Senator GREEN. I am trying to clarify the situation, not to pin you down.

Mr. HARRIMAN. Perhaps I am confusing it instead of clarifying it. Senator GREEN. You say "general provisions of the Marshall plan." Why do you say "general"?

What I am trying to find out is whether any of this money will be used for production in Great Britain itself.

Mr. HARRIMAN. The figures, broken down, show about 58 percent for industrial commodities to help stimulate, and to go into defense production; 30 percent of the over-all figure is for agricultural commodities, and the balance is freight. That is for Europe as a whole. Senator GREEN. I am talking about Great Britain as a specific illustration, because you used it.

Mr. HARRIMAN. Yes. I used it because in many of the other countries, there is a greater proportion of raw materials needed to put into defense production, and things like petroleum products, which are common use items for both military and civilian purposes. Senator GREEN. Then, as I understand it, in any specific country, the whole sum need not be spent for imports from other countries. Mr. HARRIMAN. All defense support funds will be spent in the dollar area for imports of goods and services. All of it will be spent for such imports from the dollar area.

Senator GREEN. The whole amount?

Mr. HARRIMAN. The whole amount except for some small portion that is used as special assistance through the EPU mechanism.

CONDITIONS ON ECOMONIC AID

Senator GREEN. Then the only condition attached to the expenditure of this money by a foreign government is that the whole of it must be spent on imports from dollar countries; is that right?

Mr. HARRIMAN. Well, there are other conditions, such as that we approve the program, that we satisfy ourselves the imports are needed, that we also satisfy ourselves that they are essential in order to maintain the enlarged defense efforts of these countries. The imports. will be scrutinized country by country and item by item.

Senator GREEN. Well, now, in order to satisfy ourselves, to use your expression, do we attach conditions to the expenditure of the money?

Mr. HARRIMAN. Do we attach conditions?

Senator GREEN. Yes.

Mr. HARRIMAN. We always attach conditions that they be used for the purposes that we specify.

Senator GREEN. They can't be used until after they are imported. Mr. HARRIMAN. That is right.

Senator GREEN. Well, then, how can you assure the satisfaction of those conditions if they have already been imported?

Mr. HARRIMAN. It was the same sort of thing in the Marshall plan, although for different purposes, and we consistently followed through the use of the imports to satisfy ourselves that they went for the purposes that were agreed to, sir. The system will be the same, although the purposes will be different.

Senator GREEN. I don't know whether I can make my question any clearer. I would like to find out what conditions are attached to

the payment to a foreign government, and how the money shall be spent.

Mr. HARRIMAN. We don't give them the funds. We agree upon a list of commodities and the payments are made for these specific commodities that have been agreed to as being essential for the defense effort of that country. Then they get the commodities and they ship them to their country, and we check the use of those commodities to satisfy ourselves that they are used for the purposes that we have agreed they should be used for, sir.

Senator GREEN. Well, then, they simply agree, in return for this gift, that they will spend it for certain specific commodities?

Mr. HARRIMAN. Yes, sir. Let's take a machine tool, or a group of machine tools. They would be screened as to whether they are necessary to help the production of certain types of munitions. We would approve them, and then we would satisfy ourselves that they would go to the particular factory that was specified. If the commodity is coal, for example, it would go into the general system of coal use, and we would satisfy ourselves that the use of coal in that country was reasonably controlled so that it wasn't wasted.

Senator GREEN. Well, then, the conditions are more specific than just the general condition that they shall buy certain products and import them from foreign countries.

Mr. HARRIMAN. Yes, sir.

Senator GREEN. Is that right?

Mr. HARRIMAN. And then you will recall a similar process that they had under the Marshall plan. When they sell, for instance, coal to their citizens, the counterparts are set aside and the counterparts are only spent for the purposes that we agree to. So we have control both of the commodity that is imported and the use of the counterparts, and in most cases the counterpart will go directly to the defense budgets to make an extension

Senator GREEN. Then there are other conditions attached than those that you said in the beginning. You stated in the beginning that the only condition attached was that it should be spent for the import of certain articles or raw materials.

Mr. HARRIMAN. Well, the use of the counterparts-we have the control of their use, and the main condition throughout is that we must be satisfied that our assistance is for the support of an increased defense effort.

END-USE SUPERVISION

Senator GREEN. Well, then, you follow the thing further to find out to what manufacturers, we will say, or classes of individuals, the imports are given after being imported. Is that right?

Mr. HARRIMAN. Where it is for a specific purpose, why yes. If it is a general commodity, if we were to help the British to import grain for example, we satisfy ourselves that the grain is absolutely essential to maintain the present British austere standard. And then, as I say, if it is coal, we cannot watch every ton of coal, but we satisfy ourselves that the distribution system is well taken care of, and that the coal is needed in order to make it possible to maintain the factories.

Now, take a commodity like coal. You have got to have enough coal to keep the population warm, and if you don't have enough coal it means a reduction in power which reduces the industrial production

and therefore the military production effort of that country. We do not watch every shipment of coal as to exactly which use it goes to because take in the case of France, what she may import from us is a small fraction of her total coal.

Senator GREEN. In order to satisfy yourself of these conditions, do you specify industries or specify individual corporations in those industries to which these raw materials or these tools shall be assigned.

Mr. HARRIMAN. So far as the equipment is concerned-machine tools, for instance-yes. So far as a common-use item is concerned, where it can be used both by the civilian economy and the defense effort, we satisfy ourselves that they give high priority to the defense effort so that the defense effort will get the needed raw materials in order to carry on the necessary industrial production for defense, the munitions production.

Senator GREEN. And do you specify particular corporations within their defense effort to which these may be assigned?

Mr. HARRIMAN. No. Take a commodity like copper, for example. Copper is used in the munitions industries and in certain other industries that are essential-running the railroads or building what is needed to keep the civilian economy going. We do not think it is of any value to follow the particular shipment that is bought with our funds. The important thing is to see that copper is conserved, and that the amount of copper that a country may have, the necessary amount of copper, goes to the defense munitions production.

Senator GREEN. Then, suppose it is machine tools rather than raw materials.

Mr. HARRIMAN. That goes directly to the specific plant which is converted for munitions production, sir.

Senator GREEN. You select the specific plant?

Mr. HARRIMAN. No. The country states the plant where this is needed, and it is checked to see whether it is needed.

Senator GREEN. They suggest a plant, but you exercise a veto power over its selection?

Mr. HARRIMAN. I don't know whether it is right to say "Veto." Well, you can say "Veto," yes. We do not approve it. Unless we think that that is a wise expenditure, we would not approve it.

Senator GREEN. That is the same system that was used under the Marshall plan; is it not?

Mr. HARRIMAN. It is the same principle, except for entirely different purposes.

Senator GREEN. That is, the general objective is different, but the machinery used is just the same; is it not?

Mr. HARRIMAN. The administrative procedures are exactly the

same.

Senator GREEN. The administration, I mean

Mr. HARRIMAN. Yes.

Senator GREEN (continuing). Is just the same.

Mr. HARRIMAN. Except we bring into it the representatives of the Defense Department, the officers that are over there to help in screening the requirements.

DISTRIBUTION OF BENEFITS FROM UNITED STATES AID

Senator GREEN. The reason I am asking these questions is because, although the Marshall plan achieved its main purpose of improving the economic condition of specific countries to which funds were assigned, faults in its administration developed which were quite serious, in my opinion and in the opinion of many of my colleagues, in that no attention was paid as to the benefits, the distribution of the benefits. There were benefits to the country, undoubtedly, and that was the main purpose of the Marshall plan, but no attention was paid, until very recently, at the very end of the Marshall plan, to the distribution of the benefits. For instance, there would be an appropriation made, we will say, for the benefit of a certain manufacturing plant. It might be an addition to the building; it might be new machinery provided. But all the benefits that accrued from that new machinery went to the owner of the plant, and there was general complaint in the 'country at large that the workers got none of the benefits of such appropriation obtained from us, in the last analysis. Now, after that was brought to their attention toward the end of the Marshall plan period, the people in charge of the plan at least paid tribute, verbal tribute, to the fact that it was necessary to see that the benefits were distributed not to the employers alone but to the employees. If, as we assume, one of the purposes of the Marshall plan was to fight communism, to the extent that the employer got all the benefits and the employees got none, or very little of it, instead of fighting communism it helped communism.

Mr. HARRIMAN. Well, Senator, the industrial companies under the Marshall plan paid for the machinery in the local currencies. Take, for instance, the expansion of the steel production or coal production, or expansion of any other industries. The industrial company paid for that machinery in the local currency. It was not a gift to that industry. The counterparts that came from the payments by the company were used by the French Government for purposes which we approved, some that went to workmen's houses, some that went for other purposes, helping the general economy.

Now, France is one of the countries where there has been criticism that under the Marshall plan certain classes of French society improved their conditions more than the workmen did. That, in my opinion, is a fact. The reason, however, does not come from anything in the operation of the Marshall plan; it comes from the fact that the French have had a system of collecting their taxes by indirect taxes, turn-over taxes, sales taxes, rather than from income taxes on individuals and corporate profits.

The French Government has increased its taxes and improved its method of collection, and it is hoped that they will collect more from the better-to-do people and from industry, and as a result have a better distribution of the national income as between the different classes.

Part of the difficulty came from the fact that France has had inflation, both during the Marshall plan-it stabilized for a period, and then after Korea she has had a further problem with inflation. During those periods a man with a fixed income, whether he be a worker or a salaried worker, does not get his wages increased as fast as the increases of price levels, whereas the farmer or the merchant,

or the industrialist dealing with goods, is usually able to maintain a better income position because his selling prices go up with inflation. Now, it is a fact that, so far as France is concerned, wages have gone up I think in the last year equal to the increased prices, but it is still my judgment that the French worker does not get what we would consider a fair share of the national income as compared to certain other classes.

Now, that is a problem of the French Government; it is a problem which they are alive to, and are gradually dealing with, but this idea that we gave the industrialists machinery is not true. They paid for it, paid for it just as they always have in the past.

However, it is true that their income taxes are not as great as such taxes are according to our system.

Now, in most other countries there has been a very fair distribution of the national income as between the different classes. A good deal of our counterparts in Italy were used for land reform and for other things that would improve the conditions of the people. The social improvement in either France or Italy has not gone as far as we would have liked to have seen it; but, after all, those are problems that the countries themselves must work out. What we can do is to attempt to encourage them in the direction that we think is useful.

Senator GREEN. To use France as the follow-up of that illustration which you selected, I did not

Mr. HARRIMAN. The reality is that this problem does come up largely in France and Italy. It does not come up in the other countries, sir.

Senator GREEN. In France, as I say, there was this unfortunate byproduct of the Marshall plan.

Mr. HARRIMAN. I think there has been some confusion about the fact that the worker did not profit. He did improve his condition very much, because when I came to France the French worker was living on a ration, as were all the people, of 200 grams of black bread a day, which was two-thirds of the ration of black bread they got under German occupation, and anyone who says that the condition of the French worker has not improved during the operation of the Marshall plan is just making an inaccurate statement.

UNEQUAL DISTRIBUTION OF BENEFITS FROM MARSHALL PLAN

Senator GREEN. An accurate statement would be that the general economic situation of the Marshall-plan countries was improved; so the criticism did not go to that phase of the Marshall plan, to its main purpose. The criticism is directed to the fact that the benefits of the Marshall plan were unequally distributed, and that in certain specified cases it was the capitalist class, the employer class, that got the benefits, and the general public and the employees got a very small part of the benefit, and that only indirectly in the general economic improvement of the country.

Mr. HARRIMAN. Could I say

Senator GREEN. I would like to have your comment.

Mr. HARRIMAN. Could I say that in my opinion, with the general improvement of the conditions of the French which was stimulated by the assistance we gave France, the worker did not get his relative share of the improvement of conditions as against other classes.