, ask questions, or add new information about this topic: