ECONOMICS: $7 Billion Comrade?

In Washington the fourth Lend-Lease agreement with Russia was in process of fulfillment. Nearly all goods shipped to date were of the immediately expendable type (planes, trucks, food). But the emphasis was shifting. Unofficial reports said present negotiations stressed goods that may outlast the war (railroad equipment, machinery, etc.). These goods would not be “lent,” they would be sold on terms like those of the new French Lend-Lease agreement (30 years to pay with interest at 2⅜%).

Five Republicans of the House Foreign Affairs Committee last week came out with an eyebrow-raising minority report on the French Lend-Lease agreement (TIME, March 12). They said it was “by its very terms a postwar agreement.”

In saying so, they raised a lot more than eyebrows. They raised questions of the economic future of France, of Russia, of the U.S., of the seat of industrial power in the postwar world.

As economic policy, a good case can be made out for the new type of Lend-Lease agreement. During wartime it saves shipping space and home-front manpower to ship our Allies the tools and let them make needed supplies with their own manpower. During the peace to come, it will be better to be paid for goods that still have useful life than 1) to write them off or 2) to take them back to add to the postwar surpluses on the U.S. doorstep.

But such credits, particularly in the case of Russia, raise even bigger questions. For Russia is reported to be seeking a long-term postwar credit of no less than $7 billion.

Russia’s proposition to the U.S. is two things at the same time:

1) A chance to place the biggest single order which the U.S. has ever sold—an order from a customer with the greatest resources of any nation and an excellent record of paying Soviet-contracted loans.

2) A request, from a nation which has never had much foreign trade, for a long-term credit bigger than the U.S. budget was in any peacetime year before 1935, a loan in which the U.S. would risk a bigger sum to expand foreign trade with a single country than the New Deal ever put out in one year to prime the pump at home.

To Russians: Time. By refusing credits, the U.S. would delay Russian reconstruction and growth. During 20 years between wars Russia pared her slender standard of living to save enough to build an industrial machine. Now much of it has been destroyed and will have to be rebuilt —from the scorched earth up. By pulling in her belt again, Russia can in time make or get elsewhere what she hopes to buy from the U.S. Example: prewar Russia ordered four of nine generators from General Electric for the Dnieprostroy Dam, built five duplicates in Soviet factories, had to wait ten years. To rebuild Dnieprostroy the Russians could now build all nine, and probably faster than before. But they have ordered all nine from G.E.

To Germans: Opportunity. Russia intends to insist on heavy industrial reparations from Germany. But if Russia must rely on Germany for virtually all her reconstruction imports, German industries will work full blast for Russian reparations. Whether or not this means prosperity for the German people, it will mean the speedy restoration of Germany’s industrial potential, a new opportunity for the Germans to threaten world peace. If, to prevent the Germans from seizing this opportunity, the U.S.S.R. is tempted to take full political control of Germany, then Britain and the U.S. may well be alienated from their ally—another opportunity for the Germans.

To Americans: Alternatives. From the standpoint of industrial potential, the U.S. decision on whether to give major aid to Russian reconstruction is therefore a choice between promoting faster Russian recovery or faster German recovery. With full aid from the U.S., the U.S.S.R. might in three to five years regain her 1939 production but would probably take several decades to approach U.S. levels.

However, the industrial power of the U.S. v. Russia (and v. Germany) probably depends most of all on prosperity in the U.S. U.S. prosperity will in turn depend in good part on U.S. exports, including exports to Russia. Idle machines and men would promote social, political and industrial decay in the U.S.

Perhaps most important: if the U.S. does most of the job of reconstructing Russia, it is most likely to keep its edge over both Russia and Germany, not only in industrial power but also in technology and know-how.

How High is $7 Billion? Thus runs the big-credit argument among some business and Government experts. Meantime American businessmen have bought almost a quarter-million dollars’ worth of advertising space in a forthcoming guide for Russian buyers and are now scrambling for places at next year’s Moscow trade exhibition.

The easiest and most optimistic method of gauging future trade with Russia is to assume repayment (on the basis of Russian resources and credit rating), then try to measure the Russians’ needs. Viewing the ruined steel mills and coal mines of the Ukraine, the burned and blasted cities of White Russia, and the limitless Soviet confidence in Soviet destiny, some experts who use this method talk of U.S. exports of $5 billion a year for a few years, tapering down to $2 billion (see chart). Such a trade would amply justify the $7 billion credit, and more.

Other experts doubt that the postwar U.S. can produce $5 billion of the kinds of goods that Russia will require. Starting with U.S. wartime production (the only fairly firm figure in their calculation), they subtract their guess at the U.S. home demand, and subtract again their guess at the demand of other foreign customers. Result: they figure that the U.S. cannot export more than about $2 billion a year to Russia.

There is a third, more realistic basis for calculation: how much can Russia pay for—not at once, but eventually—by her own exports? Prewar Russian exports, averaging only about 2.5% of Russia’s total production, would not even begin to pay the service charges on a $7 billion loan. But those were Russia’s exports during the period when she was building her industrial plant from scratch. Over a 30-year period, Russian exports could undoubtedly expand. Best guess in Washington for Russian exports to all countries in the first five postwar years: half a billion yearly. The U.S., which never took 5% of Russian exports, might in future get as much as 40%, or $200 million worth of coal, metal, oil, wood products (particularly pulp), etc. But this is a highly iffy estimate that includes the if of lower U.S. tariffs.

Unquestionably, there are chances to expand the $200 million figure through Russian exports to other nations which, in turn, would export to the U.S. But the amount of U.S. steel, machine tools, electrical and transportation equipment, etc. that Russia can pay for by direct and indirect exports to the U.S. seemed hardly likely to exceed $1 billion a year.

Longer Reach. Seldom mentioned but not forgotten was that the greatest political bargaining weapon in U.S. and British hands was Russia’s need for credits. Areas of conflict between the Western Powers and the U.S.S.R. lie much nearer to the latter’s predominant land power. Credits may extend the bargaining reach of the U.S. and Britain at the peace settlement.

The U.S.S.R.’s need for credits does not put her over a barrel. If she does not get credits she can substitute another decade of grinding want for the Russian masses, can again concentrate every ounce of national energy on building industrial plants, forego even a slight advance in living standards. If a prewar Stalin could hold Russia’s nose to the grindstone, a stronger, victorious Stalin probably could, if necessary.

When the next world trade conference meets—possibly late in 1945—the world may get a glimpse at the face of tomorrow.