United States Inaugurates Mutual Security Program

Date October 22, 1951

Mutual security, a hybrid strategy of military and economic aid, became the framework for economic development assistance to developing nations.

Also known as Mutual Security Act of 1951

Locale Washington, D.C.

Key Figures

• Harry S. Truman (1884-1972), president of the United States, 1945-1953
• Dwight D. Eisenhower (1890-1969), president of the United States, 1953-1961

Summary of Event

The concept of mutual security emerged in 1951 as a strategy for the containment of communism. The concept dominated U.S. foreign aid policy for a decade, much longer than its originators had anticipated. By the mid-1950’s, however, the military thrust of the mutual security program yielded to the idea of “competitive coexistence.” The Cold War rivalry shifted to economics, trade, and technology, but with deference to military imperatives. The tactical shift from militarism to mercantilism began with the establishment of the International Cooperation Administration in 1955, which replaced the Foreign Operations Administration, set up in 1953 at the height of military motives for the disbursement of aid.

The shift to competitive coexistence led a conceptual expansion in foreign assistance, multilateral as well as bilateral, including the guaranteeing of private investments against foreign confiscation in 1954, the establishment of the International Finance Corporation (IFC) in 1955, the creation of the Development Loan Fund (DLF) in 1957, and the founding of the International Development Association (IDA) in 1960. In the 1960’s, long-term development assistance emerged as the focus of U.S. foreign aid.

The idea of collective security emerged as a response to post-World War II challenges. The end of the war engendered the prospects and problems of peaceful coexistence. America’s response included the extension of assistance to its wartime allies, legislative approval for U.S. commitment to the World Bank and the International Monetary Fund (IMF), the capital expansion of the Export-Import Bank (EXIMBANK), and financial support for the relief efforts of the United Nations. By 1947, problems seemed to outweigh prospects of mutual coexistence, particularly in the light of communist militarism and ideological ventures in the Middle East, Central and Eastern Europe, and the Far East.

The postwar posture of subversive communism prompted a turn in U.S. foreign policy, In an address to Congress on March 12, 1947, President Harry S. Truman postulated a global policy of democracy and self-determination. The Truman Doctrine, responding to events in Greece and Turkey, called for U.S. aid to peoples of the free world in their struggles against the pressures of armed dictatorship or external forces. The president requested and received congressional authorization for $400 million in military, economic, and technical assistance to Greece and Turkey.

On the heels of Truman’s prescription for global democracy came the proposal by Secretary of State George C. Marshall , on June 5, 1947, for the European Recovery Program, or Marshall Plan . The urgency of the proposal was soon underscored by ideological developments and Soviet incursions into Czechoslovakia and Italy. Congress then passed the Economic Cooperation Act of 1948, which established the Economic Cooperation Administration (ECA), the first autonomous agency for the conduct of U.S. foreign aid. Although the ECA’s framework enhanced private-public sector cooperation in foreign policy, some sections of the U.S. business community were concerned by the strain placed on the domestic economy by the efforts to give aid to Europe.

The formation of the North Atlantic Treaty Organization (NATO) and the passage of the U.S. Mutual Defense Assistance Act, both in 1949, signified a shift in concern from economic recovery to rearmament. The need for collective defense against Chinese and Soviet communism overshadowed Truman’s initiative for a program of bilateral and multilateral support for economic and industrial self-reliance in developing nations. Congressional response to the proposal was clear. The Foreign Economic Assistance Act of 1950 authorized an initial $35 million for technical assistance, with $1 billion for NATO under the Mutual Defense Assistance Program.

The need for development aid as part of U.S. foreign assistance was recognized in the Foreign Economic Assistance Act of 1950, which established the Technical Cooperation Administration as a semiautonomous unit of the Department of State. A bill to empower EXIMBANK to guarantee U.S. private investments against foreign expropriations did not survive the legislative process. EXIMBANK had been created in 1934 as a government agency to assist domestic exporters via short-term loans.

The European Recovery Program and Truman’s initiatives came under increased fire. Some critics wanted a military focus in the packaging of foreign assistance and were unfavorably disposed to economic rationalizations for aid. The outbreak of armed conflict between the communist North Koreans and the Republic of Korea, as well as the reversals suffered by U.S. forces there at the close of 1950, appeared to support the critical disposition of some legislators to Truman’s economic bent in foreign policy.

Truman, in an effort to assuage Congress and secure the necessary authorizations, agreed to a package deal under the omnibus rubric of mutual security. The Mutual Security Act of 1951 eliminated the Economic Cooperation Administration and established the Mutual Security Agency. The act, originally slated to expire after three years, was reconstituted in 1954 without further reference to its life span. A one-year limit placed by the act on economic assistance was eventually repealed.

The mutual security program thus began as a hybridized package of military and economic tools for the containment of communism. Under H.R. 5113 of 1951 (October 22), Congress authorized the appropriation of $7.49 billion for the program, including $5 billion for NATO and nearly $1 billion in additional authorizations for global military assistance. The authorizations for economic and technical aid were less generous, with the lion’s share for NATO nations. Congress, however, directed that no less than 10 percent of reauthorized funds be disbursed as development loans. The structuring of the mutual security program would come to reflect altered perceptions of its aims.

Significance

The heightened perception of the need for collective security in the early 1950’s dictated, to a large extent, the denomination, packaging, and destination of foreign aid. The 1950’s was a decade of mutual security, giving way to a decade of development in the 1960’s. Unlike programs under the Foreign Assistance Act of 1961, those in the mutual security program lacked a developmental focus. Until the mid-1950’s, the concept and content of foreign assistance were conditioned by America’s concerns with communist efforts in Indochina, Formosa (Taiwan), Korea, and parts of Europe. Within that conceptual frame, the decade of mutual security involved little concern for the economic and social development of poor nations.

The program did not concentrate on mobilizing or utilizing private resources for the achievement of its economic objectives. Unlike the Marshall Plan, the program failed to create an elaborate framework of government-business partnerships for the transfer of private resources for business development abroad. The mutual security program also limited its guarantees against confiscation. It offered private U.S. investors small incentives for business participation in the economic aspects of the mutual security program, instead relying increasingly on multilateral approaches to foreign investment and development. Unlike the Foreign Assistance Act of 1961, which established mechanisms for the mobilization of entrepreneurial skills and private resources for development assistance, the Mutual Security Act lacked affirmative provisions against foreign nationalizations, expropriations, and other “takings” of private direct investments.

President Dwight D. Eisenhower toughened the ideological and functional tendons of the mutual security program. By Executive Order 10458 of June 1, 1953, he abolished the Technical Cooperation Administration and moved its functions to the Mutual Security Agency, which itself was eliminated as the primary vehicle of foreign aid two months later. The functions of the Mutual Security Agency, including those of the Institute of Inter-American Affairs, passed to the Foreign Operations Administration.

The shifting fronts of the Cold War defined the packaging and, therefore, the impact of the mutual security program. The categories of benefits under the program expanded in response to the exigencies of the rivalry. Under H.R. 10051 of 1954, Congress appropriated $184 million for development assistance and $116 million for technical cooperation. Further, Congress set aside 30 percent of development funds for disbursement as direct loans. Under H.R. 9678, Congress authorized the president to provide a maximum of $200 million in guarantees against foreign confiscation of U.S. private investments. Development loans and guarantees soon became staples of assistance.

Title I of the Agricultural Trade Development and Assistance Act of 1954 enhanced the value of otherwise inconvertible currencies by accepting them as payments for U.S. surplus commodities. The currencies then were returned to the local economies as loans and grants from the United States. At a multilateral level, the United States proposed the formation of the International Finance Corporation to boost the flow of investment capital to the poor nations. In 1955, that corporation, capitalized at $100 million, was formed as an affiliate of the World Bank. Congress approved U.S. participation with an initial contribution of $35,168,000.

An obvious shift was under way in the mutual security program. By Executive Order 10610 of June 30, 1955, the Foreign Operations Administration was eliminated and replaced with the International Cooperation Administration (ICA). The ICA, a quasi-independent body within the State Department, came into being as the challenges of competitive coexistence were beginning to be realized. The content of foreign assistance gradually shifted to economic packages. The Eisenhower Doctrine proposed military as well as economic aid to the nations of the Middle East and was followed by the president’s recommendation to Congress for the creation of a Development Loan Fund for the benefit of needy friendly nations.

The Mutual Security Act of 1957 (PL 85-477) established the Development Loan Fund (DLF) as a lending division of the International Cooperation Administration to provide subsidized low-interest loans in developing areas. The DLF became a government corporation in 1958. In 1959, the Mutual Security Act raised to $1 billion, from $500 million, the investment guarantee coverage for foreign confiscations and restricted new guarantees to investments in developing areas.

By 1960, Congress was moving toward significant reductions in U.S. bilateral assistance as part of an ongoing review of the mutual security program. Congress at the same time increased appropriations to multilateral agencies. The legislature approved measures for the establishment of the International Development Association (IDA), as an affiliate of the World Bank, to provide long-term low-interest loans to developing nations. In 1960, Congress authorized U.S. participation in the IDA and a contribution of $320 million toward the IDA’s initial capitalization of $1 billion. By 1964, the IDA had advanced $778 million in credit to twenty-two nations.

In 1961, President John F. Kennedy proposed far-reaching reforms including the elimination of the mutual security program and the separation of military aid from economic programs. The president proposed changes for long-term development assistance and administrative effectiveness that were reflected in the Foreign Assistance Act of 1961. The act eliminated the International Cooperation Administration and transferred its remaining functions, together with the Development Loan Fund, to the Agency for International Development (USAID). Despite its limitations, the mutual security program provided the conceptual plank for the institutionalization of development assistance in subsequent decades.

Bibliography

Akinsanya, Adeoye A. The Expropriation of Multinational Property in the Third World. New York: Praeger, 1980. Examines the causes and rationales of expropriation in the less industrialized countries as well as the policy reactions of capital-exporting nations. Offers thoughtful insights into the sensitivities of economic nationalism in Africa, Asia, Latin America, and the Middle East.

Hogan, Michael J. The Marshall Plan: America, Britain, and the Reconstruction of Western Europe, 1947-1952. New York: Cambridge University Press, 1987. The element of corporatism in government-business exchanges is discussed. It appears to account for the success of the European Recovery Program. The mutual security program, on the other hand, did not have the full benefit of similar corporatist exchanges between business and government.

Horowitz, David, Peter Carroll, and David Lee. On the Edge: A New History of Twentieth Century America. St. Paul, Minn.: West, 1990. A well-written discussion, in chapters 9 and 10, of U.S. foreign policy postures under Truman and Eisenhower. Includes factual reviews of Cold War politics and the anticommunist crusade at home and abroad.

Kaufman, Burton I. Trade and Aid: Eisenhower’s Foreign Economic Policy, 1953-1961. Baltimore: Johns Hopkins University Press, 1982. A standard work on the interface of trade and aid during the Eisenhower administration. The practical implications of Eisenhower’s policy of competitive coexistence are thoroughly examined in lucid prose.

Leigh-Phippard, Helen. Congress and U.S. Military Aid to Britain: Interdependence and Dependence, 1949-1956. New York: St. Martin’s Press, 1995. Extensive study of U.S.-British relations during the early Cold War; includes several chapters on mutual security and mutual defense programs. Bibliographic references and index.

Lillich, Richard B. The Protection of Foreign Investment: Six Procedural Studies. Syracuse, N.Y.: Syracuse University Press, 1965. The protection of foreign direct investments has been a thorny matter in international law and relations. The enduring quality of this monograph lies in its detached and seemingly objective commentary. It examines the safeguards against foreign “takings.”

Nwogugu, E. I. The Legal Problems of Foreign Investment in Developing Countries. Manchester, England: Manchester University Press, 1965. An authoritative assessment of the legal and juridical regimen affecting property rights across national borders, including the attitudes of developing nations toward international law and regulation.

Pastor, Robert A. Congress and the Politics of U.S. Foreign Economic Policy, 1929-1976. Berkeley: University of California Press, 1980. The study brings historical perspectives to the politics and partisanship of foreign affairs and economic policy. In many ways, domestic politics and business interests defined policy and policy implementation in foreign relations.

Penrose, Edith. The Large International Firm in Developing Countries. London: Allen & Unwin, 1968. The role of the multinational corporation as a remote actor in the conduct and outcome of foreign policy has been an interesting area of study. Penrose brings to light the daunting position of multinational firms in the peripheral, but crucial, economies of developing nations.

Schwarzenberger, Georg. Foreign Investments and International Law. London: Stevens, 1969. The principles of public international law are considered as they affect or relate to alien property rights. The discussion on the treatment of alien property rights and safeguards is instructive.

Wennergren, E. Boyd, et al. The United States and World Poverty. Cabin John, Md.: Seven Locks Press, 1989. Examines the relationship between foreign assistance and the war on global poverty. The authors present useful statistical evidence on income, productivity, and growth patterns.