Joseph E. Medley

United States Aid to El Salvador and Nicaragua

US policy makers learned several military lessons from their long and disastrous intervention in Vietnam, which they subsequently employed in their engagements in Central America. For example, US ground troops were not utilized in the Central American conflict as they had been in Vietnam. Nevertheless, political-economic policies that were used in Vietnam, like the ‘Land-to-the-Tiller’ Program initiated toward the end of the US Vietnam intervention, were continued in Central America in the 1980s. The right-wing ideological perspective of the Reagan and Bush administrations (1981–92) in fact moved aid policies in El Salvador and Nicaragua further to the right from the 1960s/1970s Central America and East Asia policies. Aid policy toward the Salvadoran government and the Nicaraguan Contras (encamped along Nicaraguan borders during their Sandinista period) continued to (i) serve the elite of the region, (ii) intrude into the details of development strategy with a neoliberal bias; and (iii) waste the resources placed under the control of weak governments.

Agriculture in Taiwan and South Korea

US economic and political policies and interventions supported materially beneficial development in Taiwan and South Korea. They were intended to serve as models of noncommunist, politically stable and economically successful societies operating with freemarket institutions within the US sphere of influence. The generalization of their actual experience as a model of foreign-assisted, state-led development would, if replicated currently, be quite costly: politically, socially and economically. The following chapter will show that the actual model East Asian countries followed contrasts with the ‘free-market’ model that is currently touted by the US and international agencies. The East Asian model involves high direct costs associated with significant changes in class relations and extensive economic aid as well as high indirect costs associated with providing access to developed country (especially US) markets. In the geopolitical context of post-WWII East Asia, the US was willing and able to pay these costs to demonstrate the superiority of freemarket institutions within the sphere of US influence.

Successes and Failures: US Aid in the Postwar Era

This chapter will first explore the factors in United States development aid policy which helped set the course for the economic advancement of South Korea and Taiwan, utilizing the same model that had been established in Japan. Subsequently, a transformation of US foreign policy that occurred during the Eisenhower administration reversed this trend. This reversal was part of the Cold War redirection of policy away from New Deal antifascism and toward containment of communism through alliance with native elites in Third World countries. The United States no longer pushed for redistribution of property and power through land reform in its affiliate states. Instead, it placed itself squarely on the side of the power elites in Vietnam and Central America. These countries therefore lacked the modifying and democratizing element of large redistributive land reforms which had set the course for the earlier East Asian successes.

Aid and Development

Many Asian economies were gradually catching up to the ‘First World’ before the recent East Asian financial crisis slowed their growth. Most Latin American countries, after losing considerable ground in the 1980s, started to grow again in the 1990s. Africa, particularly sub-Saharan Africa, remains very poor and has continued to lose ground. After fifty years of successes and failures with economic development and development aid, what have we learned about the future possibilities for international cooperation, development and growth?

Industrialization in Taiwan and Korea

In the postwar period, both Taiwan and South Korea were able to successfully integrate into the world capitalist economy while experiencing growth with equity (Li 1988: 53; and Amsden 1989: 38 (quoting the World Bank)). They both increased productivity and industrial output and achieved soaring exports, low debt levels, and stable prices alongside dramatically increasing real incomes (in Taiwan, for example, per capita consumption increased 400 per cent between 1952 and 1986 (Li 1988: 52)). In a view widely held among development agencies (USAID, World Bank, IMF) and analysts, primarily economists, Taiwan and South Korea’s examples demonstrated the correct industrialization policies for all less-developed and former socialist nations. These agencies claimed that here were models that demonstrated the bright future of capitalist development throughout the less-developed world.

Costa Rican Aid

In many respects Costa Rica’s economic and cultural environment differs from those in East Asia. In addition, the world market environment has been severely restrictive in the years during Costa Rica’s emergence. The past twenty years, for example, have included the debt crisis of the 1980s and structural adjustments in the 1980s and 1990s. During this period, however, Costa Rica has resisted forces that have devastated many other Latin American countries. Costa Rican growth rates have been slower than growth rates of the Asian NICs, but they were higher than most Latin American countries. Costa Rica started at a higher level of development than the Asian NICs because of the social democratic institutions and policies maintained there since the 1950s. Growth rates increased in the late 1980sand early 1990s, before falling during the mid-1990s recession.

Aid Policy Conclusions in an Era of Financial Crisis

In 1997 Asia became the site of a financial crisis that spread to threaten markets and economies around the world. Despite the persistently positive economic performance of most East and Southeast Asian countries – characterized by high growth rates, low inflation rates, high private savings, budget surpluses, and strong exports international currency speculators attacked Asian currencies and provoked a panicked withdrawal of massive amounts of short-term capital. Starting with the Thai baht and spreading to currencies up along the east coast of Asia, affected currencies lost half of their value in less than a year. Stock markets in those countries dropped by about 50 per cent (IMF 1998c). Accustomed to their recent economic successes, many in Asia struggled to understand why the crisis occurred, why it has been so severe and what the implications are for the East Asian model of development.

US Intervention in Vietnam

After the victory of the anticolonial communist (Viet Minh) forces in 1954 and the achievement of a temporary military settlement with the French at Geneva, the US became increasingly involved in Vietnamese politics. The 17th Parallel, which had been designated in the Geneva agreement as a demilitarized zone, was turned into a border between the Viet Minh-controlled North and the South, where a US-supported government was headed by Ngo Dinh Diem. The specifics of the origin of the US involvement are well documented elsewhere, and we need only recall here that by 1954 the US was providing 80 per cent of the funding for the French war in Indochina, and that by January 1955, the US had become the direct paymaster of the South Vietnamese military (Porter 1975: 4).