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of exports. And a dollar's worth of United Kingdom defense production lost could probably only be replaced by increased United States production at higher cost if it could be replaced at all. A Centurion tank costs them $106,000, a modern jet fighter $168,000, and a fleet aircraft carrier of around 50,000 tons displacement $45 million. I know of no better defense value for a United States dollar than support of the defense production program of the United Kingdom. British actions to meet their severe trade problem are not confined to negative slashes of imports and investment. They are also taking vigorous action to eliminate inflation and to increase exports. Civil government expenditures have been held down for the coming British financial year, despite higher prices, so that the share of national resources taken by civil government uses will fall from 15 to 1321⁄2 percent. Food subsidies have been cut by 40 percent and taxes revised to provide greater incentives for work and enterprise. A firm restrictive monetary policy has been imposed to check money expansion. These vigorous policies will be effective in helping to meet the balance of payments problem and thus preserving the value of the pound. There is every reason to believe that these policies will go a long way toward the fulfillment of a defense program which will make a tremendously vital contribution to the security of the free world.

In addition to immediate measures, Great Britain, together with her Commonwealth partners, has been giving thought to the long-range prospects for the British economy and the sterling area. At the Commonwealth Finance Ministers meeting in London last January, the countries of the sterling area announced! that they were determined to bring and keep their foreign trade in balance, to combat inflation, to expand their resources, and as soon as possible to make sterling convertible into all currencies of the world including dollars. Each week brings news of additional and hard steps being taken by Britain and the Commonwealth to carry out that commitment. No one will underestimate the difficulties which must be overcome in the carrying out of this program. It is impossible to forecast with assurance the position in which Great Britain and the Commonwealth will find themselves 2 or 3 years from now. I can only point to the undeniable fact that the British people have conquered adversity many times in their long history and give to you my deep conviction that they will do it again. But it is the immediate problem with which we are now concerned. That is to insure the fulfillment of Britain's defense program this coming year a program which next to our own is the most important part of the free world's defense effort. I believe the facts I have given speak for themselves. Great Britain is making a solid contribution toward our common defense, she is encountering tremendous economic problems in doing so, and she is making every effort to overcome these problems herself. But there still remains that small margin between successful achievement and the possibility of failure through economic adversity. Expressed in dollar terms, the contribution needed to see the British over this "hump" represents only a fraction of what they themselves intend to spend for defense during the coming year. In various ways which from month to month may change, some support from us is absolutely essential. Financial support over these critical months ahead must be provided to make available essential materials or their defense production schedules will most certainly be cut. In my judgment about $600 million of defense support is fully justified and is certainly no more than the amount required. The cost of that support to us is really small compared to the large dividends which it will yield in mutual security.

Senator GEORGE. Can we come back at 2:30, gentlemen-Mr. Wood?

Mr. Wood. Yes; indeed, Senator.

Mr. BATT. You have finished, I take it, with me?

Senator GEORGE. Unless you wish to add something else.

Mr. BATT. I am afraid not. I could not make it any clearer, I think, than I have.

Senator GEORGE. I think you have made it very clear. It was very forceful. We are very glad to have had you.

If it is agreeable with the committee, we will come back down at 2:30.

(Whereupon, at 12:20 p. m., a recess was taken to 2:30 p. m. of the same day.)

AFTER RECESS

(The hearing resumed at 2:30 p. m.)

Senator GEORGE. The committee will be in order. Mr. Wood, do you care to proceed at this time?

Mr. Wood. Yes, sir.

STATEMENTS OF TYLER WOOD, ASSOCIATE DEPUTY DIRECTOR, MUTUAL SECURITY AGENCY; MAJ. GEN. GEORGE H. OLMSTED, DIRECTOR, OFFICE OF MILITARY ASSISTANCE, OFFICE OF THE SECRETARY OF DEFENSE; AND HARLAN CLEVELAND, ASSISTANT ADMINISTRATOR FOR EUROPE, MUTUAL SECURITY AGENCY—

Resumed

Mr. Wood. I thought, if it suited you and the committee, that we would carry forward the next part of our presentation with a triumvirate of witnesses consisting of General Olmsted, myself, and Mr. Cleveland. General Olmsted has all of the information on the military side; Mr. Cleveland has the information on defense support; I am prepared to cover general questions.

This program has been developed as a really integrated program. The military and the economic components are part of a single whole. I, therefore, thought it might save your time, and make for a more lucid presentation, if three of us took part in the presentation together. Senator GEORGE. I think that might be a good idea.

Senator HICKENLOOPER. The day before yesterday when General Gruenther came up here, we had a map with arrows pointing around every place "top secret," and it was most "top secret" and before they would let the newspapermen in afterwards, the boys had to roll up the map because it was so "top secret." And I see it in the paper this morning, photographed over in the House Foreign Affairs Committee, and they had General Gruenther pointing to it.

Mr. WOOD. Senator, it might be the element of time. Something that is top secret today may not be tomorrow.

Senator George and gentlemen, I think that you might regard us, if you will, as the "pick and shovel boys." You have already had, I think in a fashion much better than we ourselves could present them, the general principles of the foreign policy upon which the proposals in this bill are based. We will therefore try to conserve your time by not going over that sort of material again. With your permission, we will try to present to you as rapidly and yet as completely as possible, the facts and figures about this program.

We propose to start, if we may, with the title I area, and I had thought that we might begin by covering two or three of the major countries that are particularly representative in some detail, possibly France and the United Kingdom. However, since you have already heard a most adequate discussion of the economic problems and need for defense support in these two countries from Messrs. Bruce and Batt, and we will not spend much time on that phase of the matter, but will instead concentrate on the figures of their military programs.

General Olmsted will cover questions with respect to the size of the forces, the amounts of military end-item aid required, and other related issues. Then Mr. Cleveland will cover the defense support

element of this program and show how that defense support ties into, and makes possible, the total program that we are talking about.

TOTAL FUNDS REQUIRED BY EUROPE

Before we proceed in this fashion, I would like to draw your attention, just by way of summary, to this chart. It will give you a brief picture of exactly what we are talking about now in this portion of our presentation.

THE MILITARY BALANCE SHEET:

MOST OF THE FUNDS NEEDED TO FINANCE THE 1952-53 PROGRAM IN EUROPE WILL BE BORNE BY WESTERN EUROPE

Funds required for the 1952-53 European Program $17.7 BILLION*

[blocks in formation]

*EXCLUDES MILITARY END-ITEMS FROM CANADA

NOTE: THESE FIGURES EXCLUDE GREECE AND TURKEY AND INCLUDE GERMANY

This top bar shows the funds required for the 1952-53 European program.

Senator SMITH. I thought Mr. Batt said this morning that figure was 14. Was he wrong?

Mr. Wood. The $14 billion figure or, to be exact, the $13.9 figure appears here [pointing] and it represents the defense expenditures of the Western European nations. It is supplemented in two ways: First, by the $2.8 billion of funds that are being requested for the production in the United States, and shipment to Europe, of military end items, and second, by the $1 billion which is our present estimate for offshore procurement, that is, the purchase of military end items manufactured in Europe for use in Europe. It is the $13.9 billion in European defense expenditures plus these two items—the $1 billion for offshore procurement and $2.8 billion for end items produced in the United States which gives you the total funds required, both from European sources and from our proposed assistance,

in order to make it possible for European countries to meet the targets set in the Lisbon plan.

I would also like to call your attention to this figure of $1.4 billion [pointing]. It represents the defense support which we propose for this area. It is shown here on this chart as I think is the only correct and truthful way of showing it, as the element to be received from us which will make it possible for the Lisbon countries to spend for military purposes for military production, the pay and the training of troops, and so forth-the total of $13.9 billion in defense expenditures that is presently planned.

Senator GILLETTE. That 1.4 is included in this 13.9?

Mr. WOOD. That is correct; it supports the 13.9.

You can look at it several ways. The total that is being requested from the Congress at the moment, for this particular group of countries, consists of three elements: the $2.8 billion for military end items produced in the United States; $1.0 billion for offshore procurement; and the $1.4 billion for defense support. The $1.4 billion is shown here as supporting a very large element-the $13.9 billion of European defense expenditures. You have already had testimony to the effect that the $1.4 billion of defense support will, purely on the basis of its economic effects and forgetting for the moment the political and psychological effects that Mr. Batt was talking about-permit the expenditure by these countries of from two and one-half to three times that amount. We have got some specific examples of this multiplier effect if the committee should wish to go into them. I take as an illustration a case in Germany. In this case the import of certain amounts of coal has permitted the production of a certain amount of steel, with a value many times the cost of the imported coal.

This multiplier effect is to be found throughout the defense-support programs. Mr. Cleveland can give you other concrete examples if you are interested in his doing so.

Before I leave this chart, I might just call your attention to one more general point, which has been only partially covered before. It is this: the $13.9 billion in European defense expenditures in fact purchases, because of the lower rates of pay that Mr. Bruce referred to and other lower costs, very much more in the way of men under arms and equipped than a similar amount of money purchases in the United States. Estimates have been made that taking everything into account, the $13.9 billion spent in Europe will have more than twice the purchasing power, in terms of men and arms, or equipped divisions, as the same amount spent in the United States.

Senator SMITH. That $13.9 billion, added to these three things below, makes your $17.7 billion?

Mr. WOOD. No. The $13.9 billion, added to the $1.0 billion for offshore procurement and the $2.8 billion for end items to be produced in the United States make your $17 billion. The $1.4 billion is regarded as necessary support for the $13.9 billion.

Senator HICKENLOOPER. The 1.4 is a part of the 13.9?

Mr. WOOD. Yes, although it comes from us, Senator. The total request for authorizations from the Congress is composed of those three items.

Senator HICKENLOOPER. The 1.0 comes from us, and the 2.8 comes from us?

Mr. WOOD. And so does the 1.4.

Senator GEORGE. Making a total of what?

Mr. WOOD. Making a total of $5.2 billion requested for both military end items and defense support aid for these countries which joined together in the Lisbon plan.

That does not include Austria, Greece, Turkey, or Yugoslavia. It does include Germany, but it does not include Spain.

We will, if it please the committee, and if we can, also cover Greece and Turkey this afternoon. Then, if we have time for it, we will try to cover Yugoslavia also. The countries we will just concentrate on are those which were the original members of NATO and which were covered by the TCC operations. Greece and Turkey had not at that point yet been admitted to membership and therefore they had nothing to do with the TCC operation.

Senator GILLETTE. The sum of those three items, of course, being 5.2, what makes up the 1.7 total to make up the 7.9 billion? What are those items?

Mr. WOOD. The balance is composed of aid for certain other countries in Europe-Greece, Turkey, Austria, and Yugoslavia, and for certain other areas of the world-the Middle East, south Asia, the Far East, and Latin America-which are covered in titles II, III, and IV of the bill.

REPORT ON PAST ACTIVITIES

Before we pass on to General Olmsted, I would like to report to the committee that we will have available, and that I propose, with its permission, to insert in the record, a fairly detailed report which shows, item by item, what we have done to carry out the provisions of the Mutual Security Act of 1951. This report covers such things as our efforts to get assurances from other countries pursuant to section 511, and the actions which we have taken under section 521 with respect to exemptions from taxes. We will have a welldocumented and full report on these subjects and I would therefore suggest, unless you feel otherwise, that we do not go into these subjects now.

If I may, I will now ask General Olmsted to proceed with the military side of the program. I have suggested that he spend the first few moments describing how we have reached the conclusions which we present as to amounts and forms of military end-item aid which are required the process which we go through in developing our request. This will give you some concept of the kind of thorough screening and processing which lies behind our figures. Then, perhaps, he will have a few words to say generally about the total force goals and state of readiness of forces. Thereafter, I will ask Mr. Cleveland to do the same thing on the economic side.

CHANGES IN MSA OPERATIONS AND ORGANIZATION

Senator SMITH. May I ask you a preliminary question? How does your formula and method of operation differ this year, fundamentally, from last year? I was told by one of your group that you have a totally new group; that you have the TCC, and it is a totally new approach from what we have had before. This is a brand new presentation to the Congress; is that right?

Mr. Wood. That is correct, Senator Smith.

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