In the afternoon, we have a panel consisting of Mr. Fried, Mr. Halperin, and Mr. Whitson who are outstanding experts.

Mr. Staats, thank you again for an outstanding job.

Mr. STAATS. Thank you.

Chairman PROXMIRE. The subcommittee will stand in recess until tomorrow morning at 10 o'clock.

(Whereupon, at 12:40 p.m., the subcommittee recessed, to reconvene at 10 a.m., Tuesday, January 5, 1971.).

ECONOMIC ISSUES IN MILITARY ASSISTANCE

TUESDAY, JANUARY 5, 1971

CONGRESS OF THE UNITED STATES,
SUBCOMMITTEE ON ECONOMY IN GOVERNMENT

OF THE JOINT ECONOMIC COMMITTEE,

Washington, D.C.

The Subcommittee on Economy in Government met, pursuant to notice, at 10:05 a.m., in room S-407, the Capitol, Hon. William Proxmire (chairman of the subcommittee) presiding.

Present: Senator Proxmire; and Representatives Moorhead and

Brown.

Also present: John R. Stark, executive director; Richard F. Kaufman, economist; and George D. Krumbhaar, Walter B. Laessig, and Leslie J. Barr, economists for the minority.

OPENING STATEMENT OF CHAIRMAN PROXMIRE

Chairman PROXMIRE. The subcommittee will come to order. One of the prime purposes of economic analysis of Government programs is to determine whether tax dollars are being well spent. In order to make such a determination several kinds of information are needed. We need to know, first, how much is being spent over given periods of time, and yesterday we had a dramatic difference in amounts between the Comptroller General of the United States who should know more about Government spending than almost anybody, he has the capability of determining these with his great staff of auditors and accountants, and the chairman of the Foreign Relations Committee, who, of course, is a highly capable and responsible has an excellent staff and who had an entirely different estimate. This morning we have another man, who should know as much about this program as anybody and he has an entirely different figure. I think this tells us something about the lack of congressional oversight, of public knowledge, of understanding of the size of this program.

We need to know the end uses of the outlays. We need to somehow be able to measure the benefits or the effectiveness of the outlays against the costs. Because of these fundamental requirements it is disconcerting to encounter a government program of the size and duration of military assistance in which the total costs are unknown. It is difficult to evaluate output when we do not know even what the input is.

Nevertheless, military assistance is no sacred cow. It is a government program employing billions of dollars of public funds, and the Congress would be derelict in its responsibilities to the taxpayer if

it did not subject this program to the same sort of scrutiny and ques-tioning that other programs are subjected to.

It is one thing, for example, to call for a new turn in foreign policy, as the President did when he announced the Nixon doctrine. It is something else to assure the public that its implementation will somehow lighten the burden of previous policies, that it will, for example, be less expensive and more beneficial to American interests.

This morning we will hear from two of the Nation's most distinguished former public servants. Townsend Hoopes, vice president and director of the firm of Cresap, McCormick & Paget, Inc., was Under Secretary of the Air Force from 1967 to 1969. Before that he was the principal Deputy Assistant Secretary of Defense for International Security Affairs. From 1947 to 1948 he was an assistant to the chairman of the House Committee on Armed Services, an experience that has surely served him well in times like these. He was a Marine, during World War II, is a graduate of Yale University. He is also the author of an important book on the Vietnam war, "Limits of Intervention." Mr. Hoopes, we have your prepared statement. You may proceed in any way that you wish. Will you come forward to the table. Following your testimony I will introduce Nicholas Katzenbach who is flying down from New York and we hope will be able to get here this morning. In view of the weather, that may be a problem.

STATEMENT OF TOWNSEND HOOPES, VICE PRESIDENT AND DIRECTOR, CRESAP, McCORMICK & PAGET, INC.

Mr. HOOPES. Thank you, Mr. Chairman.

I have, in an effort to be responsive to questions which you put to me in your letter of November 25, scratched out a prepared statement which is somewhat longer than the 20-minute limitation you suggested. I think I can, with several excisions, hold the reading to 20 minutes. Chairman PROXMIRE. We would appreciate that and the entire prepared statement will be printed in the record in full.

Mr. HOOPES. All right, sir.

Your letter of the 25th asking me to appear today indicated the committee's interest in several questions relating to military assistance. I will try to address each of these questions briefly, and in the order in which the Chairman's letter stated them, asking the committee to bear in mind that my detailed familiarity with this program ended. in mid-1967.

SIZE OF PROGRAMS

As to the current size of the several grant, loan, and sales programs which together make up U.S. military assistance to foreign countries, you are, I believe, in receipt of recent written presentations from the Department of Defense. Your information is, therefore, I assume, more detailed and accurate than my own. I could recite for you the presentation figures for fiscal year 1971 given by the administration. But I think in the light of the testimony given yesterday that it would be redundant for me to mention these.

Let me comment, however, on the military assistance service funded segment, called MASF. This program originated in fiscal year 1966. At that time, equipment and material support for the Saigon Army

was being funded through the regular MAP appropriations at a level of about $250 million a year, but the required amount was rising sharply, to an estimated $600 million for fiscal year 1967. The total MAP appropriation at that time was about $1 billion, and was designed to support grant programs for some 43 countries. It thus became apparent that the burgeoning needs of South Vietnam could not be met out of available MAP funds unless there was a drastic scaling down of several other programs-in Korea and Turkey, for example; such reductions would risk dislocation of diplomatic-military relations with those countries. The course adopted by the Johnson administration was, in essence, to ask Congress to transfer material support of the Saigon army from the MAP appropriation to the regular Defense Department budget. Congress agreed to this.

The following year, fiscal year 1967, the Laos and Thailand programs were similarly transferred out of MAP. Also at about that time, special allowances were negotiated for the support of certain of the friendly forces fighting alongside U.S. forces in South Vietnam; that is, those of Korea, Thailand, and the Philippines. These allowances were also funded out of the regular Defense Department budget. The military assistance programs to South Vietnam, Laos, and Thailand, and the special allowances for Koreans, Thais, and Filipinos fighting in Vietnam now appear to total about $2.2 billion, and are identified under the heading "Military Assistance Service Funded (MASF)."

MANAGEMENT AND COORDINATION

With respect to management and coordination of the several programs within the U.S. Government, I cannot, of course, speak with authority on the current situation. I can describe the arrangements that obtained from 1965 through 1967. Under the Foreign Assistance Act of 1961, the Secretary of State is charged with policy responsibility for all foreign aid-economic, technical, and military-but the law provides that operation and management of the programs be delegated to the AID Administrator. A further delegation of authority to manage the military assistance programs-both grant and sales -was made by the AID Administrator to the Secretary of Defense. Within the Defense Department, control of the military programs was located in the Office of the Assistant Secretary for International Security Affairs (ISA). In the period in question-1965 through 1967 the grant and sales programs were organized as separate units under him-the grant program in the Office of Foreign Military Assistance headed by a flag or general officer, the sales program under a Deputy Assistant Secretary of Defense. During that period, Gen. Robert Wood and later Vice Adm. Luther Heintz ran the grant program (called MAP), while Mr. Henry Kuss was responsible for sales. I understand these two operations have now been combined in one office.

Briefly, this is how the process worked. Secretary McNamara himself played a large role in determining the level of the MAP appropriations request, and he was basically an advocate of steady reductions in the grant aid program; in part because he felt that the size and sophistication of forces we were attempting to underwrite in

certain parts of the world were excessive to both the capabilities and needs of the recipients; and in part because he sensed the adverse political and economic effects of imposing the burden of large armed forces on the frail structures of poor countries.

He also shared with his civilian Pentagon colleagues the view that the MAP program was too diffuse; that it was supporting too many recipients whose military strength was a matter of little or no national interest to the United States.

There was, of course, discussion of the overall military aid level between McNamara and Rusk, and with William Gaud, the AID Administrator. They were in general agreement that the United States should be alert to opportunities for reducing military assistance. From AID's point of view, excessive military establishments in underdeveloped countries were serious impediments to economic development. The State Department was more sensitive to the political dangers of reducing military aid too fast, and also considered military aid an attractive diplomatic tool to use when the United States needed the support of a particular country on a particular range of issues.

I recall, however, no serious disagreement to the annual military aid ceilings proposed by Secretary McNamara-when these came down progressively from $1.8 billion in 1962 to about $750 million in 1968.

Within the framework of that agreed level of operations, the staffs of AID, State, and ISA worked to refine the allocation of funding among some 40-odd AID recipients. As the Principal Deputy in ISA, one of the duties assigned me by Secretary McNamara and Assistant Secretary John McNaughton was what we called military assistance policy review. This involved exercising, on their behalf, a continuous overview of the grant aid and sales programs to be sure they were consistent with each other and with our purposes in particular countries, and to provide authoritative liaison and coordination with the other interested parties.

Two characteristics of this process should be borne in mind. First, there is the fact that procurement of equipment for the MAP and sales programs is mingled with procurement for our own military services. There is no separate procurement for military assistance. This means that decisions made from time to time by United States military services to shift priorities, effect model changes, or slow down or phaseout specific production lines have a direct impact on the cost and delivery schedule of items in the grant and sales programs. The considerable turbulence and fluctuation in the U.S. military procurement programs thus create major problems of management, coordination, and adjustment for the military assistance programs. Second, there is the fact that the flux of international events tends to force major adjustments in a number of country military aid programs several times during the course of an average fiscal year. For example, the Indo-Pakistani war of September 1965 resulted in President Johnson's decision to cutoff all military aid to both parties. This meant immediately stopping shipments to these countries (in some cases by redirecting vessels on the high seas), and then deciding whether to hold the two programs in escrow, or to reallocate the equipment to other countries. Other similar examples could be cited.